Rick Barnum would like to see whichever party next forms government in Ontario do more to tackle contraband tobacco.
Barnum was recently appointed executive director of the National Coalition Against Contraband Tobacco, an advocacy group that says the trade in illegal cigarettes funds organized crime and robs Ontarians of $750 million in provincial tax revenue each year.
The RCMP estimates there are some 175 criminal gangs in Canada that trade or sell contraband tobacco, often to obtain harder drugs and guns or fund human trafficking and money-laundering schemes.
“Basically, it’s a stable money-maker for those groups,” said Barnum, who retired as a deputy commissioner after a long career with the Ontario Provincial Police, much of it spent combatting organized crime.
“You would rarely find an organized crime investigation where the group or individual weren’t involved in tobacco as well,” Barnum told The Spectator.
Contraband tobacco refers to cigarettes and related products that are not taxed and are therefore significantly cheaper on the black market than cigarettes sold by licensed retailors.
For example, a pack of cigarettes can cost $14 to $17 in stores, while the same pack can be had for as little as $4 on the black market.
Research commissioned by the coalition found as many as one in three cigarettes sold in Ontario are illegal, with most contraband smokes produced on Indigenous reserves and distributed nationwide.
By law in Ontario, First Nations members can buy tax-free cigarettes on a reserve for their personal use through what’s known as the “allocation system.”
Non-Indigenous smokers cannot legally buy untaxed allocation cigarettes, but in practice, smoke shacks and other on-reserve retailers see a brisk traffic in non-Indigenous smokers taking advantage of the discount.
Once those customers leave the reserve, their newly purchased smokes are subject to seizure by police. However, Barnum said the coalition is not concerned with individual buyers, nor the smoke shops that are legally allowed to operate.
Instead, the group wants more law enforcement attention paid to unregulated cigarette factories on reserves that sell contraband cigarettes to criminal gangs by the case at cut-rate prices.
“We’re not targeting Indigenous communities,” Barnum said.
“We’re targeting organized crime groups that have had a really good go with this and have found a good way to make millions and millions of dollars a year.”
Tension between Indigenous cigarette makers and governments trying to stamp out contraband tobacco is nothing new.
A 2012 report authored by Indigenous affairs expert Kathleen Lickers found some First Nations chiefs considered tobacco production a vitally needed “new economy” for their reserves, responsible for significant job creation.
But Lickers found that the general public — helped by muddled messages from some politicians — perceived any tobacco production and sale on reserves, including legitimate activity protected by treaty and regulated by Ottawa, to be “illegal.”
“First Nations have felt economically marginalized by the actions of government while they strive to create sustainable communities,” wrote Lickers, a lawyer and intergovernmental negotiator from Six Nations, in “Tobacco on Reserve: Perspectives Shared from First Nations,” a paper commissioned by the provincial finance ministry.
While some on-reserve production occurs under federal authority through the Excise Act of 2001, other cigarette makers operate outside any legal jurisdiction.
“This environment has resulted in two different realities — a desire by Ontario to encourage a reduction in smoking ... and a desire by First Nations to protect the economic prosperity and employment opportunities that some of their members have secured,” Lickers wrote.
The chiefs Lickers interviewed called the police practice of setting up at the border of their reserves to stop and search smoke shack customers “unilateral and heavy-handed,” complaining that law enforcement was “singling out” Indigenous businesses and “penalizing” their customers.
“First Nations questioned the involvement of police in what they view as a matter that requires a political solution,” Lickers found. “They emphasized the need for improved government-to-government relationships.”
Ten years later, Barnum said politicians and police in Ontario continue to “struggle” with this “complicated issue.” He praised the approach taken in Quebec, where investigators focus on the gangs buying contraband tobacco rather than charge into the constitutional thicket that is tobacco production in First Nations communities.
“The Indigenous people have that right. It’s a constitutional right, and police certainly understand that,” Barnum said.
“But these organized crime groups that are taking huge amounts of tobacco and selling it across the country, that’s wrong. And the damage that comes from that is huge.”
Calling for a crackdown
During pre-budget consultations in January, the coalition argued that the illegal tobacco trade need not be a fact of life in Ontario, as evidenced by a bump in legitimate cigarette sales during the pandemic due to COVID-19 lockdowns hindering the black market.
“However, as the impact of the pandemic subsides, there are signs that the contraband tobacco market is already growing,” the coalition’s report to Queen’s Park said, further predicting the rising cost of living could drive even more smokers to the underground market.
The coalition is funded in large part by major cigarette companies like Benson & Hedges and Imperial Tobacco Canada through the Canadian Tobacco Manufacturers Council, along with financial support from chambers of commerce and associations representing the convenience stores Barnum said “count on legitimate tobacco sales to keep their doors open.”
“The cigarette companies are paying their taxes,” he said. “They’re playing by the rules, so how come they shouldn’t get a fair shake at the sales end of it?”
To ensure that fair shake, Barnum said the province should direct more funding to anti-contraband investigations, empower OPP officers to conduct those investigations, and not raise taxes on legal cigarettes, a move the coalition says only encourages more black market shopping.
He cited Quebec’s success in reducing the prevalence of illegal tobacco from one-third of all cigarettes smoked in the province to 12 per cent within two years.
“For every dollar that they spend on law enforcement on the tobacco team in Quebec, they’re bringing back 11 into the province” in added tobacco tax revenue, Barnum said.
“With the right policies and investments, we can combat this illicit trade, take away an important funding source from criminal gangs, and keep our communities safe.”
J.P. Antonacci, Local Journalism Initiative Reporter, The Hamilton Spectator