Cigarette smuggling rises in Canada

TORONTO, Canada — Some years ago, in the heyday of cigarette smuggling, I found myself in a speedboat bouncing on the St. Lawrence River at 65 mph, heading to the Akwesasne Indian reserve that straddles the Canada-U.S. border.

Behind the wheel was a young French Canadian named Pierre, who described himself as a mid-size player in a billion dollar game. He smuggled 275 cases of cigarettes a week, each case filled with 50 cartons of smokes. In six months, he had made $100,000. (Note: Money in this story is in Canadian dollars.)

He set up our first meeting in a raunchy strip bar in Sainte Barbe, a small Quebec town on the south shore of the St. Lawrence. After a few beers he took me for a white-knuckle ride on the river, his speedboat bounding through the black void of a moonless night.

I passed some kind of a test: The next day, I was on a smuggling run for a story on the underground business. “If you mention my real name,” he said, “I'll end up at the bottom of the lake — and you're going to join me.”

On the Canadian side of Akwesasne, Pierre pulled into a waterway lined with tall grass. He stopped at a makeshift dock, where one of his employees waited in another boat.
Minutes later, a van blaring rock music and an SUV with tinted windows backed up to the dock. Three young aboriginal men stepped out, opened their trunks and filled the two boats with 34 cases of Rothmans, Mark Ten and Export A — each case stacked with 400 packs of contraband smokes.

For some reason, the aboriginal in charge of the operation then threw a smoke bomb in the water and laughed hysterically as smoke billowed. Seemed to me a great way to attract cops. A wad of money exchanged hands.

Pierre sped back to the Quebec side of the shore and unloaded the cigarettes into a waiting van for distribution in Montreal. From start to finish, the operation took less than an hour.

“Now you're a smuggler, too,” he said to me, before heading off for another run.

Smuggling slowed down in the late 1990s after the Quebec and Ontario governments cut taxes, thereby significantly reducing the price of store-bought packs. But in the last six years, the illegal trade has come back with a vengeance.

The black market in cigarettes is believed to be a $1.5 billion industry in Canada. The Ontario government estimates that half of all cigarettes sold in the province are illegal. In neighboring Quebec, that number is 40 percent. Contraband smokes cost the federal and provincial governments more than $2 billion in lost taxes.

In the 1990s, tobacco companies were accused of aiding and abetting the smuggling. In 2008, Imperial Tobacco Canada Ltd. and Rothmans, Benson & Hedges pleaded guilty to helping people sell or possess illegal cigarettes during the previous decade. They paid a total of $1.15 billion to the federal government and 10 provincial governments in fines and settlements.

This time around, tobacco companies have their hands clean. The source of the smuggling, say Canadian police officials, are Indian-owned cigarette manufacturers on reserves in Ontario and Quebec. But the most important source, they add, is the Mohawk community of St. Regis on the New York state side of Akwesasne.

Police say organized crime groups — from the mob to biker gangs like the Hells Angels — are also involved in the trade. Guns and drugs are smuggled along with cigarettes.

In 2008, 1,079,529 cartons of illegal cigarettes were seized by the national police — their biggest take ever. That was a 73 percent increase from 2007.

On the streets of Montreal a pack of illegal smokes can cost as little as $1, compared to $9 for legal ones at convenience stores. A sharp drop in legal cigarette sales is partly responsible for one convenience store a day going out of business in Quebec.

Cigarette companies are also worried about lost revenues. But that hasn’t cut them much slack with provincial governments.

In September, Ontario’s government filed a $50 billion lawsuit against tobacco companies to recover the costs of treating residents with smoking-related illnesses since 1955. Quebec is poised to launch a $30 billion lawsuit for the same reasons. The Ontario suit names 14 cigarette companies and their multinational parents, including Philip Morris USA, Altria Group and JTI-Macdonald Corp.

Ontario’s Attorney General, Chris Bentley, said the province spends $1.6 billion a year treating people with illnesses related to smoking, such as cancer and heart disease. There are about 13,000 smoking related deaths every year in Ontario.

Cigarette companies have denounced the lawsuits as the hypocritical actions of governments happy to collect taxes from cigarette sales while also operating casinos and selling alcohol, which create their own addictive behaviors.

About 18 percent of Canadians today are smokers, compared to 25 percent in 1999. But anti-smoking groups say the proliferation of cheap, illegal cigarettes is slowing the decline.

Last May, the Canadian and U.S. governments signed an agreement for joint coast guard patrols on shared waterways to increase border security and crack down on smuggling. They’re up against a lucrative trade where, for now at least, the money comes easy.