Gardai are warning that the high taxes on cigarettes and alcohol -- which look set to increase in the Budget -- are creating a situation like the Prohibition era in America when the illicit alcohol trade fuelled organised crime.

Sources say there is now a massive black economy driven by ex-IRA members and dissident republicans that is fuelling the black market for a whole range of goods.

The border smugglers are now manufacturing vodka on such a scale that it is affecting profits of major distillers like Diageo, not just here but in the UK.

Gardai and Customs are searching for what is believed may be a major bottling plant in the border area along with what they know is a cigarette manufacturing plant.

A senior source told the Sunday Independent that when the Government began steeply increasing tax on cigarettes they were informed that a side-effect would be an increase in smuggling.

With the most expensive cigarettes in the world, the source said, we have effectively created "the same conditions as Prohibition". Prohibition on alcohol in the US in the Twenties and early Thirties fuelled gangs, including the notorious Chicago mob run by Al Capone.

As well as the two latest shipments totalling 12 million cigarettes with a value of €4.8m -- representing a loss of revenue to the exchequer of €3.9m -- the PSNI and Customs seized a further six million cigarettes in Co Armagh, representing a revenue loss to the UK exchequer of £1m, as cigarettes are cheaper there.

These come within weeks of the largest cigarette seizure in Europe last month in the port of Greenore and at a warehouse in Dundalk.

It is understood that ex-IRA and dissidents are the source of the contraband goods. The cigarettes seized in Armagh belong to figures associated with the "Real" IRA which is currently recruiting young people on both sides of the border with the intention of starting up a terror campaign in the North.

The market for smuggled cigarettes in the Republic is booming with packs of mostly foreign brands available for €4 or €30 for a carton of 200 cigarettes. It took only minutes in Dublin city centre last Wednesday to source and buy a €30 carton of smuggled cigarettes.

The latest container seized by Customs in Dublin Port on Tuesday came here via Vietnam and sources say they were almost certainly manufactured in China. The six million Souvenir-branded cigarettes were concealed behind a cover load of furniture.

Days earlier six million Regal-brand cigarettes were seized in Dundalk in a shipment which was logged as containing boxes of "hair extensions".

These arrived in Dublin Port on a ship from Barcelona. Together with the 120 million cigarettes seized in Dublin Port at the end of October this represents nearly 140 million cigarettes seized in three weeks.

Garda sources in the border area say that since the peace process has begun former IRA men whose family members had traditional involvement in small-scale smuggling have built up worldwide contacts in the illicit products trade and are making fortunes. He said that while the former south Armagh IRA was concentrating on fuel smuggling, the groups now aligned with the dissidents had been focusing on the tobacco and alcohol trade.

Despite claiming to be republicans, the dissident leaders are lining their own pockets in, gardai say, spectacular fashion. One source described a townland in the border area where the dissident leaders and their families live "like Beverley Hills" residents with huge new houses invariably behind high walls and ornate electric gates.

"One of them said to me: 'What the f*** were we doing during all those years of the Troubles with the Brits and the guards and the RUC running after us when we could have been making money,"' a garda source said.

As well as the smuggling the PSNI is currently investigating some of the massive money laundering and bank fraud scams being operated by former Provisional IRA members in south Armagh.

The provos still seem to control these areas and, according to sources in the North, one of the current police probes is looking at a fraud and laundering operation involving up to £1bn.

- Jim Cusack

Sunday Independent