The criminals are bringing in cut-price cigarettes, spirits, hand-rolling tobacco and beer from Europe worth millions of pounds and selling them on the black market. Others are operating bogus export companies in the UK.
Two men were arrested on Saturday after police discovered an "Aladdin's cave" of duty-free alcohol and tobacco as well as pornography at a house in Stoke.The haul included 156,000 cigarettes, 44.5 kilograms of tobacco, 14,600 cigarillos, and 242 litres of spirits.
Ministers concerned about the Exchequer's estimated lost revenue of pounds 1.7bn last year areappointing Britain's first anti- smuggling "czar" to review strategy.
In another recent case police say there are links to organised crime in the seizure of a lorry from Italy with four million cigarettes. Further details of the smuggling operation, believed to have cost the gangs pounds 200,000 to set up, and Italian organised criminals, cannot be released because the case is on-going.
Police and customs operations say former Soviet crime groups are involved.Contraband has been found in secret compartments in specially designed shipments of wood, particularly from Latvia. Detective Inspector Allan Atherfold, head of the police intelligence unit, based at Dover, said: "At the extreme end of the smuggling are organised crime groups from the new Eastern European bloc states and the Italian Mafia. Criminals from various geographical locations have got together to smuggle alcohol and tobacco.
"We have good intelligence and details of where the goods originated to show the involvement of Italian organised crime. The same is true of the Eastern bloc - Latvia, Lithuania and Belarus."
Other sources say the Adams crime gang, based in north London, are helping to set up bogus import and export companies to smuggle in alcohol, almost exclusively spirits. The family, known for extreme violence, run clubs and pubs and are involved in drug dealing and counterfeiting.
The smuggling scam works by buying vast amounts of tax- free alcohol from European or British companies and storing them in warehouses in the UK. Export notices and stamps are forged to claim the drink is exported abroad, avoiding duty. But the shipments never leave the country and the spirits are distributed through clubs, pubs and off-licences.
Criminals in Kent, where most of the smuggled goods arrive, have prospered. Petty crooks have graduated from car theft and burglary to large houses, expensive 4x4 off-road vehicles, Rolex watches, foreign villas and legitimate businesses. Vehicles costing pounds 25,000 are often bought for cash.
Four or five families are running the smaller shipments in the Kent region, creaming offpounds 25,000 a week.
The iIntelligence unit, Kent police's intelligence arm of Operation Hemlock, a multi-agency anti-smuggling initiative, has more than 6,000 suspected smugglers on its crime database, with 3,000 from Kent alone.
Det Insp Atherfold said: "We are not winning the war - it is a thriving business. Whatever we can confiscate is just seen as an inconvenience or a business overhead to the criminal involved."
High profits and very low risk make the trade extremely attractive and in some cases has replaced drug smuggling.
The penalties for being caught smuggling alcohol and tobacco are a maximum sentence of nine years, compared with life for bringing in drugs.
Officials fear that, in the next two or three years, up to one in five cigarettes here will be smuggled.
Customs and Excise believes pounds 1.5bn is lost through excise duty and VAT on tobacco and pounds 200m from alcohol.Reuse content