Tobacco firms fined $1.15B

July 31, 2008

Allan Woods
Bruce Campion-Smith
Ottawa Bureau

Toronto Star

OTTAWA — Tobacco giants Rothmans Benson and Hedges and Imperial Tobacco pleaded guilty this morning to charges of failing to pay taxes on cigarettes that were used in a contraband and smuggling scheme and have been ordered to pay fines of $300 million and damages of about $850 million.

Royal Canadian Mounted Police said the guilty pleas end an eight-year investigation and demonstrate that "no company is above the law."

A third tobacco firm, JTI-Macdonald, is continuing to fight the case, which is winding its way through the criminal courts.

The two companies pleaded guilty to producing contraband cigarettes in Canada between 1989 and 1994, shipping them across the U.S. border and distributing them to smugglers or black-market sellers, who would bring them back into Canada for illegal distribution, according to a police press release.

The distribution method allowed the two companies to avoid paying excise taxes to the federal government.

In an agreed statement of fact, Imperial Tobacco and Rothmans Benson and Hedges admitted to "aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the excise act and its amendments and ministerial regulations."

Imperial Tobacco will pay a $200-million fine and Rothmans will pay $100 million.

However, no individuals involved in directing the smuggling operations or shipping cigarettes across the border will face charges, nor will the tobacco executives who profited from the activity, said Cynthia Callard, executive director of Physicians for a Smoke-Free Canada.

"It was a business deal between the government, which didn't want to go to court with a case that's 14 years old, and the companies," she said.

"This is not a 'crime doesn't pay' message."

Callard and five other people representing three anti-tobacco organizations in Canada were called to RCMP headquarters in Ottawa this morning for a private briefing about the settlement.

Callard said they had been invited to a meeting about the RCMP's new anti-contraband strategy, and were only informed of the real reason for the briefing once they had handed over their BlackBerries and cellphones.

By the time the meeting had concluded, the RCMP had issued a press release.

"The result we've seen today brings to a close a significant chapter in contraband tobacco history and reconfirms the RCMP's commitment to bringing such cases to a successful conclusion for the benefit of Canadians," RCMP Assistant Commissioner Mike Cabana said in the statement.

National Revenue Minister Gordon O'Connor cheered the "historic" settlement and said the two companies would pay $1.15 billion in combined fines and compensation to the federal and provincial governments.

"These represent the largest criminal fines and civil settlements in Canadian history," O'Connor told reporters in Levis, Que., where the federal Conservatives are holding a summer retreat.

"Our government recognizes the adverse effects of the contraband tobacco market," he said, adding that the actions of the tobacco companies robbed governments of tax revenue that could have been used for "key programs and services."

"Today's announcement sends a clear message that governments ... are united in their effort to enforce Canada's tobacco tax laws," O'Connor said.

The money will be split between the federal government and provincial governments. Ottawa will get $574.9 million and Ontario will get $156.9 million.

O'Connor said the settlement means the two companies did not profit on their illegal activities in the early 1990s.

"The companies have accepted responsibility for their actions in the movement of contraband tobacco," he said.