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• Executives revealed how cigarettes got into Canada 

The investigation into Canada's three major tobacco companies for aiding and abetting smuggling in the late 1980s and early 1990s began eight years ago, after The Gazette ran a series of articles alleging the companies were the main black market suppliers.

Central to The Gazette stories were a tobacco smuggler, who has since committed suicide, and two former tobacco sales executives who oversaw a scheme to funnel billions of Canadian brand cigarettes to the black market.

Les Thompson, an RJR Macdonald sales executive, described in interviews in hotel rooms in Ontario and Quebec how RJR Macdonald (now called JTI-Macdonald) established separate offices and companies in Toronto and the United States to oversee the funnelling of its brands, like Export A, to smugglers. . . .

Another key witness is former RJR Macdonald vice-president Stan Smith, who was Thompson's boss. Smith pleaded guilty in Ontario in 2006 and was sentenced to eight months of house arrest. He had been co-operating with police since 2000. . . .

The articles also focused on the role played by Imperial Tobacco and Rothmans. Both companies sent huge shipments of Canadian brand cigarettes into the U.S. under the pretext they were supplying the duty-free market. In fact, the cigarettes were simply sold back into Canada. . . .

Smugglers told The Gazette that company sales representatives regularly showed up at the smuggling spots and warehouses near Cornwall and Buffalo, N.Y., to take inventory.

After The Gazette articles, in 1998 and 2000, Imperial and Rothmans both denied any role in the smuggling.

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• Tobacco firms cough up 

Imperial Tobacco Canada and Rothmans Inc., Canada's two largest tobacco manufacturers, have pleaded guilty to aiding and abetting the smuggling of cigarettes in the 1980s and 1990s and agreed to pay fines and penalties totalling more than $1.1 billion in an unprecedented settlement of criminal and civil cases.

The amount represents the "largest criminal fines and civil settlements in Canadian history," federal Revenue Minister Gordon O'Connor said at a news conference in Lévis yesterday. The settlement ensures the companies do not benefit financially from the smuggling, he added.

"I believe we are sending some strong and clear messages. Firstly, that such activity will not be tolerated. And secondly, that no company is above the law."

The settlements "close a significant chapter in contraband tobacco history," RCMP Assistant Commissioner Mike Cabana said. . . .

In addition to the fines, Imperial and Rothmans will each pay $50 million to establish a new government Contraband Tobacco Enforcement Strategy. The payments are due by Dec. 15.

To settle civil liability, Imperial is to pay the federal government and the provinces a percentage of its annual net sales revenue over the next 15 years, to a maximum of $350 million. Rothmans is to pay $200 million over the next 10 years, at a rate of $20 million per year. The first payment is to be made on Dec. 31, 2009. . . .

Just as the tobacco companies lied for years about the deadly health effects of smoking, Damphousse noted, they also lied originally about their involvement in smuggling.

"They have made lying a regular corporate practice," he said.

Cheap contraband cigarettes helped increased smoking rates among young people, damaging the health of thousands of Canadians, Damphousse added.

It was regrettable the RCMP did not charge any of the company executives, he said. . . .

Rothmans said the settlement opened the door to the sale of the company to Philip Morris International Inc. for $2 billion. The deal was contingent on the company settling its criminal and civil cases. . . .

If found guilty, JTI-Macdonald could face extensive forfeiture to the Crown equivalent to the amount of the fraud.

But getting money out of the tobacco firm could be difficult. The company filed for bankruptcy protection in 2004 after Quebec assessed it for $1.36 billion in unpaid taxes dating from the early 1990s.

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• JTI-Macdonald faces tobacco smuggling trial  

A Canadian court ruled on Wednesday that JTI-Macdonald Corp. and a former company executive should stand trial for alleged involvement in massive cigarette smuggling scheme in the 1990s.

But the Ontario Court of Justice dismissed charges against six other executives of the cigarette maker, which was previously named RJR-Macdonald and its then-parent, R.J. Reynolds Tobacco International.

JTI-Macdonald is now a unit of Japan Tobacco Inc.

Police have accused JTI-Macdonald of scheming to sell cigarettes to U.S. suppliers from 1991 to 1996, knowing the tobacco was going to be smuggled back into Canada to avoid high taxes that were aimed at reducing smoking. . . .

The court in Toronto issued its ruling after a lengthy preliminary hearing. A standard publication ban prohibits the media from reporting details of the evidence until it is presented in the criminal trial.

In addition to the company, the court ruled there was enough evidence for Edward Lang, who was RJR-Macdonald's chief executive during the 1990s, to stand trial. . . .

Another executive, former RJR-Macdonald vice president Stanley Smith, pleaded guilty to a conspiracy charge during the preliminary hearing and is now cooperating with the prosecution as a witness.

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• Ottawa appeals ruling David Dodge must testify in cigarette smuggling case 

The federal government is appealing a ruling that the Bank of Canada governor, David Dodge, must testify at the fraud trial of tobacco company JTI-Macdonald Corp.

Ottawa's appeal is slated to be heard Thursday by Justice Marc Labrosse of the Ontario Court of Appeal.

Ontario Superior Court Justice Paul Rivard ruled Dec. 7 that Dodge, who was federal deputy minister of finance from 1992 to 1997, can be called by the company.

Dodge was among 15 former and current lawyers and staff of the governments of Canada and Quebec who were subpoenaed by JTI-Macdonald. Rivard ruled that all but two of the people called must testify.

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• Feds, Dodge try to evade tobacco trial 

The federal government is arguing that JTI-Macdonald Corp. and a number of its former tobacco executives facing fraud charges have no legal grounds to compel Bank of Canada governor David Dodge and other senior civil servants to testify at a preliminary hearing.

The defendants' request "has nothing to do with the preliminary," argued lawyer Ronald Slaght in Ontario Superior Court Monday.

Slaght, who has also been retained by the federal government in its $1.2-billion suit against JTI-Macdonald, suggested the request is a "fishing expedition" to find out information to defend the civil action. . . .

Lawyers for the defendants obtained subpoenas recently for 15 civil servants, including Dodge, a former deputy finance minister.

The other civil servants include the current deputy finance minister Ian Bennett, director general of the Canada Revenue Agency Fred O'Riordan, as well as three senior Ottawa-based Justice Department lawyers.

A number of the civil servants were interviewed by the RCMP during its investigation and made statements that the defendants' lawyers say are helpful to their clients.

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• Tobacco firm didn't smuggle, court told 

A Canadian tobacco firm was charged in connection with a massive cigarette smuggling conspiracy even though senior federal bureaucrats told the RCMP the company wasn't involved, according to court documents.

Lawyers representing the federal government and the high-ranking civil servants are now trying to stop a court from hearing their testimony.

Among them is Bank of Canada governor David Dodge, who served as deputy finance minister from 1992 to 1997.

According to documents filed in the Superior Court of Justice, Dodge told the RCMP on Aug. 29, 2001 that Canadian tobacco companies were "quite keen" to deal with the problem of tobacco smuggling.

He also told the Mounties there was no indication that cigarette maker RJR-MacDonald Inc. was involved in cross-border smuggling . . .

Dodge is one of 17 senior government officials and lawyers whose testimony is sought by lawyers representing the former RJR-MacDonald Inc., now known as JTI-Macdonald Corp., at a preliminary hearing in Toronto that's been hearing evidence for almost 100 days.

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• Tobacco Industry Joint Representations On “progressing Toward A Tobacco-free Quebec - Developing Quebec Anti-tobacco Legislation” (PDF) 

There can be no comparison between the potency of nicotine dependence and that of heroine or cocaine dependence.

Denormalization which brands the manufacture and use of products that are otherwise legal as “illegitimate” encourages and sanctions behaviour that is contrary to the law by inciting anti-smoking activists to attack the reputation and integrity of those who smoke or who manufacture tobacco products.

The government is not above the law and any attempt to interfere in the moral choices of citizens by encouraging such serious offences is bound to give rise to legal challenges.

The study cited by the Minister in support of the assertion that environmental tobacco smoke causes diseases such as lung cancer, emphysema or cardiovascular diseases does not bear out such a claim at this time, even according to the author of the study . . .

Rather than multiplying current legal restrictions and prohibitions, we hope that the Minister will recognize the validity of the alternatives proposed in this submission which are respectful of both smokers and non-smokers.

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• QUEBEC CONSULTATION DOCUMENT 

On February 25, 2005, Imperial Tobacco Canada Ltd. together with Rothmans Benson & Hedges Inc. and JTI-Macdonald Corp. filed a joint submission with the government in response to the Consultation Document. To learn more about Imperial Tobacco Canada Limited’s position, the Consultation Document may be accessed:

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• Tobacco giant sues Quebec 

Claiming it is the victim of "abusive conduct," tobacco maker JTI-Macdonald Corp. has sued the government of Quebec for driving it into bankruptcy protection with a $1.36-billion tax bill three months ago.

"The [Revenue] Minister acted arbitrarily and for improper considerations for the politically expedient purpose of crushing JTI-Macdonald financially and make it virtually impossible for [the firm] to defend the [tax bill]," JTI said in a motion filed with Quebec Superior Court.

Quebec obtained a court judgment on Aug. 10 in favour of its tax assessment. It had alleged the firm -- the Canadian subsidiary of Japan Tobacco Inc. and Canada's oldest tobacco maker -- owed the province for cigarettes exported duty-free to the United States and then smuggled back to Canada through the Cornwall, Ont., area in the 1990s. Two weeks later the firm filed for creditor protection in Ontario after Quebec began seizing cash from its customers.

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• Quebec fails to penetrate shield of JTI's court protection 

Quebec tax collectors have failed to break through a shield erected by a Toronto bankruptcy judge around JTI-Macdonald Corp., which is being dunned for a fortune in taxes on cigarettes shipped to the United States and returned to Quebec tax-free in the 1990s.

Mr. Justice James Farley ruled yesterday that the Japanese-owned company will retain court protection under a federal bankruptcy law, the Companies' Creditors Arrangement Act, until at least Nov. 30. The court shield, which prevents Quebec from seizing company cash and other assets, was to have expired a week from today. Quebec sent lawyers to ask Judge Farley to lift the shield or alternatively to order JTI-Macdonald to pay the province's $1.36-billion bill, or to post security for payment while contesting it.

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• Tobacco giant fends off tax man 

Tobacco giant JTI-Macdonald Corp. has sought protection under federal bankruptcy laws to fend off a $1.36-billion Quebec tax assessment linked to cigarette smuggling.

The Toronto-based company took the action after the Quebec Revenue Department demanded on Aug. 11 an immediate payment of the $1.36 billion. When the company refused, the government began seizing tobacco revenues from the company's retailers.

JTI-Macdonald claims the seizures have totalled about 40 per cent of its national revenues and threaten to bankrupt the company.

By seeking protection under the Companies' Creditors Arrangement Act (CCAA), JTI-Macdonald effectively stops all asset seizures by creditors, including the tax department, pending hearings in Ontario Superior Court. . . .

Immediately after the restructuring, R.J. Reynolds Tobacco Holdings Inc. sold Macdonald Tobacco to Japan Tobacco International, at which point it became JTI-Macdonald.

Francois Damphousse, Quebec director of the Non-smokers Rights Association, said JTI-Macdonald's bankruptcy protection shows the company is in desperate straits.

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• UPDATE 3-Tax bill prompts JTI-Macdonald to seek protection 

Japan Tobacco's 2914.T Canadian unit filed for court protection from creditors on Monday after the Quebec government demanded a record C$1.36 billion ($1.05 billion) in taxes it alleges is owed on smuggled cigarettes. . . .

"There are severe downsides and costs in doing so in order to protect assets and do business normally. At the same time, JTI-Macdonald Corp. awaits the opportunity to defend itself, as well as to protect its reputation and its business," Poirier said in the statement. . . .

"You should talk to them (JTI-Macdonald), it's really their case," Rothmans Inc. spokesman John MacDonald said. "There are no accusations of this kind directed toward our company."

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• Tobacco maker JTI-Macdonald seeks court shelter against $1.36B Quebec claim 

Cigarette maker JTI-Macdonald is seeking bankruptcy-court protection against the Quebec government's demand for almost $1.4 billion in back taxes on smuggled cigarettes.

JTI-Macdonald, a unit of Japan Tobacco Inc., said Tuesday its filing under the Companies' Creditors Arrangement Act allows it to continue business as usual. It said the action was necessary after the Quebec Ministry of Revenue served an order Aug. 11 demanding immediate payment of $1.36 billion.

"This order was accompanied by cash seizures from its customers, resulting in an immediate deprivation to JTI-MC of about 40 per cent of its Canada-wide revenues," the company stated.

"In the absence of CCAA protection, the effect of these seizures would have unavoidably led to the bankruptcy of JTI-Macdonald."

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• Quebec goes after big tobacco 

The cash-strapped Quebec government is going after Big Tobacco to recover as much as $1 billion in what it claims are unpaid taxes on contraband tobacco products in the 1990s.

The Quebec Revenue department has begun an audit of JTI MacDonald Corp. of Toronto, as it seeks to claim unpaid taxes, especially between 1990 and 1994, when smuggling was at its peak. . . .

Hlne Verreault, one of the auditors, said in an affidavit filed in Quebec Superior Court in May she had been informed JTI MacDonald "had been involved in these moves."

The company, however, has refused requests to produce all records and documents on tobacco product sales and exports from its plants in Canada and Puerto Rico from 1990 to 1998.

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• Tobacco Taxes: $8 Billion for Governments, 70% of Consumer Retail Prices 

Retailers who sell tobacco products across Canada are displaying "tax wheel" stickers showing that taxes account for about 70% of the retail price of cigarettes. The tax wheel, developed by JTI-Macdonald Corp. and Imperial Tobacco Canada, reflects the high levels of federal and provincial taxation responsible for price increases and generating an estimated $8 billion take for federal and provincial governments this year.

"We don't dispute governments' right to impose taxes on tobacco products," said Michel Poirier, Chairman, President & CEO of JTI-Macdonald Corp. "However, taxation should not be used to punish smokers. Cigarette prices increased by 38.8% from April 2001 to April 2003. We want our consumers to understand exactly where their money goes."

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