RCMP closes book on historic tobacco investigations

July 31, 2008 – (OTTAWA) - The Royal Canadian Mounted Police (RCMP) announced it has concluded a long-running file after two of Canada’s largest tobacco companies entered guilty pleas this morning in response to indictable offences under Section 240(1)(a) of the Excise Act.

The guilty pleas, from Imperial Tobacco Canada Limited (ITCL) and Rothmans Benson & Hedges (RBH), are the culmination of more than eight years of investigative work by RCMP Customs and Excise sections in Ontario and Québec. As part of agreed statements of fact, the two companies admitted to “aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act and its amendments and Ministerial regulations.”

As a result, the two companies have paid the largest fines ever levied in Canada; ITCL has paid a $200-million fine and RBH $100-million.

This is apart from additional amounts the companies have agreed to pay by way of civil settlements with Canada and the Provinces, which are to be administered by the Canada Revenue Agency (CRA). It also includes a commitment by the companies to combat contraband tobacco activities in Canada.

“The result we’ve seen today brings to a close a significant chapter in contraband tobacco history and reconfirms the RCMP’s commitment to bringing such cases to a successful conclusion for the benefit of Canadians,” said RCMP Assistant Commissioner Mike Cabana.

“The message sent today is that no company is above the law,” added Assistant Commissioner Cabana.

The material time of the charges involved illegal activity between the years of 1989-1994. Then, the contraband tobacco market in Canada involved product being produced in Canada, and shipped to locations in the US near the Canada/US border. From there, it was distributed to smugglers or black market distributors who brought it back into Canada for further illegal distribution.

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Speaking Notes for Assistant Commissioner Mike Cabana

A and C Oiler
July 31, 2008
Ottawa, ON.

Good morning/afternoon ladies and gentlemen. Thank you for coming. I’m Assistant Commissioner Mike Cabana from RCMP National Headquarters here in Ottawa. I have a few remarks to make after which we’ll have some time for questions.

Mesdames, Messieurs, merci d’être venus. Je suis le comm. adj. Mike Cabana, de la Direction générale de la GRC à Ottawa. J’aimerais faire quelques commentaires, après quoi je serai disposé à répondre à vos questions.

Let me start by saying, this is a momentous day for law enforcement, for Canada, and for Canadian taxpayers. That’s why we’ve asked you here...to tell you about the conclusion of two extremely complex and unusual cases related to the smuggling of contraband cigarettes. And while few, if any, police cases can be termed “ordinary,” those we’re here to discuss today certainly fall into the realm of “extraordinary.”

More than eight years of intense investigation paid off today when two of Canada’s major tobacco companies - Imperial Tobacco Canada Limited (ITCL) and Rothmans Benson & Hedges (RBH) - entered guilty pleas in response to indictable offenses under Section 240(1)(a) of the Excise Act.

The RCMP undertook these investigations as the primary criminal enforcement authority for the Excise Act which governed the manufacture, distribution and possession of tobacco products at the material time of these offences (‘89 to 94).

The Imperial Tobacco Canada Ltd. investigation began in December 1998, while the investigation into the activities of Rothmans Benson & Hedges started in 2000. And when I say, “intensive” in reference to these investigations,” let me provide some context...

If we consider these cases together, the RCMP reviewed and analyzed more than 763,000 documents, and conducted some 275 interviews. This gives you an idea of the scope of these kinds of investigations and why they take significant time to complete.

Imperial Tobacco Canada Limited and Rothmans Benson & Hedges, entered their guilty pleas in Provincial courtrooms earlier today in Montreal and Toronto respectively. These pleas attest to the tenacity and ability of law enforcement to bring such cases to successful conclusions, to the benefit of all Canadians.

As part of an agreed statements of facts, the two companies admitted to “aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act and its amendments and Ministerial regulations.”

As a result, these companies agreed to, and have paid, the largest fines ever levied in Canada. ITCL has paid a $200-million fine, and RBH $100-million.

Dans le cadre d’un exposé conjoint des faits, les deux sociétés ont reconnu avoir aidé des personnes à vendre et à avoir en leur possession du tabac fabriqué au Canada qui n’était pas empaqueté et estampillé conformément aux dispositions de la Loi sur l’accise, à ses modifications et au règlement ministériel.

Par conséquent, les deux société ont accepté, et acquitté, l’amende la plus forte jamais imposée au pays : 200 M$ pour ITCl et 100 M$ pour RHB.

The fines are in addition to the civil penalties the companies have agreed to pay by way of settlement, approximately$850-million in total for both companies. The combined fines and civil settlements for the companies total approximately
$1.15-billion Canadian.

The civil settlement, which is under the purview of Canada Revenue Agency (CRA), also includes a commitment by ITCL and RBH to contribute to a Tobacco Compliance Measures Program aimed at combatting contraband tobacco activities in Canada.

CRA can provide more details concerning the civil side of these cases.

The material time of the charges involved illegal activity between 1989 and 1994. Then, the contraband tobacco market in Canada involved product being produced in Canada, and shipped to locations in the US near the Canada/US border.

From there, it was distributed to smugglers or black market distributors who brought it back into Canada for still further illegal distribution.

As I noted earlier, today’s guilty pleas represent the largest fines in Canadian history. With that, I believe we are sending some very strong and clear messages:
• firstly, that such activity will not be tolerated;
• secondly, that no company, large or small, is above the law; and
• finally, that success can and will be achieved though perseverance and cooperative effort.

Comme je l’ai mentionné plus tôt, le plaidoyer de culpabilité présenté aujourd’hui correspond aux plus lourdes amendes de l’histoire du pays. Fort de cette sanction, nous formulons un message on ne peut plus clair :

• d’abord, que cette activité ne sera pas tolérée.
• ensuite, qu’aucune société, grande ou petite, n’est au-dessus de la loi;
• enfin, que la persévérance et la collaboration sont la clé d’une répression efficace.

What we are talking about today is a case of legitimate businesses exploiting circumstances and geography, taking advantage of the disparity existing in the Canadian and United States marketplace between 1989 and 1994 and playing on the geographical idiosyncracies of the Canada/US Border.

While these cases are historic in scope, they are now concluded. What’s more, they do not reflect the present day tobacco smuggling environment in this country which is dominated by foreign manufacturers smuggling their illicit products into Canada, largely under the control of organized criminal groups.

I’m sure everyone here today is aware of the numerous seizures of illegal tobacco the RCMP, the SQ in Quebec, the OPP in Ontario, and law enforcement agencies right across Canada have made in recent months. It’s clear the illicit tobacco trade is a huge business.

It’s a lucrative enterprise for organized crime — groups that are using their profits to bank roll additional criminal activities. Unfortunately, among smokers, there is still a strong appetite for illegal tobacco products.

The difficulty is to get cigarette buyers to understand that while they may be saving a few dollars, they are often supporting other serious crimes... crimes like drug trafficking, human trafficking, prostitution and others.

This is the challenge we face: to help Canadians to understand that buying that bag of contraband cigarettes may seem harmless, but it supports other criminal activity in our country.

Over the last number of years, contraband tobacco seizures by the RCMP have rapidly and steadily climbed. Last year, RCMP seizures reached an all time high — more than 618,000 cartons of illegal cigarettes — a 21-fold increase since 2001 (29,000 cartons).

Equally troubling are seizures of illegal loose and raw leaf tobacco— last year alone totaling 37 metric tonnes — and that’s just what was intercepted.

This is part of the reason we developed our Contraband Tobacco Enforcement Strategy which was released in May.

The Strategy represents our ongoing commitment to target this crime. It reflects the situation now and provides a response to the growing threat contraband tobacco poses to Canada and to all our communities. Based on the growth of this illicit market, it's evident that enforcement and awareness strategies had to be enhanced and expanded.

In closing, let me reiterate that the RCMP takes the illegal tobacco market very seriously, particularly given the growing involvement of organized crime.

We know that enforcement alone cannot put an end to illegal tobacco. But it is part of the solution, and as we’ve demonstrated, we continue to work with our partners everyday to root out those who pursue this kind of activity and ultimately, we will make them pay the price for criminal activity.

Je vous remercie de votre attention. Je suis maintenant prêt à répondre à vos questions. Comme je l’ai mentionné plus tôt, toute question relative à l’aspect civil de ces affaires relève de l’Agence du revenu du Canada, qui est ainsi la mieux placée pour y répondre.

Thank you for your attention. Now, if you have any questions I’d be pleased to answer them. As I mentioned earlier, questions on the civil aspects of the cases are best answered by the Canada Revenue Agency.