Contraband Tobacco: It's a Crime
RICHARD BRAY
© 2012 FrontLine Security (Vol 7, No 4)

Many people believe the sale of contraband tobacco is a “victimless crime,” acknowledges Gary Grant, a retired police officer and spokesperson for the National Coalition Against Contraband Tobacco. In fact, he suggests every Canadian is a victim of the contraband tobacco chain. Profit from Illegal cigarettes finances criminal gangs, cuts legitimate tax revenues, defeats attempts to discourage tobacco use (which is overloading the health care system), and harms new generations of Canadian young people every day.

Contraband tobacco is big business in Canada – a “cash cow” that is virtually “risk free”. Statistics Canada estimates that Canadians spent $2.6 billion on illegal tobacco in 2008. These massive profits help illegal organizations entrench criminal elements further into society. According to RCMP estimates, there are approximately 175 criminal organizations involved in the manufacturing, distribution and sale of contraband tobacco. Many of these also deal in drugs, weapons and even human trafficking.

 A Moncton man was arrested recently with methamphetamines and 200,000 contraband cigarettes. Grant points to reliable indicators that show the illegal tobacco trade is becoming entrenched in Canada. “We are seeing an increase in contraband tobacco seizures in Atlantic Canada as illegal manufacturers in Quebec have realized that driving to New Brunswick and Nova Scotia is not much further than driving within Ontario and Quebec. The trade is also heading west: In 2011, Manitoba’s first smoke shack opened. In Alberta that same year, the province seized nearly 16 million cigarettes that were destined for sale in the province. It’s important to note that the RCMP estimates that they only seize about 5-6% of the total market. So we still are only seeing the tip of the iceberg.”

That is just distribution. On the supply side, there are still more than 300 smoke shacks in Ontario and Quebec selling tobacco outside of the regulated market. And about 50 illegal cigarette factories operate without paying appropriate taxes and without inspection from health authorities.

Only a few years ago manufacturing contraband was mostly taking place on the U.S. side of the Akwesasne reserve. But the National Coalition Against Contraband Tobacco says it has noticed a shift to Canada. These factories now supply the vast majority of contraband in Canada, and have been left to operate with no possibility of interruption from federal authorities.

Targeting Young People
Criminals are intent on getting a new generation of kids hooked on smoking. Canadian regulations, such as requiring photo ID for purchasing cigarettes from retailers, banning cigarette ads, and hiding tobacco from view in stores, are all intended to prevent young people from getting access to tobacco. But these are undermined by the ready availability of low-cost contraband tobacco. A “baggie” of 200 contraband cigarettes can cost as much as $70 or $80 less than legal product – and contraband dealers don’t check ID. Low price and easy availability have made contraband tobacco a prime source for youth smoking. A recent study by the Centre for Addiction and Mental Health (CAMH) in Toronto found that where teen smoking rates had been on the decline, that was no longer the case. In fact, the CAMH has identified contraband tobacco as a reason for Ontario’s stubbornly high youth smoking rate. “Young people are smoking contraband cigarettes, and they are smoking more of them.” Grant says. He believes decision-makers are underestimating the future ramifications as young people interpret our inaction as tacit acceptance of breaking the law, which can quickly escalate as they learn there is very little risk from the enforcement community. “As a father and former police officer, I’m worried that this teaches young people that it is acceptable to break the law, and that they can buy other illicit goods from these criminals.”

Burning Tax Dollars
A recent report by the Canadian Taxpayers’ Federation claims the contraband tobacco trade in Ontario cost an estimated $3.7 billion to $6 billion in lost provincial and federal tax revenue over the last 5 years. “This much-needed money could have funded many worthwhile federal and provincial programs but is instead going into the pockets of criminals who are certainly not spending that money for the welfare of all Canadians,” Grant notes. “In their 2012 budgets, both Ontario and Quebec had identified cracking down on illegal cigarettes as an important part of recovering lost tax revenues. People who smoke should pay the tax. In tight fiscal times, governments can’t allow billions of dollars in potential tax revenue to be siphoned into criminals’ pockets.”

In addition to working with law enforcement and providing police with the authority to investigate suspicious activity, regulatory authorities have an important preventive role. Since 2009, the regulatory oversight of tobacco in Canada has seen major, some say disruptive, shifts. It moved from federal oversight to provincial authorities. Then oversight was moved from the Ontario Flue-Cured Tobacco Growers' Marketing Board to the Ontario Ministry of Finance. The Ministry became responsible for licensing tobacco growers, and controlling the production, distribution, sale and purchase of raw leaf tobacco to help ensure the supply of raw leaf tobacco stays in the legal market. However, it is clear that they don’t have the resources to fulfill this mandate. Without investigative resources that can be mobilized in the tobacco growing region, they have instituted a ‘grace’ period where there really is no oversight of the supply chain, and stocks of tobacco and packaging material that support cigarette manufacturing are subject to almost no enforcement. Organized crime has not missed the opportunity. In the past few years, the lack of consistent and regulated control has allowed criminal groups to take advantage of these regulatory loopholes. The authorities in Ontario do not seem able to get organized on anti-illicit tobacco strategies in a meaningful way, and this has allowed related criminal activity to spread to other parts of Canada.

Law Without Borders
One solution to the limited resources at the Ontario Ministry of Finance is to empower local law enforcement agencies to do anti-contraband enforcement investigations directly, as is the case in Quebec. This lets the frontline police forces investigate the crimes that are affecting their communities without the need to go through a provincial middleman.

“We are seeing very gradual progress, but there is a lot more to do,” says Grant. “Ontario and Quebec have taken some steps, but their anti-contraband regime could still be bolstered.” During the 2011 federal election, the Conservatives made a campaign commitment to introduce tougher sentences for contraband tobacco repeat offenders and to dedicate 50 more RCMP officers to the problem. The government followed through on this commitment on June 4, 2013 when the Senate passed Bill S-16, which amends the Criminal Code to create a new offence of trafficking in contraband tobacco and to provide for minimum penalties of imprisonment for repeat offenders. However, a date for this Act to come into force has yet to be determined.

Across the board, legislation needs to be adopted that will serve harsher penalties for offences relating to the illicit trade of tobacco. With Bill 59, Quebec has given local law enforcement important powers to curb the distribution and sale of contraband cigarettes. These include allowing local police to conduct contraband investigations and lay charges, and even allowing municipalities to keep proceeds from convictions. It also places tougher controls on importing cigarette-manufacturing machines. In its last two budgets, Ontario has indicated that it would consider similar measures, but has yet to adopt them.

A report by the National Assembly’s finance committee in 2011 suggested a number of new anti-contraband measures; they have yet to be adopted. “Meanwhile, our highway systems remain corridors for illegal cigarette trafficking,” says Grant. “We’ve called the 401 corridor in Ontario the ‘contraband trail’, as millions of cigarettes are shuttled through Ontario and Quebec and elsewhere each year. We are even seeing more seizures in Atlantic Canada now, as smugglers have adapted their smuggling networks to head East. We have a lot of work to do.”

Need to Lead
The enforcement challenges point to a need for national leadership to bring all parties together to better address the problem. Such coordination was a key element of the RCMP’s 2008 Contraband Tobacco Enforcement Strategy, as well as in the Ontario and Quebec’s 2012 provincial budgets. To date, this commitment has not translated into action.

Observers suggest that the reason illicit trade of tobacco products is so out of control is because the federal government has not yet engaged in meaningful discussions with Aboriginal communities. With First Nations’ tobacco manufacturing and sales in a legal framework, those First Nations communities could benefit from tobacco sales, not just criminals. “Government needs to work with First Nations leaders to develop a comprehensive, long term solution to this problem,” says Grant.

Many also believe the limiting factors are perception and funding. “Until governments see this as a serious crime that is worthy of adequate budget resources,” says Grant, “this criminal element will continue to flourish and its tendrils will increasingly impact society.”

Police need more power to stop contraband. Government need to give law enforcement agencies the resources and support required to do their job effectively. More specifically, a police presence is required along the 401 corridor and along smuggling routes to the west, into Manitoba, and to the Maritime provinces.

Because illegal cigarettes cross jurisdictional and departmental boundaries, governments need to take a more coordinated approach to illegal cigarettes. It has implications for departments of finance, revenue, public safety, health, and aboriginal affairs at all levels of government. Governments need to make sure that all relevant parties are communicating with each other to ensure a coordinated response. Contraband does not stop at borders, and neither should effective law enforcement.

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Richard Bray is FrontLine’s Senior Writer.
© FrontLine Security 2012

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