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Illicit cigarette trade flourishes on the US-Canadian border

10 Jan 2011. Illicit tobacco manufacturing on Mohawk territory that spans the US-Canada border between Montreal and Toronto is helping fuel smuggling, claims the Canadian police.

Native authorities are calling on tobacco consumers to avoid contraband tobacco.

Contraband tobacco is gaining an ever-increasing share of the tobacco market in Canada according to the national police service, the Royal Canadian Mounted Police (RCMP).

Bryan Jones, VP Corporate Affairs and Communications, Americas, for JTI-Macdonald Corporation, one of Canada’s leading tobacco manufacturers, said industry numbers showed illegal tobacco operations were the third largest supplier of tobacco in Canada, with nine billion illegal cigarettes currently on the market, accounting for 19 per cent of national sales.

In Ontario, the problem is especially bad, with one in three cigarettes being illegal. “[Illegal tobacco operations] are a significant problem – they rob the government of about CAD 2 billion (EUR 1.5 billion) in tax revenues each year and fund organised crime,” said Jones.

He added that these operations hurt not just tobacco manufacturers, but convenience store businesses too, with 2,300 convenience stores having closed in Canada in 2009 because of the presence of illegal tobacco.

And these cheaper, illegally produced cigarettes are at the centre of a politically sensitive problem that involves complex underground manufacturing and smuggling networks through native Canadian and American “First Nations” reserves along the US-Canada border.

Of particular concern to Canadian and American law enforcement teams is the Akwesasne Mohawk territory near the Canadian border city of Cornwall, between Montreal and Toronto, which spans the US-Canada border, here running through the middle of the St Lawrence River.

The Akwesasne reserve is considered a major route for smuggling most of Canada’s imported contraband tobacco, with the RCMP estimating that 85 per cent of Canada’s smuggled tobacco comes through or near the reserve.

Often hidden in secret compartments of trucks through border crossings, the contraband is also shipped across the river.

Although there is a Mohawk council and grand chief recognised by Mohawks as an authority on both sides of the river, in legal terms, these are two reserves – one operating under Canadian law and the other under American law.

In Canada, the Akwesasne reserve, to add complication, is partly in the province of Ontario and partly in Québec; in the US, there is the St Regis Indian Reservation.

Given the Mohawks have understandably considered themselves Mohawk first, and Canadian or American second (if they recognise those nationalities at all), their weak recognition of this international border inevitably does little to deter smuggling.

Furthermore, the right of Mohawks living in the region to trade across the border with their First Nations’ brethren has been debated in the courts. The Jay Treaty of 1794 between the US and Britain (then Canada’s overlord) stated clearly that aboriginal groups could pass over the Canada-US border freely, bringing goods without paying duty.

However, the treaty was never written into Canadian law and so these rights have been contested, including by Canada’s Supreme Court, which in 2001 ruled: “The claimed aboriginal right never came into existence.”

Of course, organised crime does not worry about such constitutional niceties and has used the political sensitivity of policing the border as cover for smuggling contraband tobacco from America to Canada.

“Organised crime networks exploit aboriginal communities and the politically sensitive relationship between those communities and the different levels of government and enforcement agencies,” stated a 2009 report from the RCMP, which works with American local and national police to fight the smugglers.

The problem, said the RCMP, was exacerbated by the existence of cigarette plants on the St Regis reserve, on the US side.

The RCMP report claims: “The number of unlicensed manufacturers that supply the Canadian market fluctuates between six and 12.”

In a statement to Tobacco Journal International, the RCMP estimated there were “between 40 and 50 unlicensed manufacturers in Aboriginal territories in Canada and approximately ten on the US portion of the Akwesasne Mohawk territory that supply the Canadian market.”

The St Regis Mohawk Tribe Compliance Department said the St Regis Mohawk Tribe was not aware of the number of unlicenced manufacturers, partly because these manufacturers appear and disappear so quickly.

It confirmed to Tobacco Journal International that on its territory (St Regis), there were five legal tobacco manufacturers that were tribally licenced, two also federally licensed (Native Trading and Tarbell).

Tribal licences are not recognised by the Canadian or US authorities – there have been no claims the legal manufacturers are involved in smuggling.

“The RCMP works with US federal and state partners to identify illegal cigarette manufacturers and prevent the illegal manufacturing and distribution of cigarettes in both countries,” said the report.

Although there are often tax exemptions and special trade rules for aboriginals within reserves in Canada, tobacco is not one of them. According to the RCMP, it is illegal to produce, import, sell or buy contraband tobacco anywhere in the country.

An official stressed: “It is a criminal offence for anyone to possess packages of cigarettes that do not display the appropriate Canadian duty-paid stamp.”

RCMP contraband tobacco expert Corporal Larry Peyton said the geography of the area made it difficult to monitor: “One issue is that the reserve spans the Canada-US border, making enforcement more difficult. You’ve got waterway access spanning borders between Canada and the US. There’s a lot of geography to man,” he said.

Maybe it is no surprise that Ontario and Québec have the highest consumption levels of contraband tobacco in Canada, although consumption was rising in other parts of the country, Peyton said.

Some estimates put contraband consumption at nearly 50 per cent of the Ontario market, said Fred Neukamm, chairman of the Ontario Flue-Cured Tobacco Growers Marketing Board.

He said Ontario tobacco farmers had faced huge declines in sales over the last decade owing to contraband consumption. “The mainstream tobacco companies are not servicing the entire market place, and as a result they’re only buying enough tobacco for the portion they are serving,” he said. “With the legitimate companies servicing only 50 per cent of the market place, it limits demand, and it limits the number of farmers that can viably participate.”

The RCMP’s 2008 annual report on contraband tobacco emphasised the problem was growing. “After a period of significant decreases, the illicit tobacco market in Canada has rebounded in recent years, rising rapidly since 2004 to become an acute problem once again.”

In 2001, for example, the RCMP seized 29,000 cartons of contraband cigarettes, while in 2008 it seized nearly 966,000. Partly in response to the growing smuggling problem, in 2008, the Canadian government announced plans to arm 4,800 of its Canadian Border Services Agency (CBSA) officers at all land and marine ports of entry by 2016, including in Akwesasne.

The reserve community strongly objected to the plan because of community safety concerns – the border crossing is in a residential neighbourhood with parks – and this fuelled a political standoff, closing the frontier post in June and July 2009.

Finally, the CBSA, which operates all ports of entry into Canada, closed the Akwesasne crossing indefinitely and set up a temporary crossing further inland in nearby Cornwall.

This move has had mixed results regarding stopping tobacco smugglers, according to Corporal Peyton. “What we’ve seen is a displacement.

The closing of the port of entry (on the reserve) resulted in an influx of smuggling in an area north and east up the St Lawrence [River],” Peyton said. “They’re searching for new routes. Criminals are going to use any means at their disposal to get the job done. They took to the water and started moving up the area’s creek bed. Cornwall is absolutely still a major hub.”

The smuggling and its associated organised crime networks caused serious problems for the local First Nations community, said Mike Mitchell, grand chief of the Mohawk Akwesasne Council (MCA), which governs the Canadian reserve community: “Little attention is given to the fact that this network is also used to transport drugs, alcohol, firearms, and illegal aliens.

"While much of it makes its way through Akwesasne, some of these illegal items remain in the community and have negatively impacted the health and safety of our residents, particularly our youth. As a result, drug and alcohol abuse is at an alarming rate in our community and has become a more serious concern for our people.”

Part of the reason this black market was so successful, Peyton said, was the level to which the Canadian public was willing to purchase contraband tobacco products despite the consequences.

“People get concerned about what they’re paying for their cigarettes, and they think they’re paying too much in taxes to the government already. So they become apathetic to paying higher taxes for tobacco,” he said.

“A constant action we have to take is in education and awareness – it’s not simply an enforcement issue. People need to realise that organised crime groups are involved in this, and they’re making huge profits from tobacco that are reinvested into other criminal activities.”

Mitchell said his council had warned the Canadian government about the consequences of raising tobacco taxes, which were raised in the 1980s but reduced in 1994 to help curb the resulting rise in smuggling.

This did decrease for several years but in the early 2000s tobacco taxes were raised again, correlating to a spike in smuggling.

He said the community offered to co-operate on a number of initiatives to fight smuggling, including legitimate economic development in his poverty-stricken community of about 12,000 people, to reduce the attraction of black market activities.

It also proposed an Akwesasne border patrol using First Nations and local Canadian police forces.

But so far the government has not taken action, he said: “Unfortunately, the Canadian government has been unwilling to co-operate with Akwesasne to implement these practical solutions.”

Emma Jackson and M. J. Deschamps