Illicit Tobacco: Courses of Action (part 3)

Dec 15, 2012

Unfortunately, the clamour over the dangers of tobacco has overpowered any intelligible discourse concerning what to do about illicit tobacco. The only audible voices expressing concern are organizations that are trying to protect their bottom dollar as the market turns towards cheaper products.

However, illicit tobacco is a low risk, high-profit criminal activity that undermines the national economy, exposes minors to unsavoury people and products, and places unlawful profit into the hands of organized crime. As such, this issue requires the attention of government authorities that are willing to see past the ruckus and focus on the “illicit” part of the problem. This matter cannot be remedied by a single initiative, nor through the sole efforts of law enforcement. As such, a comprehensive program that approaches the problem with meaningful strategies is long overdue.

This article will examine a few different courses of action, best practices, and perspectives that are being promoted and lobbied by different interest groups in Canada and proposed next steps.


The most obvious remedy to reduce and possibly eliminate the illicit trade in tobacco is to completely abolish taxes on cigarettes. Remove the illicit profit margin and you remove the problem. While effective, this is an overly indulgent solution as it would mean less ­government revenue and the potential for more people to take up smoking, which in turn burdens the health care system. Clearly, the implementation of indulgent policies has far reaching repercussions that impact more areas than otherwise intended. Just as lower taxes would threaten successful smoking cessation habits, higher taxes undermine lawful process, support criminal enterprise, and put an enormous burden on law enforcement. Health care, public safety, and government revenue are just some of the more obvious interests impacted by how this issue is managed.  

Health advocates have long touted higher taxation as the primary way to promote smoking cessation, however, this singularly-focused strategy may have already saturated its objectives in Canada. A 2011 report by the Fraser Institute, an independent Canadian public policy organization, states that “recent research has found that the deterrent effect of higher tobacco taxation has waned in recent years.” This suggests that those who take up smoking or continue to smoke have entrenched attitudes about smoking despite an increase in the rate of taxation or the knowledge that it’s bad for you. These are generally lower income smokers, and the question becomes whether it is possible to direct them to legitimate, regulated products.

The notion that prohibitive pricing models are counter-intuitive is a common enough assessment. At a recent European conference on smuggling tobacco products this February, a professor from the Warsaw School of Economics made reference to the Laffer curve, which explains why prices cannot grow endlessly. At some point, consumers will switch to cheaper, smuggled or counterfeited goods.

In Canada, two professors at the Department of Economics at Concordia University produced a report in May 2012 for the C.D. Howe Institute, an independent not-for-profit organization focusing on economically sound public policies. The report, A Taxing Dilemma, assesses the impact of tax and price changes on the tobacco market. Their research suggests that an increase in taxes “would further increase the price spread between the legal and illegal products and, consequently, place more pressure on enforcement and exacerbate the problems that attend the illegal market.” At the same time, the report recognizes the value of a taxation policy to generate revenue and to meet health concerns.

However, attempting to address the issue with token tax reductions will not dramatically alter the situation as the illegal market would still benefit from a disparity in pricing. In other words, the report suggests leaving the taxes as they are and consider other strategies to mitigate the illicit market. In summation, the authors recommend increasing the price of black market products through legal or enforcement pressures on unlawful suppliers.

Ironically, in contrast to this staid economic approach that appears to at least consider other aspects of our social fabric, the World Bank invariably promotes one position: raise tobacco taxes. Its website explains that “even where smuggling becomes a serious problem, tax increases bring greater revenues and reduce smoking.” Fortunately, unlike many other countries, Canada is not forced to boost tobacco prices in an effort to support the national economy and/or to get the funding and assistance from the World Bank. Seemingly, the World Bank’s key motivation is to gain quick money for cash strapped governments. It fails, however, to consider the country’s long-term, sustainable, economic integrity much less corresponding enforcement challenges or the unintended social ramifications of its proposed policies.

The Fraser Institute, on the other hand, calls for the revocation of taxes as one of the steps needed to counter contraband in Canada. According to its February 2012 report, “Combating the contraband trade is particularly difficult given the tax environments of neighbouring jurisdictions. A price differential between domestic and smuggled cigarettes increases opportunities for black market profit.” It suggests that a drop in these taxes will deter the underground trade in tobacco.

Far from being a devious argument conceived by big tobacco, the emergence of illicit tobacco is clearly a direct result of taxation policy. While it appears to have abated smoking habits in the past, increasing taxes has reached the threshold of its effectiveness. Moreover, increasing tobacco taxation in Canada will continue to be ineffective in preventing new generations of smokers unless there is a concerted effort to suppress the illicit trade in tobacco.

Kahnawake Mohawk Territory (Montreal). Currently, Aboriginal tobacco commerce is a privatized and unregulated sector that is not subject to the same taxes or scrutiny as other legitimate tobacco industries operating in Canada.

The problem of illicit tobacco is due in part to a scattered legislative framework that results in price disparities of legitimate products between jurisdictions. It is not uncommon for seized contraband tobacco products to have some form of legitimate stamping but then be transferred outside its authorized market for illicit gain. Introducing a harmonized tobacco tax, or striving to set a fixed rate on the sale of cigarettes across Canada may remove some of the financial incentives and loopholes used by traffickers.

A similar solution is being proposed in Europe, where implementation of a single, high EU-wide cigarette tax, starting in 2014, is being considered. This approach seeks a new minimum cigarette tax rate and strives to tackle price disparity within an entire region. Even if this could be accomplished within Europe or Canada, there still remains a price differential across the next border. A harmonized cigarette tax initiative does not completely eliminate the illicit trade of tobacco, however, it approaches policy change in a coordinated fashion that can serve to undermine opportunities and levels of unlawful profit.

The RCMP’s Contraband Tobacco Enforcement Strategy reaffirms, year after year, that the “Canadian contraband tobacco market continues to be dominated by tobacco products originating in Aboriginal communities in Central Canada and the adjacent state of New York. It is therefore crucial to the success of addressing the illicit tobacco trade to increase dialogue on the issue with those ­communities.” In fact, most courses of action include engaging Aboriginal leaders and developing a closer partnership with their communities. The following are possible options through which to shape effective anti-illicit tobacco strategies when reaching out to Aboriginal governments.

First Nations has a flourishing tobacco industry that provides employment and growth to reserves across Canada. Any consideration towards harmonizing tobacco rates in Canada must also ensure price parity is achieved with tobacco produced on sovereign Aboriginal land.

Currently, Aboriginal tobacco commerce is a privatized and unregulated sector that is not subject to the same taxes or scrutiny as other legitimate tobacco industries operating in Canada. A comprehensive anti-illicit tobacco strategy must include discussions and consultation with Aboriginal leaders in order to put the tobacco prices in both industrial sectors at par.

An Aboriginal tobacco tax, for example, would serve to reduce illicit profit margins and also provide Aboriginal communities with a way to generate their own independent revenues that encourage legitimate and viable economic development on reserves.

A number of legal instruments are already in place for First Nations to introduce taxes on reserve. The Aboriginal Affairs and Northern Development website states that current tax policy allows agreements under which federal, provincial or territorial taxes would be abated or cease to apply on the lands where the corresponding harmonized tax of the Aboriginal government applies. Although the process of negotiating a tax agreement is a time-consuming process, the same website lists over 30 First Nation governments that have already made an arrangement to apply some form of tax on tobacco products.

A 2009 report by the Non-Smokers’ Rights Association (NSRA) advocates for an acceleration in policies to allow First Nation governments to more readily impose their own tobacco taxes.

In Part 2 of this article, we touched on the Aboriginal Cigarette Allocation System (CAS). Aboriginal manufacturers, whether licensed or unlicensed, have the legal right to produce cigarettes as long as federal excise duty is paid and quantities are within ­Aboriginal population quotas. The problem is that more tobacco is manufactured on reserve than could ever possibly be consumed by the Aboriginal population.

The Canadian Taxpayers Federation recently published a report, entitled “How Much is Contraband Tobacco Costing Taxpayers in Ontario?” It alleges to have demonstrated that the majority of tobacco sold on Aboriginal reserves ends up in the black market. “If all recorded allocation tobacco sold on Ontario reserves was for personal, legal use, Status Indians who are smokers would need to consume an estimated equivalent of 32 to 70 cigarettes a day. At its high end, that is 466% of what the reported smoking rate is for Aboriginals and just under three packs a day,” according to key findings from the report.

A course of action proposed by the NSRA is to make wholesalers responsible for ensuring that no product is supplied in excess of the quota and that “the federal government should not hesitate to revoke any licence if a tobacco manufacturer operates without the required provincial licence and vice versa.” The NSRA recognizes, however, that this initiative is wholly dependent upon a government’s commitment to enforce the quota. In order for this proposed course to be effective, First Nation leaders and other Aboriginal authorities would need to be consulted and involved.

Dialogue with First Nations leaders on tobacco strategies keeps returning to the unresolved issue of Aboriginal land claims. Far from needing to justify overages in cigarette quotas, some Aboriginals do not recognize the CAS because it was established by a provincial body. They claim their reserves are on federal land and that the provincial government does not have jurisdiction to enforce any controls. Therefore, courses of action that recommend enforcement of the quota system, appear altogether too naïve. Before effective enforcement can take place, there needs to be clarity on what all participants should be adhering to.

The authority of Canadian enforcement action is another matter that needs to be addressed. Provincial police routinely confiscate cigarettes that are federally stamped under the Excise Act 2001 but are not stamped for sale in the province where they are seized.

In areas where land claim issues are unresolved, law enforcement and regulatory oversight quickly becomes a sticky issue. In November 2012, a provincial court ruling to shut down a Manitoba smoke shop came only after police had raided the smoke shop five times. The smoke shack, jointly run by the Dakota Plains, Sioux ­Valley and Canupawakpa First Nations, had been selling cigarettes manufactured by Rainbow Tobacco, a federally licensed facility located on Quebec’s Kahnawake Mohawk Territory. The federal excise tax had been paid, but not the Manitoba provincial taxes. According to the operator of the smoke shop, Chief Frank Brown of the Canupawakpa First Nations, and other Aboriginal leaders in the community, the real issue is not the cigarettes but forcing Ottawa to settle a century-old land dispute. A National Post article, published soon after the court ruling, stated that Chief Brown “wants the province to give him a legal document saying the Dakota people have to pay provincial sales taxes on their own land. Until that ­happens, he said he’s not breaking any laws.”

Grey areas in dealing with the extent of Aboriginal self-government are not confined to the topic of tobacco. Another National Post article, “Ottawa’s policy vacuum undermines its oil sands rhetoric”, illustrates how First Nations communities are challenging the legality of a lucrative oil project through land claim disputes.

In yet another case, the Westbank First Nation near Kelowna has plans to build a private hospital. There have been rumblings that this project will be challenged by the federal government. In a CBC News article, a constitutional expert noted that the Westbank self-government agreement suggests the band does not need approval from the province to build and run the hospital. “There’s a difference of opinion, apparently, about how far self-government extends,” said Gordon Christie. “This is pretty much untested waters.”

Thus, the threat and harm posed by illicit tobacco in Canada is a by-product of a much larger and older issue that must be addressed by the federal government. In a complete lack of deference to a growing pile of issues, there is a general unwillingness to work with Aboriginal leaders. Instead, ‘Idle No More’ and other related tensions dominate the headlines, and the situation appears to be getting worse. Areas of immediate concern are relegated to constitutional experts or to the courts, rather than being managed with any diplomacy or strategy. In the interim, police investigations and regulatory oversight as proposed courses of action will continue to be a challenge until the Federal Government, along with First Nation leaders, define the degree to which Aboriginal self-government extends.

Cases of cigarettes inside vehicles. Photos: RCMPLaw enforcement efforts are mostly mobilized off reserve along the St Lawrence Valley Region, where the infamous Smugglers’ Alley is used by upwards of 175 organized crime groups, according to the RCMP.

A common course of action relates to prohibiting the supply of raw materials to unlawful tobacco manufacturers in Canada. Tobacco production in Canada is predominantly confined to southern Ontario, which means it is the responsibility of the Ontario Ministry of Finance to regulate the tobacco supply chain.

A few days after the Ontario Ministry of Finance officially assumed its new regulatory role on October 1, 2012, it issued a “temporary” grace period from the requirement to ­register with the Ministry of Finance before engaging in raw leaf tobacco activities. This means that anyone who grows, processes, sells, buys, imports, exports or inter-jurisdictionally transports any varieties of raw leaf tobacco prior to March 31, 2013 will not be required to hold a registration certificate with the Ministry of Finance. More amazingly, that grace period was recently extended to January 1, 2014.

Prior to October 2012, it was the responsibility of the Ontario Flue-Cured Tobacco Growers’ Marketing Board to help ensure the supply of raw leaf tobacco stays in the legal market. The Ontario Ministry of Finance has not only compromised any forward momentum of its predecessors but has taken huge backward strides. The good news is that any tiny step the Ministry of Finance may take towards fulfilling its mandate could quite accurately be identified and interpreted as “progress”.

According to our research, regulatory oversight of the supply chain can be improved by:

  • Having the Ontario Ministry of Finance work with the previous administration, the Ontario Flue-Cured Tobacco Growers’ Marketing Board, in order to get advice and an historical overview of tobacco yields by farmer;
  • Enhancing information sharing practices and developing working relationships between investigators at the Ontario Ministry of Finance and law enforcement;
  • Requiring suppliers to submit regular reports to the authorities for all of their shipments;
  • Placing Ontario Ministry of Finance investigators on the ground with the wholesalers and farmers to ensure an understanding of the scope and nature of their working environment and to identify loopholes that allow for the diversion of raw tobacco to the black market; and
  • Having the Ontario Ministry of Finance prepare an official strategy and report on its progress.

On November 12, 2012, delegates of more than 140 parties to the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC) adopted a new international treaty, setting the rules for combating illegal trade through control of the supply chain and international cooperation. The Protocol to Eliminate Illicit Trade in Tobacco Products commits countries to establishing a global tracking and tracing system to reduce the illicit trade of tobacco products. It focuses on controlling the supply chain through licensing, due diligence, tracking and tracing, record-keeping, security and preventive measures, sale by Internet, telecommunication or any other evolving technology, free zones and international transit, and duty free sales. Canada is a signatory to the WHO FCTC although it has yet to sign the Protocol.

Many countries are already looking at ways to better track and trace legitimate products. A retail group in Ireland suggests working with the tobacco industry in printing a unique 12-digit code directly onto packs and cartons during manufacturing. These and other ideas should be explored in a Canadian context. The Canadian government, in particular the Ontario Ministry of Finance, should be forced to report on its progress as provided in the new WHO FCTC framework. There will be pressure to scrutinize gaps in the supply chain and to establish improved systems throughout Canada.

As mentioned, the political and geographical situation of illicit trade on reserves presents unique enforcement challenges for Canadian, American and First Nations authorities. A 2010 report, Contraband Tobacco in Canada, prepared by the Fraser Institute summarily concludes that “it is exceedingly difficult for law enforcement to obstruct illicit trade and smuggling activities if they lack access to the territory on which it takes place and do not possess the clear authority to take enforcement actions.’’ Past confrontations like the 1990 Oka crisis and the land-claims dispute near Caledonia are reminders not to approach Aboriginal issues with force. As a result, law enforcement efforts are mostly mobilized off-reserve along the St Lawrence Valley Region, where the infamous Smugglers’ Alley is used by upwards of 175 organized crime groups, according to the RCMP.

The Harper government announces a 50-officer RCMP anti-contraband tobacco force.

Ongoing surveillance in the St. Lawrence Valley Region is the most widely promoted strategy in the fight against illicit tobacco trade in Canada. Between the Canadian and American shores of the St. Lawrence River sits Cornwall Island, home to Canada’s Akwesasne Mohawk community and the U.S. St. Regis Mohawk reserve. This unique geographical and political node makes the port of entry at Cornwall an important gateway for regulatory and law enforcement presence.

Currently, the Canada Border Services Agency (CBSA) serves that port of entry, however, there are plans to move the Cornwall border station across the St. Lawrence River to a new U.S. Customs and Border Patrol station in Massena, New York. According to an article in the Ottawa Citizen, convenience store operators fear more cigarette smuggling if the Cornwall border station is moved. The intent of the U.S. authorities, they contend, “is to intercept the truckloads of raw and fine-cut tobacco before they reach clandestine cigarette manufacturing plants on the U.S. portion of Cornwall Island.” Canadian interest groups believe that moving the port of entry to the United States “will leave the door to the Canadian mainland wide open for those who can find a way to skirt Massena or ship Canadian-grown raw tobacco to the island for processing and then back on across the undefended bridge to Cornwall and the rest of eastern Canada.”

Various law enforcement members who are willing to express an opinion on the matter agree that the decision to move the port of entry is not in Canada’s best interest. The decision to create a 50-officer force to combat the illicit trade may have been a concession and a way to offset the challenges posed by the new port of entry arrangement. As it stands, however, 50 officers in lieu of a Cornwall border station is being interpreted as “one step forward and two steps back.”

While it is clear the border continues to be vulnerable and porous, it is nevertheless important to examine the shifting nature of the illicit trade in tobacco and to ensure that human and financial resources are invested towards meaningful outcomes.

RCMP records over the past few years show a decline in contraband seizures, however, it is unclear if this is confined to the location of its operational efforts – the St. Lawrence Valley Region.

Is a shift taking place in Canada? Are federal, provincial and municipal strategies in line with current realities and/or emerging patterns? Why has Aboriginal tobacco commerce (including the manufacture of cigarettes) developed at an exponential rate over the past few years?

As mentioned earlier, the Canadian Taxpayers Federation report shows that Aboriginal production under the Cigarette Allocation System far exceeds authorized sales. This suggests a possible new development and shift in the routes and distribution channels of illicit tobacco to communities across Canada.

Prior to embarking on any type of investment in anti-illicit tobacco strategies, it is important to gain accurate, timely and rele­vant intelligence. Instead of using RCMP progress reports on contraband as a means to promote successful outcomes, Canada would be better served by identifying gaps and challenges that need to be addressed.

Effective strategic intelligence assessments are best conducted outside of the sphere and influence of law enforcement in order to remove any conflict of interest. Understanding the environment will ensure the issue is approached with the proper focus and appropriate solutions. External groups would be able to provide audits on law enforcement strategies, plus strategic assessments and primary research required for operational activities.

Another course of action relates to increased collaboration between the various federal, provincial/territorial, and municipal law enforcement authorities. Collaboration with American and Aboriginal counterparts is an equally important dynamic in making law enforcement actions more targeted and efficient. This type of professional outreach is critical to any initiative and requires innovative solutions that include hosting conferences and producing joint operational and tactical intelligence reports.

There are a host of regulations and legislative changes that can reduce the threat and harm of the illicit trade in tobacco. Enhancing the risk associated with criminal activity is a powerful way to offset the allure of unlawful profit. Moreover, innovation in regulatory and legislative frameworks should strive to empower law enforcement authorities in a way that removes unnecessary impediments and provides the necessary tools to effectively enforce compliance. While not an exhaustive list, following are some possible courses of action in the domain of regulatory and legislative changes:

The Harper government recently announced plans for a new ­Criminal Code offence with mandatory jail time for repeat offenders involved in the trade of illicit tobacco. The enhancement of criminal penalties is intended to establish a stronger deterrent to involvement in criminal activity. It is a course of action that is increasingly being used in regional anti-illicit tobacco strategies. New Jersey, Maryland and Virginia are just some states all pursuing similar legislative changes.

While it is beneficial to introduce stiffer penalties to those transporting or selling illicit tobacco products, it should not be confined to one stage of the process. Tobacco manufacturers should also be held liable if their products are discovered and seized on the black market. A 2009 report by the Non-Smokers’ Rights Association states that “penalties should be stiff enough so that it would become a financial incentive for manufacturers to stop supplying any customer (distributor or retailer) involved in any kind of smuggling activity.” For legislation to be effective, it must scrutinize each step of the illicit trade process with due diligence. Penalties need to be sufficiently steep in order to discourage unlawful activity from suppliers, leaf buyers, manufacturers, street level retailers and consumers alike.

Anti-illicit tobacco investigations can be complex and require a significant investment of resources. In the United States, investigative units are able to request financial support through the Churning Authority. It allows the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) to use the financial proceeds obtained through undercover operations to offset the expenses incurred in other long-term, complex investigations. The Churning Authority is just one example of how to support and empower law enforcement operations. Establishing similar legislation and authority to Canadian law enforcement would go a long way towards sustaining meaningful investigations that are resource-intensive.

There are different ways to put pressure on criminals involved in the illicit trade of tobacco while also providing a benefit to law enforcement and regulatory authorities. The 1998 Master Settlement Agreement (MSA) between the U.S. and the tobacco industry is an example of a course of action that not only generates revenue for anti-illicit tobacco strategies but also points a spotlight on ­participants that stand to benefit from the sale of tobacco. Initially focused on a settlement with major industry players to address health care, it was later expanded to cover the whole industry. It required all tobacco participants to register with authorities and pay into escrow accounts. This overarching oversight allows regional governments to impose taxation and escrow requirements on sales of tax-free tobacco to non-natives, and prosecute offenders if they are not compliant. The conditions of the MSA allow regulatory and law enforcement authorities the latitude to ensure compliance and it is used as a tool to identify participants of the tobacco trade.

Canada Border Services Agency (CBSA) currently serves the port of entry, however, there are plans to move the Cornwall border station just across the St. Lawrence River to a new U.S. Customs and Border Patrol station in Massena, New York.

For many Canadians, the illicit trade in tobacco is more often ­identified as a victimless crime than organized crime. Informing the general public about the threat and harm posed by contraband is intended to dissuade them from buying unlawful products. It should also be designed to engage them to contact authorities if they see suspicious activity in their neighbourhoods and ­communities.

The Ontario Convenience Store Association (OCSA) launched a 10-week billboard campaign last year about the harmful effects of illegal cigarettes. While it was an excellent initiative, it may have been perceived as a self-serving platform to protect retailers’ bottom line. When promoting awareness that delivers a message intended as a public service, the source of the message is paramount, and usually scrutinized by the audience. To lend credibility to the issue, the government should be engaging or endorsing these types of educational campaigns. To date, however, the ­government has only been receptive to funding anti-tobacco ­campaigns, minus the “illicit” or public safety part of the equation.  

The general public is an important audience to target, however, it could arguably be more prudent to hone in on the farmers and leaf buyers involved in the supply chain. Whether it is informing them of regulatory requirements, the harm and threat of illicit tobacco, or the penalties associated with supplying raw leaf to unlawful manufacturers, it is imperative that those directly involved in the trade are informed of developments and key government messages.

Using ­taxpayers’ hard earned dollars on feel-good, tokenistic efforts is offensive and irresponsible. Such initiatives seldom meet long term objectives and are devised to support political posturing without an informed understanding of the issues. Announcing a 50-man force to combat contraband, for example, may sound impressive – but not when compared to losing authority of the port of entry that serves Cornwall. Isolated efforts are ineffective if they are not working in tandem with a greater overarching strategy. The dots need to be connected between different stakeholders who can apply pressure on criminals involved in the illicit trade in tobacco. Some of the ways to jump-start the process are listed below and should be conducted prior to investing more public funds.

Prior to engaging in solutions on the topic of illicit tobacco it is important to establish a balanced and objective decision-making body that is willing to become informed on the many facets of the issue. This body can facilitate discussion and commission studies. For example, the Virginia State Crime Commission was asked by a Senate Joint Resolution to document the impact of illegal cigarette trafficking on state and local governments and on the industry, review statutory options to combat illegal cigarette trafficking, and determine the beneficiaries of illegal cigarette trafficking. The report was presented before the Virginia Legislative Assembly in January 2013 and provided a total of 12 policy considerations. In Canada, the establishment of a similar committee on illicit tobacco can be facilitated through an existing parliamentary standing committee or other dedicated group that is in a position to request information from various informed stakeholders.

Left: The Ontario Convenience Store Association (OCSA) launched a 10-week billboard campaign last year about the harmful effects of illegal cigarettes, which appeared in locations around Ontario. Right: Contraband cigarettes confiscated by Cornwall RCMP. Organized crime networks are using the illicit tobacco trade to exploit aboriginal communities, say police.

There does not appear to be a regional conference in North America that invites senior government officials and subject matter experts from relevant disciplines, countries or regions to provide different perspectives that can inform policy and anti-illicit tobacco strategies. A conference on this topic, if undertaken, can yield impressive results and shed light on ways to combat the illicit trade.

A recent conference in Warsaw in February examined the illicit tobacco trade through various national perspectives, specifically focusing on smuggling across the European Union’s (EU) eastern border. With the financial support of a major international tobacco company, the conference was hosted by EurAcitv Poland, a member of the EurActiv Network that delivers localized EU policy information and follows EU legislation from the beginning of the process to implementation and evaluation. Participants at the conference included government officials from different political parties and representatives from the border agency, taxation office, customs, and commerce. The enlisted speakers of various disciplines, including economists, examined the draft update of the EU Tobacco Products Directive and expanded the debate to look at wider smuggling issues. Each offered a glimpse into their country’s particular circumstances while offering solutions and best practices to combat the problem.

The United States also had a similar approach. A one-day conference sponsored by the Tobacco Merchants Association (TMA) was recently held in Virginia in February 2013. Federal officials, tobacco industry executives, professors and other experts gathered to discuss the persistent illicit trade in tobacco products such as large-scale interstate trafficking of tobacco products and the smuggling of cigarettes into the country by criminal organizations. The conference analyzed the wide range of schemes used to engage in illicit trade, and some of the steps that could be taken to address it. Topics included a case study on the public health cost from illicit trade in Canada, the financial cost, enforcement experiences and challenges in the United States, Native American enforcement issues, and tools to support enforcement.

The results from these and other conferences can be used as a stepping stone to inform policy. Having the tobacco industry sponsor such an event should not be viewed as a conflict – legitimate tobacco companies are eager to contribute resources and provide solutions to combat any illicit aspects of their business. A host of participants from different and opposing viewpoints and agendas can offset the potential for manipulation. The main objective is getting policy makers in a forum to hear different points of view from all stakeholders prior to deciding, developing and implementing strategies.

Research, strategic assessments and the development of intelligence on illicit tobacco is intended to assist law enforcement, the government, and legislative and regulatory bodies in a quest to shape policy and determine the efficacy of their respective tobacco control strategies and anti-illicit tobacco programs. The findings are also picked up by assorted media outlets to promote awareness surrounding the issue and potentially identify successes and/or existing gaps.

Empirical evidence and research is therefore exceedingly important and should come under intense scrutiny prior to being presented to an audience. Without examining those numbers and demonstrating some due diligence, it is easy to formulate flawed policy and strategy. The methodological approach must be sound, and specific to the sociological and geographical areas in which it claims to offer intelligible analysis. Not only do methodology, geography, and sociological factors have to be defined, it is equally important for the research to be timely and reflective of the changing dynamics in the criminal market place.

What do we know about the prevalence and volume of illicit tobacco specifically in Canada from 2011 to 2012? What can we expect in 2013? Not much. The Canadian government does not conduct its own research on this topic and relies on external data to formulate policy.

A November 2012 news release by the Association québécoise des dépanneurs en alimentation states that illicit tobacco in Quebec is on the decline, which flies in the face of anecdotal feedback from provincial police. The retail group bases its assumptions on outdated statistics or data provided by Euromonitor’s global study. It is unfortunate that both the Gfk and Arcus annual studies were abandoned after 2009 – their methodologies were less flawed and less abstract than most and, attempted to look specifically at the Canadian context and its unique realities.

May 2013 – The Canada Border Services Agency (CBSA) seized 6,514 kg of ­contra­band tobacco (with an estimated street value of over $500,000) at the Saint-Bernard-de-Lacolle border crossing (south of Montreal). Examining the vehicle, CBSA officers found loose tobacco hidden under piles of used clothing.

Discrepancies in available data add to the challenge of accurately conveying the impact that illicit tobacco has in Canada. It is up to policy makers to take a serious peek behind the numbers or to commission much needed empirical research on the illicit trade in Canada. For the moment, a wanton use of flawed statistics on illicit trade and other posturing dominates Canadian headlines.

While there is some disagreement on taxation as a way to manage the illicit tobacco trade in Canada, other courses of action are ­generally agreed upon and advocated by a number of different organizations and associations. These include working with Aboriginal communities to discuss taxation agreements, educational campaigns about contraband tobacco, increased policy and enforcement against those involved in contraband from supply to retail, and updating legislation on penalties associated with the illicit trade in tobacco products.

There is no single policy instrument or initiative that can overcome the challenges and dynamics of illicit tobacco on its own. A concerted approach is needed that is based on a strategic vision ­versus a hodgepodge of token feel-good efforts.

Edward R. Myers is the Editor of FrontLine Security Magazine.
© FrontLine Security 2013