Sin-Tax Failure: The Market in Contraband Tobacco and Public Safety

[An Introduction to the Black Market] [The Size of the Market] [The Engine of Growth] [The Trail of Contraband] [The Native Dimension] [Other Native Involvement in Contraband] [The Warrior’s Society and the Black Market] [Other Dimensions of Violence] [Guns in Canadian Cities] [Organized Crime] [Countering the Black Market] [The High-Price, High-Tax Strategy] [Reducing the Contraband Market]

Chapter Ten

Countering the Black Market

To counter the black-market in tobacco, municipal, provincial police, the RCMP and Customs officials are working in conjunction with American law enforcement agencies. Even the Canadian Armed Forces keeps an eye on some aspects of the issue. They face an uphill struggle. All of Canada’s police and military forces are over-tasked and their resources are diminishing. This is not the case with the smugglers.

In these days of shrinking dollars, some police forces face new handicaps. As one officer said "We can’t undertake any operations unless the ministry [the Solicitor General] will make money on it." If the value of seized assets will more than cover the costs of an operation, an operation may go ahead. There is an exception; "We can also act if national security is threatened — which means some politician would get embarrassed unless we can act."

The reluctance to expend resources reflects the enormity of effort that is sometimes necessary for small victories. A seven month investigation in Victoria, B.C. involved the RCMP, Canada Customs, US police forces, Customs authorities and the Coast Guard. When it was complete, 11 people were arrested and 8,850 cartons of cigarettes were seized in October 1993. The invested effort in the case was worth more than the $442,000 in cigarettes, plus three vehicles, and a pleasure boat which can be sold off at a fraction of their cost once the smuggler/owners are convicted. These smugglers seem to have been easily replaced by others and the supply of contraband into Victoria continues.

Quebec unleashed 58 plainclothes "cigarette cops" on the Black Market in February 1992. By May, Quebec’s revenue minister, Raymond Savoie reported the unarmed task force had seized $832,000 in tobacco and $59,000 in liquor and promised greater successes in the future. Instead, Quebec is now asking Ottawa for a major cut in taxes to eliminate the profit margin that created the Black Market. In December 1993, members of the SQ were told by their union to stop smoking contraband cigarettes.

Cutbacks have been experienced by many police forces. The RCMP has disbanded ceremonial units and is thinning out its headquarters because of the desperate need to keep as many officers in the field as possible. In a separate development, a rural community in Nova Scotia has been terrorized for years by a gang of thugs. Only after a man (who was jailed for aggressively defending his family) was killed by contacts of the thugs in jail, were RCMP offices deployed to the community. While local citizens have a right to protection, the RCMP was stretched too thinly to give it to them. The Ontario Provincial Police (OPP) station nearest to the embattled City of Cornwall had 27 officers in 1989, as of October 1993 it had 17. City police forces are dropping in size as well — the crime riddled area Parkdale in Toronto has fewer officers to patrol it every year and response time to many incidents is growing. The area is one in which a majority of smokers use contraband products, but local cops have too many drug dealers and muggers to cope with to bother with convenience store-owners who sell contraband or chase cigarette sellers in school yards.

Demands by citizens in the Cornwall area for a military presence to handle the situation are unrealistic, even without considering the political ramifications of another major Aid-to-the-Civil Power operation. Few Canadians understand how starved their military is and the Army’s desperate need for manpower. Over 3,000 regular combat-arms troops were used during the Oka Crisis. Between cut-backs and peacekeeping, Canada rarely now has half that many troops available inside the country. The Army, even with a major call-up of reservists, can no more guard the north bank of the St. Lawrence between Kingston and Cornwall than the Navy can keep a pair of ocean-going warships in a 24 hour watch on the same stretch of river.

There is another reason to suspect that a "get tough" policing policy on the Black Market will not succeed. For decades, the major application of police resources has failed to shut down the flow of narcotics and drugs into the country. It is worth remembering that the market for narcotics is smaller than that for tobacco. According to Statistics Canada, only an estimated $5.9 billion was spent by Canadians on cannabis, heroin, cocaine and chemical drugs in 1990, as opposed to the $8.57 billion they spent on tobacco products.

The maximum fine for smuggling cigarettes has jumped from $25,000 to $500,000 and the maximum sentences has been increased to seven years imprisonment from two years. Whether Canadian courts will administer such severe sentences remains to be seen, Canada’s judges rarely administer maximum sentences. Tougher penalties will, however, eliminate small-time smugglers when they are caught. As for the Silks… Al Capone, Lucky Luciano and Meyer Lansky were never found in violation of the Volstead Act during the Prohibition Era. There are always plenty of delivery men who can take the risks and experience the jail terms. Moreover, considering the costs of investing and trying a leading smuggler, it is unlikely that the Silks will ever serve time. But then, leaders of Triads, Mob Families and Bike Gangs rarely see prison either.

Frances Lankin, Ontario’s Minister of Economic Development and Trade admitted in October 1993 that the government had worked with Garfield Mahood of the Non-Smoker’s Rights Association for three years, to develop a tough anti-smoking and anti-smuggling policy. In November 1993, a number of new penalties were announced and are to come into law by the summer of 1994. These include a fine of $300 to $10,000 for anyone caught with five or more contraband cartons. Ontario is also proposing even tougher fines and jail sentences for those caught with 50 or more cartons.

On October 20^th, 1993, the Ontario Cabinet appended a regulation to the Ontario Tobacco Tax Act, to limit the number of provincially tax-free cigarettes which can be sold on Reserves. Practically, the Silks are not inclined to abide by Provincial regulations and their best paid employees can outgun any OPP detachment. A month after the regulation changes, Gordon Peters, the Ontario Regional Chief with the Assembly of First Nations, warned the Royal Commission of Aboriginal People in Toronto that Ontario should not expect compliance with the regulation. Because the government did not negotiate with Natives, they are not prepared to co-operate with Queen’s Park. Both parties are posturing. Native cooperation in selling provincial tax-free products isn’t required as no Ontario wholesaler would dare to breach the regulations. Moreover, most Native smoke shops sell cigarettes on which no taxes or duties have been paid to any government.

Enforcing the law in Akwesasne could be even more problematic. After Mayor Martell called for help in September of 1993, his efforts were rewarded by the creation of a Joint Task Force drawn from the OPP, the RCMP, Cornwall City Police and Canada Customs. They report an increase in seizures of cigarettes and forced some smugglers to diversify to new crossing sites upstream form Cornwall. There are over 140 kilometres of river banks to watch between Cornwall and Kingston. The Joint Task Force seized over $2 million in cigarettes in its first five weeks of operations-a tiny fraction of the volume which crosses every day.

The Task Force will not receive much help from the Akwesasne Mohawk Police. The reason is simple enough; the white police officers can go home every evening without having to be particularly concerned about a fusillade coming through the front door at midnight. Participation in the Joint Task Force would guarantee gunfire at the homes of the Akwesasne police. If non-native police came on the Reserve, the Warriors will confront them. They will also use every means possible to portray themselves as heroic defenders of Native sovereignty rather than as terrorists and thugs — as they did so successfully during the Oka Crisis.

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John Thompson is President of the Mackenzie Institute which studies political instability and terrorism. He can be reached at: mackenzieinstitute@bellnet.ca