Criminal Investigations and Charges

 

January 18-19 2002
RCMP search Rothmans Benson and Hedges offices for information related to cigarette smuggling.

February 23, 2003
RCMP lays 6 counts of fraud and one of conspiracy to commit fraud against JTI-Macdonald, its subsidiaries and several of its former senior executives.

December 16, 2004
RCMP releases warrant used to raid Imperial Tobacco

May 30, 2007
Ontario Court orders JTI-Macdonald Corp. and its former president Edward Lang to stand trial on charges that they exported billions of tax-free Canadian cigarettes into the United States so they could be smuggled back into Canada through the Akwesasne Mohawk reserve near Cornwall and sold on the black market. 

Documents pertaining to this trial are subject
to a publication ban.

February 17, 2008
Ontario Superior Court resinstates fraud and conspiracy charges against six accused (in addition to Edward Lang), originally dropped in May 2007. Ruling

July 31, 2008
The RCMP and Revenue Canada hold join press conferences to announce a settlement with Imperial Tobacco and Rothmans, Benson & Hedges that involved payment of $1.1 billion in fines and civil damages and the termination of investigation.


Media Coverage


RCMP search Rothmans offices ; Investigators widen cigarette smuggling probe;
Joe Schneider. Toronto Star. Toronto, Ont.: Jan 19, 2002. pg. C.10
 

Rothmans Inc.'s offices were searched by federal investigators seeking records of the company's U.S. exports between 1989 and 1996, when smuggling of cigarettes from the United States to Canada was at its peak, the company said yesterday.

Investigators from the Royal Canadian Mounted Police searched the company's offices in Toronto Thursday and again yesterday, Rothmans spokesperson John McDonald said. Offices in Brampton and Quebec city were searched today.

Canadian tobacco exports to the United States rose significantly in the early and mid-1990s when federal and provincial taxes pushed the price of a package of 25 cigarettes to about $7 in Ontario. Lower tax levels in the U.S. allowed smugglers to buy the cigarettes in border cities, bring them back to Canada, and sell them for below- retail prices while still making a profit.

"We are co-operating with the RCMP, and we know that their review and their investigation will confirm that Rothmans Benson & Hedges operations have been properly conducted at all times," McDonald said.

The RCMP confirmed a search warrant was executed. Investigators won't discuss the search because the warrant is under judicial seal, meaning none of the information can be made public, police spokesperson Michelle Paradis said.

Imperial Tobacco Canada Ltd., a unit of British American Tobacco PLC, and JTI Macdonald Corp., Canada's two other biggest tobacco manufacturers, said the RCMP hasn't asked to search their offices or seized any documents.

Rothmans shares rose 53 cents to $29.89 yesterday in Toronto.

The raids on Rothmans offices are probably part of a much larger investigation extending beyond North America, said Francis Thompson, policy analyst at the Non-Smokers' Rights Association, a Canadian group that lobbies for higher tobacco taxes and greater government restrictions on sales.

Canada filed a $1 billion lawsuit in December, 1999, against RJR- Macdonald Inc. and Canadian tobacco manufacturers, accusing them of conspiracy in cigarette smuggling. The case was dismissed by U.S. federal judge Thomas McAvoy, who said U.S. courts can't be used to collect taxes for another country. A U.S. appeals court declined to hear the case last month. Canada hasn't said whether the decision will be appealed to the U.S. Supreme Court.

Credit: bloomberg news


 

RCMP lays criminal charges against Canadian tobacco company
Canada NewsWire. Ottawa: Feb 28, 2003. pg. 1
 

TORONTO, Feb. 28 /CNW/ - After a four and a half year criminal investigation into allegations of the Canadian tobacco industry's complicity in smuggling contraband tobacco products from the United States into Canada, the RCMP has laid six counts of Fraud and one count of Conspiracy to Commit Fraud and to Possess Proceeds of Crime against a major Canadian tobacco manufacturing company and a number of its' subsidiaries and current and former senior executives.

These charges are laid under Section 380 (1) (a) and Section 465 (1) (c) of the Criminal Code of Canada. The charges pertain to activities of the company, its affiliates, its senior officers and others involved in the smuggling of contraband Canadian blend tobacco products between 1991 and 1996 inclusive.

The companies charged are:

  • JTI-MACDONALD, CORP., formerly known as RJR-Macdonald, Inc., Toronto, Ontario.

  • R.J. REYNOLDS TOBACCO CO., (Delaware), USA.

  • R.J. REYNOLDS TOBACCO INTERNATIONAL, INC., (Delaware), USA.

  • NORTHERN BRANDS INTERNATIONAL, INC., (Delaware), USA.

  • These companies were all either affiliated companies or subsidiaries of R.J. R. Nabisco Holdings, Corp., (Delaware), USA during the time of the alleged offences. A series of mergers and restructuring resulted in the creation of a holding company now known as R.J. Reynolds Tobacco Holdings, Inc., (Delaware), USA.

Also charged are current and former employees of these companies. They are:

  • EDWARD LANG of Naples, Florida - former member of the Board Of Directors of RJR-Macdonald, Inc. and former Senior Vice President of Manufacturing for R.J. Reynolds Tobacco Co.

  • DALE SISEL of Gillette, Wyoming - former President and Chief Executive Officer for R.J. Reynolds Tobacco International, Inc.

  • JAAP UITTENBOGAARD of Jupiter, Florida - former Chief Financial Officer and Vice President of Finance for R.J. Reynolds Tobacco International, Inc. and former Director of Northern Brands International, Inc.

  • PIERRE BRUNELLE of Geneva, Switzerland and the Province of Quebec - former President and Chief Executive Officer of RJR-Macdonald, Inc. and former member of the Board of Directors of RJR- Macdonald, Inc.

  • PAUL NEUMANN of Geneva, Switzerland - former Vice President of Finance for RJR-Macdonald, Inc. and current employee of Japan Tobacco International, Geneva.

  • ROLAND KOSTANTOS of Geneva, Switzerland - former Chief Financial Officer for R.J. Reynolds Tobacco International, Inc. and former Vice President of Finance, Chief Financial Officer, and Vice President of Finance and Administration for RJR- Macdonald, Inc. Mr. Kostantos is a current employee of Japan Tobacco International, Geneva.

  • STANLEY SMITH of British Columbia - former Vice President of Sales for Canada for RJR-Macdonald, Inc.

  • And PETER MacGREGOR of Atlanta, Georgia - former Manager of Finance and  Administration for Northern Brands International, Inc.

Also identified in this indictment as an unindicted co- conspirator is LARRY MILLER of Las Vegas, Nevada and Messena, New York. Mr. Miller is currently serving seventeen and one-half years in the United States federal corrections system for smuggling- related offences and for conspiring to conduct financial transactions that defrauded the United States and Canada of tax revenue.

All accused have been summoned to appear in court at Old City Hall in Toronto, Courtroom 111 on Wednesday, March 26th, 2003.

The RCMP alleges that, between 1991 and 1996, the accused conspired together to commit fraud by agreeing to deal in Canadian blend cigarettes and fine-cut tobacco in a manner which fraudulently deprived the governments of Canada, Ontario and Quebec of more than $1.2 billion dollars in lost revenue through evaded federal excise duties and taxes and provincial tobacco taxes.

The RCMP also alleges that the revenue of RJR- Macdonald Inc. derived from the sale of Canadian blend tobacco products into the United States between 1991 and 1996 was a result of this fraudulent activity, and as such, this revenue is proceeds of crime.

The RCMP alleges that, between 1991 and 1996, the accused supplied the Canadian black market with Canadian blend tobacco products manufactured both in Canada and Puerto Rico, knowing that these products were being smuggled back into Canada and onto the commercial market. In addition, the RCMP alleges that the accused furthered this criminal activity by knowingly facilitating the flow of Canadian blend tobacco products to Canada through an affiliated company in the United States and third parties in the Caribbean in order to ensure a constant supply of the contraband to smuggling channels.

"As Canadian taxpayers, we all pay for corporate fraud," said Inspector Robert Davis, Officer in Charge of the RCMP Greater Toronto District Commercial Crime Section. "We pay in revenue losses that contribute towards our social welfare programs - programs that support our seniors, educate our children and take care of our ill and less fortunate."

"To give you some idea of the impact, the more than $l.2 billion dollars in lost revenue identified during this investigation is enough money to buy two MRI machines for each and every public hospital in Ontario and Quebec. $1.2 billion dollars is also enough money to supply every high school student in Ontario and Quebec with new text books for one year."

"This investigation is part of the RCMP's on-going efforts to investigate allegations of impropriety by corporations operating in Canada," added Inspector Davis. "Large multi-national corporations will be held accountable for their criminal activity. Senior executives of those companies will not be allowed to hide behind a 'corporate veil' to protect themselves from criminal prosecution."

This investigation is on-going and the possibility exists that further charges will be laid.

Media Relations Officer "O" Division (Toronto), (905) 876-9674 (office), (416) 565-8012 (cell)/ ST: OntarioSU:


RCMP raid Imperial Tobacco:; [Final Edition]
DEBBIE PARKES. The Gazette. Montreal, Que.: Nov 27, 2004. pg. A.1.FRO
 

Searching for documents related to cigarette smuggling in the '90s

Mounties armed with a search warrant swooped down yesterday on the Montreal head offices of Imperial Tobacco, Canada's No. 1 cigarette manufacturer.

They spent the day searching for documents related to cigarette smuggling in the 1990s, and that's how they'll spend this weekend, too.

The search warrant expires at 8 a.m. Monday.

The operation - reminiscent of a similar search carried out against Rothmans Inc. in 2002 - prompted Imperial Tobacco to rush to its own defence.

"We were surprised there are any suspicions about Imperial Tobacco, because as early as 1989 we raised the issue (of smuggling) with the RCMP and said this is a problem, they should be doing something," Imperial Tobacco spokesperson Christina Dona said.

She said the company even lent the RCMP a truck for a sting operation, although she was unable to provide dates or details.

"If anything, we think they'll find evidence of collusion with the RCMP," Dona said, tongue-in-cheek.

She said the company is co-operating fully, and senior managers accompanied police throughout the day to help them find whatever paper and electronically stored documents they were seeking.

Dona estimated that between 10 and 20 officers were at the company's offices over the course of the day. She said she did not know what or how many documents were seized.

The RCMP wasn't commenting, other than to confirm that a search was in process. The warrant allows police to take information relating mainly to 1989-1996, Dona said.

During that period, cigarette smuggling reached all-time highs.

The smuggling was sparked by government efforts to discourage smoking by significantly increasing tobacco taxes.

Cigarettes shipped to the United States were smuggled back into Canada, principally through the Akwesasne Mohawk reserve at Cornwall, which straddles the Canada-U.S. border.

The 1989-1996 period in yesterday's search warrant is the same period covered by the RCMP's search of Rothmans's Toronto offices in January 2002.

Imperial is the last of Canada's three Big Tobacco companies targeted by federal officials.

In February 2003, the RCMP laid criminal fraud charges against JTI-Macdonald (formerly RJR-Macdonald), the country's No. 3 tobacco company.

In August, Quebec assessed the company for $1.36 billion in unpaid taxes linked to cigarette smuggling, leading the company to seek bankruptcy protection.

Last year, Ottawa filed a $1.5-billion suit against the company.

Also, in December 1999, Les Thompson, a former RJR-Macdonald sales executive, was sentenced by a U.S. judge to 70 months in prison after pleading guilty to laundering $72 million U.S. from smuggling tobacco into Canada.

That same month, The Gazette ran an investigative report detailing how each of Canada's big three tobacco companies organized its own corporate structure or signed contracts to service the black market.

Yesterday, Dona insisted Imperial Tobacco has done nothing wrong.

"We're proud of our ethical behaviour. We feel we have nothing to be ashamed of."


 

RCMP continue to weed out documents at tobacco firm; [Final Edition]
The Gazette. Montreal, Que.: Nov 28, 2004. pg. A.3
 

The RCMP search at Imperial Tobacco's Montreal head office continued yesterday, said company spokesperson Yves-Thomas Dorval.

"They're doing their job and that's it," he said.

The company won't comment on what documents have been hauled away since police arrived at 9:30 a.m. Friday with a search warrant that expires at 8 a.m. tomorrow.

The search, for hard copy and electronically stored documents covering the period from 1989 to 1994, is supposedly part of an investigation related to tobacco smuggling that was rampant during that period.

Imperial, Canada's No. 1 cigarette manufacturer, is the last of the country's three big tobacco companies to be targeted by federal officials.

In February 2003, the RCMP sought criminal charges against JTI- Macdonald, and both the federal and Quebec governments have filed suits against the company for a total of $2.86 billion.

In January 2002, the RCMP searched the Toronto, Brampton, Ont., and Quebec City offices of Rothmans Inc., seeking records of the company's exports to the United States between 1989 and 1996.

Meanwhile Imperial's spokesperson Dorval said yesterday the company has never been involved in organizing its own corporate structure or signing special contracts to service the black- market economy, contrary to what was alleged in a Gazette investigative article published in 1999.

 


RCMP warrant used in raid alleges Imperial Tobacco smuggled cigarettes
Canadian Press NewsWire. Toronto: Dec 15, 2004.
 

MONTREAL (CP) - A warrant used by the RCMP to raid Imperial Tobacco offices alleges the company conspired to boost its market share with its own smuggled cigarettes while withholding more than $600 million in taxes from the federal government.

The alleged conspiracy included a plan that the Canadian cigarettes smuggled back in from the United States be reintroduced to Canadian customers through clandestine contraband networks.

By participating in the contraband network, Imperial Tobacco Ltd. "avoided the negative effect of the increase in taxes on their sales," the warrant said.

In doing so, the company was able to expand its market share by bringing in a cheaper product that became more popular with customers, according to an affidavit filed at the Montreal courthouse.

The RCMP searched Imperial Tobacco's Montreal office in November as part of an investigation that began in 1998. No charges have been laid.

The Mounties were seeking documents related to the sale, production, export and import of cigarettes, in particular popular brands like Player's and du Maurier.

In the affidavit, RCMP investigator Marc Roussy alleges that Imperial Tobacco conspired with several other firms - including Imperial's parent company, British American Tobacco - and individuals to sell billions of cigarettes to U.S. distributors so they could be smuggled back into Canada through the Akwesasne reserve, which straddles the Quebec, Ontario and U.S. borders.

The court document includes a graph indicating Imperial Tobacco increased its market share from 59.5 per cent in 1993, a year when the alleged smuggling peaked, to 68.4 per cent by 1998.

The affidavit alleges that by participating in this smuggling network, Imperial Tobacco and other "co-conspirators" defrauded Ottawa of $607 million in taxes.

That is based on an estimate that the company sold 50 million cartons of cigarettes between 1991 and 1993 through the contraband network. The tax on a carton of cigarettes at the time was $12.14.

Imperial spokesperson Yves-Thomas Dorval said the company is disappointed the court document "does not list all of the co-operation we have given the RCMP."

"We fully co-operated with them (when they executed the warrant).

"We don't have anything new to say about (the investigation), but we continue to co-operate," Dorval said. "It's something we've heard for years. Allegations are allegations, not facts proven before a court."

 


 

Ex-tobacco exec avoids jail time; [Final Edition]
The Gazette. Montreal, Que.: May 5, 2006. pg. B.5
 

A former tobacco company executive has reportedly been sentenced to eight months of house arrest for his role in a conspiracy to to smuggle cigarettes. CBC News said Stan Smith's conditional sentence follows his earlier guilty plea. Smith was vice-president of sales for the former RJR-MacDonald company in the early 1990s when high tobacco taxes prompted a surge in cigarette smuggling. Investigators have accused JTI-MacDonald Corp., formerly known as RJR-MacDonald, Inc., and several of its subsidiaries of conspiring to defraud the federal, Quebec and Ontario governments out of $1.2 billion in tax revenue between 1991 and 1996.


 

 

Tobacco firm, executive face fraud charges; Smuggling scheme allegations. Head of Non-Smokers Association Quebec wing calls court decision 'a positive step'; [Final Edition]
WILLIAM MARSDEN. The Gazette. Montreal, Que.: May 31, 2007. pg. A.7
 

A major tobacco company and its former top executive have been ordered to stand trial on allegations they organized a massive tobacco smuggling scheme that defrauded the governments of Canada, Ontario and Quebec of more than $1 billion.

In what will be an unprecedented fraud trial, an Ontario Court judge yesterday ordered JTI-Macdonald Corp. and its former president Edward Lang to stand trial on charges that they exported billions of tax-free Canadian cigarettes into the United States so they could be smuggled back into Canada through the Akwesasne Mohawk reserve near Cornwall and sold on the black market.

They are also charged with establishing tobacco plants in Puerto Rico that manufactured Canadian brand cigarettes such as Export A, which were then sold them to smugglers who smuggled them into Canada.

If found guilty, JTI-Macdonald could face extensive forfeiture to the Crown equivalent to the amount of the fraud.

But trying to get money out of the tobacco firm could be like getting water out of a stone. The company filed for bankruptcy protection in 2004 after Quebec assessed it for $1.36 billion in unpaid tobacco taxes dating back to the early 1990s.

After the bankruptcy protection filing, Ottawa levelled a civil claim against JTI-Macdonald for $4.3 billion claiming it lost that amount in taxes as a result of JTI's alleged participation in tobacco smuggling.

Lang, who is retired and lives in Florida, could face up to 14 years in prison plus fines.

"We remain confident that a full and fair hearing of the evidence at trial will confirm these allegations to be false," JTI-Macdonald spokesperson Guy Cote said in a written statement. He added that JTI will pay Lang's legal bills. "JTI-Macdonald does not, and never did, condone smuggling or illegal activity."

Francois Damphousse, head of the Quebec wing of the Non-Smokers Association, called the court decision "a positive step forward in trying to get justice on this issue even though it has taken a long time."

He added that the decision to send a corporation and its former top executive to trial "sends a message to all executives that they can't hide inside a corporate bubble and think they can't be touched."

The trial committal comes three years after the RCMP laid six fraud charges and one conspiracy charge against JTI-Macdonald, formerly known as RJR Macdonald, plus eight executives of RJR, its U.S.-based parent company R.J. Reynolds Co. as well as its international affiliate R.J. Reynolds International of Switzerland.

Lang was the only executive sent to trial.

Stan Smith, a former RJR vice-president, pleaded guilty in Ontario last year and was sentenced to eight months of house arrest. He had been cooperating with police since 2000.

Judge David A. Fairgrieve ruled there was insufficient evidence to send six other defendants to trial. They include Dale Sisel of Wyoming, Jaap Uittenbogaard of Florida, Pierre Brunelle, Paul Neumann and Roland Kostantos, all of Switzerland, and Peter MacGregor, of Atlanta, Ga.

Yesterday's Ontario Court judgment follows a preliminary hearing that lasted about nine months in Toronto in 2005-06. Judge Fairgrieve imposed a publication ban on the details of his 27-page judgment.

The charges date back to the early 1990s when federal and provincial governments raised tobacco taxes to record levels.

The RCMP began investigating RJR Macdonald in 1999 following stories in The Gazette that revealed the involvement of all three major tobacco companies including Imperial Tobacco and Rothmans Bensen and Hedges in supplying smugglers with their tobacco products.

The government has never sued or attempted to prosecute Imperial Tobacco or Rothmans.

A major government witness is former RJR Macdonald sales executive Les Thompson who pleaded guilty in 2000 in federal court in New York State to smuggling-related charges and was sentenced to six years in jail.

Now both Thompson and Smith are expected to testify against JTI- Macdonald and Lang.

Thompson, who is out of prison, admitted that he managed the company's alleged smuggling activities through a spinoff company called Northern Brands International, a Delaware corporation based in Winston-Salem, N.C.

Northern Brands pleaded guilty in the U.S. in 1999 to a minor customs infraction and paid $15 million U.S. in fines and forfeiture. As part of the agreement, the U.S. Justice Department Northern District pledged not to take any further action against RJR Nabisco, the New York parent company.

The smuggling of popular Canadian-brand cigarettes was so enormous in the early 1990s that surveys indicated about one in three cigarettes sold in Canada was contraband.

Smuggling made some Indians multi-millionaires while at the same time increase violent crime on reserves as smugglers battled for market share.

Black market cigarettes became so cheap that teenage smoking increased to 38 per cent from 19 per cent, Damphousse said.

Faced with such a huge illegal market as well as increased violent crime on the reserves and heavy lobbying by the tobacco companies, governments substantially reduced in 1994 their tobacco taxes. This cost governments billions in lost taxes.

Tobacco taxes began to rise again in 2001 and are now at record levels.

To stop Canadian companies from exporting their products abroad so they can be smuggled back into Canada, the federal government imposed hefty export taxes.

Still, the higher taxes have recently resulted in another increase in black market cigarettes on local Indian reserves.

Unable to buy cheap Canadian brands, some Mohawks are manufacturing their own tax-free cigarettes and selling them out of smoke shops that are proliferating in Kahnawake.

It is a problem governments have been unable to solve.

 

JUDGE THROWS OUT SMUGGLING CHARGES AGAINST SEVEN AT JTI; [National Edition]
Peter Brieger. National Post. Don Mills, Ont.: May 31, 2007. pg. FP.6
Abstract (Summary)
An Ontario judge yesterday threw out smuggling charges against seven of eight senior cigarette company executives, four years after the Mounties made the high-profile allegations.

An Ontario judge yesterday threw out smuggling charges against seven of eight senior cigarette company executives, four years after the Mounties made the high-profile allegations. However, JTI- Macdonald Corp. and its former vice-president of manufacturing, Ed Lang, must still stand trial on allegations they orchestrated a scheme to avoid paying $12-billion worth of taxes by smuggling contraband tobacco from the United States into Canada, ruled Mr. Justice David Fairgrieves of the Ontario Superior Court of Justice. The judge made his ruling after a preliminary hearing, which is subject to a publication ban, outlining the evidence against the defendants. A trial date has not been set. The charges, laid in 2003, came after a four-year police probe into the alleged smuggling between 1991 and 1996. The executives were accused of supplying the domestic black market with tobacco products they knew had been smuggled back into Canada and onto the commercial market. The charges also alleged the defendants used a U.S. affiliate to keep up the flow of illegal cigarettes.

 

 

 



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