The federal gov't can't seem to stop cigarette smuggling and losing billions of dollars in Ontario and Quebec. Aboriginals are involved which is one reason why the federal gov't is reluctant to intervene.The location of the reserves is no secret, and they're not huge. But just hand wringing.
"Both communities also jealously guard what they consider their right as a sovereign people to freely cross borders and trade with whomever they want and not collect or pay taxes.
Police generally won't enter First Nations reserves without permission from the tribal council. To a degree, this has made some native communities a sanctuary for the activities of organized criminals seeking a safe haven for their contraband as well as a trans-border pipeline, say law enforcement officials."
The gov't of Canada is simply not exercing its sovereign rights here. There are not two bosses in Canada, only one. Yet there are two classes of people in Canada when it comes to law enforcement. The law in Canada is very political.
Mohawks, gangs and tobacco
Mohawks, gangs and tobacco
By William Marsden, The Gazette, Montreal
April 28, 2009
This story is a Gazette collaboration with the International Consortium of Investigative Journalists, a project of the Centre for Public Integrity, Washington, D.C This story is part of the centre's project called Tobacco Underground: The booming global trade in smuggled tobacco.
Gary Godelie has been a tobacco farmer most of his life, struggling to keep alive a family farm that produces what most everyone agrees is a death crop. Whacked by global competition undercutting his prices, not to mention a dwindling number of Canadian smokers, he often thinks of getting out of the business.
Nothing brought this thought home more clearly than a series of events that began one hot July day in 2006, when two men drove up to his southern Ontario farm near Delhi and offered to buy his entire crop. That surprised Godelie, because anybody in the tobacco business would know that Canadian growers are part of a tightly regulated quota system. Buyers have to be federally licensed and can buy only through the marketing board.
"I said, 'Well, no. I can't sell you tobacco. I have to sell it to the legal system,' " Godelie recalled. "They kind of looked at me and laughed and like said, 'Why would you want to do that when we're offering you cash money, a deal here, you know?' " 'Well, no, I'm not going to do that kind of stuff.' " The two men drove off and Godelie thought that was the end of it.
A few days later, he had to fetch some irrigation equipment from a barn where he had stacked 169 bales that were over quota from the previous year's tobacco crop. He hoped to sell the surplus bales at auction that winter as part of the current year's quota. The first clue something was wrong came when he saw his hydraulic forklift sitting on the hood of his tractor. His first thought was to blame his son-in-law. But then he thought, that wasn't typical, his son-in-law wouldn't have done something like that. He switched on the light.
"I stood there kind of flabbergasted for a minute and then I scanned over the stacks and then it hit me: Oh no, they had cleaned out the barn completely." It had rained the previous night so Godelie hadn't gone out to irrigate. That was the night they nailed him. He said he figured that at 40 pounds a bale, it took them maybe 20 minutes to clean him out.
"They stole all 169 bales, which is 8,000 pounds. It takes about 1.9 pounds to make 1,000 cigarettes. That's more than 4 million cigarettes. That's pretty significant. Now we're talking some serious coin. For me, it was about a $20,000 loss." It wasn't long before Godelie began hearing about other tobacco farmers in his area getting hit. The thefts became so widespread that farmers began installing security systems, barring barn windows and parking disabled tractors in front of their barn doors. But to little effect.
"Now they are so brazen they take chainsaws and they cut the side walls out of the barn," said Linda Vandendriessche, chairperson of the Ontario Flue-Cured Tobacco Growers' Marketing Board and herself a tobacco farmer.
"It's no joke. You will not believe the intimidation that is going on with our farmers." A Runaway Black Market The thefts are the result of a new brand of tobacco smuggling, one that has flooded the Canadian market with contraband cigarettes and cigarillos made not by brand companies - as was the case with tobacco smuggling in the 1990s - but by clandestine manufacturers on Indian reserves here and in the United States.
Over the last six years, as federal and provincial governments hiked tobacco taxes to curb smoking and raise funds, the smuggling business has grown "exponentially," the RCMP say.
At a time when a crumbling economy has forced governments into deficit financing, smugglers - and in some cases their mob partners - are pocketing hundreds of millions of dollars in profits. The cheap cigarettes not only fuel the spread of smoking, which costs Canadian taxpayers about $4.36 billion annually in health care, but also rob governments of money that otherwise would go into official coffers to pay for services including health care. The federal, Quebec and Ontario governments claim the proliferation of contraband cigarettes - untaxed cigarettes either smuggled into Canada from the U.S. or produced by unlicensed manufacturers on Canadian reserves and sold throughout the country - is costing them at least $1.6 billion a year in lost taxes.
The size of this black market is huge, conservatively estimated at $1.3 billion in Canada alone, with profit margins rivalling those of narcotics. Both industry and government studies indicate that, across the country, two to three cigarettes of every 10 sold are contraband. In Ontario and Quebec, the figure climbs as high as 40 per cent, according to the latest report from Physicians for a Smoke-Free Canada.
"We're making more cigarettes than Imperial Tobacco (Canada's leading tobacco company)," boasted one Mohawk smuggler.
Seizures of contraband
tobacco in Canada jumped
16-fold between 2001 and 2006, according to the RCMP. The off-the-books smokes range from independently-produced cigarettes sold in plastic bags to expertly counterfeited packs of leading brands. In some cases, cheap Indian brands have become so popular that rival illicit manufacturers are counterfeiting them.
So vast are the profits and so poorly are the laws enforced that the contraband tobacco industry has attracted an unholy alliance of Mohawks - from Akwesasne, Kahnawake and Kanesatake - and members of organized crime. Outlaw bikers and Italian, Irish, Russian and Asian mobs are involved in the manufacturing, distribution and retailing of the illicit tobacco products, according to an investigation by The Gazette and the Centre for Public Integrity in Washington, D.C.
"Everybody knows we do have organized crime here," Kahnawake Chief Rhonda Kirby said. In fact, some smoke shop owners want to get out of the business, she added, but have been forced by the gangs to stay put. "The mob is involved with some of the individuals, the Mafia and the Irish mob and the Russian mob and the Chinese mob."
At the centre of the tobacco trade are about 20 native-owned manufacturers that produce millions of untaxed and unregulated cigarettes a day out of small and medium-size factories at Indian reserves in Ontario, Quebec and across the border in New York State.
In some cases, the capital to buy the equipment and set up operations has been fronted by organized crime, Indian smugglers and police say. Recent joint U.S.-Canadian police investigations indicate that drug money has been used to finance the tobacco business. Tobacco profits are then used to buy cocaine and marijuana, which are smuggled across the border using the same networks as the tobacco. Large cash seizures are common at the border and along Highway 401, which has become a smuggler's pipeline to Montreal and Toronto.
This month, the RCMP arrested two Hells Angels from Quebec City and two Mohawks from Kahnawake, as well as 18 others, and charged them with trafficking in cigarettes and an array of drugs including methamphetamines, cocaine and marijuana. They also seized $75,000 in cash. In March 2008, native peacekeepers in Akwesasne, Kahnawake and Kanesatake seized about $2 million in cash after raiding a cigarette/marijuana smuggling operation. In just two seizures on Nov. 17 and Dec. 7 last year, Canadian Border Services agents seized $636,467 in U.S. and Canadian funds hidden in vehicles driven by Mohawks from Akwesasne, which straddles the border between Ontario, Quebec and New York and has long been used to smuggle goods between the U.S. and Canada. In addition, the RCMP on Feb. 19 seized $260,000 U.S. from a native driving from Akwesasne to Quebec. Police believe the cash is linked to drug sales into the U.S.
Yet while police struggle to keep the contraband in check, the Canada Revenue Agency has been licensing some manufacturers in Akwesasne and Kahnawake, according to police and court documents. In one instance, it licensed a company in Akwesasne whose Mohawk owner was later charged with racketeering and marijuana smuggling into the U.S.
The Canada Revenue Agency refused to say to whom it gives licences and wouldn't comment on its licensing practices, saying they are confidential. One RCMP officer claimed the licensing potentially undermines their anti-tobacco strategy. "I was really surprised when we heard they had licensed some of these manufacturers," the officer said.
Made in Canada
While officials here have complained to their U.S. counterparts that most of the illegal cigarettes are produced on the U.S. side of the Akwesasne reserve, this is no longer true. According to Mohawk sources and visits to manufacturing plants, the operations have slowly shifted to Kahnawake.
Ironically, it was a major
tobacco company, Imperial Tobacco, that supplied Kahnawake with the reserve's first cigarette-making machines when it sold off surplus machines at its Montreal plant in 2003 and moved its operations to Mexico.
"They not only supplied the machines, but they came on the reserve and showed us how to work them and blend the tobacco," said one smuggler who spoke on condition that his name not be used. Imperial Tobacco admitted that it sold surplus machines to the Mohawks, but claimed the company later took them back. Only licensed companies can operate tobacco machines in Canada.
Some producers operate in clandestine warehouses and garages or makeshift shacks located along back roads on reserves. Others work out of sophisticated plants sporting reconditioned British-made cigarette machines known as Mark-9s, each capable of producing 3,500 to 5,000 cigarettes a minute.
The illicit operations have become important local employers for both natives and non-natives. Workers daily earn $100 to $150 in cash for bagging cigarettes and $175 to $200 a day for working the machines, several workers said.
In Kahnawake, which has a population of about 8,000, Kirby, who is responsible for the Mohawk reserve's tobacco industry, estimated that the business employs more than 2,000 people in manufacturing, distribution, wholesale and retail. Many of the workers are non-native.
"We have so many non-
native community members working here and then of course relationships start up, so now that's another problem," she said, referring to both Kahnawake and Akwesasne being traditional Mohawk communities that bar non-natives from living among them.
*********************
Both communities also jealously guard what they consider their right as a sovereign people to freely cross borders and trade with whomever they want and not collect or pay taxes.
Police generally won't enter First Nations reserves without permission from the tribal council. To a degree, this has made some native communities a sanctuary for the activities of organized criminals seeking a safe haven for their contraband as well as a trans-border pipeline, say law enforcement officials.
*** **** ***
The smuggling of drugs, illegal aliens and guns, as well as the establishment of Internet gambling services, casinos and bingo halls, have all become contentious issues not only between aboriginals and non-aboriginals but also within the aboriginal communities.
Tobacco, however, is different. It's part of Mohawk ritualistic tradition, and Mohawks believe they have a right to trade this substance that pre-dates European colonization. What's more, it brings wealth to otherwise poor communities.
"The government's upset because we are punching out millions of cigarettes a day and, of course, he wants his piece of the pie," one contraband seller said. "If they come in, we'll close the bridge again," he added, referring to the barricading of the Mercier Bridge in 1990.
In the early 1990s, when tobacco smuggling on Indian reserves was at record levels, the product came from major manufacturers such as Imperial Tobacco, which is owned by British American Tobacco; RJR Macdonald, which at the time was owned by RJ Reynolds and is now owned by Japan Tobacco Inc.; and Rothmans Benson & Hedges. The RCMP effectively shut down that pipeline by charging RJR and its executives with aiding and abetting smuggling. Rothmans and Imperial paid $1.1 billion in fines and penalties to Canadian governments last year for their part in the early 1990s smuggling. RJR and some of its executives still face criminal charges.
With the major players out of the contraband game, the Indians have taken over and created a fully integrated business. The only part they don't control is tobacco farming.
alleged Gang ties
The success of native cigarettes, says tobacco farmer Godelie, reflects a sea change in market dynamics brought on by high taxes, which now make up about 75 per cent of the cost of a legal cigarette. "That really started to send a message to everyone in the world of tobacco that the consumer in Canada went from taste sensitive to price sensitive," he said.
But as Godelie learned three years ago, the tobacco business can sometimes be organized crime at a worrisome, reckless level. At the heart of it all is the 17-kilometre section of the U.S.-Canada border that runs through Akwesasne. It is a major security soft spot with marijuana and cocaine flowing south while tobacco and weapons come north. The fact that goods can pass from the Mohawk community of St. Regis on the U.S. side to Akwesasne on the Canadian side, and then enter non-native communities unchecked, poses a major problem for authorities.
When the St. Lawrence freezes, smugglers take a winter path across the ice between the two communities. When the ice melts, the speedboats come out.
In February of this year, U.S. police arrested 10 people, alleging they were part of one ring that smuggled 22,700 kilograms of marijuana through Akwesasne and into the U.S. from 2003 to January of this year. Among those arrested: two residents of Akwesasne, men from New York City and New Jersey, and an Israeli.
One of the accused is David Sunday, 37, who is charged with racketeering and running a "continuing criminal enterprise." Sunday owns a tobacco manufacturing company on the Canadian side of Akwesasne called Seven Nations Tobacco. On June 2, 2008, the Canada Revenue Agency awarded Sunday's company a tobacco manufacturing licence.
Last May a CRA official told Parliament that 14 licences of a total 46 in Canada are now held by natives. Licences have to be renewed after two years and a criminal background check is performed before a licence is handed out, the official said. The government will not say how many of these 14 licences are still good or whether more licences have been handed out since last May. These manufacturers also need provincial licences to allow them to transport their cigarettes, which, according to police, Quebec and Ontario have been reluctant to issue.
One prominent tobacco seller in Kahnawake, who calls himself Splicer, doesn't agree with law enforcement on much, but he says he does agree with the RCMP on one thing: The mob has infiltrated the illicit tobacco business. "I agree with them 100 per cent that, yes, there is Mafia in our community," said Splicer, who has moved contraband tobacco for 20 years. Organized crime, he explained, finances some of the manufacturing plants and retail smoke shops, most of which are little more than plywood shacks or converted shipping containers.
All roads lead ...
Business on the Kahnawake reserve is growing so fast that the community now appears to have surpassed its cousins in Akwesasne. The Gazette found that Kahnawake has at least nine manufacturers. One worker, who would speak only if his name wasn't used, said production varies but overall his shop processes about 5,000 pounds of tobacco each day using two Mark-9 machines - enough to make about 2.5 million cigarettes, or 125,000 packs per workday.
In addition to Kahnawake, police claim that about 11 Indian manufacturers are operating on the Canadian and U.S. side of the border at Akwesasne. The Gazette tried to track them down, but could locate only two that were still in operation. Officials say there are also manufacturers on the Six Nations Reserve near Brantford in southwestern Ontario and the Tyendinaga reserve near Belleville, Ont.
Until recently, the raw tobacco has been smuggled up through Akwesasne from North Carolina. But with the emergence of Kahnawake as a force in cigarette production, Splicer, the veteran tobacco dealer, said a lot of tobacco is coming from various countries through the Port of Montreal and the St. Lawrence Seaway, which goes right through Kahnawake.
"We have all kinds of ways of getting tobacco here," Splicer explained. "We have the borders beat. We have customs beat. The international waters goes right through our community, doesn't it. Take a ride up the riverfront and take a look and you'll figure out how we get it in. We built our own docks. We can load and unload."
Just a few years ago, Mohawks hired companies in North Carolina such as the Timcorp Group of Charlotte to supply turnkey cigarette manufacturing plants, plus raw tobacco, filters and tips, police say. Timcorp's website now claims it is out of business. A call to the firm, however, found it still operating. A receptionist said company president Dennis Makepeace would not reply to questions about his business with the Indians.
On March 14, 2006, St. Regis tribal police on the U.S. side of the Akwesasne reserve stopped three Bulgarian nationals in a vehicle owned by a prominent Akwesasne company. According to the RCMP, one Bulgarian named Stoyan Ivanov Darzhonov, 34, told police they worked for Timcorp and had come to St. Regis to set up cigarette machines.
Darzhonov also told police that two months earlier, they had set up manufacturing operations for three companies, including Jacobs Tobacco and Native Trading Associates.
Native Trading's brands crowd the shelves of smoke shops in reserves in Ontario and Quebec. Its owner, Sue Jesmer of Cornwall, Ont., has a manufacturing plant on the U.S. side of Akwesasne and holds a U.S. federal licence to manufacture her Native brand cigarettes. Jesmer refused, through her Washington, D.C., lawyer Bill McGowan, an interview. "It's a very sensitive subject. It's a big, complex, nasty issue," McGowan said in trying to explain why he didn't want his client to talk to the media. "The whole issues of Canada, etc., etc. ... She just wants to follow the rules and not everybody is doing that."
no-name Baggies
More than 150 Indian smoke shops crowd the nine-kilometre strip of Highway 138 that runs through the heart of the Kahnawake reserve. With names like Mega Butts, Get'n'Go, and Another Damn Cigarette Store, they serve the relentless flow of commuters between Montreal and its southern suburbs. They sell predominantly re-sealable bags of no-name cigarettes and Indian brands such as Native, Montcalm, Broncos and DKs, most of which, Splicer said, are made on the reserve.
The price of a carton of 200 legal cigarettes in Canada varies between $70 and $90, depending on the province. Contraband cigarettes cost less than the taxes on the legal ones. Indian-made brands cost from $20 to $35 and no-name brands, in the resealable bags, sell for as low as $15 for 200 cigarettes. (Competition in Kahnawake grew so intense last year that baggy prices sank to $6 before the Kahnawake Tobacco Association imposed price controls designed to boost the price to $20.)
Many of the tobacco manufacturers have their own websites, on which they advertise their products and where they can be purchased. One of the largest manufacturers is Jacobs Tobacco Company on the U.S. side of Akwesasne. Its website Jacobstobacco.com boasts of a "state of the art facility" producing three "premium brands" under the name of "disCOUNT." The website claims the company regularly donates to community youth programs and health services.
The company's cigarettes line the shelves of Canadian smoke shops and are considered contraband by the Canadian government. Jacobs Tobacco is owned by CEO Rosalie Jacobs and her family, according to an affidavit she filed in a U.S. federal court.
Her son Al Jacobs, known on the reserve as the "40-million-dollar man" because of his tobacco earnings, is a veteran tobacco smuggler with convictions dating back to 1994. He was indicted July 17, 2008, with five other men in the robbery and murder of a marijuana dealer in Stockholm, N.Y., and is in prison awaiting trial.
His mother's business, which has addresses in both Pennsylvania and Akwesasne, still operates, now out of a new 4,400-square-metre factory employing 72 natives full-time with a payroll of $2 million U.S., according to an affidavit signed by Rosalie Jacobs in U.S. federal court.
Jacobs Tobacco in 2007 opened an account at the Bank of Montreal on the Canadian side of the reserve. It is the only bank on either the Canadian or U.S. side. In an affidavit, Jacobs said she opened the account to wire payments to her U.S. wholesale tobacco suppliers. On Aug. 20, 2007, for example, she declared $15,000 U.S. to border authorities and was allowed to take the cash into Canada where she deposited it at the Bank of Montreal. Three days later, she tried to take $64,000 U.S. across the border into Canada. This time, however, when she declared the money to a U.S. border guard, he seized it and gave it to the Bureau of Alcohol, Tobacco and Firearms (ATF), which initiated a seizure proceeding.
Rosalie sued the U.S. government to get the money back, claiming that it was legally acquired from tobacco manufacturing and that she had at all times complied with U.S. law. The ATF, in turn, argued that Jacobs Tobacco's operations were illegal because the company had no U.S. licence; it has a licence from the St. Regis Mohawk Tribe that is not recognized by Canadian or U.S. authorities. The case was settled last year when Jacobs agreed, without admitting or denying guilt, to forfeit half the money - $32,000 U.S. - while the ATF agreed to return the other half.
Rosalie Jacobs continues to deposit cash at the Bank of Montreal, according to police, and declares her funds to both U.S. and Canadian officials. Her Discount brand is widely sold in Canada.
Enforcement fails
The RCMP strategy for combating cigarette smuggling is to work with local and provincial police, as well as Mohawk peacekeepers to target the ringleaders - those primarily responsible for manufacturing and distribution. At the same time, police have tried to disrupt the flow of contraband by arresting couriers. So far, even officials admit this strategy hasn't worked.
Tribal councils won't shut down manufacturers because they don't regard them as illegal. They've shut them down only because their owners have also been arrested for drug smuggling. Since 2007, there have been 480 tobacco seizures in the region of Akwesasne and Valleyfield, just west of Montreal, netting 443 vehicles plus a number of firearms that include two AK-47 assault rifles, two M-16 machine guns and three grenade launchers.
In theory, penalties for selling or smuggling untaxed tobacco in Canada can be quite severe. Federal fines range from between 17 cents per cigarette and 25.5 cents per cigarette, which adds up when you've got thousands of cigarettes jammed into a van. Added to that are provincial penalties that can double the fines. Failure to pay means up to 18 months in jail.
Trouble is, prosecutors say, smugglers and contraband sellers often don't bother to show up in court, which means police have to go looking for them. And when they finally do come to court and receive stiff fines of tens of thousands of dollars, they don't pay them.
"In my four years doing these cases, I have never seen anybody incarcerated for failure to pay a fine," Cornwall public prosecutor Ron Turgeon said, adding that nobody pays the fines. "Now I'm asking for prison for a second offence, but I'm still not getting it."
Ontario funnels all the Akwesasne cases through a small courthouse that sits behind a beer store in the rural town of Alexandria, about half an hour from Cornwall. The Gazette tried to follow one person accused of smuggling, Oren Bigtree, through the court system, but he never showed up for his hearing.
"They get fined hundreds of thousands of dollars and nobody actually pays that money," said Sgt. Michael Harvey of the Cornwall detachment of the RCMP. "They pay maybe $100 a month. It's just crazy. We seize loads every day but there are factories pumping out millions of cigarettes so it doesn't make any dent."
Chasing smugglers is a dangerous occupation. Last month, a smuggler from Akwesasne tried to run over a Sûreté du Québec police officer with his truck. The officer shot out a tire, arrested the man and found an AK-47 in his cab. In January, an elderly couple from Massena, N.Y., was killed when a tobacco smuggler, chased by two Mohawk police officers, rammed their car. The smuggler also died in the collision that engulfed both vehicles in flames. The police officers were charged with criminal negligence causing death and with dangerous driving.
Since the accident, tobacco seizures have declined because police are reluctant to chase smugglers, Harvey said.
Weak enforcement, willing suppliers, and big demand suggest how difficult it will be to disrupt what has become a billion-dollar black market. Worse, with penalties and punishment modest at best, the biggest challenge may simply be the huge profits to be made, rivalling those of narcotics. Individual smugglers, or runners, can cash in big. One 17-year-old runner from Cornwall testified at her bail hearing that she made three trips a day, six days a week, and earned about $6,000 a week. She said she used the money to finance her cocaine habit.
Retailers also can make a good living. Splicer said his operation clears about $130,000 a year selling contraband. Still, it's not easy, he said. Splicer complained that he can't hold any assets in his name or the government will seize them. He has no bank account and is forced to keep large amounts of money handy to pay his workers and suppliers in cash.
"I can't put my name up front because the government is going to come kicking my door in. That car I own out there? It belongs to my last girlfriend. I pay for the car payments but I can't own it in my name. And my business is not in my name. I burn all my stuff. We don't keep records in the stores. We burn paper. At the end of the day I log into a special computer and hide it on a chip. ... The house I live in is not in my name. That's how I live. I'm nobody."
But he's someone to the Quebec government.
Tax collectors have assessed Splicer for an impressive $25 million in unpaid taxes dating back to the early 1990s, when he ran millions of cartons of cigarettes into Kahnawake. Splicer said he reached a settlement agreeing to pay the government a mere $150 a month against the debt. "They told me to sign an agreement to pay or go to jail for two years," he said. "I pay."
Revenue Quebec would not comment on why it settled for this amount. Often, when there is nothing the government can seize, it will settle on an amount it believes the taxpayer can afford.
It's hard to believe that will make much of a dent in what has become a booming business. Throughout the conversation with Splicer, there is a constant flow of customers in and out of his smoke shop. They buy mostly the low-end discounted cigarettes that come in resealable bags. Twice during the afternoon suppliers brought in fresh boxes, each containing 50 cartons or 10,000 cigarettes.
"I have been in this business since I was 16 years old," Splicer said, taking a drag from a premium brand cigarette. "When they first rolled the first cigarettes into this community, I was there on the water smuggling them in. I was armed with a machine gun in the bush to protect our loads. I remember all this. I ran the river. I did all that. Because this is what I do. This is who I am."
wmarsden@thegazette.canwest.com
CORRECTION: An earlier version of this article stated the company Brand-U Media is a tobacco manufacturer. Government records, however, indicate its activities as publishing and combat sports. The Gazette also reported that Burton Rice is president of Mustang Distribution Ltd. Government records indicate that its president is Peter Rice. Burton Rice is not listed as an officer or shareholder of the company.
© Copyright (c) The Montreal Gazette
"Both communities also jealously guard what they consider their right as a sovereign people to freely cross borders and trade with whomever they want and not collect or pay taxes.
Police generally won't enter First Nations reserves without permission from the tribal council. To a degree, this has made some native communities a sanctuary for the activities of organized criminals seeking a safe haven for their contraband as well as a trans-border pipeline, say law enforcement officials."
The gov't of Canada is simply not exercing its sovereign rights here. There are not two bosses in Canada, only one. Yet there are two classes of people in Canada when it comes to law enforcement. The law in Canada is very political.
Mohawks, gangs and tobacco
Mohawks, gangs and tobacco
By William Marsden, The Gazette, Montreal
April 28, 2009
This story is a Gazette collaboration with the International Consortium of Investigative Journalists, a project of the Centre for Public Integrity, Washington, D.C This story is part of the centre's project called Tobacco Underground: The booming global trade in smuggled tobacco.
Gary Godelie has been a tobacco farmer most of his life, struggling to keep alive a family farm that produces what most everyone agrees is a death crop. Whacked by global competition undercutting his prices, not to mention a dwindling number of Canadian smokers, he often thinks of getting out of the business.
Nothing brought this thought home more clearly than a series of events that began one hot July day in 2006, when two men drove up to his southern Ontario farm near Delhi and offered to buy his entire crop. That surprised Godelie, because anybody in the tobacco business would know that Canadian growers are part of a tightly regulated quota system. Buyers have to be federally licensed and can buy only through the marketing board.
"I said, 'Well, no. I can't sell you tobacco. I have to sell it to the legal system,' " Godelie recalled. "They kind of looked at me and laughed and like said, 'Why would you want to do that when we're offering you cash money, a deal here, you know?' " 'Well, no, I'm not going to do that kind of stuff.' " The two men drove off and Godelie thought that was the end of it.
A few days later, he had to fetch some irrigation equipment from a barn where he had stacked 169 bales that were over quota from the previous year's tobacco crop. He hoped to sell the surplus bales at auction that winter as part of the current year's quota. The first clue something was wrong came when he saw his hydraulic forklift sitting on the hood of his tractor. His first thought was to blame his son-in-law. But then he thought, that wasn't typical, his son-in-law wouldn't have done something like that. He switched on the light.
"I stood there kind of flabbergasted for a minute and then I scanned over the stacks and then it hit me: Oh no, they had cleaned out the barn completely." It had rained the previous night so Godelie hadn't gone out to irrigate. That was the night they nailed him. He said he figured that at 40 pounds a bale, it took them maybe 20 minutes to clean him out.
"They stole all 169 bales, which is 8,000 pounds. It takes about 1.9 pounds to make 1,000 cigarettes. That's more than 4 million cigarettes. That's pretty significant. Now we're talking some serious coin. For me, it was about a $20,000 loss." It wasn't long before Godelie began hearing about other tobacco farmers in his area getting hit. The thefts became so widespread that farmers began installing security systems, barring barn windows and parking disabled tractors in front of their barn doors. But to little effect.
"Now they are so brazen they take chainsaws and they cut the side walls out of the barn," said Linda Vandendriessche, chairperson of the Ontario Flue-Cured Tobacco Growers' Marketing Board and herself a tobacco farmer.
"It's no joke. You will not believe the intimidation that is going on with our farmers." A Runaway Black Market The thefts are the result of a new brand of tobacco smuggling, one that has flooded the Canadian market with contraband cigarettes and cigarillos made not by brand companies - as was the case with tobacco smuggling in the 1990s - but by clandestine manufacturers on Indian reserves here and in the United States.
Over the last six years, as federal and provincial governments hiked tobacco taxes to curb smoking and raise funds, the smuggling business has grown "exponentially," the RCMP say.
At a time when a crumbling economy has forced governments into deficit financing, smugglers - and in some cases their mob partners - are pocketing hundreds of millions of dollars in profits. The cheap cigarettes not only fuel the spread of smoking, which costs Canadian taxpayers about $4.36 billion annually in health care, but also rob governments of money that otherwise would go into official coffers to pay for services including health care. The federal, Quebec and Ontario governments claim the proliferation of contraband cigarettes - untaxed cigarettes either smuggled into Canada from the U.S. or produced by unlicensed manufacturers on Canadian reserves and sold throughout the country - is costing them at least $1.6 billion a year in lost taxes.
The size of this black market is huge, conservatively estimated at $1.3 billion in Canada alone, with profit margins rivalling those of narcotics. Both industry and government studies indicate that, across the country, two to three cigarettes of every 10 sold are contraband. In Ontario and Quebec, the figure climbs as high as 40 per cent, according to the latest report from Physicians for a Smoke-Free Canada.
"We're making more cigarettes than Imperial Tobacco (Canada's leading tobacco company)," boasted one Mohawk smuggler.
Seizures of contraband
tobacco in Canada jumped
16-fold between 2001 and 2006, according to the RCMP. The off-the-books smokes range from independently-produced cigarettes sold in plastic bags to expertly counterfeited packs of leading brands. In some cases, cheap Indian brands have become so popular that rival illicit manufacturers are counterfeiting them.
So vast are the profits and so poorly are the laws enforced that the contraband tobacco industry has attracted an unholy alliance of Mohawks - from Akwesasne, Kahnawake and Kanesatake - and members of organized crime. Outlaw bikers and Italian, Irish, Russian and Asian mobs are involved in the manufacturing, distribution and retailing of the illicit tobacco products, according to an investigation by The Gazette and the Centre for Public Integrity in Washington, D.C.
"Everybody knows we do have organized crime here," Kahnawake Chief Rhonda Kirby said. In fact, some smoke shop owners want to get out of the business, she added, but have been forced by the gangs to stay put. "The mob is involved with some of the individuals, the Mafia and the Irish mob and the Russian mob and the Chinese mob."
At the centre of the tobacco trade are about 20 native-owned manufacturers that produce millions of untaxed and unregulated cigarettes a day out of small and medium-size factories at Indian reserves in Ontario, Quebec and across the border in New York State.
In some cases, the capital to buy the equipment and set up operations has been fronted by organized crime, Indian smugglers and police say. Recent joint U.S.-Canadian police investigations indicate that drug money has been used to finance the tobacco business. Tobacco profits are then used to buy cocaine and marijuana, which are smuggled across the border using the same networks as the tobacco. Large cash seizures are common at the border and along Highway 401, which has become a smuggler's pipeline to Montreal and Toronto.
This month, the RCMP arrested two Hells Angels from Quebec City and two Mohawks from Kahnawake, as well as 18 others, and charged them with trafficking in cigarettes and an array of drugs including methamphetamines, cocaine and marijuana. They also seized $75,000 in cash. In March 2008, native peacekeepers in Akwesasne, Kahnawake and Kanesatake seized about $2 million in cash after raiding a cigarette/marijuana smuggling operation. In just two seizures on Nov. 17 and Dec. 7 last year, Canadian Border Services agents seized $636,467 in U.S. and Canadian funds hidden in vehicles driven by Mohawks from Akwesasne, which straddles the border between Ontario, Quebec and New York and has long been used to smuggle goods between the U.S. and Canada. In addition, the RCMP on Feb. 19 seized $260,000 U.S. from a native driving from Akwesasne to Quebec. Police believe the cash is linked to drug sales into the U.S.
Yet while police struggle to keep the contraband in check, the Canada Revenue Agency has been licensing some manufacturers in Akwesasne and Kahnawake, according to police and court documents. In one instance, it licensed a company in Akwesasne whose Mohawk owner was later charged with racketeering and marijuana smuggling into the U.S.
The Canada Revenue Agency refused to say to whom it gives licences and wouldn't comment on its licensing practices, saying they are confidential. One RCMP officer claimed the licensing potentially undermines their anti-tobacco strategy. "I was really surprised when we heard they had licensed some of these manufacturers," the officer said.
Made in Canada
While officials here have complained to their U.S. counterparts that most of the illegal cigarettes are produced on the U.S. side of the Akwesasne reserve, this is no longer true. According to Mohawk sources and visits to manufacturing plants, the operations have slowly shifted to Kahnawake.
Ironically, it was a major
tobacco company, Imperial Tobacco, that supplied Kahnawake with the reserve's first cigarette-making machines when it sold off surplus machines at its Montreal plant in 2003 and moved its operations to Mexico.
"They not only supplied the machines, but they came on the reserve and showed us how to work them and blend the tobacco," said one smuggler who spoke on condition that his name not be used. Imperial Tobacco admitted that it sold surplus machines to the Mohawks, but claimed the company later took them back. Only licensed companies can operate tobacco machines in Canada.
Some producers operate in clandestine warehouses and garages or makeshift shacks located along back roads on reserves. Others work out of sophisticated plants sporting reconditioned British-made cigarette machines known as Mark-9s, each capable of producing 3,500 to 5,000 cigarettes a minute.
The illicit operations have become important local employers for both natives and non-natives. Workers daily earn $100 to $150 in cash for bagging cigarettes and $175 to $200 a day for working the machines, several workers said.
In Kahnawake, which has a population of about 8,000, Kirby, who is responsible for the Mohawk reserve's tobacco industry, estimated that the business employs more than 2,000 people in manufacturing, distribution, wholesale and retail. Many of the workers are non-native.
"We have so many non-
native community members working here and then of course relationships start up, so now that's another problem," she said, referring to both Kahnawake and Akwesasne being traditional Mohawk communities that bar non-natives from living among them.
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Both communities also jealously guard what they consider their right as a sovereign people to freely cross borders and trade with whomever they want and not collect or pay taxes.
Police generally won't enter First Nations reserves without permission from the tribal council. To a degree, this has made some native communities a sanctuary for the activities of organized criminals seeking a safe haven for their contraband as well as a trans-border pipeline, say law enforcement officials.
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The smuggling of drugs, illegal aliens and guns, as well as the establishment of Internet gambling services, casinos and bingo halls, have all become contentious issues not only between aboriginals and non-aboriginals but also within the aboriginal communities.
Tobacco, however, is different. It's part of Mohawk ritualistic tradition, and Mohawks believe they have a right to trade this substance that pre-dates European colonization. What's more, it brings wealth to otherwise poor communities.
"The government's upset because we are punching out millions of cigarettes a day and, of course, he wants his piece of the pie," one contraband seller said. "If they come in, we'll close the bridge again," he added, referring to the barricading of the Mercier Bridge in 1990.
In the early 1990s, when tobacco smuggling on Indian reserves was at record levels, the product came from major manufacturers such as Imperial Tobacco, which is owned by British American Tobacco; RJR Macdonald, which at the time was owned by RJ Reynolds and is now owned by Japan Tobacco Inc.; and Rothmans Benson & Hedges. The RCMP effectively shut down that pipeline by charging RJR and its executives with aiding and abetting smuggling. Rothmans and Imperial paid $1.1 billion in fines and penalties to Canadian governments last year for their part in the early 1990s smuggling. RJR and some of its executives still face criminal charges.
With the major players out of the contraband game, the Indians have taken over and created a fully integrated business. The only part they don't control is tobacco farming.
alleged Gang ties
The success of native cigarettes, says tobacco farmer Godelie, reflects a sea change in market dynamics brought on by high taxes, which now make up about 75 per cent of the cost of a legal cigarette. "That really started to send a message to everyone in the world of tobacco that the consumer in Canada went from taste sensitive to price sensitive," he said.
But as Godelie learned three years ago, the tobacco business can sometimes be organized crime at a worrisome, reckless level. At the heart of it all is the 17-kilometre section of the U.S.-Canada border that runs through Akwesasne. It is a major security soft spot with marijuana and cocaine flowing south while tobacco and weapons come north. The fact that goods can pass from the Mohawk community of St. Regis on the U.S. side to Akwesasne on the Canadian side, and then enter non-native communities unchecked, poses a major problem for authorities.
When the St. Lawrence freezes, smugglers take a winter path across the ice between the two communities. When the ice melts, the speedboats come out.
In February of this year, U.S. police arrested 10 people, alleging they were part of one ring that smuggled 22,700 kilograms of marijuana through Akwesasne and into the U.S. from 2003 to January of this year. Among those arrested: two residents of Akwesasne, men from New York City and New Jersey, and an Israeli.
One of the accused is David Sunday, 37, who is charged with racketeering and running a "continuing criminal enterprise." Sunday owns a tobacco manufacturing company on the Canadian side of Akwesasne called Seven Nations Tobacco. On June 2, 2008, the Canada Revenue Agency awarded Sunday's company a tobacco manufacturing licence.
Last May a CRA official told Parliament that 14 licences of a total 46 in Canada are now held by natives. Licences have to be renewed after two years and a criminal background check is performed before a licence is handed out, the official said. The government will not say how many of these 14 licences are still good or whether more licences have been handed out since last May. These manufacturers also need provincial licences to allow them to transport their cigarettes, which, according to police, Quebec and Ontario have been reluctant to issue.
One prominent tobacco seller in Kahnawake, who calls himself Splicer, doesn't agree with law enforcement on much, but he says he does agree with the RCMP on one thing: The mob has infiltrated the illicit tobacco business. "I agree with them 100 per cent that, yes, there is Mafia in our community," said Splicer, who has moved contraband tobacco for 20 years. Organized crime, he explained, finances some of the manufacturing plants and retail smoke shops, most of which are little more than plywood shacks or converted shipping containers.
All roads lead ...
Business on the Kahnawake reserve is growing so fast that the community now appears to have surpassed its cousins in Akwesasne. The Gazette found that Kahnawake has at least nine manufacturers. One worker, who would speak only if his name wasn't used, said production varies but overall his shop processes about 5,000 pounds of tobacco each day using two Mark-9 machines - enough to make about 2.5 million cigarettes, or 125,000 packs per workday.
In addition to Kahnawake, police claim that about 11 Indian manufacturers are operating on the Canadian and U.S. side of the border at Akwesasne. The Gazette tried to track them down, but could locate only two that were still in operation. Officials say there are also manufacturers on the Six Nations Reserve near Brantford in southwestern Ontario and the Tyendinaga reserve near Belleville, Ont.
Until recently, the raw tobacco has been smuggled up through Akwesasne from North Carolina. But with the emergence of Kahnawake as a force in cigarette production, Splicer, the veteran tobacco dealer, said a lot of tobacco is coming from various countries through the Port of Montreal and the St. Lawrence Seaway, which goes right through Kahnawake.
"We have all kinds of ways of getting tobacco here," Splicer explained. "We have the borders beat. We have customs beat. The international waters goes right through our community, doesn't it. Take a ride up the riverfront and take a look and you'll figure out how we get it in. We built our own docks. We can load and unload."
Just a few years ago, Mohawks hired companies in North Carolina such as the Timcorp Group of Charlotte to supply turnkey cigarette manufacturing plants, plus raw tobacco, filters and tips, police say. Timcorp's website now claims it is out of business. A call to the firm, however, found it still operating. A receptionist said company president Dennis Makepeace would not reply to questions about his business with the Indians.
On March 14, 2006, St. Regis tribal police on the U.S. side of the Akwesasne reserve stopped three Bulgarian nationals in a vehicle owned by a prominent Akwesasne company. According to the RCMP, one Bulgarian named Stoyan Ivanov Darzhonov, 34, told police they worked for Timcorp and had come to St. Regis to set up cigarette machines.
Darzhonov also told police that two months earlier, they had set up manufacturing operations for three companies, including Jacobs Tobacco and Native Trading Associates.
Native Trading's brands crowd the shelves of smoke shops in reserves in Ontario and Quebec. Its owner, Sue Jesmer of Cornwall, Ont., has a manufacturing plant on the U.S. side of Akwesasne and holds a U.S. federal licence to manufacture her Native brand cigarettes. Jesmer refused, through her Washington, D.C., lawyer Bill McGowan, an interview. "It's a very sensitive subject. It's a big, complex, nasty issue," McGowan said in trying to explain why he didn't want his client to talk to the media. "The whole issues of Canada, etc., etc. ... She just wants to follow the rules and not everybody is doing that."
no-name Baggies
More than 150 Indian smoke shops crowd the nine-kilometre strip of Highway 138 that runs through the heart of the Kahnawake reserve. With names like Mega Butts, Get'n'Go, and Another Damn Cigarette Store, they serve the relentless flow of commuters between Montreal and its southern suburbs. They sell predominantly re-sealable bags of no-name cigarettes and Indian brands such as Native, Montcalm, Broncos and DKs, most of which, Splicer said, are made on the reserve.
The price of a carton of 200 legal cigarettes in Canada varies between $70 and $90, depending on the province. Contraband cigarettes cost less than the taxes on the legal ones. Indian-made brands cost from $20 to $35 and no-name brands, in the resealable bags, sell for as low as $15 for 200 cigarettes. (Competition in Kahnawake grew so intense last year that baggy prices sank to $6 before the Kahnawake Tobacco Association imposed price controls designed to boost the price to $20.)
Many of the tobacco manufacturers have their own websites, on which they advertise their products and where they can be purchased. One of the largest manufacturers is Jacobs Tobacco Company on the U.S. side of Akwesasne. Its website Jacobstobacco.com boasts of a "state of the art facility" producing three "premium brands" under the name of "disCOUNT." The website claims the company regularly donates to community youth programs and health services.
The company's cigarettes line the shelves of Canadian smoke shops and are considered contraband by the Canadian government. Jacobs Tobacco is owned by CEO Rosalie Jacobs and her family, according to an affidavit she filed in a U.S. federal court.
Her son Al Jacobs, known on the reserve as the "40-million-dollar man" because of his tobacco earnings, is a veteran tobacco smuggler with convictions dating back to 1994. He was indicted July 17, 2008, with five other men in the robbery and murder of a marijuana dealer in Stockholm, N.Y., and is in prison awaiting trial.
His mother's business, which has addresses in both Pennsylvania and Akwesasne, still operates, now out of a new 4,400-square-metre factory employing 72 natives full-time with a payroll of $2 million U.S., according to an affidavit signed by Rosalie Jacobs in U.S. federal court.
Jacobs Tobacco in 2007 opened an account at the Bank of Montreal on the Canadian side of the reserve. It is the only bank on either the Canadian or U.S. side. In an affidavit, Jacobs said she opened the account to wire payments to her U.S. wholesale tobacco suppliers. On Aug. 20, 2007, for example, she declared $15,000 U.S. to border authorities and was allowed to take the cash into Canada where she deposited it at the Bank of Montreal. Three days later, she tried to take $64,000 U.S. across the border into Canada. This time, however, when she declared the money to a U.S. border guard, he seized it and gave it to the Bureau of Alcohol, Tobacco and Firearms (ATF), which initiated a seizure proceeding.
Rosalie sued the U.S. government to get the money back, claiming that it was legally acquired from tobacco manufacturing and that she had at all times complied with U.S. law. The ATF, in turn, argued that Jacobs Tobacco's operations were illegal because the company had no U.S. licence; it has a licence from the St. Regis Mohawk Tribe that is not recognized by Canadian or U.S. authorities. The case was settled last year when Jacobs agreed, without admitting or denying guilt, to forfeit half the money - $32,000 U.S. - while the ATF agreed to return the other half.
Rosalie Jacobs continues to deposit cash at the Bank of Montreal, according to police, and declares her funds to both U.S. and Canadian officials. Her Discount brand is widely sold in Canada.
Enforcement fails
The RCMP strategy for combating cigarette smuggling is to work with local and provincial police, as well as Mohawk peacekeepers to target the ringleaders - those primarily responsible for manufacturing and distribution. At the same time, police have tried to disrupt the flow of contraband by arresting couriers. So far, even officials admit this strategy hasn't worked.
Tribal councils won't shut down manufacturers because they don't regard them as illegal. They've shut them down only because their owners have also been arrested for drug smuggling. Since 2007, there have been 480 tobacco seizures in the region of Akwesasne and Valleyfield, just west of Montreal, netting 443 vehicles plus a number of firearms that include two AK-47 assault rifles, two M-16 machine guns and three grenade launchers.
In theory, penalties for selling or smuggling untaxed tobacco in Canada can be quite severe. Federal fines range from between 17 cents per cigarette and 25.5 cents per cigarette, which adds up when you've got thousands of cigarettes jammed into a van. Added to that are provincial penalties that can double the fines. Failure to pay means up to 18 months in jail.
Trouble is, prosecutors say, smugglers and contraband sellers often don't bother to show up in court, which means police have to go looking for them. And when they finally do come to court and receive stiff fines of tens of thousands of dollars, they don't pay them.
"In my four years doing these cases, I have never seen anybody incarcerated for failure to pay a fine," Cornwall public prosecutor Ron Turgeon said, adding that nobody pays the fines. "Now I'm asking for prison for a second offence, but I'm still not getting it."
Ontario funnels all the Akwesasne cases through a small courthouse that sits behind a beer store in the rural town of Alexandria, about half an hour from Cornwall. The Gazette tried to follow one person accused of smuggling, Oren Bigtree, through the court system, but he never showed up for his hearing.
"They get fined hundreds of thousands of dollars and nobody actually pays that money," said Sgt. Michael Harvey of the Cornwall detachment of the RCMP. "They pay maybe $100 a month. It's just crazy. We seize loads every day but there are factories pumping out millions of cigarettes so it doesn't make any dent."
Chasing smugglers is a dangerous occupation. Last month, a smuggler from Akwesasne tried to run over a Sûreté du Québec police officer with his truck. The officer shot out a tire, arrested the man and found an AK-47 in his cab. In January, an elderly couple from Massena, N.Y., was killed when a tobacco smuggler, chased by two Mohawk police officers, rammed their car. The smuggler also died in the collision that engulfed both vehicles in flames. The police officers were charged with criminal negligence causing death and with dangerous driving.
Since the accident, tobacco seizures have declined because police are reluctant to chase smugglers, Harvey said.
Weak enforcement, willing suppliers, and big demand suggest how difficult it will be to disrupt what has become a billion-dollar black market. Worse, with penalties and punishment modest at best, the biggest challenge may simply be the huge profits to be made, rivalling those of narcotics. Individual smugglers, or runners, can cash in big. One 17-year-old runner from Cornwall testified at her bail hearing that she made three trips a day, six days a week, and earned about $6,000 a week. She said she used the money to finance her cocaine habit.
Retailers also can make a good living. Splicer said his operation clears about $130,000 a year selling contraband. Still, it's not easy, he said. Splicer complained that he can't hold any assets in his name or the government will seize them. He has no bank account and is forced to keep large amounts of money handy to pay his workers and suppliers in cash.
"I can't put my name up front because the government is going to come kicking my door in. That car I own out there? It belongs to my last girlfriend. I pay for the car payments but I can't own it in my name. And my business is not in my name. I burn all my stuff. We don't keep records in the stores. We burn paper. At the end of the day I log into a special computer and hide it on a chip. ... The house I live in is not in my name. That's how I live. I'm nobody."
But he's someone to the Quebec government.
Tax collectors have assessed Splicer for an impressive $25 million in unpaid taxes dating back to the early 1990s, when he ran millions of cartons of cigarettes into Kahnawake. Splicer said he reached a settlement agreeing to pay the government a mere $150 a month against the debt. "They told me to sign an agreement to pay or go to jail for two years," he said. "I pay."
Revenue Quebec would not comment on why it settled for this amount. Often, when there is nothing the government can seize, it will settle on an amount it believes the taxpayer can afford.
It's hard to believe that will make much of a dent in what has become a booming business. Throughout the conversation with Splicer, there is a constant flow of customers in and out of his smoke shop. They buy mostly the low-end discounted cigarettes that come in resealable bags. Twice during the afternoon suppliers brought in fresh boxes, each containing 50 cartons or 10,000 cigarettes.
"I have been in this business since I was 16 years old," Splicer said, taking a drag from a premium brand cigarette. "When they first rolled the first cigarettes into this community, I was there on the water smuggling them in. I was armed with a machine gun in the bush to protect our loads. I remember all this. I ran the river. I did all that. Because this is what I do. This is who I am."
wmarsden@thegazette.canwest.com
CORRECTION: An earlier version of this article stated the company Brand-U Media is a tobacco manufacturer. Government records, however, indicate its activities as publishing and combat sports. The Gazette also reported that Burton Rice is president of Mustang Distribution Ltd. Government records indicate that its president is Peter Rice. Burton Rice is not listed as an officer or shareholder of the company.
© Copyright (c) The Montreal Gazette
