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 Canadian government in dealing with the contraband tobacco issue.
Illicit Smokes and Sovereignty
By Edward R. Myers
OTTAWA, Dec. 8. 2014 /CNW/ - Canadians are often indignant when our American counterparts show us up. From hockey games to who is going to provide continental missile defense for us all, the debates about sleeping next to the elephant never go out of vogue.
Roy Rempel, author of the provocative work on Canadian foreign policy, Dreamland, argued that Canada's domestically driven foreign policy has lost sight of the national interest. As a consequence, "Canada's policy options are narrowing, national sovereignty is eroding, and the country risks evolving into a protectorate of the United States". Canada's national sovereignty is again threatened nearly 10 years after Dreamland.
Last week, the Hamilton Spectator reported that the State of New York is suing a Six Nations cigarette manufacturer, Grand River Enterprises (GRE), for $350 million for illegally selling contraband cigarettes across the state. Chock one up for the Americans. U.S. regulators, government fiscal managers and law enforcement agencies scored a major win in the contraband tobacco wars by suing GRE directly as the Canadian government seems unwilling to acknowledge its complicity in the often illegal flooding of the American market by a Canadian company that has run into law suits from many states in the Union.
This was permitted when GRE, a native-owned, Canadian reserve-based company obtained a Canadian federal license in 1996 to manufacture tobacco products as part of a plea bargain after legal action. The license was granted on the provision that GRE fully meet its excise taxation obligations with the Canadian government and has since been allowed to operate free of legal constraint. This license opened a window for them to freely import and buy Canadian tobacco and export the finished product – where it went was none of the government's concern.
GRE needed to build up a distribution partner in the U.S. to sell their Seneca brand cigarettes and other tobacco products in quantity. The principals of GRE set up a U.S. based distributing arm, Native Wholesale Supply (NWS), which would carry out the task of linking up wholesale and retail outlets for the their products across the U.S.
This distributor has been continually indicted across the US for tax violations and did a last ditch effort to avoid numerous law suits it was facing simultaneously by challenging the US government directly in a NAFTA case that sought to give it permission to ignore international borders. This appears to be the audacious behaviour of a company that sets its own standards that are not consistent with the legislative requirements of all other registered companies in Canada involved in the production and sale of tobacco products.
The big problem for Canada is a systemic one that the GRE case underlines: When it comes to the heavy lifting in serious cross border crime – which this particular lawsuit clearly underlines – the tough work is left to the U.S. law enforcement agencies to prosecute Canadian companies acting improperly. If the Canadian government is not willing to ensure Canadian companies export responsibly then the U.S. government will.
As important as it will be to the New York Treasury to get some of its swindled tax revenues back, the GRE lawsuit should provide Canada with an opportunity to fix some national security and public safety problems from a systemic point of view. At a minimum, the case should underline the problems of the government/legislative deal with GRE - that is not the template for licensing aboriginal cigarette manufacturing sites within Canada and its resulting participation in the ongoing tax losses of multiple governments including the U.S., Canada and the provinces. As long as the federal government is getting its money from the GRE deal, it has shrugged off any responsibility the deal has caused for others. This ongoing problem highlights for the Americans' concern for the border and the efficacy of our government that is crucial to both economies.
The case also holds promise that the Canadian authorities will recognize the importance of taking control of their public safety and national security vulnerabilities and our role in creating them. Canadian governments (federal and provincial) need to address the contraband tobacco problem from a coordinated point of view and not one where one level of government cuts deals and leaves the others out in the cold. This means taking a leadership position that will cause our American neighbours to appreciate our mutual interest in proper tobacco control and the removal of the elements that attract organized crime to our communities. That leadership must be coordinated with regulatory authorities and law enforcement/border control agencies so that all parts of the system are moving in the same direction. We need a proper central authority for tobacco control in Canada – one that will stop this kind of tax loss for us and our southern neighbours. In short, an Investigative Ombudsman with policing and investigative powers that is already clearly defined in the Criminal Code of Canada must be appointed to ensure that a clear and concise offensive plan against the illicit tobacco industry is developed and implemented. Our country clearly needs this authoritive office that complements law enforcement and legislative authorities ensuring a central agencies that is specifically focused on contraband tobacco industry which is now endemic resulting in a the multi-billion dollar tax avoidance boondoggle that is so out of proportion that the government regulated business of tobacco is now close to being second in production.
With the passage of Bill C-10, the contraband tobacco criminal law amendment that will stipulate harsh sentences for repeat smugglers, there is a window of opportunity for the Canadian government to begin to right the ship. It then must take up the leadership challenge on this issue, appoint a national tobacco ombudsman, and get ahead of the Americans in stopping international crime syndicates from having a nice place from which to operate. While Ontario's Finance Minister is seeking $500M+ from eliminating contraband to help balance Ontario's books and New York is suing to recover some of its tobacco tax losses, it's time for the Canadian Government to realize the gravity of the problem and its responsibility to our neighbours and it's provinces and implement C-10 properly and with force. That would serve the public safety interests of Americans and Canadians alike.
SOURCE: FrontLine Security
For further information: Edward Myers, 613-986-5756