Long-running Canadian Contraband Case Resolved

Source from:  Tobacco Reporter 04/15/2010

JTI Macdonald Corp (JTI-MC) and R.J. Reynolds Tobacco Co (RJR) have come to an agreement with Canada's federal, provincial and territorial governments "to resolve potential civil claims related to the movement of contraband tobacco in the early 1990s," according to a statement by the Canada Revenue Agency. At the same time, JTI-MC was said to have pleaded guilty in the Ontario Court of Justice to a single count of "aiding persons to be in possession of tobacco not packaged in accordance with the Excise Act," while Northern Brands International Inc, a former company related to RJR, had pleaded guilty to a conspiracy offence under the Criminal Code. JTI-MC, in a statement posted on its website, said it had agreed to plead to a regulatory offence under excise legislation that its predecessor [RJR-Macdonald Inc] had aided persons to sell and be in possession of tobacco products manufactured in Canada and elsewhere that were not packaged and were not stamped in accordance with the Excise Act. As a result, a payment of C$150 million had been made to governments by JTI-MC. Meanwhile, according to a story by Jennifer Graham for Canadian Press, RJR spokesman, David Howard, said that RJR had not admitted any guilt. In a statement posted on its website, RJR said that as part of the civil settlement, it had agreed to pay the governments C$325 million. And it said that as a result of its plea to one count of conspiracy to aid others in the sale and possession of contraband cigarettes in the early 1990s, Northern Brands was required to pay a fine of C$75 million. "Northern Brands was created in 1992 for the purpose of transacting all sales of RJR-Macdonald tobacco products in the United States," the statement said. "Northern Brands ceased being an operating company in 1997." "We are pleased to reach a resolution of this matter after more than 10 years of litigation both in the United States and in Canada," said Martin L. Holton III, senior vice president and general counsel for RJR. "This settlement enables us to eliminate the continuing expense, inconvenience and distraction to our core business, and the uncertainties inherent in continuing to litigate complex matters of this nature." In its statement, JTI-MC said the agreement was an important milestone for the company and its employees, securing a stable commercial and regulatory environment in which to do business for the future. "The agreement announced today is consistent with Japan Tobacco International's (JTI) world wide approach in addressing illicit trade," the statement said. "It builds upon and confirms initiatives implemented since 1999. Under the terms of the agreement, the company will maintain and expand its current internal compliance programs that address the manufacture, sale, distribution and storage of cigarettes; it will facilitate investigations of reported breaches and suspicious transactions; continue JTI's certification of suppliers while ensuring transparent payment procedures for all transactions." The health association that led the campaign to persuade the federal government to sue tobacco companies over tobacco contraband condemned the settlements. "The tobacco smuggling in the early 1990s was, at the time, the largest and most destructive fraud in the history of Canadian business and public health," said Garfield Mahood, executive director of the Non-Smokers' Rights Association (NSRA). "In court papers from 2005, the federal and provincial governments filed claims for nearly $10 billion against JTI-Macdonald Corp and related companies over contraband. The settlement today for $550 million with the companies involved is a complete sell-out amounting to about 6 cents on the dollar." François Damphousse, director of the NSRA's Montreal office, added that there was a health component to the affair that the settlement also failed to address. "Health Canada's Laboratory Centre for Disease Control predicted in a secret study leaked to the NSRA in 1995 that the smuggling of the 1990s would lead to an increase of tens of thousands of tobacco-caused deaths from the increase in smoking rates among the adolescent population alone," he said. "There is nothing in the settlements announced today that will address the tragic health consequences of this criminal behaviour." The fines relating to the prosecutions, combined with the civil settlement, will result in JTI-MC and RJR paying $550 million to governments. "This amount, along with those from the previous agreements reached in 2008 with other tobacco manufacturers, will result in a total of $1.7 billion being paid to governments," the agency said. Enditem