Tobacco's billion-dollar empire

JIM C. POWLESS, TURTLE ISLAND NEWS

The empire builders. Curt Styres, left, Jerry Montour, Peter Montour, Don Skye, an unidentified man and Ken Hill show off tobacco used to make cigarettes at their Grand River Enterprises factory in Ohsweken. The firm is now doing hundreds of millions of dollars in business a year. Since 1996, it has paid -- by its own calculations -- at least $400 million in excise taxes alone.

BARRY GRAY, THE HAMILTON SPECTATOR

The growth of Grand River Enterprises has been staggering. Its sky-rocketing brands, with names such as Sago, DK and Putter's, are sold on native reserves in Ontario. Other successful brands are sold on and off reservations in the United States. They are also on store shelves in places as diverse as Jamaica and Germany.

Tobacco Kings, Chapter 2

By Steve Buist and Joan Walters
The Hamilton Spectator
OHSWEKEN (Oct 3, 2006)

It's a long, long way from the tiny smoke stands at Six Nations to the German army.

From modest beginnings 14 years ago, Grand River Enterprises has become a cigarette manufacturer with worldwide reach, now doing hundreds of millions of dollars in business a year.

The numbers behind the Ohsweken-based company's growing success are staggering.

By 2004, GRE was reportedly selling the equivalent of six million cigarettes a day in the United States alone.

That's 70 cigarettes every second of every day for an entire year.

Since acquiring a federal licence to make cigarettes in 1996, it has paid at least $400 million -- by the company's own calculations -- in excise taxes alone.

Based on that figure, it suggests Grand River Enterprises has sold at least $1 billion worth of tobacco products over the past decade as a licensed Canadian manufacturer.

And now the company has added a reported $70-million deal to be the official supplier of cigarettes to the German army.

Grand River Enterprises is reportedly the first foreign company to win a contract with Germany's Ministry of Defence.

GRE's global span was on full display in June when the company celebrated the opening of its new manufacturing plant in Brandenburg, Germany.

Among the five smiling faces standing in front of the building for a photo op were Ken Hill, Jerry Montour and Montour's father, Peter.

Hill, the company's senior marketing officer, and Jerry Montour, the CEO, are the two principal founding partners of GRE, and they now describe themselves in a legal document as the company's controlling shareholders.

For Hill and Montour, GRE represents the economic engine of a diverse business empire that includes everything from a mining development to bottled water to construction to several federal government contracts for computer supplies.

They've taken GRE from a cramped steel building on one of the reserve's concession roads to a modern, gleaming factory that's 25 times the size -- with a second factory now on the other side of the Atlantic.

They've gone from fighting federal tax inspectors over smuggling allegations in the days before they had their licence to fighting the United States government today over the North American Free Trade Agreement (NAFTA).

A document filed in a GRE court case suggests that at one point the company projected its 2005 profit would be $60 million.

If accurate, it suggests Hill and Montour -- who collectively own 40 per cent of GRE's shares -- are reaping tens of millions of dollars in profits a year.

Another court document suggests a group of GRE shareholders was paid $15 million in bonuses in 2002, when the company's sales for the year were about $86 million.

Montour is reported to have received more than $5.6 million of 2002's bonuses while Hill reportedly received almost $1.9 million.

Since then, GRE's annual sales appear to have skyrocketed, perhaps reaching and exceeding $300 million last year, according to other court documents.

And sales might even be substantially higher. The company sells the equivalent of about $75 million in smokes a year just to northern Ontario reserves alone, according to the person who helps run GRE's northern warehouse in Blind River.

The $75-million figure doesn't include smokes sold at southern Ontario reserves or at Six Nations itself.

That's significant because GRE's president has sworn in a court document that only 25 per cent of the company's products are sold in Canada. The rest are exported.

And that doesn't count the additional production that has been added in Germany.

One German news story in July said the company expects to produce 2.5 billion cigarettes initially at the new plant, with that number almost tripling in three years' time.

GRE is the largest private employer on Six Nations, Canada's most populous native reserve.

In 2000, GRE had 51 employees. By 2002, it had grown to almost four times that size, with 198 employees.

The company's brands are sold at the dozens of smoke shops that dot Six Nations.

They're sold at native reserves in Ontario and on and off reservations in the United States. They are also sold in places as diverse as Jamaica and Germany.

But for all of GRE's economic clout and business success, few people were prepared to speak publicly with The Spectator about the company or its principals.

Neither Montour nor Hill responded to Spectator requests for an interview.

The same was true for Six Nations Chief David General, as well as the reserve's former chief, Roberta Jamieson, who is now chair of the National Aboriginal Achievement Foundation in Toronto.

All General would say, in an e-mail, was that GRE is "a successful local business that has markets worldwide."

GRE did not respond to a list of questions for basic information about the company submitted by The Spectator to Lynda Powless, who handles media relations for GRE. Powless is also publisher of the Turtle Island News in Ohsweken.

Some of the information about GRE's business operations comes from documents filed in two separate legal cases.

* In one, Grand River Enterprises is seeking $340 million US from the United States government based on the company's claim it has faced discrimination under NAFTA.

* In the other case, GRE is involved in a nasty dispute with one of its own minority shareholders that has dragged on for six years.

The company is suing shareholder Sidney Burnham for $3.1 million in damages after a falling-out related to the original cigarette plant, which was located on Burnham's property.

Burnham, in turn, has countersued his partners, alleging they have been withholding his share of the company's profits from him.

As a result, GRE has been forced to turn over a substantial amount of financial information about its business, and it provides an interesting peek at the firm's inner workings.

Burnham declined to comment for this Spectator report.

His allegations against GRE and the company's allegations against him have not yet been proven in court. A decision in the case is still pending.

As well, GRE's claims in its NAFTA challenge against the U.S. government have not been proven before the panel hearing the case.

* * *

Jerry Montour and Ken Hill have been in the cigarette business together since 1992.

Montour, a 45-year-old Mohawk from the Wahta reserve near the Muskoka town of Bala, lives in Hamilton's east end.

Hill, 48, is a Six Nations Mohawk who has built up significant landholdings on the reserve over the past two decades.

Taking advantage of North American native treaty rights, the two men focused their attention on the discount cigarette market.

In 1992, they entered into a joint venture with Larry Skidders, a native who lived on the Akwesasne reserve, which straddles the Ontario, Quebec and New York State borders near Cornwall.

Together, they financed the construction of a cigarette manufacturing facility on the American side of Akwesasne where they could begin producing their own brands.

As business grew, Montour and Hill brought in a partner named Art Montour Jr. (no relation), whose distribution skills and contacts were intended to help increase cigarette distribution to the east coast of the U.S.

Art Montour Jr. is originally from the Kahnawake Mohawk reserve south of Montreal. He now lives on the Seneca Nation Territory in western New York, near Buffalo, where he was once a band councillor.

His father has been described as a prominent member of the Mohawk Warrior Society and Art Montour Jr. pleaded guilty to possession of restricted weapons in 1993 after a shipment of Russian guns went missing in Quebec.

Skidders died in 1993, however, and the relationship between Montour, Hill and those representing the Skidders estate began to deteriorate.

Based on their early success at Akwesasne, Montour and Hill then decided to build a much larger cigarette plant at Six Nations, which was constructed on Burnham's property.

For the first few years, the factory was churning out brands such as Sago, DK and Putter's without a proper federal licence, which led to some legal problems for members of the Grand River Enterprises partnership, which had been established in 1993.

GRE was handed a substantial fine for overproduction of cigarettes in the mid-1990s.

Peter Montour, Jerry's father, was convicted of cigarette smuggling in 1997 and fined $640,000, believed at the time to have been the largest penalty ever for smuggling in Ontario.

Peter Montour was one of the original partners in Grand River Enterprises.

As recently as 2002, he described himself as GRE's manager of sales in an affidavit he filed in a South Carolina court case involving the American company that distributes GRE cigarettes to U.S. native reserves.

In 1988, Peter and Jerry Montour were convicted of conspiracy to import marijuana and sentenced to jail in Canada.

The father and son were described as the key players in a drug-smuggling operation that arranged to have 37 kilograms of marijuana transported from Mexico to Canada.

Peter Montour and another man were also charged in 1988 with attempting to import marijuana but the charges against Montour and the other man were dropped when the other man offered to act as a police informant to help solve a murder investigation that had gone cold.

In 1997, Montour and two other men were charged with extortion and uttering death threats in an alleged attempt to extort $4 million from a former Oakville businessman.

The charges were eventually stayed when the victim failed to show up in court.

Peter Montour did not respond to Spectator requests for an interview.

Hill is currently facing his own legal problems.

He is back in court on Oct. 11 on two assault charges he's facing related to an incident in June in Caledonia, near the site of the lengthy, well-publicized native occupation of a disputed housing development.

During the mid-'90s, Grand River Enterprises attempted unsuccessfully to obtain a federal licence to make cigarettes, in part because of a disagreement over the payment of excise taxes.

But Burnham, the spurned shareholder now being sued by GRE, suggests in a court document that there may also have been another reason.

Burnham has filed a court affidavit stating that he was part of the GRE group that travelled to Ottawa to meet with government officials to request a licence to manufacture cigarettes.

"It became apparent that a licence would not be issued because of concerns regarding prior criminal convictions against the Montours, particularly Peter Montour," Burnham stated.

Burnham's allegation has not been proven in court.

Whatever the reason, the licence impasse was eventually settled to the government's satisfaction.

In 1996, Grand River Enterprises became an incorporated company and obtained a federal licence to make cigarettes.

In exchange, the company agreed to pay the appropriate excise taxes to the government. The company's packages also carry the required Health Canada warnings about the dangers of tobacco.

* * *

Not long after GRE obtained its licence, court documents say, Jerry Montour and Ken Hill stepped back from the company to pursue other business interests in the U.S. and Mexico.

For two years in 1997 and '98, Montour lived on the Omaha Tribe's reservation in northeastern Nebraska while he acted as a consultant in the tobacco manufacturing business.

The Omaha tribe built a cigarette manufacturing plant there, and Montour, Hill and Art Montour Jr. were partners in the venture.

Montour stated in a court affidavit that he would receive 50 per cent of the net profits of the Nebraska tobacco facility in exchange for providing capital and management expertise.

Montour, Hill and some other investors formed a company called Turtle Island, which was used to participate in the partnership with the Omaha tobacco plant.

After Montour returned from Nebraska and became actively involved in GRE again, Burnham alleges regular shareholder meetings ceased and important business decisions about the company were being made by the Montours and their friends, Steve Williams and Scott Smith.

Williams, a former chief of Six Nations, has been president of Grand River Enterprises since 1997 and Smith owns 10 per cent of GRE's shares.

By 2000, the relationship between Burnham and the majority of GRE shareholders, including Montour and Hill, had disintegrated.

The company decided to move its production off Burnham's property to a new location in Ohsweken -- a decision that Burnham says he learned about from a newspaper article.

Burnham alleged in an affidavit that he had growing concerns about the cigarette plant when it was located on his property.

He stated that delivery trucks were arriving at times when federal customs inspectors were not around.

"I had good reason to believe cigarettes in excess of the amount of cigarettes GRE was licensed to manufacture were being manufactured," Burnham stated, "and as the landowner, I could be exposed to criminal charges."

GRE denies the allegations. The company operates with a valid manufacturing licence and pays the appropriate federal taxes.

But there are also hints of a darker side to the relationship between the feuding shareholders of the cigarette plant.

On January 14, 2000, Burnham gave notice to GRE to be out of the building on his property by March 15.

A week before the deadline, Williams stated he showed up at the original cigarette factory and discovered he'd been locked out. He then went to Burnham's house.

A young man there told Williams that Burnham was inside the cigarette factory, so Williams returned there. "Mr. Burnham asked me how I knew he was there and I advised him that a young man at his house told me where to find him," Williams said in his affidavit. "Mr. Burnham said the young man had been advised to shoot anyone who came up the driveway."

* * *

Since 2000, the growth of GRE's business has been nothing short of phenomenal.

Documents filed in court show that GRE's annual sales went from $13.5 million in 2000 to $86.6 million in 2002 to $202 million in 2004.

But the figures might be substantially higher.

One document filed in GRE's fight against the U.S. government suggests the company sold 2.2 billion cigarettes in 2004 in the United States alone.

That's the equivalent of 11 million cartons of cigarettes.

In 2004, a carton of GRE's Sago cigarettes was being sold for approximately $30, which suggests the potential retail value of GRE's U.S. sales was $330 million.

One of Burnham's court affidavits refers to a GRE sales forecast for fiscal 2005 which anticipated sales of $334 million, with profits of $60 million.

But who are the people buying all those smokes?

A summary of GRE's sales for the years 2000 through 2004 filed in court suggests that some of GRE's own shareholders, including Hill and Montour, have been purchasing staggering amounts of cigarettes from the company.

In fact, one of those purchasers is GRE's own manager of sales, Peter Montour.

Through a business called Corner Distribution, Hill, Jerry Montour and Peter Montour purchased almost $37 million worth of cigarettes in 2004 from Grand River Enterprises.

In the five years from 2000 to 2004, Corner Distribution purchased more than $78 million in products from GRE.

It's not clear why Hill and Montour are purchasing large volumes of cigarettes from their own company.

In a court document, Burnham called it "self-dealing," and a way to divert profits away from Grand River Enterprises.

He pointed out that a number of shareholders or their family members had built up about $14 million in accounts receivable by 2004, a figure that had grown substantially from 2002.

Hill and Montour deny the allegations in rebuttal documents.

In 2004, the third-highest purchaser of GRE products is listed as Richard Gionette, who bought $30 million worth of smokes that year.

Gionette is a band councillor with the Mississauga First Nation, near Blind River, about halfway between Sudbury and Sault Ste. Marie.

Gionette and his wife, Robin, operate a gas bar and convenience store called the Broken Canoe Trading Post on Highway 17 just west of Blind River.

A telephone message for one of the Broken Canoe's office numbers indicates that the caller has reached Grand River Enterprises and continues with instructions on how to place a cigarette order.

Six Nations' Grand River Enterprises is a global business. In one year, it sold 70 cigarettes every second, every day. One court document pegs sales last year at $300 million.

Richard Gionette did not respond to a Spectator interview request.

However, Robin Gionette told The Spectator that Broken Canoe acts as a warehouse and distributor of GRE products.

GRE ships its cigarettes to Blind River twice a week, and Gionette has three drivers who make deliveries to northern native reserves from Parry Sound to the Manitoba border.

Robin Gionette said GRE's Blind River operation handles about $1.5 million a week in sales - the equivalent of about $75 million per year covering northern Ontario alone.

She also said her husband is an employee of GRE and that he receives bonus payments for sales.

She was surprised to learn that her husband was listed as GRE's third-largest purchaser in 2004 because she said they don't put up the money for the cigarettes.

Thanks to the new plant in Brandenburg, GRE has gained an important foothold in Germany.

In just its first few months in Germany, GRE reported it had sold three million packs of cigarettes.

The company also indicated it had added Italy, Belgium, France, Sweden and Denmark to its shipping list. And it said it exports cigarettes to Uruguay and South Africa.

The shares, the shareholders

* The company has eight shareholders and a total of 110 shares issued.
* Jerry Montour (33 shares, or 30 per cent of the company), Ken Hill (11 shares), Curt Styres (11), Sid Burnham (11), Jeff Burnham, Sid's son, (11), Victor Bomberry (11), Scott Smith (11) and Don Skye (11).
* But in the past, nine shareholders have been listed, including Jerry Montour's father, Peter.
* An ongoing court case between Sid Burnham and the other shareholders, excluding Burnham's son, includes Peter Montour as one of the company's principals. The shares, the shareholders