Philip Morris International Inc. (PM), Altria Group, Inc. (MO), Lorillard Inc. (LO) & Looming Dangers Arise in Secret Underground Cigarette Trade

Not just Europe
While the KPMG report focused on Europe, this is not just a European problem. The United States is structurally very similar to the European Union, in that different states have different taxes and regulations and travel between states is relatively easy, far easier than travel between EU states, even. The Bureau of Alcohol, Tobacco, and Firearms estimates that the illegal cigarette trade costs local, state, and federal governments nearly $10 billion a year.

Because cigarette manufacturers in the U.S. are allowed to have more ornate packaging that is harder to duplicate, counterfeits are less of a problem here. However, Altria Group, Inc. (NYSE:MO) has noted that counterfeits do account for part of the trade and are a problem for American manufacturers like itself, Lorillard Inc. (NYSE:LO) , and Reynolds American, Inc. (NYSE:RAI) .

A new law in Congress is intended to include certain United States territories in the definition of “state” to better enhance existing cigarette smuggling laws.

The Foolish bottom line
Research has shown that raising taxes on cigarettes reduces smoking, especially among kids, and that’s a good thing. But the ATF has found that there is a direct relationship between taxes and illegal smuggling as well. Even if counterfeiting is a small part of the problem, the black market cigarette trade is bad for manufacturers, as it increases their liability and hurts their already embattled public image. Add these companies to My Watchlist to stay updated with any developments.

The article Looming Dangers Arise in Secret Underground Cigarette Trade originally appeared on Fool.com.

Fool contributor Jacob Roche has no position in any stocks mentioned. The Motley Fool owns shares of Philip Morris International.

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