Contraband tobacco remains a major problem in Canadian markets, a new study from the Macdonald Laurier Institute has found, and governments and law enforcement agencies are not doing enough to crack down on it.
In Ontario alone, governments are seeing between $1.6 and $3 billion in lost tax revenue per year as a result of illegal trade in tobacco products, the institute concludes in its latest report, which is set to be released on Thursday. Global News was able to obtain a copy in advance.
But depriving government coffers of money that could be used for health care, education or other social programs is just one of the negative consequences of this particular black market. Illegal tobacco also helps fund organized crime in Canada and terrorist organizations abroad, the report notes.
“Canadian law enforcement seizures of contraband tobacco routinely include high-powered weapons, hard and designer drugs, stolen vehicles and other merchandise, and lots of cash,” it reads.
“Globally, money from contraband tobacco and cigarettes is a major source of revenue for the likes of ISIS, al-Qaeda, and Hezbollah.”
Enforcement of the law is complicated by a number of factors like the still-scarce resources dedicated to fighting contraband tobacco, legislative gaps, and the lack of a comprehensive plan that would allow different jurisdictions to work together more effectively.
The study’s author, Christian Leuprecht, is a Senior Fellow at the Macdonald Laurier Institute. He said that in much of Canada, there are many elements that make the illegal tobacco trade attractive to criminals.
“The costs of getting involved are not very heavy, the chances of getting detected are relatively low, the penalties are pretty lenient and the market is so big, and the profit margins exceedingly high.”
Two major sources of contraband dominate the Canadian market, according to the new study. The ﬁrst is counterfeit cigarettes arriving from overseas in shipping containers from China and Vietnam. The second is tobacco smuggled through, and usually produced on, First Nations reserves in Ontario and Quebec. The RCMP have identiﬁed four “hubs” of untaxed tobacco:
- Akwesasne near Cornwall, ON
- Kahnawake near Montreal, QC
- Tyendinaga near Belleville, ON
- Ohsweken (Six Nations) near Brantford, ON
Fingers are often pointed at First Nations communities, Leuprecht said, but they are only one small link in a much larger chain. The people on reserves “are being exploited” by criminal organizations, he argued.
In Quebec, the government has funneled money into countering the problem and major efforts have been made by law enforcement over the last 15 years to contain contraband. Leuprecht said a major bust this week in the province is “a great example” of the power of those initiatives.
“The amount of money the government has invested, it has reaped multiple times in returns in fines and seizures … and without changes in smoking patterns. So that means the Quebec government reaps the revenue from the legal cigarette market.”