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Smuggling cigarettes in America has become a multi-billion-dollar business, robbing states of desperately needed tax money and fueling organized crime. Yet the federal response to all this is, well, pretty lackluster, according to a newly released report by the Justice Department’s inspector general.

The IG’s office took a tough look at the key federal regulator on the issue, the Bureau of Alcohol, Tobacco, Firearms and Explosives, and found that the ATF has turned a blind eye to the business for years.

Over the past six years, only 2 percent of the ATF’s budget has gone to fight alcohol and tobacco diversion. Given such dismal levels of spending, from 2004 to 2008, alcohol and tobacco diversion cases represented less than 1 percent of ATF’s total caseload — even though related seizures totaled nearly half the seizure value of all ATF investigations combined.

The IG’s report describes why the smuggling biz is so lucrative. With cigarette taxes ranging from a low 7 cents a pack in South Carolina to $4.25 in New York City, exploiting the differences is as simple as taking a road trip across state lines.

Just one car hauling 10 cases of cigarettes, for example, can turn $23,000 in profit. The more enterprising smuggler who rents a small truck and fills it with 200 cases can score up to $465,000 in a single haul.

Since 2000, as the ATF’s efforts have stumbled, organized crime groups have swiftly expanded their investment in the trade. These days, cigarette-smuggling operations are global in scope: profits from one Michigan-North Carolina outfit, for example, were funneled to Hezbollah. Another 2005 case, Smoking Dragon, Royal Charm, involved fully one billion counterfeit cigarettes imported from China, along with counterfeit money and surface-to-air missiles from North Korea.

The inspector general calls the ATF’s efforts to fight tobacco diversion “ad hoc,” with certain field divisions displaying “little to no” effort to stop smugglers.

Senior ATF officials, apparently, didn’t dispute such findings, acknowledging that the “ATF does not have a good sense of the level of tobacco diversion across the country.”

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