From Tobacco Info No. 2 - September 2010
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JTI-Macdonald and Reynolds admit to supplying contraband cigarettes in the early 1990s

After more than 10 years of denials, police investigations and even home searches of the tobacco giants, a gloomy chapter in Canadian history is now closed without a judicial decision.

Through the process of an out-of-court settlement with the Canadian federal government, the cigarette manufacturer JTI-Macdonald, formerly RJR-Macdonald and still the supplier of the brand Export ‘A’, as well as R.J. Reynolds, the former parent corporation of the Canadian company and the number two tobacco company in the United States, acknowledged having supplied the Canadian cigarette black market in the early 1990s. The two companies agreed to pay public authorities $550 million in penalties in 2010 in exchange for a suspension in judicial proceedings, notably criminal accusations of participation in tax evasion brought against several of the former managers of Macdonald; accusations that years of police work made possible.

The settlement of the litigation announced on April 13 occurred about 20 months after a similar settlement between the Harper government and the two other main cigarette manufacturers in Canada, Imperial Tobacco Canada (ITC) and Rothmans, Benson and Hedges (RBH) was reached. On July 31, 2008, ITC and RBH committed to paying a total of $1.15 billion over 15 years to the federal and provincial governments.

Representatives from the Canada Revenue Agency boasted that in total, the penalties assessed to ITC, RBH, JTI-Macdonald and R.J. Reynolds are the greatest ever assessed in this country for tax evasion.

“It’s chicken feed compared to what these people owe,” said Neil Collishaw, research director at Physicians for a Smoke-free Canada (PSC). In court documents from 2005, the federal and provincial governments filed claims for nearly $10 billion against JTI-Macdonald and related companies over contraband. The lack of follow-up to the criminal accusations against the executives of JTI-Macdonald, which organized the contraband, evoked this comment from Garfield Mahood, executive director of the Non-Smokers’ Rights Association (NSRA): “Big Tobacco executives have been given get-out-of-jail-free cards. There was no attempt made to negotiate health benefits to repair the health damage caused by the criminal behaviour, like those obtained in similar-kind negotiations in the United States.”

1994 versus 2010: differences

In early 1994, Canadian smokers had a choice between the big legal brands, highly taxed, and the same brands, made by the same companies, but untaxed. ITC, RBH and Macdonald, the three big cigarette suppliers to the Canadian market, supplied the black market through huge exports to the United States, theoretically intended for foreign markets, but quickly returning to Canada as contraband.

In response to the outrage of Quebec convenience store owners, the governments of Jean Chrétien, in Ottawa, and Daniel Johnson Jr., in Quebec City, decided to radically reduce taxation on tobacco in February 1994. A few weeks later, faced with the illegal traffic that was developing between Quebec and Ontario, the latter province resigned itself to radically cutting its own tax, followed by the Maritimes.

It was most notably through the Mohawk Akwesasne reserve, overlapping the borders of Ontario, Quebec and New York State, that the big Canadian cigarette manufacturers brought their products into the country in 1994.

Today, about 50 illegal cigarette factories are set up within the Akwesasne, Kahnawake, Tyendinaga and Six Nations reserves, according to the Royal Canadian Mounted Police, and they are the main source of tobacco products sold by the contraband networks in the eastern part of the country.

– by Pierre Croteau