By IAN ROBERTSON, SUN MEDIA
http://lfpress.ca/newsstand/News/National/2008/02/11/4839286-sun.html
BOWMANVILLE — Ship containers packed with illegal cigarettes smuggled into Canada from China are fuelling the growing, lucrative trade in underground smokes, Sun Media has learned.
Such cargoes — including one with 10,320,000 counterfeit cigarettes recently shipped through Vancouver’s port and seized in Toronto — not only cut deep into tax coffers.
Some illegal cigarettes from the People’s Republic are made “in underground operations . . . caves and old warehouses,” and could have unknown, dangerous or unhealthy contents, RCMP Const. Guy Martin said.
“Every country has different quality controls,” he said. Smokes from China “don’t likely meet our standards.”
The packaging may also contain benzene, a flammable, cancer-linked toxic hydrocarbon solvent, Martin said.
In the Greater Toronto Area Customs and Excise Section lockup here, some seized cigarette cartons bore only Chinese characters. Others had some English text.
They were far more legitimate-looking than clear plastic-wrapped bags of smokes recently seized from a Central Ontario man. They bore labels with a smoking warning from the “Surgeon General.” Canada does not have such an official, Martin said.
“These cigarettes were smuggled in from the U.S.,” he added.
The 51,600 made-in-China cartons intercepted last month by his unit, which works with Canada Border Services Agency investigators, contained fake U.S.-branded Marlboro cigarettes.
Estimated to be worth at least $3.6 million if sold, the RCMP estimates the 10.3 million cigarettes would have resulted in lost duties and taxes worth $1.135 million.
Ming Kai Cheng, 44, and Yiu Lam Li, 55, of Scarborough, and Zhehao Song of Markham, are charged under the Excise Act with unlawfully possessing tobacco products.
Some buyers love beating tax collectors out of their 74-per-cut cut from each smoke, others want to save up to $60 a carton, Martin said. Regardless of the motive, sales of bootleg or bogus smokes “all comes back to the almighty dollar.”
Health issues are important, but his unit focuses on contraband for lost revenue, Martin said. Governments survive on taxes “and if they don’t get them from one thing, they’ll increase taxes elsewhere, such as on fuel.”
Smuggling costs federal and provincial taxpayers $1.6 billion in lost taxes, the tobacco industry says.
Ontario revenue ministry spokesperson Scott Blodgett said $1.236 billion in cigarette taxes were collected in the year ending March 2007. That’s 12.35 cents each, or $24.70 per carton of 200.
Calling 31.5 per cent of the province’s cigarette sales illegal, the Ontario Convenience Store Association asked Premier Dalton McGuinty last month to consider the negative impact of tobacco taxes.
After several fierce gun battles between police and organized crime smugglers in the Cornwall area, Canada cut tobacco taxes in February 1994, resulting in a drop in federal and provincial revenue of more than $1.2 billion in fiscal 1994-1995.
Ontario lost $450 million.
Pressured by lobbyists demanding higher taxes to force smokers to butt out, and seeing a way to regain funds for its general tax coffers, the Liberal government boosted provincial tobacco taxes three times from 2003 to 2005.
Last Monday, the Canadian Coalition for Action on Tobacco appealed to federal Finance Minister Jim Flaherty to implement measures in his next budget to control the “crisis” of cigarette smuggling. “Cigarette smuggling has negative ramifications in terms of youth smoking, public health, government revenue loss, border security and crime prevention,” the group’s chairperson, Aaron Levo, said. “Unless urgent action is taken, things will get even worse.”
The group also insisted Ottawa get Washington to shut down illegal cigarette-makers at a large New York reservation. The main sources of contraband smokes in Ontario are smuggled from the U.S. sector of the Akwesasne reservation in New York, made on reserves here, and illegal overseas imports, Blodgett said.
Reserve cigarettes usually reach the GTA in clear plastic bags, bought by smokers or underground wholesalers from outlets where natives can legally buy untaxed tobacco.
Some are sold in U.S. brand packages by merchants who get them at a discount.
Usually priced at $10-to-$15 per 200 instead of a retail price averaging $70, Martin said some contain tobacco scooped off floors. Cut-rate workers also chop up stalks and sometimes leave in lumps due to blunt cutters.
“It’s just human nature for people to save a dollar,” the 10-year investigator said. “But it’s not good in the long run.”
The risks of cancer and emphysema could end up as an added expense for the health-care system, he said.
One Toronto business owner who buys reserve-made cigarettes said, “This way the government gets cheated out of the taxes. They’ve been cheating me all my life.”
A companion who joined him outside a coffee shop to puff cigarettes they transferred to a recycled brand-name package from freezer bags, said “they taste similar” to a name brand, “but you can tell the difference.”
In some cases the filter tips “don’t go on quite right.”
The first man, a 40-year smoker, said if governments “were serious about stopping smoking, they’d go after the big tobacco companies.
“They say this raises money for hospitals? Right!”
To combat contraband tobacco, Ontario has boosted penalties several times since 2004, Blodgett said. And with the recent hiring of more Revenue Ministry investigators and inspectors, last year’s monthly retailer inspection rates are expected to increase by 300 to about 800 a month.
Some cases are before the courts, so totals were unavailable. But convictions under Ontario’s Tobacco Tax Act doubled from 2005 to 2007, he said, adding in the two years ending March 13, officials seized 14 million smuggled cigarettes, 112,000 untaxed cigars and an undisclosed amount of fine-cut tobacco.
Fines can hit $10,000 at the provincial level, “plus three times the tax owing, and imprisonment for up to two years,” Blodgett said. Buyers also face similar fines, with $500-to-$1,000 minimums.
Federal penalties include civil court fines of $22 per smuggled carton of smokes to cover lost taxes, plus a criminal conviction fines of 16.5-to-24.5 cents per smoke.
Martin said seized contraband cigarettes are eventually destroyed. But instead of burning them, which poses a risk to the environment, they’re crushed and buried.