John Ivison: U.S. revenue crunch

could clear the way for progress on cigarette smuggling


Posted: February 09, 2009, 6:20 PM by Kelly McParland

Full comment , John Ivison


One Saturday evening late last month, Warren Allen, a 35-year-old from Rooseveltown, N.Y., was driving his Ford Expedition out of Cornwall, Ont., when he was stopped by an OPP RIDE program. Mr. Allen was arrested, police said, after they discovered 1,230 resealable bags of contraband cigarettes, worth $27,000, in the vehicle. Further investigation revealed that he had already been deported from Canada once, after entering the country illegally via the ice bridges that form on the St. Lawrence River.

This was an unremarkable arrest — certainly it lacked the drama and tragedy that accompanied a high-speed police chase that saw an elderly couple from New York State and a suspected tobacco smuggler die in a car-van crash near the Akwasasne reserve last November.

Mr. Allen’s arrest was merely the latest in a steady stream of contraband smuggling incidents that have seen the sale of plastic resealable bags of 200 cigarettes, which sell for as little as $6, steal up to 50% of the Ontario tobacco market. The cost to Canadian taxpayers could be as much as $2.4-billion in lost revenue, according to industry estimates.

Last May, the Canadian government launched a campaign to disrupt the supply of illicit tobacco being trafficked into cities across the country by organized crime networks. But there is little the government can do about the manufacture of cheap smokes, 90% of which originate from factories on the U.S. side of the Akwasasne reserve, which straddles the American and Canadian sides of the St. Lawrence.

Until now, the U.S. authorities have been less enthusiastic than Canadian law enforcement agencies about cracking down on illegal factories operated by the St. Regis Tribal Council in New York State. “Tobacco is not a high priority for my agency,” Chief Andrew Thomas of the St. Regis Tribal Police told The Associated Press, stating that his officers are focused on the drug trade, weapons and illegal immigrants coming south from Canada. The U.S. District Attorney’s office has complained it does not have the resources to deal with contraband smuggling.

But the new U.S. government might soon start to take a very different view of the illegal tobacco industry, because President Barack Obama has just introduced a new $32.8-billion children’s health insurance program that will be funded almost entirely by an increase in tobacco tax. The State Children’s Health Insurance Program was signed into law last week and has committed the federal government to match state funds to provide health insurance to four million more children. The measure will be paid for by a US62¢ increase in the tax levied on each pack of cigarettes, taking the total to US$1.01 per pack.

The increase in tax is sure to make the huge U.S. market all the more attractive to the criminal groups that have concentrated almost exclusively on the lucrative Canadian market to this point. The new tax will take the price for a carton of 200 Marlboro or Newports up to US$90 in some high tax jurisdictions like New York City. By comparison, legal cigarettes sell for $65-85 per carton of 200 in Canada. “There is a concern that when taxes do go up, we’ll be seeing the baggy type of cigarette supplied in both countries,” said Sgt. Michael Harvey, of the RCMP’s Cornwall Detachment.

The prospect that the Americans might soon start to see their own cities infested with cheap bags of smokes has raised hopes among some health groups that the problem might be raised at next week’s meeting between Stephen Harper and Mr. Obama — a meeting at which border issues are said to be high on the agenda.

“Two sentences from the Prime Minister and two sentences form the President and we could have some real action,” said Rob Cunningham, senior policy analyst with the Canadian Cancer Society.

There’s no doubt that the issue needs to be raised at the highest levels before ministers and bureaucrats further down the ladder will take it seriously.

Despite the Canadian government paying lip-service to a crack down on smuggling, the problem continues to get worse. The responsibility for contraband tobacco straddles six departments — Health, Justice, Indian Affairs, Revenue, Finance and Public Safety — all of which have been content to shuffle the problem off to someone else.

Current Public Safety Minister, Peter Van Loan, who should be taking the lead on the file, is seen to have little interest in it.
Mr. Van Loan did not return calls seeking comment but his office issued a rather hopeful statement that said the contraband tobacco enforcement strategy, launched last year, has seen some success already and more success is anticipated.

The big fear, of course, is that determined action might spark an Oka-type stand-off with militant Mohawks on reserves like Akwasasne, who do not consider themselves subject to Canadian law, even though they receive millions of taxpayers’ dollars every year to fund schools, hospitals and housing.

The best prospect for success remains an agreement with Mohawk First Nations that would give them the authority to regulate and tax tobacco products that pass through their reserves. The resulting funds could be used to finance social services, with the idea that every dollar in revenue raised would see government funding reduced by an equal amount.
The prospect of ceding sovereignty may be distasteful to some but the reality is, while generally in favour of the rule of law, many people on the Akwasasne reserve are not dogmatic about it. Creating a real partnership between the Mohawk authorities and Ottawa might mean that someone like Warren Allen doesn’t enter Canada illegally a third time.
National Post