WHat`S - Imperial Tobacco Canada

WHat’S
WRoNG WiTH
THiS PiCTURE?!
THiS
CoNCERNS
The sale of illegal cigarettes in Canada has
reached alarming proportions with far reaching
consequences. And the problem is growing. The aim of this
information package is to provide some insight into the trade in
illegal tobacco products.
IT’S ILLEGAL
We discuss what makes a tobacco product illegal and take a look at some of the laws and
regulations being violated and/or undermined.
IT’S GROWING
We present key findings from the 2008 tracking study by GfK Research Dynamics on illegal
usage of cigarettes in Canada, as well as the results from the 2007 Arcus Group study on
the prevalence of illegal cigarettes amongst Canadian youth.
IMPACTS ALL
The sale of illegal tobacco is more than just an industry issue; this growing trade potentially
affects everyone. It deprives Canadian governments of significant revenues, it fosters other
criminal activities, it has an impact on public health and provides unregulated, easy and
affordable access to tobacco products. We present some of the documented economic
and social consequences of this illegal enterprise.
There is no quick fix for a complex problem such as this, but we believe by joining all forces,
we can make a difference. We offer proposed solutions to curb this illegal activity and its
detrimental impacts.
Throughout, we will be quoting reports by Health Canada, the Royal Canadian Mounted
Police (RCMP), Criminal Intelligence Service Canada (CISC), and many studies and
research conducted on the issue of illegal tobacco trade.
WHaT iS
Illegal trade in tobacco products is the supply,
distribution and sale of tobacco products on
which the applicable taxes are not paid. It refers
to smuggled products, undeclared local production, and all
counterfeit products.
SMUGGLING
The movement of product (either legitimate or counterfeit) from one jurisdiction
to another where it is unlawful to do so because it is done without paying the
applicable taxes and/or duties.
COUNTERFEIT
According to Health Canada, most of Canada’s contraband tobacco has been and
continues to be smuggled from the US side of the Akwesasne community. Factories
located on the American side of Akwesasne produce and package cigarettes in
resealable plastic bags, smugglers buy and transport this cargo to the Quebec and
Ontario side of the reserves by crossing the St. Lawrence River by boat.1
Also, according to the Criminal Intelligence Service Canada (CISC), illegal tobacco
products initially enter Canada through customs ports of entry, primarily in Quebec
and Ontario, hidden in commercial and private vehicles, snowmobiles and boats.
These smuggled products are then distributed across Canada through private and
rented vehicles, and legitimate transport systems.2
The result is that federal and provincial excise is not paid and other applicable laws
(health warnings, product testing) are not followed.
THE ILLEGAL TOBACCO TRAIL
Product which is an identical or very close copy, of a branded product and
packaging which is manufactured, distributed and/or sold by parties that do
not have the relevant intellectual property rights authorizing them to do so.
Counterfeit
cigarettes
from China
UNDECLARED LOCAL PRODUCTION
0.2%
This refers to product which is manufactured and sold for consumption in the
same country, and which is not declared to the local excise authorities and
therefore excise tax is not paid. These products may be manufactured in
approved factories, or they may be manufactured in illegal covert operations.
Duty not paid
from First Nations reserves
Kahnawake
Akwesasne
Six Nations
93%
CROSS-BORDER TRADE
Legitimate product that has been purchased in one country, duty paid or duty
free, and then brought into another country and consumed without payment of
taxes in that country. This is only considered illicit trade if the volumes involved
are for commercial use or, if deemed for personal usage, are in excess of the
personal allowances.
Smuggled
international brands
6.8%
SOURCES:
1 Health Canada. Report to the Conference of Parties on the Implementation of the Framework
Convention on Tobacco Control. Ottawa: Government of Canada, 2007.
2 Canadian Intelligence Service Canada. Annual Report: Contraband – Tobacco. August, 2005.
WHAT IS ILLEGAL TOBACCO?
iLLEGaL ToBACCO?
The problem we face with illegal trade in tobacco products is different from that of
the rest of the world; the form it has taken in Canada is unique. Criminals are using
the geopolitical context of some First Nations communities located along the
St. Lawrence River to meet the demand for cheaper cigarettes. They are taking
advantage of the special tax regime, jurisdictional issues, and limitations to enforcement capabilities to feed their criminal activities.
WHY
iS IT iLLEGaL?
the law by circumventing the strict regulations imposed by governments, but also reducing the benefits of those regulations on the
general population.
Tobac co Act
Excis e Act
Here are a few examples of how the trade of illegal tobacco circumvents today’s laws,
categorized according to their respective areas:
HEALTH
• There are no health warnings on the packaging.
• There is no reporting to Health Canada on ingredients.
• No toxic emissions and constituents on the packaging.
• There is no control over the promotion and advertising
of these tobacco products.
TAXES AND LEVIES
• Federal excise tax is not being paid.
• Provincial tobacco tax is not being paid.
• GST is not paid.
• PST is not paid.
PRODUCT TESTING AND LABELLING
• The manufacturer name is not indicated
on the pack.
MANUFACTURING
• Low ignition propensity cigarette paper is not used.
• The products are being manufactured at unlicensed facilities.
Copyri ght Act
IMPORT CONTROL
• The product is smuggled across the border into Canada.
Comp etition
Act
Consumer
Packa ging
Labelling
Act
SOCIAL
• The purchase of such products by consumers is illegal
and finances criminal organizations.
• Kids are not asked for proof of age, making it easier
to obtain tobacco products.
WHY IS IT ILLEGAL?
Illegal tobacco products violate and/or undermine
a wide range of both federal and provincial laws
and regulations. Illegal cigarette traders are not only breaking
WHaT iS
THE SCoPE oF THE
PRoBLEM?
tobacco growing at an alarming pace, but it is also spreading across
Canada. The rate of increase is quicker and so are the devastating
effects upon its victims. The research findings are
shocking. Immediate action is needed.
12 billion
32.7%
Estimated total Canadian purchases of illegal cigarettes
in 2008, compared to 1.2 billion in 2006
Share of past seven day purchase volume held
by tailor-made cigarettes in 20083
GROWTH OF ILLEGAL TOBACCO SALES – NATIONAL
(% of reported tobacco purchases by consumers)
+40%
32.7%
Share of past seven day purchase volume in
Ontario and Quebec markets held by tailor-made
cigarettes in 20083
20%
22.0%
16.5%
47%
2006
2007
Proportion of illegal tobacco products purchased
by “Delivery through contacts”3
2008
BY REGION
48.6%
2006
2007
2008
$6.00
Price of 200 illegal cigarettes in a clear plastic
bag (3 cents per cigarette), compared to $62 for 200
legal taxed cigarettes3
40.1%
31.6%
30.5%
7.1%
3.7%
1.5%
Alberta
0.1%
1.9%
Man/Sask
2.9%
0.6%
2.1%
3.7%
British Columbia
30%
Average prevalence of illegal cigarettes amongst youth
in Ontario and Quebec in 20085
23.5%
22.2%
0.7%
The percentage of smokers who say they
purchased cigarettes from a First Nation reserves4
70%
9.7%
Prevalence of illegal cigarettes amongst youth
in some Quebec municipalities in 20085
4.5%
Atlantic
Quebec
SOURCE:
Illicit Usage of Cigarettes – National Study for the C.T.M.C – Canadian Tobacco Manufacturersʼ Council.
Gfk Research Dynamics, 2008.
Ontario
SOURCES:
3 Illicit Usage of Cigarettes – National Study for the C.T.M.C – Canadian Tobacco Manufacturersʼ Council.
Gfk Research Dynamics, 2008.
4 2008 Canadian Tobacco Use Monitoring Survey. Health Canada.
5 Cigarette Butt Study – Youth Access to un-taxed tobacco products. Arcus, 2007.
SCOPE OF THE PROBLEM
Research shows that we are facing a growing
problem which is out of control. Not only is illegal trade in
SoCiAL
iMPAcTS OF iLLEGaL
iMPAcTS OF iLLEGaL
TRaDE
TRaDE
The illegal sale of tobacco products potentially affects
all Canadians. It not only hurts the legal tobacco industry and
The impact of illegal trade also stretches into
our communities with disastrous consequences.
government, but also has a detrimental economic impact on Canada’s
tobacco growers, our wholesalers and retailers, and each and every
tax payer.
Children now have access to cigarettes at pocket-money prices,
and criminals do not ask for proof of age. According to the RCMP,
many of the networks involved in illegal tobacco distribution also
deal in alcohol, drugs and firearms, with consequent risks to
public safety and Canadian youth.7
ESTIMATED ANNUAL LOSS OF REVENUES
DUE TO ILLEGAL TOBACCO
•
• Taxpayers/governments
• Legal tobacco industry
• Retailers
- With illegal cigarettes being sold at prices as low as $6.00 for a bag of
it is now easier than ever for our youth to gain access to tobacco products
– $2.4 billion6
• Wholesalers and tobacco growers
each
Material amounts
undetermined
200,
- There is no age verification in place, kids are not being asked for proof of age
when purchasing these illegal tobacco products
– $900 million6
– $120,000
Youth smoking prevention under threat
- The current smoking rate for youth aged 15-19 was 15% in 2007 for the second
year in a row8
•
Strong links between illegal tobacco and contraband alcohol, drugs and firearms
•
Undermining of tobacco control policies
- By not having any health warnings displayed on this illegitimate product,
consumers are not being made aware of the risks associated with smoking
- Illegal cigarettes are not manufactured using low ignition propensity cigarette paper,
which has fire retardant properties
- Tobacco reporting regulations are not respected (ingredients and emissions)
- Smoking rates have remained stable at 19% for the past three years7
• Corrosive effect on law
and order
- Canadians are witnessing an intensification of criminal
• Small businesses are losing
SOURCES:
6 Illicit Usage of Cigarettes – National Study for the C.T.M.C – Canadian Tobacco Manufacturersʼ Council.
Gfk Research Dynamics, 2008.
activities
their livelihood to illegal trade in tobacco products.
SOURCES:
7 RCMP. 2008 Contraband Tobacco Enforcement Strategy.
8 2008 Canadian Tobacco Use Monitoring Survey. Health Canada.
THE IMPACTS OF ILLEGAL TRADE
ECONoMiC
The illegal trade in tobacco products is not only a “tobacco” issue. It is a serious criminal problem with
significant negative economic and social impacts. Given the complex nature of this issue, we believe that
a multi-faceted approach is needed in which all stakeholders must be involved in finding and
implementing solutions. We support the following steps:
PRoPoSED
SOLUTIoNS
A
national task force to coordinate government strategies and actions
The supply of specific machinery and raw materials associated with tobacco manufacturing
should be properly monitored and controlled
There is no single solution to this problem. Any lasting solution
will require a combination of measures that must involve and be supported by
all stakeholders, including the First Nations leadership.
The introduction of a First
Nations tobacco tax on products sold on reserves
ENFORCEMENT
of all laws and regulations
FIRST NATIONS
tobacco tax
SOLUTIONS
SUPPLY
of materials and equipment
NATIONAL TASK FORCE
to coordinate actions
PROPOSED SOLUTIONS
More effective and equitable enforcement of all relevant laws and regulations, including
those governing licensing, packaging, excise, and tobacco control
WHaT iS BEiNG SAiD?
Concerned Canadians from many walks of life have been
calling for measures to curb the sale of illegal tobacco
products. As links to organized crime involvement has become increasingly
WHAT IS BEING SAID?
apparent in the illegal tobacco trade, more and more voices are demanding
urgent action. If cigarettes are being transported and sold, might not other
products like drugs and guns be so as well?
“(…) the illicit tobacco trade is a serious threat to public health and safety
in Canada and also leads to the loss of hundreds of millions of dollars in tax
revenue and was unfair competition to legitimate businesses.”
Stockwell Day, Public Safety Minister, Canada
Source: Dunnville Chronicle (April 23, 2008)
“We're very concerned that the decline in smoking rates has now stopped.
And the reason for that in our view is the widespread contraband problem
that is providing access to inexpensive cigarettes. And that is impeding
governments from increasing tobacco taxes.”
Rob Cunningham, Senior Policy Analyst, Canadian Cancer Society
Source: The London Free Press (August 26, 2008)
Corporate Affairs
Imperial Tobacco Canada Limited
3711 Saint-Antoine Street West
Montréal, Québec H4C 3P6
www.imperialtobaccocanada.com
This publication is available in French and English.
La version française de cette publication est disponible
sur demande auprès de la division des Affaires corporatives
au (514) 932-6161 ou à info@itl.ca.
Mixed Sources
Those who buy contraband tobacco “are actually in effect supporting
a host of criminal activities that literally lead to destructive activities
in your own communities.”
Stockwell Day, Public Safety Minister, Canada
Source: Simcoe Reformer (June 4, 2008)
Corporate colour signature coated master
PMS 1235C
PMS 288C
PMS144
PMS545
PMS660
You can convert these colours
to print in CMYK if necessary
Dave Ferris, OPP Crime Stoppers Coordinator Office at Windsor police headquarters
Source: The Windsor Star (April 16, 2008)
“(…) it will rise to 50 percent by 2010 if left unaddressed.”
Ontario Convenience Stores Association
Source: The Recorder & Times (April 16, 2008)
Product group from well-managed
forests and recycled wood or fiber
www.fsc.org Cert no. SW-COC-1353
© 1996 Forest Stewardship Council
Printed on paper that is acid free and elemental chlorine
free, containing 50% recycled content. At least 45%
of the fiber used in the manufacturing process of this
paper comes from well-managed forests, independently
certified according to the rules of the Forest Stewardship
Council. Vegetable based inks were used in the printing
process. Fountain and washing solutions were recovered
and disposed of in an ecological manner.
“These cigarettes are not regulated. They’re not subject to any strict
inspections from government. You never know what’s inside these
cigarettes.”
alternatively a two colour
(PMS1235, PMS288) version
also exists
“A person can now stand out front of a convenience store, be 17 years old
and purchase a bag of cigarettes out of the trunk of a car for 10 times less
than the average price of cigarettes in Ontario and no one want to take that
on. This is a lawlessness that is growing out of control, (…)”
Dave Bryans, President, Ontario Convenience Stores Association (OCSA)
Source: The Brockville Recorder & Times (April 16, 2008)
THIS DOCUMENT WAS PRODUCED BY IMPERIAL TOBACCO CANADA
TO INFORM STAKEHOLDERS OF THE SCOPE AND IMPACT OF THE
ILLEGAL TOBACCO TRADE.