ATF

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Bureau of Alcohol, Tobacco, Firearms and Explosives

Opening Statement of Director Bradley A. Buckles to the
International Conference on Illicit Tobacco Trade (ICITT),

United Nations - July 30, 2002

Good morning and thank you for your kind introduction. It is a true
privilege and my great honor to be at the United Nations to address this
gathering of experts as you launch the important work of the International
Conference on Illicit Tobacco Trade.

This conference presents an opportunity for us to learn from each other
and work together to strike a blow against the illicit trade in tobacco
products. This work is important for several reasons. This illegal activity
results in a loss of revenue vital to the operations of Governments, it
provides financial fuel to organized crime and terrorist activities and
it can undercut health policies.

This conference that brings together experts from around the globe offers
a special opportunity to achieve a lasting impact that none of us standing
alone could accomplish. The unique experiences that each of us bring to
the table will serve to strengthen all and enable us to face down this
growing problem that crosses oceans and borders.

I represent an agency that has been in the tobacco business for centuries.
As a part of the U.S. Treasury Department, ATF is responsible for regulatory
oversight, tax collection, and law enforcement with respect to the most
controversial legal products in American society. We approach these multi-faceted
duties with an array of employees that range from armed criminal investigators,
to inspectors with rights to enter businesses and examine inventories,
books, and records, to a host of expert auditors, chemists, lawyers, and
other professionals.

Tobacco tax in the United States is big business. ATF collects over $7
billion annually in tobacco taxes. In addition, each State and some local
governments impose additional taxes on tobacco products. These taxes on
cigarettes range from a low of 2 ½ cents per pack in Virginia where
I live, to a high of $3.00 per pack here in New York City.

Tobacco holds an important place in American history. When Christopher
Columbus first reached the beaches of San Salvador, his journal tells
how the native inhabitants greeted him with fruits and what he described
as "certain dried leaves" which gave off a distinct fragrance.
And so the history of America and the history of tobacco began. By the
16th century, tobacco was being exported to Europe, and by the 17th century,
the strong demand for tobacco in England had turned it into an important
source of revenue to the Crown. By the outbreak of the American Revolutionary
War, tobacco taxes provided a leading source of revenue to the British
Government.

Tobacco was important to the Americans as well. In 1776, during some
of the darkest times for the American revolutionaries, George Washington
appealed to his countrymen for aid to the army: "If you can't send
money, send tobacco." During the war, it was tobacco exports that
the fledgling government used to build up credits abroad. And, when the
war was over, Americans turned to tobacco taxes to help repay the revolutionary
war debt.

And so, tax on tobacco in the United States traces back to our beginnings
as a nation. Taxes on alcohol and tobacco remained the primary source
of revenue for our Government until the First World War. Alcohol and tobacco
were the first commodities taxed because they were not considered essentials
of life. In those early times, tobacco was considered a pleasurable but
harmless diversion. But whatever the reason for focusing on these commodities,
the only purpose for the tax was to supply revenue to operate the government.


Today, here in the United States and elsewhere, taxes on tobacco have
taken on a new purpose that extends beyond just a convenient source of
revenue. We have learned that tobacco is far from harmless. In the United
States and around the world, new high taxes are aimed at reducing consumption
for health reasons. This is why we are here, and that is what has brought
ATF and the World Health Organization together to host this conference.

Taxes in the U.S. and elsewhere now represent a direct and undisguised
attempt to discourage consumption. Making a pack of cigarettes prohibitively
expensive will discourage some, particularly our youth, from buying cigarettes
to begin with. There is also an element of tax equity reflected in high
tobacco taxes. Proponents of the higher taxes argue that smokers as a
whole present a greater burden on public health systems, and therefore
smokers should bear a greater burden of the tax.

The momentum for health-motivated higher taxes, however, has created
a new menace: elicit trade in tobacco products. In the U.S., where on
average 40% of the cost of a pack of cigarettes is a function of taxes,
it hasn't taken long for some to figure out that if they can avoid some
or all of those taxes, huge profits can be made. Narco-traffickers, organized
crime, and even those seeking to fund terrorist activities are finding
the lure to be irresistible. This illegal activity in turn, pushes cigarettes
into black or grey markets where concerns about health and responsible
marketing practices are nowhere to be found.

In the United States, as State and Federal taxes continue to rise, trafficking
and diversion of cigarettes continues to grow. Recent analysis estimates
that $1.4 billion in Federal and State revenues are lost each year to
this illegal activity and over $16 billion U.S. dollars are lost worldwide.

As new and more sophisticated players join in this criminal enterprise,
we are seeing a wider scope in diversion and trafficking activities. The
U.S. tobacco industry as a whole has been responsive and aggressive in
efforts to prevent illegal diversion of their products. But when individuals
have used their connections in the legal business to actively facilitate
illegal trade, they have been prosecuted. In one such case, a subsidiary
of a major U.S. tobacco company was found to have been assisting individuals
in smuggling cigarettes into Canada. The company and 21 individual defendants
were convicted of making false statements to Customs; wire fraud; money
laundering and other related charges. They also paid fines and forfeitures
totaling $15 million dollars.

The most disturbing development is represented in a recent prosecution
for cigarette trafficking between states here in the U.S. In this case,
a defendant was convicted in connection with a scheme to provide money
and supplies in support of the Hezbollah.

It is important to protect our revenue; it is important to target those
who would use profits against us, but the public health issues provide
an additional and powerful motivation for effectively addressing the problem.
The health consequences in terms of the lost human potential, and in terms
of the enormous and avoidable drain on precious public health services
demand that the problem of illicit tobacco trade receive our special attention.

I am not an anti-smoking zealot. Adults make choices everyday that affect
their health. And to the extent that they don't impose their choice on
me, I pass no moral judgment on their decision. But, these issues are
real with me. I have seen the devastation of cigarettes as I watched my
father die a slow and suffocating death from emphysema. He was a strong
man, he knew for years what smoking was doing to him, and he could have
quit. He chose not to. Only good health care insurance kept the disease
from bankrupting his retirement. But even with insurance, someone paid
those costs - it's a bet it was mostly non-smokers.

These issues are real to me because I have children, ages 13 and 15,
who will soon confront decisions about smoking. When I drive them to school
in the morning, we pass a corner in the back of the high school where
smokers congregate to get in one last cigarette before school starts.
So far my children speak in derisive terms about cigarettes, and I find
that a comfort. I also find comfort in seeing a store clerk turn away
an underage customer trying to buy cigarettes. I find comfort in the fact
that my children cannot afford cigarettes yet. By all accounts, here in
the United States, fewer kids smoke today than did when I was young. But
as long as there is a swarm of kids in the back of the high school smoking,
there is still room for improvement.

We know that if we can move kids through this critical period without
smoking, the chances that they will pick up the habit when they are mature
adults is considerably diminished.

Thus we can see that while the problems surrounding our efforts to effectively
control tobacco sales are daunting, the stakes are enormous. Let our efforts
this week be the beginning of increasingly effective ways to combat the
illicit trade in tobacco. By sharing best practices we also create a shared
vision to deny criminals easy profits from illicit trade in tobacco products,
and in so doing provide a benefit to public health.

These conferences provide the framework for mutually agreeable and beneficial
actions we can take. I applaud all of you here today who continue to seek
solutions. Despite the frustrations we may face, we are more likely to
succeed if we move forward together.

On behalf of the United States, I appreciate your attendance and participation,
and I offer our best wishes for a successful conference. Thank you.

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