The federal government's sustained attack against the smuggling of contraband cigarettes into Canada has created a new multimillion-dollar crime problem.
Many smugglers are switching from international to interprovincial smuggling of cigarettes because the profits are high, the chances of getting caught are low, and even if they are caught the likelihood of going to prison is minimal.
"Interprovincial smuggling is costing millions and millions of dollars in lost taxes," Inspector John Ferguson, head of the RCMP's economic-crime unit in British Columbia, said in an interview. "It's a huge problem. People don't realize how serious it is."
He said British Columbia, where cigarette prices are among the highest in Canada, has been particularly hurt by the growth of interprovincial smuggling. Profits are so high it has attracted different organized-crime elements who are starting to fight among themselves for dominant positions in the trade.
"It's big business," he said. "And that's why they're in it, because it is such big business. When they get caught, they usually get fined and that's it. They rarely go to jail."
Groups as diverse as the Mafia, Russian mobsters, bikers, Chinese triads and other ethnically based organized gangs are starting to compete, with a serious potential for increased violence.
"The Iranians are going to be fighting with the Asians, who are going to be fighting with Russian organized crime and the bikers, or whoever," Insp. Ferguson said. "To a degree, they are already fighting amongst themselves here. Shootings and so on have taken place. It's just a question of time before it gets to a larger scale. . . .
"The thing has really scary connotations to it. There is an element of criminal activity in this that goes far beyond buying a cheap smoke on the corner."
British Columbia, because of its high tobacco taxes and large population, is a major market for smuggled cigarettes. Insp. Ferguson said it is hard to say what percentage of cigarettes reach the province through interprovincial smuggling compared to international smuggling, but added: "I sort of have the gut feeling that it is a 50-50 split."
Superintendent Yves Juteau, head of the RCMP's customs-and-excise branch in Ottawa, said the force is trying to help affected provinces. "It's very hard to define [the extent of the problem] right now," he said, "but, yes, there is an increased problem in interprovincial smuggling."
Cigarettes are smuggled interprovincially by road, through mail-order operators (who take orders by letter, 800 phone numbers and E-mail), by commercial couriers and in airline baggage. The smugglers have little fear of the law.
Smugglers, for example, regularly fly on commercial flights between Toronto and Vancouver, checking two dozen suitcases or more at a time, each packed with 50 cartons of cigarettes.
"They have people out here go out to the airport," Insp. Ferguson said, "and they pick them up [off the baggage carousel]. They know we can't have enough police there to catch them all. So they run up in a group of 20 or 30 people, grab the bags, and start running in all directions."
The surge in interprovincial smuggling of tobacco products has its origins in the crisis the federal government faced in 1994, when international cigarette smuggling from the United States into Canada reached crisis levels.
At the time, most of the smuggled cigarettes were entering Canada through Ontario and Quebec. It was estimated that two out of three cigarettes smoked in Quebec had been smuggled into Canada and that one of three smoked in the rest of the country was contraband. The police were overwhelmed by the magnitude of the problem.
Ottawa cut federal taxes on cigarettes in February, 1994, to reduce the price advantage of smuggled cigarettes. Ontario and Quebec, the two most affected provinces, cut their provincial cigarette taxes.
As a result, smuggled cigarettes are no longer readily available in Ontario and Quebec, which have the cheapest cigarettes in Canada, but they are commonplace in other provinces, where taxes have remained high.
A legal carton of cigarettes, for example, costs $26.40 in Ontario, compared with $48.55 in B.C. and $50.62 in Newfoundland. It is a problem that has captured the attention of the Auditor-General of Canada.
"Because of differences in the price of cigarettes, particularly between those provinces that lowered their tobacco taxes and those that did not, interprovincial smuggling of cigarettes has emerged as a new threat to revenue, primarily provincial revenue," Auditor-General Denis Desautels reported to Parliament in September, 1996.
"Of particular concern to the Western provinces is the illegal interprovincial movement (for example, by mail) of tobacco products originating from Ontario and Quebec, which is reportedly contributing to a decline in their tobacco tax revenues."
Kenora, Ont., where a legal carton of cigarettes sells for $26.40, is little more than a two-hour drive from Winnipeg, where Manitoba taxes push the price of a carton up to $43.66, providing a comfortable margin of profit for a smuggler.
"In the months prior to February, 1994, there was virtually no interprovincial smuggling here [from Ontario], because our tax rates were virtually the same," said Peter Murphy, manager of investigations for the Manitoba Finance Department. "Today, probably 95 per cent of the cigarettes smuggled into Manitoba are interprovincial."
Earlier this month, the Newfoundland government was forced to take steps to keep residents of western and southern Labrador from crossing the border into Quebec to buy cheaper cigarettes. Newfoundland dropped the local price of a carton of cigarettes in Labrador near the Quebec border by $16 to stem the flow of lost tax revenues. Elsewhere in the province, a carton still sells for $50.62, which means cigarettes remain a smuggling problem, both from the French islands of St-Pierre and Miquelon and from interprovincial smuggling.
Unlike those in British Columbia, Newfoundland smugglers are not connected to organized mobs, RCMP Corporal Lloyd Holmes said from St. John's. Instead, expatriate Newfoundlanders who have migrated to Ontario and Quebec smuggle cigarettes to the province.
Police and provincial tax officials say they face a losing battle in trying to win support for their efforts.
"We're trying to get the media involved locally to educate the public as to why they should not buy smuggled cigarettes," Insp. Ferguson said. "We have an almost insurmountable task ahead of us. I don't think the public realize the ramifications of what they are allowing to take place. It's not a victimless crime. Profits go to organized crime and they put them into drugs, gun running, prostitution, you name it."
Only rarely do the courts give their full backing to enforcement efforts. A recent decision by Madam Justice Marvyn Koenigsberg of the B.C. Supreme Court appears to be a rare instance of judicial support. She rejected the appeal of two Vietnamese against convictions in Vancouver for smuggling cigarettes both internationally and interprovincially. The pair were fined a total of $47,150 or three years imprisonment in default.
"It was suggested by the defence that the offence here was not serious or at least not as serious as a drug offence," Judge Koenigsberg wrote, "since it only involved a financial loss of tax revenue as opposed to the human suffering associated with criminal endeavour. I cannot agree.
"The market for contraband cigarettes arises because of increased taxes on cigarettes. These taxes are imposed in an an attempt by government to influence smokers not to smoke by making cigarettes expensive. In turn, the increase in price, by increasing taxes brings revenue into government coffers to begin to offset the health care costs of smoking. To the extent that contraband cigarettes are available this government effort is undermined.
"There is well-known human suffering associated with the effects of cigarette smoking. In my view, this offence is as serious as a drug offence."
A B.C. tax official, who spoke on the condition that he was not named, said the province estimates its lost tax revenues from smuggled cigarettes is between $100-million and $125-million a year. The province pays the salaries and expenses of 12 RCMP officers assigned full time to interprovincial smuggling.
"If we had reduced our taxes in conjunction with Quebec and Ontario in February, 1994, to this point we would have lost $260-million [in revenues]," said Mr. Murphy of the Manitoba Finance Department. He heads a team of 27 investigators.
A major stumbling block for enforcement agencies, police or provincial tax investigators is that interprovincial smuggling is largely a provincial offence and not taken as seriously as a criminal offence.
In New Brunswick, a Mountie in Fredericton said, smugglers know that even if they go to prison they will be released on parole after serving the bare minimum of their sentence, because cigarette smuggling is considered a low-priority offence compared to crimes of violence.
Last November, two men were convicted in Corner Brook, Nfld., after a lengthy investigation into a group that smuggled cigarettes from Ontario and Quebec. One man was fined $220,000 but given until Dec. 31, 1999, to pay the fine or go to prison for 4 years. A second man was fined $170,000 and given the same lengthy amount of time to pay his fine or go to prison for 3 years. Both men may appear in court on Dec. 31, 1999, and ask for an extension of time to pay their fines. "What effect do you think that has on other smugglers, or even on those two men?" asked an RCMP investigator in Ottawa.
In Manitoba, tax investigators say they cannot get prison sentences for interprovincial smuggling of cigarettes. "There are jail provisions [in provincial legislation], but they haven't been used at all by the courts," Mr. Murphy said.
A major method of smuggling cigarettes has been through mail-order systems. Until recently, a province that received smuggled cigarettes by mail could not prosecute the mail-order house in another province. It could only ask the recipients of the cigarettes to pay the unpaid provincial tax. The new federal Tobacco Act that came into force in April now makes it a federal offence to sell cigarettes by mail without a licence. Penalties include fines of up to $300,000 and imprisonment for up to two years.
Price per carton of cigarettes in each province B.C $48.55 Alberta $38.04 Saskatchewan $44.73 Manitoba $43.66 Ontario $26.40 Quebec $26.57 Newfoundland $50.62 PEI $30.59 Nova Scotia $31.01 New Brunswick $33.98 Source: Statistics Canada
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