The Center for Public Integrity

For centuries, blue-turbaned nomadic Tuareg tribesmen have led caravans of camels across the expanses of the Sahara. Laden with millet and cloth from Africa’s West Coast, the caravans traveled unmarked paths to trade for salt and dates in Timbuktu, across the sand plains of Niger, and into the mountain oasis of the Algerian south.

Smugglers take the same routes today — driving SUVs along paved roads or with guidance from the Tuareg and satellite phones — to move weapons, drugs, and, increasingly, humans — through the Sahara for transport across the Mediterranean Sea. The paths are no longer known as the Salt Roads of the Tuareg, but as the “Marlboro Connection,” named after the most lucrative contraband along this 2,000-mile corridor.

Among those who control this underground trade is al-Qaeda in the Islamic Maghreb (AQIM), an Algeria-based terrorist organization widely believed to have been backed by Osama Bin Laden. Descended from the Salafist Group for Preaching and Combat (known by its French acronym, GSPC) the group has hundreds of members and is blamed for a bloody campaign of bombings, murders, and kidnappings across North Africa and Europe. The lead smuggler, Mokhtar Belmokhtar, 37, is blamed for the 2003 kidnappings of 32 European tourists and the 2006 murder of 13 Algerian customs officials. “They are a significant threat,” says Lorenzo Vidino, author of Al Qaeda in Europe. “Of all Islamic terrorist groups, they have the most extensive and sophisticated network in Europe… And among their activities, smuggling is particularly important.”

Tumman Khan is a poor, aging farmer who tills another man’s land in the restive northern tribal belt of Pakistan. For him and others in the Khyber Agency region, Sahib Ayub Afridi is considered an angel. The illiterate 70-year-old tribal leader finances construction of water pumps, streets and lighting, builds mosques and madrasahs, and supports the penniless and widowed.

But there’s another side to Afridi.

A one-time notorious drug kingpin who in the 1980s armed the Afghan Mujahidin at the CIA’s behest, Afridi churns out millions of counterfeit cigarettes to smuggle across central Asia, China, and Africa, and splits the proceeds with the pro-Taliban militants who control the swath of mountainous borderland, according to Pakistani intelligence and customs officials. The leaders of some of these militant groups are on the U.S. most-wanted list in the region — among them, Baitullah Mehsud, who has claimed responsibility for bloody attacks in Pakistan and has sworn to strike Washington, D.C. U.S. officials have responded by putting a $5 million price on Mehsud’s head.

A Tax for Terrorism

As government sanctions restrict traditional sources of terrorist financing, Pakistani militant groups increasingly rely on proceeds from counterfeit cigarette production and smuggling, intelligence sources say. Although income figures are rough estimates at best, profits from the illicit cigarette trade account for as much as 20 percent of funding for these militant groups, second only to heroin production, according to terrorism experts in Pakistan. “Taliban and other militant groups do not have to do much,” says Ikram Sehgal, a senior defense and security analyst who heads SMS Security, Pakistan’s leading private security company. “They simply receive taxes on a regular basis from owners of illegal and legal cigarette factories and later for the safe passage they provide to the convoys.”

On first approach, Yunxiao seems like any other Chinese backwater caught in uneasy industrial transition. Faded advertisements line the streets downtown, where motorcyclists wearing bamboo-frond hats determinedly vie for passengers in a riot of honking. A cheerful red banner in the city center exhorts citizens to develop the local economy — and yet the message seems ironic. After all, since the 1990s, Yunxiao has already sprouted its own league of millionaires, famous throughout China.

But you won’t find their activity downtown.

Ringed by thickly forested mountains, illicit cigarette factories dot the countryside: carved deeply into caves, high into the hills, and even buried meters beneath the earth. By one tally, some 200 operations are hidden in Yunxiao, a southwestern Fujian county about twice the area of New York City. Over the past ten years, production of counterfeit cigarettes in China has soared, jumping eightfold since 1997 and making China the world leader in fake smokes. Chinese counterfeit cigarette factories now churn out an unprecedented 400 billion cigarettes a year, enough to supply every U.S. smoker with 460 packs a year. Yunxiao — once famed for its bright yellow loquat fruit — is the trade’s heartland: the source of half such production, officials say.

Guaíra sits on the edge of the sluggish, muddy, mile-wide Paraná River that cuts a natural border between Brazil and Paraguay. Here the soil is red, the terrain is flat with ample soybean and mate leaf plantations. On its face, Guaíra is a well-kept Western Brazilian city of 30,000. Men chatter among themselves sitting in small plazas and barber shops. The streets downtown are clean, the houses are freshly painted and pay phones are decorated with natural motifs — you can call from the gut of a fish or the chest of a parrot.

Beneath this surface, however, the city shows a more disturbing element.

Last September, Guaíra made headlines across Brazil when 15 people were murdered at a makeshift riverside warehouse. The killings were the result of a vendetta among drug smugglers and, officials here say, they weren’t all that unusual. Just 150 miles north from the notorious Tri-Border Area, where Brazil, Paraguay and Argentina meet, Guaíra is today a major weapons and drugs corridor in the region. But no product, police say, is more widely smuggled through this city, and more profitable to smugglers, than Paraguayan cigarettes.

Guaíra descansa a orillas del parsimonioso río Paraná que dibuja una frontera natural entre Brasil y Paraguay. Aquí la tierra es roja, el paisaje llano con amplias plantaciones de soja y yerba mate. A simple vista Guaíra es una prolija ciudad de 30.000 almas en el oeste de Brasil. La gente conversa sentada en plazas y peluquerías. Las calles del centro están limpias, las casas recién pintadas y los teléfonos públicos tienen diseños tropicales — se puede llamar desde el intestino de un pez o desde el pecho de un loro.

Bajo esta superficie, la ciudad vive una realidad diferente.

En septiembre pasado Guaíra copó los titulares de los diarios de Brasil cuando 15 personas fueron asesinadas a tiros en una casa cerca de la ribera. Las muertes, producto de una vendetta entre traficantes de droga, no fueron inusuales. Ubicada a 250 kilómetros de la Triple Frontera, donde convergen Brasil, Paraguay y Argentina, Guaíra es hoy un ajetreado y violento corredor regional de drogas y armas. Sin embargo, ningún otro producto se contrabandea más en esta ciudad, y es mejor negocio para los contrabandistas, que los cigarrillos paraguayos.

Paraguay’s Customs chief, Carlos Rios, knew he would get a lot of heat from the tobacco industry, but he decided to move forward with the raid regardless. After all, he was part of a new administration that had pledged to end the country’s deeply rooted smuggling culture. So on February 6, 2009, Rios coordinated the largest cigarette bust in Paraguay’s history: 46 million "sticks," stored in a shabby, illegal warehouse located one block away from the border with Brazil, in the desolate area of Pindoty Porã. As officers burst onto the scene, seven cigarette-laden trucks idled, preparing to cross into Brazil. Police opened fire as one driver revved his engine and sped across the border.

It was an enforcement operation that wouldn’t raise eyebrows in most countries. But the raid proved an exceptional event in Paraguay, a country that for decades has been branded paraíso de contrabandistas — a smugglers’ paradise. Cigarette seizures rarely occur in Paraguay, where tobacco factories are owned by the some of the country’s richest and most influential. The country produces far more than the 3 billion cigarettes its residents consume; 68 billion cigarettes were manufactured in 2006, the bulk of which ended up smuggled to neighboring countries and beyond, according to law enforcement officials. After the Pindoty Porã seizure, even President Fernando Lugo — a former Catholic bishop who in 2008 was elected on a reform platform — congratulated the customs agents who took part in it.

The hang glider pilot insisted it was a routine flight, and that strong winds had blown him over the border from Hungary into Ukraine. But the man arrested by Ukrainian authorities last July, with his flight suit and night-vision gear, looked suspiciously like other hang-gliding smugglers along the border — smugglers who take off from Ukraine, fly into Hungary, and each drop as much as 100 cartons of contraband cigarettes.

Ukraine is home to some of the world’s cheapest cigarettes — at $1.05 per pack — making the country a bonanza for smugglers, whether by glider or more mundane pathways on the ground. Cars and trucks filled with Ukrainian-made Marlboros and Viceroys get waved through border checkpoints by customs guards who seem more than eager to accommodate, for a price. Loads also move by bus and train, bound for other European countries where high taxes make packs cost as much as $5 (Germany) or $10 (United Kingdom).

The backbone of this underground commerce — the acquisition of the cigarettes themselves — is by far the easiest part of the entire operation. The world’s four leading multinational tobacco companies, Philip Morris International, Japan Tobacco International (JTI), Imperial Tobacco, and British American Tobacco (BAT), have produced billions of excess cigarettes in Ukraine, fueling a teeming black market that reaches across the European Union. Today, Ukraine is rivaled only by Russia as the top source of non-counterfeit brand cigarettes smuggled to Europe, EU officials say.

The booming trade in tobacco smuggling has major consequences, say industry experts. The growing traffic pushes huge supplies of cheap, untaxed, and unregulated cigarettes into the rest of Europe, undercutting otherwise successful attempts to curtail smoking. Worse, officials say, the trade is boosting organized crime gangs, who find the soft penalties and big profits hard to resist.

Montenegrins may have been surprised late last year to learn that the global financial crisis had arrived in their tiny Balkan country. Newspapers, the Internet, and even a James Bond film painted Montenegro as the Monte Carlo of Eastern Europe. The nation’s mountainous, tree-lined coast, medieval walled cities, and stone ruins set the scene for a boom in luxury hotels and private villas.

In December, the administration of Prime Minister Milo Djukanovic announced that Montenegro would bail out First Bank (Prva banka), one of the country’s largest financial institutions and a major investor in the Montenegrin boom. First Bank is majority owned by Djukanovic, two siblings, and a close friend.

Members of local watchdog groups, opposition parties, and journalists say this is just another example of the government’s interests aligning with the financial interests of the first family. They say their small country — fewer than 700,000 people in less space than the U.S. state of Connecticut — seems at times like the private corporation of the prime minister and his family. With Djukanovic’s political party handily winning elections at the end of March, the prime minister is expected to remain in power for another two years.

Montenegro is a lawless country,” charges Milka Tadic, editor of the country’s influential Monitor magazine. “And if you are part of the government or close to its circles you can do whatever you want.”