Part 3 – Courses of Action

THE 360° APPROACH

The 360° model refers to matching the supply, manufacturing, distribution, and retailing of illicit tobacco products in Canada against all the different touch points within the government, law enforcement communities, and other areas that contribute to the anti-illicit tobacco trade. In some cases, those responsible for contributing to the disruption of the black market in tobacco must act independently in order to strengthen the effectiveness of their contributions. For the most part, however, it is important for many of the areas to work together in pursuit of the same goals, which would be to reduce the insidious influence of contraband tobacco in Canada and abroad. The following are some of the more recent recommendations and solutions being promoted by different interest groups.

Indigenous relations
Effectively dealing with the illicit tobacco trade in Canada requires, first and foremost, the political will of the federal government to work in consultation with indigenous communities. By identifying common ground regarding the negative impacts of the illicit tobacco trade, including the involvement of organized crime and other criminal markets, the two governing bodies can work towards an equitable solution to the problem.

Currently, indigenous leaders and those involved in the tobacco trade on reserves are developing indigenous-led rules of conduct for their tobacco industry. The proposed legislation is written in fiery response to measures contained in Bill C-10, which is much reviled by indigenous communities who view it as a direct assault to their autonomy and rights to trade in tobacco products. These tobacco laws are signs that First Nations communities are interested in formalizing their tobacco industries.

The Hamilton Spectator reports that the funds from tobacco taxation, as proposed in the draft laws, will be enough to cover the tobacco commission’s operational costs and community projects, but could also be used to fund legal fees, such as those that challenge provisions in Bill C-10.

Without meeting and opening the lines of communication with indigenous groups, it is unlikely that tougher laws on crime or giving more authority to law enforcement will eradicate a lucrative competitive advantage on a marketable product. Moving forward, it will be important to include consultation with indigenous communities to consider tobacco taxation options and to address the gross disparity in the price of cigarettes.
 

As it relates to Ontario’s First Nations Cigarette Allocation System, some recommend restricting the amount of “allocation cigarettes” so it is more aligned with the legitimate smoking population of First Nations. Others will argue that the quota, however broadly interpreted, is not currently being followed anyway, and that refining the math does not lead to any real and meaningful progress.

Fortunately, the Ontario government is currently reviewing the cigarette allocation system wherein facilitators of an independent report recommend that Ontario initiate a forum, beginning with First Nations’ participants, to review and discuss the identified options in light of their respective key interests. While this dialogue may not yield perfect results, what is more uncertain is a tenable way forward without the participation of First Nations.

Federal and provincial policies
While law enforcement and other reports are clear in recognizing the significant criminal profit potential and threat posed by the illicit tobacco trade, there is a disconnect and disproportionate response in government decision making processes. Setting the provincial tax of tobacco products, for example, is not measured against those of neighbouring provinces but in response to individual provincial and territorial budget pressures. This allows a situation wherein the average retail cost of a carton of cigarettes could be $133 in Manitoba and $88 in Quebec – clearly presenting an attractive business proposition that is ripe for tax evasion.

This penchant for navel gazing is also shared by the federal government. The Canada Revenue Agency appears singularly focused on protecting the integrity of federal assets and is unresponsive to the red flags being raised by law enforcement. They are equally catatonic to the interests of their provincial counterparts and to those of Canada’s international partners, who are struggling with contraband sourced from indigenous reserves in Canada (particularly the Southwest Ontario regions).

More accountability and scrutiny is needed as it relates to the CRA and its contributions towards eradicating contraband tobacco. In addition to a review of its polices and enforcement efforts regarding tobacco licensing, it should also explore the tracking and tracing of materials needed to manufacture cigarettes in Canada. By taking its mandate more seriously, the CRA would be assisting and better positioning provincial governments to oversee and enforce their own particular regional regulations.

Regulatory Oversight in Ontario
The Ontario Ministry of Finance now appears committed to issuing grower and buyer licenses, and carrying out inspections of farms, ensuring that no more raw leaf is growing than what has been approved. After three years of obvious neglect, the Ministry will now be supporting law enforcement efforts to crack down on the illicit tobacco trade.

While poised for success, it remains unclear who is watching the Ministry and if it will be held accountable. It is unacceptable for any government agency to perform without effect – and yet three years of regulatory limbo have passed without apparent repercussions. For all intents and purposes, the Ministry’s ineffectiveness on this file from 2012 to 2015 allowed unlawful activity to take hold of the tobacco farming community. Moving forward, the Ministry should – at a minimum – be required to report on its activities and be held accountable for its performance by independent third party reviews.

National coordination
The last report published by Public Safety Canada on the topic of contraband was the 2012-2013 Horizontal Evaluation of the Measures to Address Contraband Tobacco (MACT). The report audited various components of the $17-million MACT initiative, which the federal government had begun in 2010 with the intent to stop the flow of contraband tobacco into Canada.

Among its findings, the report noted the end of a failed measure involving two contraband tobacco detector dogs. As reported in a CBC article, use of the dogs led to “nine small seizures worth just $1,000 in unpaid federal tobacco taxes over the three-year program.” Public Safety concluded that the initiative was not cost effective and recommended it be discontinued. When first announcing the canine project in 2010, Vic Toews, then minister of Public Safety, was optimistic of the government’s investment saying that “these specialized teams give the Canada Border Services Agency more effective tools for disrupting and reducing illegal tobacco activity.”

Unable to assess the return on investment and overall effectiveness of the MACT program, the Public Safety report recommended engaging “federal departments/agencies participating in contraband tobacco initiatives and activities to establish a strategic level forum to leverage the results and outcomes of all federal investment in contraband tobacco related initiatives/activities to inform and support future policy and program decision-making with a whole-of-government approach.”

It is unclear whether this level of engagement is taking place or whether it is being used to inform effective contraband measures moving forward. It is also unclear how restricting the discussion to a federal level of engagement is productive to developing a balanced and effective strategy. The fear is that ineffective measures (such as the canine initiative) will continue unless there is an open forum that involves a more comprehensive participation of stakeholders, including municipal and provincial police agencies and others responsible for overseeing the regulation of tobacco in Canada.

On this note, the Macdonald-Laurier Institute (MLI) recommends a contraband ombudsman to deal with the complex regulative framework enforced by various levels of government. MLI suggests the ombudsman (under the purview of the Minister of Public Safety) “intensify communication and co-ordination between different law enforcement agencies […] and other regulatory bodies, such as the Canada Revenue Agency, which is in the habit of making unilateral decisions that have deleterious effects for Ontario.”   

Law Enforcement
Law enforcement action goes far in keeping the full impact of the contraband movement at bay.  This is evidenced by the various interdiction efforts mentioned in this report and numerous others every year. What is unreasonable, however, is to overburden and blindly rely on police and other authorities to defend rash policies. Not dealing with indigenous issues, continuing to increase taxes on tobacco products without understanding how this directly benefits the criminal component and creates a clear multiplier effect, plain packaging, de facto prohibition, and other measures are too often transferred to law enforcement authorities to manage and sort out.

To offset some of the burden imposed by such policies, provincial governments appear willing to give law enforcement more authority as it relates to dealing with the problem of contraband. Following Quebec’s lead, many provincial governments are at various stages of considering or implementing policies that empower police of local jurisdictions to investigate and prosecute contraband tobacco cases. Momentum is also growing to allow local municipalities that are prosecuting contraband tobacco cases to keep any proceeds.

Every new tobacco control measure becomes a boon to the black market (whose operators ignore any and all rules). Control measures require that law enforcement be given more authority so as to offset some of the consequences of what many now recognize as well-intentioned but ultimately myopic policies. The extent of this authority is clearly linked to the prudence of government decisions.

Public Awareness
The public recognizes that cigarettes are a legal product, and may categorize the sale and purchase of contraband product as a harmless way to avoid government taxes. The black market of tobacco products, however, is one that generates gross illicit profits that fund the varied interests of criminals.

In addition to promoting awareness to the general public, it is important to ensure that law enforcement and other government officials understand the harm and threat posed by contraband tobacco in Canada. For example, the Ontario Association of Police Service Boards (OAPSB) recently convened a panel of experts on the subject of contraband tobacco and its connection to organized crime.  The session was designed to inform the civilian members of Ontario’s police oversight and policy boards of the issues surrounding the illicit tobacco trade and the importance of public awareness to communities, especially in Southwestern Ontario where so many of Canada’s tobacco farmers live.

Some government officials in these communities are also drawing attention to the issue of contraband. Haldimand-Norfolk Member of Provincial Parliament (MPP) Toby Barrett introduced Bill 162, an Act to establish a commission of inquiry into illegal trade and trafficking of people, drugs, money, tobacco and weapons. The Bill was defeated in March 2016 at the second reading, however, it represents an effort to promote much needed awareness about a topic that is largely misunderstood.

These and other initiatives go far in debunking myths about contraband tobacco being a victimless crime. The same enthusiasm put towards educating the public about the dangers of smoking need to be applied to contraband tobacco and to changing behaviours that support this lucrative, complex, criminal network.