[Date Prev][Date Next][Thread Prev][Thread Next][Date Index][Thread Index]
Canadian Smuggling Investigation Continues (fwd)
Toronto Globe & Mail
Police probe of industry links to smuggling goes
back years
Scheme to import cigarettes illegally
no secret to tobacco firms, ex-RCMP official says
Monday, January 4, 1999
JOHN SAUNDERS
in Ottawa and Tu Thanh Ha in Montreal
Syracuse, N.Y. -- Shedding light on an
uncharacteristic guilty plea by a tobacco
company, search-warrant documents reveal that the
RCMP has spent years
investigating suspicions that smugglers had help
from inside Canada's No. 3
cigarette maker.
RJR-Macdonald Inc., maker of Export A's, is at the
centre of the latest news of
corporate links to an odd, Canadian kind of
smuggling. Cigarettes are shipped out
of the country and then spirited back in, avoiding
high Canadian taxes.
It explains how, on paper, Canadian cigarettes
became an export-success story in
this decade when hardly anyone but Canadians likes
them. It also suggests how
black-market forces can defeat political attempts to
discourage smokers at the cash
register.
Smuggling investigations and related publicity have
already affected the careers of
one RJR-Macdonald executive (former chief operating
officer Stan Smith, who left
the company last year at the age of 43) and at least
two of his subordinates, notably
Christopher Gibb-Carsley, a veteran salesman based
in Montreal.
Mr. Gibb-Carsley, whose work involved selling
cigarettes to duty-free shops on the
border, was arrested 3½ months ago in an RCMP
roundup. He is accused of
conspiring with a Montreal customs broker and others
to import cigarettes illegally.
At last report, he was on medical leave from his job.
After an investigation involving wiretaps and
undercover work, the Mounties
searched computer files at RJR-Macdonald's Montreal
offices in 1996, seizing
printouts of customer lists and sales volumes.
To obtain a search warrant, the police filed 11
pages of allegations, none yet tested
in court. One was that someone inside the company
was getting payoffs to direct
cigarettes to U.S. dealers who would route them to
the U.S. side of Akwesasne
Mohawk territory, a smugglers' paradise straddling
the border near Cornwall, Ont.
Akwesasne also figures in RJR-Macdonald's greatest
embarrassment yet. In a plea
bargain announced Christmas week, a sister company
that handled its U.S.
marketing cut short a federal prosecution in
Syracuse, N.Y., by agreeing to pay
penalties of $15-million (U.S.).
Northern Brands International admitted selling
nearly 1.3 million cartons of Export
A's to just one group of smugglers in 1994 and 1995
"with wilful blindness to or
conscious disregard of the fact that these
cigarettes would be fraudulently diverted"
from their declared destinations, Russia and Estonia.
In fact, they went to Canada via native territory or
other routes after stops in various
U.S. warehouses.
The scheme was almost laughable, implying that
former Soviet subjects had
developed a sudden craze for Canadian cigarettes,
but it might have gone
unpunished had the smugglers not grown greedy and
evaded a comparatively small
U.S. federal tax in the process.
The corporate plea bargain was not cheap, but it
bought something for
RJR-Macdonald and related entities, notably
RJR-Nabisco of New York, owner of
both RJR-Macdonald and Northern Brands.
The U.S. Attorney's Office for the Northern District
of New York agreed not to
bring further criminal charges against any of the
companies for violations of federal
law that may have occurred since 1985 relating to
illicit trade in Canadian-brand
cigarettes. The office would normally handle U.S.
cases relating to smuggling
through Akwesasne.
Even so, the deal does not bind authorities in other
U.S. districts or Canada; nor
does it protect individuals from prosecution, which
means that executives and
salesmen could still be at risk.
The U.S. attorney, Thomas Maroney, had already
obtained guilty pleas from 18
people (Mohawks, Italian-Americans and Anglos, but
no tobacco-company
employees) in connection with related smuggling
operations, described as some of
the biggest yet prosecuted, and he warned last week
that the investigation is not
over.
Among the 18 are Larry V. Miller of Massena, N.Y., a
bar owner who got so rich
smuggling liquor and tobacco that he at one time had
his own Learjet; the Tavano
brothers, Robert and Lewis, of Niagara Falls, N.Y.;
and Tony Laughing, a
Cleveland steel worker who returned to his
reservation roots to prosper in
smuggling and gambling as armed Mohawk Warriors made
Akwesasne an
entrepreneurial free-fire zone. A number of the same
people face Canadian criminal
charges in major RCMP cases.
Manhattan lawyer Stephen Heard, who represents the
RJR group in contraband
matters, said Northern Brands is no longer active.
He described it as having been
"an entirely Canadian operation" handling
RJR-Macdonald brands exclusively and
run by Canadian citizens, despite the fact that it
was incorporated in Delaware.
Those affected at Northern Brands include sales
director Les Thompson, who is on
administrative leave. Mr. Thompson was in the news
in 1997 after a U.S. Customs
agent filed an affidavit describing him as having
sat around a fireplace at a
Vancouver Island fishing lodge two years earlier
talking tobacco with the Tavanos
and Loran Thompson (no relation), a leading
Akwesasne smuggler.
Masters of marketing, Canada's tobacco executives
knew where their smokers
were in the early 1990s as they watched their
exports climb to more than a third of
their production. They did not condone smuggling,
they said, but what could they
do?
They said rising taxes had fostered a culture of
contraband. They even hired a
former RCMP assistant commissioner, Rod Stamler, to
produce public studies of
smuggling.
In an interview last month, Mr. Stamler said the
trade was not illegal from the
companies' point of view as long as they did not get
close to the smugglers.
"Whatever happened in New York, it must have been a
mistake on their part, but
for the most part the Canadian manufacturers tried
to sell to legitimate licensed
wholesalers [in the United States]. Did they know
where their product was going?
Of course they did. I mean, nobody denies that.
"As a matter of fact, our reports in detail outlined
what happened to the cigarettes
and how they were being shipped out and how they
were being rotated back all
through the Indian reservation and various other
spots across the country. This was
not a secret, and it was publicized by the companies
themselves."
It was Canadian policy to deter smoking with high
prices, but politicians retreated in
1994, cutting taxes to shrink smugglers' profits and
avert a collapse of legal cigarette
retailing in Quebec and Ontario.
The glory days of smuggling were over, but the
smuggling did not stop. Depending
on how you look at it, the war was won by the
smugglers, the companies or the
smokers.
Another view is that the companies were just
protecting their market shares.
Industry leader Imperial Tobacco (Player's and du
Maurier, among other brands)
declared publicly in 1993 that it would no longer
honour government requests to
limit exports because smugglers were filling the
demand for cheap cigarettes with its
competitors' products.
There was also the risk that Canadians would get a
taste for smuggled U.S. brands,
or for copycat Canadian-style brands marketed by
energetic and largely tax-exempt
U.S. native groups.
At the Wolf Clan Truck Stop on the U.S. side of
Akwesasne last week, you could
buy a carton of 200 Akwesasne-made Putter's Lights
(think Player's Light) or DK's
(du Maurier King Size) for the equivalent of $12.25
(Canadian). Exacts, which
mimic Export A, are made on the Tuscarora Nation
near Niagara Falls, N.Y.
All three brands have shown up as contraband in
nearly every part of Canada,
where fully taxed major-brand prices range from
about $30 a carton in Ontario and
Quebec to more than $48 in British Columbia and $52
in Newfoundland. Federal
and provincial taxes, which account for the bulk of
the legal price, range from less
than $17 in Ontario to more than $39 in Newfoundland.
In recent years, Canadian natives have met the
challenge. Sago cigarettes, made on
the Six Nations reserve near Brantford, Ont., are
sold legally on the reserve ($15 a
carton, including about $8 in federal excise tax and
duty but no other taxes) and
trafficked illegally as far away as Alberta and
British Columbia.
Sago means hello in Mohawk, but some insist it
stands for Society to Aggravate
Government Officials.
In the great Syracuse contraband case, it turns out
that some of the Export A's
smuggled into Canada were not really Canadian
cigarettes at all. They were made in
an RJR plant in Puerto Rico.
It may sound as if the company had set up an
offshore production line to serve
smugglers, but Mr. Heard, the RJR lawyer, said that
was not so. "It was not
intended to feed the contraband market. It sold into
the Caribbean basin."
Export A's have not been made in Puerto Rico since
about 1996, he said. Asked if
he thought there was a Caribbean market for the
brand, he said he was not sure.
For the past year, Mr. Laughing has been telling
anyone who will listen that
Canadian tobacco executives were as involved in
smuggling as he was, at least in
terms of knowing what happened to their product
after it was exported.
"I said all along they knew exactly where it was
going," the 51-year-old Mohawk
businessman said last week in a county-jail
interview in Syracuse. "We were their
biggest customers. They had to know where it was going."
He has a reason to say this. He argues that it is
unfair to send him to prison for a
long time (he is looking at up to eight years when
he comes up for sentencing next
month) in a case in which no tobacco-company
official has even been charged.
The argument may not sound quite as hollow in the
wake of the Dec. 22 corporate
guilty plea. The company admitted there was proof
that it abetted customers in
illegal acts by deliberately turning a blind eye to
their conduct.
This is not to say Mr. Laughing gave himself up
willingly. After he was charged in
1997, he holed up on the U.S. side of Akwesasne and
defied U.S. authorities to
arrest him.
He wound up pleading guilty to two charges:
money-laundering conspiracy and
conducting the affairs of the St. Regis Mohawk band
(meaning the U.S. side of
Akwesasne) through a pattern of racketeering
activity. The latter charge relates
partly to kickbacks collected for a former chief.
From his jail cell, Mr. Laughing can look back on an
interesting life.
As he tells it, his mother was from the Kahnawake
reserve near Montreal, home of
steel workers who built many of the continent's
skyscrapers, and his father ran
alcohol south through Akwesasne during Prohibition
for Joseph Kennedy, who
went on to serve as U.S. ambassador to Britain and
see his son in the White House.
Mr. Laughing said he worked in steel construction
for 20 years before going home
in 1986 to build a business smuggling cigarettes
from Akwesasne to Kahnawake.
He preferred cars and vans to boats, and the lightly
patrolled border roads east of
Akwesasne to routes on Mohawk land, he said.
He said he could buy exported Canadian cigarettes
for the equivalent of about
$8.25 (Canadian) a carton and get $17 in Kahnewake
when legal store prices in
Quebec were about $30, leaving plenty of profit for
those who would sell them on
the reserve or city streets.
He said his own profit was $2-million (U.S.) in his
first full year, enabling him to
build an illegal casino on the U.S. side of
Akwesasne. Things were even better
when Quebec prices rose to between $40 and $50 a
carton in the early 1990s, he
said, and not so good after Canadian cuts in 1994.
As he saw it, his operation was law-abiding, at
least on the U.S. side. Mohawks
pay no state tax, and his purchase price included a
U.S. federal tax of $2.40 (U.S.)
a carton.
He stressed that he took no part in the scheme that
got Mr. Miller in trouble and led
to the tobacco-company guilty plea. Using phony
overseas destinations, Mr. Miller
and his group avoided the U.S. federal tax and saved
$120,000 on each load of
50,000 cartons.
His greed got the better of him, Mr. Laughing said.
"He wanted that extra $120,000
to play with."
CIGARETTE SMUGGLING: THE AKWESASNE ROUND TRIP
1. Truckloads of cigarettes made in Montreal are
shipped to warehouses in
Champlain, N.Y., or elsewhere. Because they are
purportedly bound for U.S. or
overseas markets, they are not subject to Canada's
high tobacco taxes. A modest
U.S. federal tax may be paid if the declared
destination is the United States.
2. The cigarettes are transferred to the U.S. side
of Akwesasne Mohawk territory,
which boasts dozens of cigarette shops paying no
state taxes. Smugglers take them
to the Canadian side in boats on the St. Lawrence,
or in cars, vans and pickups
plying lightly patrolled border roads.
3. The cigarettes go by various routes to Canadian
city streets, where blackmarket
operators can take profits and still undercut prices
of fully taxed cigarettes. Many
smuggled cigarettes end up in Montreal, where they
were made.
-**
Canadian cigarette prices: high on both coasts,
lower in the centre
This table shows taxes and typical prices per carton
of 200 cigarettes. On U.S.
native reservations near the border, generic
Canadian style cigarettes retail for the
equivalent of $12.25 a carton or less.
Provincial.Federal.Federal
Provincial.Fede-.Final
Tobacco.Excise
Excise.Product.Sales ral Retail
Taxes Tax Duty Cost* Tax
GST Price
British Columbia $22.00 $5.35 $5.50 $12.75
$0.00 $3.19 $48.79
Alberta 14.00 5.35 5.50 12.75
0.00 2.63 40.23
Saskatchewan 16.80 5.35 5.50 12.75
2.83 2.83 46.06
Manitoba 16.00 5.35 5.50 12.75
2.77 2.77 45.14
Ontario 4.70 2.65 5.50 12.75
2.05 1.79 29.44
Quebec 5.94 2.25 5.50 12.75
1.98 1.85 30.27
New Brunswick 7.70 4.45 5.50 12.75
2.43 2.13 34.96
Nova Scotia 9.04 4.65 5.50 12.75
2.55 2.24 36.73
Prince Edward
Island 12.65 3.40 5.50 12.75
0.00 2.40 36.70
Newfoundland 22.00 5.35 5.50 12.75
3.65 3.19 52.44
-*Manufacturer's selling price plus typical
wholesale and retail markups
Source: Revenue Canada