Canadian Tobacco Companies admit massive smuggling activities - huge fines totalling C$1.15 Bn to pay

Canadian Revenue Minister Gordon O'Connor and the RCMP are pleased with the largest fines ever levied in Canada.

Under separate court settlements in Montreal and Toronto on Thursday, 2 of the largest Canadian tobacco companies - Imperial Tobacco Canada Limited was fined $200 million and Rothmans Benson & Hedges (TSX:ROC) $100 million as part of the criminal charges.

The companies will pay another $815 million in civil damages to the federal and provincial governments over the next 15 years. (Bloomberg)

In total, Ottawa will receive $575 million, with the provinces getting the rest of the $1.15 billion.

The companies have finally pleaded guilty to "aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act," the RCMP said.

Les Thompson, an RJR Macdonald sales executive, described in interviews in hotel rooms to the
Montreal Gazette in Ontario and Quebec how RJR Macdonald (now called JTI-Macdonald) established separate offices and companies in Toronto and the United States to oversee the funnelling of its brands, like Export A, to smugglers.

Another key witness was former RJR Macdonald vice-president Stan Smith, who was Thompson's boss. Smith pleaded guilty in Ontario in 2006 and was sentenced to eight months of house arrest. He had been co-operating with police since 2000.

Non-Smokers' Rights Association, a non-profit health organization headquartered in Toronto, is pleased with the fines, the anti-tobacco group is disappointed no charges will be laid against company executives.

"If you or I had any intention of defrauding the government of a couple of million dollars, we'd be thrown in jail," said Francois Damphousse, the organization's Quebec director.

"Why aren't the executives facing such charges for having defrauded the government of billions of dollars?"

Almost immediately following the announcement, Rothmans announced it will be acquired by Philip Morris International Inc. for $2 billion, or $30 per share in cash.

The guilty pleas bring to an end more than eight years of investigation by the RCMPe and the Excise sections in Ontario and Quebec.

The charges involved the shipment of contraband tobacco in Canada to locations in the U.S. and near the Canada-U.S. border between 1989 and 1994.

From there, it was distributed to smugglers or black-market distributors who brought it back into Canada for further illegal distribution.

The smuggling operations became so pervasive that it caused governments to roll back tobacco taxes, reducing the price of cigarettes to similar levels that existed in the U.S.

That brought an end to smuggling, but it made "cheap" cigarettes available throughout Canada. It also set the stage for today's black marketing in cheap cigarettes. Since taxes were hiked after 1999, independent manufacturers have taken up shop in several native reserves, most notably in Akwesasne (scene of much of the smuggling) , near Cornwall, Ont., and the Six Nations reserve near Brantford.

This is precisely what UK tobacco companies were doing in exporting cigarettes through Yugoslavia to be re-imported by Mafia gangs. This has been repeatedly detailed by BBC correspondent Misha Glenny.

See his piece "How cigarettes funded Balkan wars " July 28th 2008 BBC Online

As he explains ..." Mr X explained how Bokan would buy cigarettes direct from factories in Western Europe and the United States for export into Europe's two main free-trade zones, Rotterdam in Holland and Zug in Switzerland.

This meant they attracted none of the high purchase taxes imposed on cigarettes in most countries.

An Italian crime syndicate distributed the Balkan cigarettes through Europe
The billions of cigarettes were then flown to countries in Central Asia and North Africa before being flown back into the Balkans.

Criminals and intelligence services from all the former republics of Yugoslavia co-operated in the logistics of this trade but the cigarettes' physical destination was the tiny coastal republic of Montenegro that borders on Croatia, Serbia, Kosovo and Albania.

The leading politician in Montenegro - then as now - was the former President Milo Djukanovic."

Bokan was one of the smuggling barons .."on 7 October 2000, as he emerged from his Mercedes 500 in front of his villa in Athens , Bokan's face was obliterated by 29 bullets fired from a couple of semi-automatics." another "Stanko Subotic "Cane", the man alleged to be the biggest cigarette smuggler of all is in a Russian jail awaiting extradition to Serbia.

The next programme about Balkans cigarette smuggling by Misha Glenny will be on:Sunday 03 August 2008 17:00 when he charts the explosion and growth of international crime in our globalised world. 2/2: He investigates cigarette smuggling, from the Balkans through Italy to Brussels.

Customs successfully seized almost 3 billion cigarettes in the UK in 2000–01 alone— 1 billion more than in the previous year.