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Special Report: Illicit Tobacco Trade
Posted on Aug 28, 2016
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Introduction

Last year in Canada, “organized crime” syphoned off nearly $3 billion from the Canadian tax base, according to experts. Without this fraud, taxpayers would be able to use that money for their own benefit rather than bolstering the crime kingpins who support ancillary activities such as weapons trafficking and human sex slavery. Some of the proceeds of illicit tobacco have been tracked to international terrorists and mass murderers like Mokhtar Belmokhtar (aka Mr. Marlboro). January 2016 saw him take the lives of six humanitarian workers from Quebec during the Burkina Faso massacre of more than 20 innocent tourists. In 2008, he famously kidnapped and held Canadian diplomat, Robert Fowler, for 130 days.

From a simple economic perspective, the threat of contraband tobacco may be counted in terms of a lost tax stream. However, even more dire economic consequences are at risk in our trading relationships around the world. Heads of State in several Latin American countries have seen their local economies jeopardized by illicit tobacco from Canada. These foreign jurisdictions deal with the drug cartels of infamy. Their partnership with Canadian smugglers allows the cartels to fuel their operations through cheap, tax-free cigarette revenue from Canada.

The buying and selling of contraband cigarettes, therefore, has much more problematic repercussions for society than just the cheating of tax-hungry governments. Contraband tobacco attracts the criminal element into our local neighbourhoods as it tempts farmers to divert legitimate tobacco yields to the black market where they can realize a return that is five times what they can get from legal cigarette manufacturers. Little do they know, however, that as they divert tobacco to the black market, that revenue ends up in the distribution networks of the drug cartels.

In an attempt to thwart that end-game, it makes sense to closely regulate, monitor, and enforce the process of growing and distributing tobacco.

The law enforcement community acknowledges that more – not less – needs to be done to monitor the movement of all tobacco in Canada. The sources of raw tobacco used for contraband cigarette production are largely from either Southwest Ontario or the Eastern U.S. (North Carolina and Virginia).

Provincial MP Toby Barrett, who has served Canada’s tobacco belt region for many terms, recently attested to the concern about Canadian illicit tobacco infiltrating Latin America. “The need for something to be done was driven home when I had four separate media outlets from Latin America travel here to interview me about local contraband tobacco in their countries,” he said in the legislature as he introduced a Private Member’s Bill (162) entitled, Commission of Inquiry into Illegal Trade and Trafficking of People, Drugs, Money, Tobacco and Weapons Act, 2016.

While partisan politics saw the death of this initiative, the proposed study is important. Recent law enforcement activities have unearthed a dangerous network of organized criminal groups that handle different parts of an international smuggling ring that starts in the tobacco growing fields in Canada and the U.S., then moves to the manufacturing operations on aboriginal reserves, and finally makes its way into the international smuggling networks.

Two recent Sûreté du Québec “busts” represent significant incursions into the globally interconnected organized crime networks that control the flow of contraband cigarettes. As the outcome of the arrests expose the underbelly of organized crime networks that support international trafficking in tobacco, drugs, arms and humans, Canadians should take note of the levels of involvement of groups such as biker gangs and Mafia that stake claims in the smuggling operations or the financial laundering that accompanies the contraband tobacco industry.

Reports of the illicit tobacco / organized crime nexus are appearing in national press stories such as Global where “police say that between August 2014 and March 2016 more than two million kilograms of tobacco was illegally imported into Canada, worth about $530 million.”

This most recent bust, a project that the Sûreté du Quebec’s ACCES TABAC program called Mygale, followed a similar wide-scale, tobacco-oriented bust, Project Lycose, more than two years ago. These two massive law enforcement initiatives against the illicit tobacco crime groups made a real dent in the capacity of the smugglers that use the North Carolina to Cornwall/Valleyfield “tobacco road” to transport raw leaf tobacco and contraband cigarettes. According to Sûreté’s newly appointed Captain, Frederick Gaudreau, the purpose of the most recent operation was to shut down the most travelled routes used by the smugglers to transport raw and finished product back and forth across the Canada/U.S. border. “This access point, what I call the roadway, going through port of entry, is closed now,” commented Captain Gaudreau.

Gaudreau noted, however that it would be wrong to think that criminal groups have been defeated in any substantial way. “The Quebec experience,” he said, “shows us that concerted action can make a significant difference, and it will take a bite out of the contraband market. It also shows us that law enforcement operations can be done in a way that doesn’t cost the taxpayer any money, because any money that the government puts in, it more than amply gets back in return, through fines and greater tax revenues through a curtailed contraband market.  Right now, we have a strategy that will include our partners in the OPP with the RCMP too.”

Recently, much light on this contraband tobacco/organized crime connection was examined in detail by the prestigious think tank, MacDonald-Laurier Institute (MLI). The research report, entitled, Smoking Gun – Strategic Containment of Contraband Tobacco and Cigarette Smuggling in Canada, is a comprehensive analysis of the tobacco/ crime nexus problem in Canada, and provides a model for addressing this issue through a combination of better regulation and enforcement of procedures for stamping and verifying tax legitimacy, along with a new deal for the indigenous groups being engulfed in a world of crime.

According to Christian Leuprecht, author of the MLI report and one of Canada’s leading terrorism experts, the government response to the contraband tobacco problem in Canada, “is marred by collective inaction and coordination issues. We don’t even have a regular, consistent intelligence assessment that Canada publishes. As a result, we somehow have a whole bunch of cigarettes that fall off the back of a truck.”

According to Richard Marianos, the retired Assistant Director of the Alcohol, Tobacco, Firearms and Explosives (ATF) in the U.S., “To really address the contraband tobacco issue in North America, we need to align resources and agency interests. The recent tobacco busts in Quebec have demonstrated the correct law enforcement posture where the Sûreté du Quebec, the Province’s provincial police, coordinated with other national, international and local law enforcement agencies to bring down a large contraband tobacco operation that also netted weapons, drugs and human trafficking offenders. That series of coordinated efforts among agencies would have been the only way to produce the evidence needed to get the search warrants and the operational intelligence needed to interdict the criminal behavior.”

Christian Leuprecht believes that more than just law enforcement agency coordination will be required to properly defeat the contraband tobacco industry and its criminal consequences. He believes that a revenue-sharing process with native communities is required. In fact, the first recommendation from the MLI paper reads as follows: “The collection and administration of an excise tax by First Nations governments promises a sustained stream of revenue for community development and infrastructure projects and a significant incentive to reduce tax evasion in cigarette sales to non-Natives. In return for greater fiscal autonomy, sales to ineligible customers would be curbed by reducing the quota allocation to First Nations.”

In the context of this recommendation, Professor Leuprecht pointed to the Native communities that have an investment in contraband and see it “as a major source of revenue for that community.”

Much work remains to be done to sort out the aboriginal role in the reduction of contraband tobacco and its contribution to organized crime activity.

It is promising to note that many First Nations communities are beginning to form councils to grapple with the tobacco industry dilemma.

Coordinating government policy and resources will go a long way towards stemming the prevalence of illegal tobacco in domestic consumption and foreign trade. The challenge is that the unique nature of the illicit tobacco trade tests the roles of numerous government agencies at many levels: federal, provincial/state, and aboriginal. The scams used to smuggle tobacco, guns and drugs requires a robust public safety response.

The answer lies in a multi-model approach that involves the following elements. First, the tobacco farming industry needs proper regulation and enforcement of yields and shipping routes. Second, aboriginal communities need to cooperate with the provinces and federal government to devise, impose, and enforce cigarette taxation structures that are fair to all parties, and managed so as to diffuse the interest of organized crime. Third, until the rest of the fixes are in place, law enforcement and border enforcement agencies need to enhance their intelligence sharing capacities. This means that the RCMP needs to get on board with the other agencies or explicitly exit the arena entirely.

Unfortunately, it seems that until most of the MLI recommendations have been implemented, there will be increasing infiltration by domestic organized crime groups, as well as international relations problems, as contraband Canadian cigarettes flood foreign markets and create economic turmoil for all.

To leave the final word to Professor Leuprecht, “Contraband has a more pervasive impact on the public safety of Canadians and Canadian interests than terrorism has ever had. If Canadians only knew, they would demand that government act accordingly.” And so, with the release of the MLI report, and now FrontLine’s second Special Report, we do just that – inform Canadians.

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Part 1 – The World Stage
Open trade and global markets have changed the way businesses operate, and Canada's challenges have leaked across our borders and are causing problems to governments and communities abroad. With the intensification of cross-border movement, an international commitment is needed to disrupt and deter the transfer of illegal goods.
http://security.frontline.online/article/2016/2/4890-Part-1-The-World-Stage

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Part 2 – Canada's Tobacco Roads
This focus is almost exclusively on illicit cigarettes manufactured in Ontario and Quebec, and the factors driving this criminal and lucrative trade.
http://security.frontline.online/article/2016/2/4912-Part-2-Canadas-Tobacco-Roads

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Part 3 – Courses of Action
Matching the supply, manufacturing, distribution, and retailing of illicit tobacco products against the different touch points within the enforcement community is important.
http://security.frontline.online/article/2016/2/4913-Part-3-Courses-of-Action

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Edward R. Myers, Special Edition Editor

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