:
Thank you, Mr. Chair and honourable members. I am very pleased to have the opportunity today to speak to you with regard to the current trends in the Canadian contraband tobacco market and the RCMP's ongoing efforts to reduce this illicit trade. Equally important are the enhanced partnerships and increased coordination, domestically and internationally, that are key in disrupting contraband tobacco manufacturing and distribution in Canada.
With that in mind, I am pleased to appear before this committee with my colleagues from the Canada Revenue Agency, Health Canada, Public Safety Canada, and the Canada Border Services Agency.
[Translation]
By way of background, I should note that the RCMP's Customs and Excise Program is mandated to enforce laws both within Canada and between the ports of entry governing the international movement of dutiable, taxable, controlled or prohibited goods and the manufacture, distribution or possession of contraband products including tobacco and spirits. The investigation of contraband tobacco offences has been, and continues to remain, a priority of our Customs and Excise Program.
[English]
Currently, the market for contraband tobacco has adapted to include three primary sources of illicit products: illegal importations from the United States in and around the city of Cornwall, Ontario; illicit manufacturing in central Canada in first nations territories; and the illegal importation of counterfeit cigarettes and other illicit products in marine containers, which often come from Asia.
The present trend of manufacturing, distributing, and selling contraband tobacco products, which has developed exponentially over the last six years, often involves organized crime networks that are exploiting geopolitically sensitive areas. Traditionally seen as a victimless crime, tobacco trafficking is now regarded as a significant source of income for all levels of organized crime. In fact, some organized crime groups reinvest the substantial profits derived from tobacco trafficking to support other criminal activities.
Recent intelligence identifies approximately 175 organized crime groups as being involved to varying degrees in the contraband tobacco market in Canada. Seventy-four percent of these organized crime groups were also involved in a wide range of other forms of criminality, such as drug trafficking and/or weapons trafficking. Nearly half of identified crime groups are based in central Canada, the region where most of the contraband tobacco originates and where illicit tobacco manufacturing operations are located.
Although the number of illicit manufacturers constantly fluctuates, the RCMP estimates that there are approximately 50 unlicensed manufacturers in Canada. Through intelligence gathering and cross-border investigations undertaken with U.S. enforcement agencies, it is also estimated that 10 unlicensed and two licensed manufacturers are operating on the U.S. side of the Akwesasne Mohawk territory.
The availability of contraband is at a historical high, as demonstrated by the fact that seizure levels made by the RCMP and its investigative partners for 2009 have surpassed the 1994 benchmark by 114%. With a total of approximately 975,000 cartons or resealable bags of cigarettes seized, 2009 seizures represent an increase of 1% over those in 2008. A total of almost 34,000 kilograms of fine-cut tobacco and 10 kilograms of raw leaf were also seized in 2009.
[Translation]
To tackle this growing crime in the coming years, the RCMP developed its Contraband Tobacco Enforcement Strategy following consultations with over 70 partners and stakeholders. The Strategy, released in May 2008, aims to reduce the availability of, and the demand for, contraband tobacco nation-wide. It also serves as a guide to provide national direction to front line officers. Key components of the RCMP's approach include disrupting organized crime and thus, the supply chain; increased coordination and partnership; outreach with First Nations communities; and education and awareness.
[English]
Last week, the contraband tobacco enforcement strategy progress report, which highlights our activities since the strategy was launched in May 2008, was released. While acknowledging that more work remains to be done, the report demonstrates the RCMP's commitment to tackling this form of criminality and the progress achieved during the first year of strategy execution. Importantly, RCMP coordinators have been appointed across the country to strengthen national and regional implementation of the strategy.
As mentioned, one of the strategy's key priorities is targeting organized crime and those key figures involved in overseeing illicit tobacco networks and operations. The RCMP's approach has yielded results. Between April 2008 and May 2009, 25 organized crime groups of various levels of sophistication were disrupted. Furthermore, over 740 criminal charges under the Excise Act, 2001 were laid against approximately 650 individuals in 2008, and more than 560 vehicles and two boats were seized. In 2009, over 770 charges were laid under the Excise Act, 2001, and an additional 403 vehicles and 18 boats were seized. Just last month, a man who had been charged by Valleyfield RCMP under subsection 412.12(1) of the Criminal Code of Canada, otherwise known as gangsterism, was found guilty by the court for his involvement in an organized crime group smuggling contraband tobacco. This is the first time someone charged for gangsterism has been sentenced for a tobacco-related offence.
Increased coordination and partnership were similarly identified in our strategy as a priority for the RCMP. Across Canada, and to some extent across the border into the United States, the RCMP has strengthened its partnerships in combatting contraband tobacco, enabling it to share information and improve target identification. One such example is the Canada/U.S Tobacco Diversion Workshop, which partners the Canada Revenue Agency, the U.S. Bureau of Alcohol, Tobacco and Firearms, the U.S tobacco and taxation bureau, the Canada Border Services Agency, and the RCMP, to discuss various topics of common interest, best-case practices, and the overall effects this illicit market has on both sides of the border.
Other significant partnerships include the Cornwall Regional Task Force, launched two weeks ago, which brings together the RCMP, the OPP, the Cornwall Community Police Service, and the Ontario Ministry of Revenue; and the RCMP's involvement in Project Access, a joint task force led by the Sûreté du Québec to combat illicit activities, such as the manufacture and distribution of contraband tobacco. Impressively, between April 9 and April 21, 2010, the Cornwall Regional Task Force made 11 seizures and eight arrests. The RCMP also works closely with aboriginal police services in Ontario and Quebec, and our partnership has resulted in successful operations targeting the illegal tobacco market.
[Translation]
The RCMP's Strategy recognizes that enforcement alone is not sufficient to dismantle the contraband tobacco market. Raising education and awareness amongst the public is crucial to reducing consumer demand for illicit tobacco.
Working with partners, such as Crime Stoppers, the RCMP is also raising awareness in a number of provinces as to the consequences of purchasing and possessing contraband tobacco products.
[English]
The RCMP's efforts are only part of an overall Government of Canada strategy to reduce the illegal tobacco industry. The RCMP and the other agencies represented today are active participants within the Public Safety-led government task force on illicit tobacco products, which is mandated to provide the Minister of Public Safety with proposed concrete measures that will help disrupt and reduce the trade in tobacco.
As you can see from the number of agencies and departments invited here today, no single agency can tackle this issue alone. Cooperation amongst all agencies and with our American partners is essential to reduce the contraband tobacco market in Canada. The RCMP remains committed to addressing this serious form of organized criminality.
Thank you. We look forward to your questions.
Thank you for being here today at the committee.
My question will be for Mr. Oliver and Mr. MacKillop.
I have read a lot of documents about this, I've met with people, and it seems that we are coming to a kind of consensus, that the biggest part of contraband tobacco trafficking is concentrated in about four or five reserves in Quebec and Ontario. It involves about 80 to 90% of the illegal market. I have been told of about 100 factories that don't even have licences.
I would like to know, in concrete terms, why you don't close those plants down. Why are factories that do not have licences allowed to keep blithely operating? How is it that laws that are enforced everywhere in Canada by convenience stores and other stores are not enforced on reserves? For example, an article in the Journal de Montréal says that a young teenager can go and buy flavoured cigarillos—products made for kids—when it is now illegal to sell them in convenience stores.
Are we living in a country with a double standard—when you live on a reserve, you do what you want, and the RCMP and the Department of Public Safety can't do anything, and when you live somewhere else in Canada, if you sell flavoured cigarillos to minors, you can be caught and punished?
:
I understand what you mean.
Because you have answered nearly all my questions, Mr. Oliver, this next question will be for Mr. MacKillop.
When the Federal Tobacco Control Strategy was launched, Mr. Day, who was the minister at that time, announced a $20 million investment over four years in addition to a Contraband Tobacco Enforcement Strategy.
There have been various cases heard between Her Majesty the Queen in right of Canada and two different companies: Imperial Tobacco Canada Ltd. and Rothmans, Benson & Hedges Inc., RBH, if I am not mistaken. For those two companies alone, there are some $100 million should be used to combat contraband tobacco, if memory serves me. That is what it says here. So that money should be used to eliminate contraband. I am trying to assume that the $20 million comes out of the $100 million.
Why is the other $80 million not being invested precisely to give the RCMP some extra resources so it can wage this war on contraband tobacco? Why, until now, has the Department of Public Security still not started a public awareness campaign about contraband? Because all the surveys show that...
There are three aspects to Bill C-32. The easiest one I'll point to is advertising in weekly and daily publications that youth could pick up at the vending boxes on street corners. Advertising in all Canadian publications for tobacco is now banned. That's the easy step.
The second one was to remove the flavours from the little cigars that were being sold on the market. These are products that were being sold as single-sale product in flavours of blueberry, vanilla, and such. We had seen a huge increase in the sales of those, from a few million to about four million and something a couple of years later, and we know that youth were accessing them because of the statistics we were doing through the surveys as well. So removing those was a second step.
But it was also to package any products that were remaining on the market in 20s, so that if there was a small product that looked like a cigarette, it was packaged the same way we package regular cigarettes, in packages of 20 or 25. Again, for youth we know that price matters. They can't go in and buy something that's a dollar; they'd have to spend five or ten dollars, as they would for a package of cigarettes. This puts the product a little bit out of the price range for them.
Those are the benefits, we thought, of Bill C-32.
:
Yes, I can. Thank you for the question.
The main reason for the new stamp—and as you are probably aware, the legislation to implement the new stamp is before the House right now, as part of the budget implementation act, C-9—was clearly to deal with the counterfeit that we're seeing coming in from the outside.
The current regime deals with tear tape. This is a sheet of tear tape, with different colours to match with the different provinces. The tear tape says, on the yellow one, “Droit Acquitté—Ontario—Canada Duty Paid”. This tear tape is available to whoever wants to produce it. There are no security features. It's very easy for an illegal manufacturer to avail itself of this.
The reason we're going to the stamp—and what I have here is a bigger version of what is not quite that big—is that it has a number of overt and covert security features. We've done a number of studies. We've done a lot of research before adapting this and going through a request for proposal to give out a contract, which has been given out to Canadian Bank Note in partnership with SICPA, which is a Swiss company that specializes in invisible ink and also specializes in a number of projects around the world with a similar stamp. Their stamps have never been counterfeited. There's a sequential number on it. Each pack will have its sequential number, which allows us to know where the product comes from, if it's seized outside its jurisdiction.
In terms of benefit, clearly there's a CRA or a government benefit in getting the stamp. CRA is going to have an order desk. We're going to be looking at an accountability regime for the stamp linked to the production of each company or importer, linked to the duties they pay, and with all of this will be making a decision as to whether we allow the provider of the stamps to release them to the manufacturers or not.
Thank you.
:
Good afternoon, everyone. My name is Dave Bryans. I'm the president of the Canadian Convenience Stores Association and a founding member of the National Coalition Against Contraband Tobacco.
I will speak first, and my colleague from the Customs and Immigration Union will speak next.
Our organization represents 14 business and civil society groups that came together to urge action by government to end the scourge of contraband tobacco. In addition to the CCSA, our membership includes the Canadian Chamber of Commerce; the Customs and Immigration Union, whom I'm pleased to be here with; the Canadian Taxpayers Federation; the Ontario Flue-Cured Tobacco Growers' Marketing Board; the Frontier Duty Free Association; Toronto Crime Stoppers; the Canadian Tobacco Manufacturers' Council; the National Citizens Coalition; the CPQ in Quebec; the National Convenience Stores Distributors Association; la Fédération des chambres de commerce du Québec; l'Association des marchands dépanneurs et épiciers; and the Retail Council of Canada.
The contraband tobacco problem in Canada is endemic in Ontario and Quebec. It is spreading in the Atlantic provinces and is slowly now reaching out to western Canada. In 2008, the last year for which we have reliable statistics, 48.6% of all cigarettes purchased in Ontario were contraband. In Quebec, the number is 40%, and in the Atlantic provinces it is 9.7%. Canada-wide, contraband tobacco averages 32.7% of cigarettes purchased, representing a 98% increase since 2006.
Contraband was found at every schoolyard examined in our butt study last summer, with some schools, such as Pickering High School, showing 41% illegal tobacco; St. Mary's in Woodstock, 34%; and Huron Heights in Newmarket, 50%.
Analysis of StatsCan data has shown that tobacco use among young people has plateaued in central Canada, likely due to the ready access to cheap, illegal cigarettes, which is undermining public health efforts.
The RCMP has told you and has told us that 90% of contraband tobacco available is illegally manufactured in the United States and then smuggled into Canada. We also know that the products entering Canada largely come across the St. Lawrence River, mostly between Kingston and Montreal. The epicentre is around Cornwall, Cornwall Island, and the Akwesasne Mohawk territory.
The RCMP has told us that over 100--today it was even more--organized crime groups are currently engaged in the contraband tobacco trade in Canada. We know that smugglers do not operate only in one direction and only with one product. We know that smugglers are moving drugs, arms, cash, and people over the border illegally when they move tobacco.
The sheer scale of the lawlessness is almost unimaginable today. If there is one thing members of the committee can take from our session here today, it is the location of the port of entry at Cornwall. It is imperative that the port of entry remain on the north bank of the St. Lawrence River, as it has made it much more difficult for the smugglers to transport contraband into Canada. Moving the port of entry back to Cornwall Island or onto the south bank of the St. Lawrence will return the situation to the one we had last spring, when contraband was flooding into Canada.
I look forward to your questions later on. I now turn it over to my colleague, Jean-Pierre Fortin, of the Customs and Immigration Union.
Good afternoon, Mr. Chairman and members of the committee. My name is Jean-Pierre Fortin, and I am the acting national president of the Customs and Immigration Union, which represents front-line officers of the Canada Border Services Agency. So that you are clear, our members include the officers assigned to work at all ports of entry into Canada, as well as immigration screening and enforcement officers, and intelligence and enforcement officers for all the customs, immigration, and food inspection functions of CBSA.
My duties include work on a number of areas, including the issue of counterfeit cigarette smuggling, because it involves illegal cross-border activity. This is especially relevant for us because it highlights a security vulnerability for which we have been seeking action for a number of years, namely, the absence of a joint force and intelligence-led mobile border patrol in Canada.
Most Canadians, we suspect, would be surprised to know that we lack an effective capacity to detect and interdict people and what they are bringing into Canada if they enter illegally between designated ports of entry. Whether they are entering in one of the more than 200 unguarded roads in the Maritimes, Quebec, or the Prairies, or across the vast marine environment of the St. Lawrence and Great Lakes, or inland lakes that straddle our border with the U.S., Canada has a continuing border vulnerability that must be addressed.
Today's hearing is focused on the illegal cigarette trade and the harm it causes to Canadians. There is no question that this illegal activity includes the movement of these harmful goods across the border, and that our lack of mobile Canadian border patrol and interdiction capacity contributes to that problem. Let me also add that this vulnerability extends beyond the smuggling of illegal cigarettes into Canada. We know from Canadian and U.S. intelligence reports that this illegal cross-border movement includes the southbound and the northbound flow of counterfeit goods, drugs, guns, and people. Toronto police reported, for example, that at least 50% of the guns used in crimes in that city have been smuggled from the U.S.
It was this committee as well that produced the admission from RCMP Commissioner Elliott in 2007 that the enforcement surveillance on the St. Lawrence and Great Lakes was, to use his word, inadequate. As one senior police official put it, what gets through the border ends up on our streets and in our communities within Canada.
This government made some significant improvements to border security, but despite this, and for reasons we hope you will pursue, Canada still lacks this necessary patrol and interdiction capacity.
Thank you for your consideration of these issues. I'll be pleased to try to answer any questions you may have.
:
My name is François Damphousse. Since 1995, I have been the Director of the Quebec office of the Non-Smokers' Rights Association. I would like to address a few points and then give the floor to my colleague Rob Cunningham from the Canadian Cancer Society. He is going to talk to you about the measures we would like to recommend for controlling the problem.
First, the main reason the health insurance community is interested in eliminating tobacco smuggling is that taxation is the most effective way to reduce smoking. In the file that was distributed to you, the first document is entitled "A National Strategy to Reduce Tobacco Use in Canada". Section 5.3 talks about priorities for action to reduce tobacco use in Canada. In the first section, which deals with policy and legislation, the first point is taxation. That is how important this measure for combating tobacco use in Canada is.
It is of great importance that reducing taxes not be used as a measure to control contraband. I would invite you to look at the document entitled "Canadian Tobacco Use Monitoring Survey". At page 3, there is a graph on the prevalence of smoking in Canada from 1985 to 2008. The blue columns, which represent the group aged 15 to 19, show that from 1985 to 1991, smoking declined. However, in 1994, when taxes were reduced at the federal level and in some provinces, tobacco use among young people aged 14 to 19 rose gradually until 1997-1998, the year when the federal Tobacco Act came into force. That was when taxes started being gradually increased.
If you continue reading the graph, you see that it a plateau was reached in 2005-2006. This shows that smuggling started up again in Canada. It is of great importance that the federal government not reduce taxes. That would be catastrophic, particularly for the most vulnerable group, our young people. We believe the government should continue its current strategy, which is to implement policies to control contraband tobacco.
In fact, as the group before us said, there are indications that contraband is starting to decline in Canada. In the Quebec government's last budget, it said that revenue from tobacco taxes rose by $65 million over the previous year. That increase in revenue is attributed to measures token to combat contraband. Even the tobacco companies, including Philip Morris International, which recently purchased Rothmans, Benson & Hedges Inc. in Canada, in its last annual report, noted an increase of 3 or 4% in legal tobacco sales. There again, the increase is attributed to stronger measures being implemented by the government. That is why we strongly recommend that you continue down this road.
That being said, in 2008 the RCMP's Contraband Tobacco Enforcement Strategy was announced, but as well, a task force was set up to make recommendations for controlling the problem better. We have been waiting for the recommendations for two years but we still have no news. We are anxious for this task force to submit its recommendations. We have met with several people from the federal government, but we have been given no information about this. This situation requires your attention. This is a serious public health problem. We are anxious to see these measures announced.
Reference was made to $20 million. Ms. Mourani asked a question about this. In 2008, the government announced an investment of $20 million over four years to combat contraband. For a problem that costs both the federal and provincial governments billions of collars, we think $5 million to combat contraband is not a large amount.
I would like to come back to what Mr. Bertrand said about agreements between the governments and the three Canadian tobacco companies relating to their role in contraband during the 1990s. In those agreements there is a protocol at the end that specifies that $50 million should be allocated to help the federal government fight contraband.
That is stated in the agreement with Imperial Tobacco and Rothmans, Benson & Hedges Inc. For reasons we are unaware of, there was no figure stated in the last agreement with JTI-Macdonald Corp, which has just been signed. We can assume that more than $100 million should be allocated to fighting contraband. That would be a great help in implementing the task force measures, which we are waiting for.
What are they waiting for, to use that money? We think the $20 million is really not adequate.
Thank you. I will now give my colleague the floor.
My name is Rob Cunningham. I am a lawyer and senior policy analyst with the Canadian Cancer Society.
[English]
In my testimony today, I'd like to make four key points.
First, there is our disappointment regarding the absence of implementation of new federal action measures--including over the past two years--despite intense urgency and an announcement to do so in May 2008.
Then, with respect to priority recommendations, our second point is that the border post near Cornwall should not be moved back to where it was. The change has made a difference.
Third, the federal government must actively press the American government to shut down the illegal factories on the U.S. side of Akwesasne, the major contraband source.
Fourth, the federal government must take action on the unlicensed illegal manufacturing on three Canadian reserves, specifically through better control of the supply of raw materials to these unlicensed manufacturers.
Before continuing, I would like to acknowledge the excellent work done everyday by front-line enforcement officials and others at the departmental level. Without these efforts, things would be far worse.
I would also like to acknowledge that in Bill C-9 the federal government has brought forward--albeit with some delay--the new measures for an enhanced stamp, and we support that.
So with respect to our disappointment, of course, for us it's a public health issue. I have more than 300 studies and reports about the impact of higher prices and taxes on reducing consumption. This was tabled with the House of Commons Standing Committee on Finance.
This is our submission to you today. I invite you to turn to tab one. You see how Ontario, Quebec, and New Brunswick have the lowest tobacco taxes in Canada of all provinces, but the highest rate of contraband. This visually demonstrates that higher taxes are not the cause of the problem, but instead its the proximity to the source of illegal supply. Other provinces have been able to maintain much higher rates of tobacco taxes.
In our materials we have a series of recommendations that we have made for many years about available remedies that have not been implemented and that do not require on-reserve enforcement.
We also have a tab for the motion adopted unanimously by the House of Commons a year ago, urging action on contraband. So we have a context where there's all-party support for action. We do need a comprehensive strategy. A task force was announced in May 2008 to come up with specific concrete action measures. That is our disappointment, that nothing has been implemented as a result of that initiative.
With respect to the border post, I invite you to turn to tab two, where you see a map. The reserve straddles the Ontario and Quebec borders and the U.S. border in New York state. The red dot on the yellow Cornwall Island shows where their border post used to be. It was the case that smugglers would simply just drive around the border post and come into Canada. Moving the border post into Cornwall, on the other side of the bridge, has become a choke-point to block that mechanism off, and that's why we've seen the progress.
At tab four, for further study, you have examples from the Quebec, Nova Scotia, and New Brunswick governments. Phillip Morris International says revenues were up, tax paid sales are up, after this border post was moved.
One question that we don't have an answer to is the establishment of a fast-track lane at this border post. Is that going to create a new problem? That's been a recent development and we don't have the answer to that.
Our second priority recommendation is to press the U.S. government. We believe this has to be done at the ministerial level, at the political level, by the Minister of Public Safety, with his counterpart, the U.S. Attorney General, who has responsibility for the Bureau of Alcohol, Tobacco, and Firearms. They have the legal instruments available.
What needs to be done is a political decision to put enforcement resources in this part of upstate New York. It's our recommendation that we are not going to have action unless we make it a priority in our bilateral meetings, and until the then, the United States government will not make it a priority.
Finally, with respect to unlicensed manufacturing, the number has grown to 50 in Canada, and that's of concern. What do we do about it? We need a strategy, and our recommendation is that we have to control--one way or another--the supply of raw materials.
We recognize it's sensitive to go on reserve for enforcement. We're not recommending that, but if you can prohibit it, either through charges for aiding and abetting the supply of leaf tobacco to these unlicensed factories, or supplying cigarette filters or other materials, or amending the legislation to make it easier for enforcement authorities to do exactly this, to intercept it before it gets on reserve, that is a strategy that we recommend as part of a comprehensive strategy.
Other recommendations are in our materials.
Thank you very much for the opportunity to testify. We look forward to your questions.
:
Okay. That's very good. I wanted to give you an opportunity to address that, because I know you mentioned it to me when we were together.
I have a couple of comments.
I appreciate what Mr. Cunningham said about raw material.
[Translation]
Mr. Damphousse, you repeated exactly the same comment.
[English]
The problem with raw materials is this. When we talk about raw materials, such as the paper that's used in the production of contraband cigarettes, the paper is used for the legal production of other legal objects, such as the covers on straws at McDonalds or Tim Hortons. The same material is used to produce those. When we talk about the filter material used for the production of contraband cigarettes, we have a problem, because the filter material is also used for automotive things.
We need to be somewhat creative on how to go after the people who supply the raw material. We need to have enough evidence to proceed on any type of litigation against them or any type of arrest procedure.
I've been a police officer for 18 and a half years. I have investigated these types of cases. My frustration has always been that I could not do it alone. I was a municipal police officer, which meant I had to engage my RCMP friends at Customs and Excise to assist and collaborate before we could actually do the search warrant.
I therein believe we should look at what you suggested, Mr. Cunningham, on perhaps some legislative changes so that interception would become easier. I too have that frustration. I think what you suggested is something we could work towards.
We still have the problem that as long as there is a demand, the supply is going to grow, because it is lucrative. Organized criminals are engaged in this process, which means it is dangerous. I want to make sure today that this panel understands it is dangerous. These people are using weapons, and I'm not talking about only small-scale weapons. Very dangerous firearms are being used. Posts are being planted at different locations.
We mentioned earlier to the other panel that there's a public safety issue and a security and safety issue for officers and enforcement people. It is a huge concern. Some of the suggestions being made here today do not take that into consideration. We cannot do things simply for the benefit of profit without considering the need to be safe and secure.
Monsieur Fortin, I need you to reiterate the dangers associated with contraband tobacco. We've heard from the RCMP. We've heard from other agencies. Could you please repeat your experiences and tell us your thoughts on the dangers of this market?