OTTAWA, Feb. 3, 2015 /CNW/ - With puffed-out chest in the fall of 2014, the Ontario Ministry of Finance announced that, "The government's enhanced enforcement measures are expected to generate an additional $350 million over the next four years." This was in reference to the Ministry's resolve to clean up the province's contraband tobacco market. In one fell swoop the Ministry could put the criminal support network for the illicit tobacco market out of business and at the same time plow millions of dollars back into Ontario's tax coffers.
For this strategy to work, it was imperative that the government align policies relating to tobacco so that the harsh strictures on selling and using tobacco could be coupled with control over the production of raw leaf within the province. Ontario's policy on anti-smoking is regarded as one of the most aggressive in the world with restrictions on tobacco marketing and usage. So it certainly makes sense that this 'tough on tobacco' policy at the retail and consumer levels be backed up with a supply side control regime as well.
At the heart of the supply chain issue was the question of who should monitor the production of raw leaf tobacco in Ontario. Until 2011, the Ontario Flue-Cured Tobacco Growers' Marketing Board was calling the shots. The Board was comprised of farmers who were responsible for managing the production, storing and distribution of raw leaf tobacco. The inmates were running the asylum and the contraband industry was thriving.
Most of the 243 tobacco farmers in Ontario were involved in diversion in one way or another so how could a marketing board comprised of diverters be expected to provide proper oversight to eliminate the illicit activity?
The lights went on in the Ministry and in 2011 it announced Bill 186 – Supporting Smoke-Free Ontario by Reducing Contraband Tobacco Act. It looked for all the world that indeed there was now a new sheriff in town and there would be regulations and enforcement capabilities to make sure that raw leaf tobacco did not get into the hands of the criminals. The Ministry of Finance would be taking over from the Flue Cured Tobacco Growers' Marketing Board.
True reform seemed within reach. The timing was becoming a critical factor as well as contraband tobacco had become a major source of financing organized crime. According to Richard Marinaros, former Deputy Director of the Alcohol, Tobacco and Firearms (ATF) agency in the U.S., the illicit tobacco trade generates more than four times the financial returns for organized crime networks than narcotics.
The original architects of the raw leaf management regime foresaw that a series of carefully conceived regulatory requirements would ensure compliance with the spirit of Bill 186 – to stem the flow of raw tobacco product to the black market. As such, the model legislation as drafted in 2011 appeared adequate to the task – with the proviso that there would need to be a transition period until the new provisions took effect.
That proviso turned into a boon for the smugglers and diverters as the Ministry continued to put off the transition of regulatory control. Four long years later, the transition regime appeared ready to be implemented although the four year gap did provide the diverters with virtual carte blanche as no one was monitoring where the tobacco was going once it was harvested.
Transition to Anarchy
While the Flue-Cured Marketing Board failed to preserve the integrity of the tobacco production environment in Ontario, it did develop the regulatory framework necessary to provide real protection against widespread diversion. A review of the most recent draft of the model Board regulations demonstrates that there was a thorough understanding of the processes and strictures needed to keep tobacco production in the hands of legitimate players. The checks and balances, if adhered to, would remove the potential for criminal involvement.
But something got lost in the translation from Marketing Board to Ministry of Finance! The important regulatory provisions that would have truly been meaningful in the fight against contraband tobacco were watered down to the point of irrelevance.
Even a cursory analysis of the transition of responsibility from the Marketing Board to the Ministry would conclude that at least four major flaws have crept into the Ministry's version of provisions to regulate the production and transportation of raw leaf tobacco in Ontario. These include:
- GPS-based monitoring of tobacco crops has been dropped as a measuring methodology that would have assisted in the control of the production of raw leaf;
- Once harvested, growers no longer need to identify the source and the final destination of raw leaf;
- Labelling information that tracks baled raw leaf tobacco has been dropped as a requirement;
- Reporting frequency has been loosened from a weekly requirement to quarterly requirement.
Individually, these flaws jeopardize the control of raw leaf production and transportation in Ontario. Collectively, these flaws jeopardize the public safety of Ontario communities because producers will be able to spoof the regulators and criminal networks will continue to be able to supply the contraband tobacco market.
It is time to get serious about controlling the flow of tobacco in Ontario. The current path will lead to more of the same black market/criminal connection destination.
Unfortunately, the farmers themselves are keen to see the new, watered down regulations come into force. They always viewed the Marketing Board as either irrelevant or at best a nuisance. As far as the new MoF regime taking over enforcement of the regulations is concerned, the farmers think they will never pull it off – too remote to the farmlands.
If the Ministry of Finance wants to meet its objective of garnering an additional $350 million in taxes from the contraband market it needs to fix two major flaws immediately.
First, the MoF needs to amend its regulations to include the specific measuring provisions that had been diluted since 2011. Second, inspectors need to have the latest resources including personnel as well as measuring and chain of control technologies to ensure that raw leaf tobacco does not get diverted into the black market.
The mistakes that have been made in the quest by Ontario to stamp out smoking, at least on the controlling contraband side, are easily fixed. What is required is that the Minister direct that the gaps in the raw leaf tobacco control system be fixed and that the resources needed to police the growing and transportation of tobacco in Ontario be allocated. It looks like a good investment!
Edward R. Myers, formerly Editor of FrontLine Security magazine, has been tracking the contraband tobacco issue now for several years. In the attached article, Myers examines the role of the Ontario government in dealing with the contraband tobacco issue.
SOURCE Contreband Tobacco
For further information: Edward R. Myers, 613-986-5756, [email protected]