COVER

OF SMOKES AND SMUGGLERS

GUNS AND MONEY FUEL AN ILLICIT TRADE

TOM FENNELL August 9 1993
COVER

OF SMOKES AND SMUGGLERS

GUNS AND MONEY FUEL AN ILLICIT TRADE

TOM FENNELL August 9 1993

OF SMOKES AND SMUGGLERS

GUNS AND MONEY FUEL AN ILLICIT TRADE

COVER

Where the 23-year-old Mohawk left the U.S. infantry in 1991, the new job held the irresistible appeal of easy money and excitement. To earn $500, all he had to do was drive his car to a strip of St. Lawrence River shoreline in eastern Ontario that cigarette smugglers and police refer to as the “war zone”. There, across the river from Akwesasne, a Mohawk reserve straddling the U.S. border, smugglers would pack his car with hundreds of cartons of illegally imported cigarettes that were destined for sale on Montreal’s black market. The former soldier now makes the trip once a day, and claims an income of $3,500 a week. But he is just a bit player in a vast $ 1-billion tobaccosmuggling operation that is being fuelled by high cigarette taxes in Canada. In fact, of the 7.6 billion cigarettes exported to the United States in 1992, police say, 80 per cent were smuggled back into Canada. While the federal government plans to step up its fight against the smugglers, the former soldier vows that he will continue to make the run. ‘What can they do?” he says. “Everybody’s getting into it—even white people.”

Cigarette smuggling has been growing steadily since 1980, when Ottawa slapped the first of a series of stiff tax increases on cigarettes. As the price of cigarettes rose in Canada, so did the opportunity to earn money by bringing back into this country cigarettes that had been legally exported to the United States—where lower taxes prevail. In 1980, the price differential between a pack of Canadian cigarettes and a U.S. pack was about 26 cents; it is now about $4. In February, 1992, the government attempted to stem the tide by charging an $8 export tax on each 200-cigarette carton. But six weeks later, the government relented under heavy lobbying from the tobacco industry and removed the tax.

Since then, cigarette exports have surged, and contraband tobacco is now available in every major city in Canada. The Torontobased investigative accounting firm of Lindquist, Avey, Macdonald, Baskerville Inc., which did a major report on the problem for the tobacco industry in 1992, estimat-

ed that more than one in nine cigarettes smoked in Canada in 1991 was smuggled. Michel Descoteaux, director of public affairs for Montreal-based Imperial Tobacco Ltd., said that nearly 50 per cent of all cigarettes consumed in Montreal are smuggled. On June 10, the federal government increased the penalties for cigarette smuggling. Under the changes, smugglers can be fined two to three times the value of the cigarettes in their possession, and sentenced to a maximum of five years in jail. According to Revenue Minister Garth Turner, cigarette smuggling has reached the point where it may undermine Canadian society. Said Turner: “People will start believing that it is cool to rip off the government.”

As profits increase, police and smugglers say that trafficking in illegal tobacco is becoming more dangerous—and organized crime is moving in. According to Philippe Bibeau, a former deputy director of the Canadian Security Intelligence Service, Chinese and Vietnamese gangs regularly make the four-hour drive from Toronto to Akwesasne, where they buy thousands of cigarettes for distribution in the Ontario capital. Police set up roadblocks to trap the smugglers, but say that at best they catch only a small portion of the illegal traffic. At night, they add, automatic weapons fire can be heard near Akwesasne as rival smugglers exchange shots. The results of the conflicts often wash ashore. Said Ontario Provincial Police Staff Sgt. James McWade, of the nearby Lancaster detachment: “We have found large boats that had been stolen and painted black, some with guns in them.”

Most cigarettes produced by Canadian manufacturers for export—each package carries a small label saying that it is not for sale in Canada—cross the border at Buffalo, N.Y., where they are sold to distributors. Many of the shipments are then driven east along the U.S. side of Lake Ontario to Akwesasne, where they are warehoused before being smuggled by boats into Canada. While Akwesasne is a major departure point, RCMP officials say that cigarettes are being smuggled across unmanned border points right across the country. An informal distribution network involving couriers then

sells the cigarettes to corner stores in major cities, in bars from duffel bags or even in driveways in suburban Canada. The practice is so widespread that it has even driven down the price of cigarettes in major chain stores that do not sell smuggled cigarettes.

But nowhere is the problem more acute than at Akwesasne, home to some 10,000 Mohawks. Because it straddles the border and is situated a short distance from Highway 401 between Montreal and Toronto, it is an ideal haven for smuggling. The reserve is now dotted with cigarette warehouses, from which trucks, vans and cars come and go in a steady stream. Even under the glare of the noon sun last week, dozens of vessels, piled high with boxes of contraband cigarettes, were crossing the river. Darren Bonaparte, a spokesman for the Akwesasne band government, said that the illegal cigarette industry has become so extensive that it is boosting the reserve’s economy. ‘There are a lot of houses going up and marinas being built,” said Bonaparte. “Sometimes, it seems as if everybody is into cigarette smuggling,”

The smugglers of Akwesasne do not have to go far to unload their contraband cargo. The island portion of Akwesasne lies just 1,200 feet from the Ontario mainland. According to police, most of the shipments are timed to coincide with the arrivals of runners on the Ontario and Quebec mainland. There, trucks and cars are packed and driven to contacts in Montreal and Toronto and other Indian reserves, primarily the Six Nations Reserve just west of Hamilton, Ont.

The financial rewards are clearly worth the risk. According to native smugglers, a carton of eight packs of 25 cigarettes can be brought into Canada for $15. It is resold for $28, or four dollars a pack on the street. By comparison, a legal carton of Player’s Lights sold for $47 in stores last week in Toronto. In fact, the Lindquist group estimates that in 1991 the value of smuggled tobacco was more than $1 billion, and that federal and provincial governments had lost the same amount in potential tax revenues.

But the actual money being generated by illegal cigarette sales may be much higher, because most estimates do not include U.S.-brand cigarettes being smuggled into Canada. Nor do they take into account the fact that the Akwesasne Mohawks have struck deals with U.S. manufacturers to produce their own brands of Canadianstyle cigarettes, which are sold in smoke shops on Indian reserves. Sold under the brand names DK’s and Putter’s, the cigarettes are packaged to resemble du Maurier and Player’s brands. And Canadian cigarette manufacturers do not like the competition. “It affects brand loyalty,” said Imperial’s Descoteaux. “Price is what drives the market.”

At the Six Nations Reserve, the owners of several smoke shops that have been established because of the smuggling trade say that people regularly travel hundreds of kilometres to buy large amounts of cigarettes, including native brands. One of last week’s customers was John Gray, a welder from nearby Paris, Ont., who bought three cartons for $28 each. Said Gray: “We pay too much tax already.”

In Winnipeg, Cal Treichel, a regional intelligence officer with Canada Customs, complains that the Canadian public does not take cigarette smuggling seriously enough. “Nobody wants to admit this is a problem because people think it’s a victimless crime,” says Treichel. “It’s tough to get information from people.” And swamped city police and RCMP officers across the country say that they are too busy trying to catch major contraband suppliers to crack down on small operators, such as corner stores that resell the smuggled goods. “It is a big business,” said one businessman in Calgary’s Chinatown. “Everyone here knows where to get cheap cigarettes.”

Ultimately, as the level of smuggling continues to increase, the federal government and the tobacco industry are proposing radically different solutions. Ottawa may force the industry to place much larger markings on packages so that smuggled cigarettes are easily recognizable. ‘We have turned tobacco into a golden commodity,” said Turner. “Stopping smuggling has to be a major priority.” For now, smugglers and their clients, who are normally law-abiding citizens, will continue to do a booming trade.

TOM FENNELL