Justice Committee on Dec. 10th, 2013

[Michael Perley, Director, Ontario Campaign for Action on Tobacco]

Thank you, Mr. Chairman, and members of the committee, for this opportunity.

On behalf of the Heart and Stroke Foundation's Ontario office, the Ontario division of the Canadian Cancer Society, the Ontario Medical Association, and the Non-Smokers' Rights Association in Ontario, I'd like to offer some comments on Bill C-10. I'm Michael Perley, and I'm the director of the Ontario Campaign for Action on Tobacco. The agencies I mentioned have been working together since 1993 on tobacco control issues.

The Ontario campaign strongly supports Bill C-10. On the earlier panel, Rob Cunningham, François, and Manuel Arango gave you a detailed analysis of why the bill is so important, and I'd just like to add some additional perspective and perhaps answer some questions later about the Ontario situation.

Today, the total Canadian tobacco market is about 40 billion sticks annually. The most serious phase of the current contraband problem occurred in 2007-08 when major tobacco companies estimated that between 32.7% of the market, British American Tobacco's estimate, and 35%, Philip Morris International's estimate, was contraband. Three years later, British American estimated the illegal market had fallen to 18.75% of the total market, and Philip Morris estimated that contraband had fallen to 20% of the total market. The reasons for this decline can be found in the aggressive actions of the federal, Quebec, and Ontario governments and their law enforcement agencies in attacking the contraband problem.

Today, I think as François mentioned earlier, the Quebec finance ministry estimates that contraband makes up 15% of its total market in Quebec. We do not have a similar reliable estimate for Ontario's market, although it appears to be somewhat higher. Thus, overall, the problem persists, but we are making progress. I would like to underline that because I think, as some comments have indicated, the tobacco industry and its retail allies put forward a somewhat different picture of the state of the contraband problem.

The authority Bill C-10 gives to all Ontario municipal and provincial police officers has an importance beyond the purely additional enforcement capacity it provides. Criminalization of contraband tobacco trafficking will send an important deterrence message to those who transport and supply large volumes of contraband off reserve that they can no longer expect to simply pay fines—or not pay fines as Mr. Cunningham underlined—as a form of a business licence to deal in contraband. Equally important, the bill will send a message to police themselves that contraband is now deemed to be criminal activity by the federal government and should be treated as such.

Bill C-10 also provides an important opportunity for public education when it is implemented with the message, of course, that trading in contraband is now a more serious offence with jail time at the end of the road.

Another argument in favour of quick passage of Bill C-10 is that the implementation of regulations governing the proposed Ontario provincial raw leaf tobacco management system has been delayed, and this was referred to earlier as well. I can speak to it in more detail during questions. These regulations, which will require marking and tracking of all raw leaf shipments in the province were originally to come into force this past September, then were put back until January 2014, and now have been delayed again, this time until January 2015. Over 60 million pounds of tobacco will be grown in Ontario this year, and some of it is bound to make its way into the contraband manufacturing system. The need for the sanctions in Bill C-10 assumes additional urgency in this context.

One final issue that does not bear directly on Bill C-10, but which has been mentioned previously, is the move of the eastern Ontario U.S.-Canada border post from Cornwall to Massena, New York, and the impact this move may have on contraband supply. I have with me a coloured map, but I'm unable to distribute it because unfortunately it's not in two languages, and I haven't been able to find a bilingual version of it. But perhaps I can show it a little later during questions because it's a little easier to understand the importance of this border post issue when you see where it's located. Let me perhaps just show you briefly.

This red section here is Cornwall Island in the middle of the St. Lawrence River. This is on the New York side of the river where the new border post is going to be, and this is where the current border post is in Cornwall.

If the border post is moved here, this leaves Cornwall Island basically unsupervised. What that does is create the potential—I underline that word—for Cornwall Island to become a contraband trafficking zone again, somewhat similar to the way it was a few years ago. If there is no Canadian inspection facility beyond the proposed U.S.-side post, Cornwall Island may again become a focal point for contraband trafficking. A two-part inspection system, as Mr. Cunningham mentioned, would avoid this potential problem in the first place.

In closing, while we don't often agree with the groups representing the tobacco industry and retailers, I would like to mention a comment made by the head of the Ontario Convenience Stores Association at a news conference in Toronto yesterday. He pointed out that the contraband problem “is not driven by taxes, but is driven by cheapness and delivery”.

We agree. We believe effective implementation of BillC-10 will strike an important blow against both the low prices and the extensive supply lines of the contraband market in Ontario.

Thank you very much.

[The Chair, Conservative, Mike Wallace]

Thank you for the presentation.

Our next presenter is from the Ontario Provincial Police, Chief Superintendent Couture.

[Chief Superintendent Gary Couture, Regional Commander, East Region Headquarters, Ontario Provincial Police]

Good morning, Mr. Chair and members of the committee.

I will give my presentation today in English, but I will be pleased to answer your questions in English or French.

It is my pleasure to appear before you today on behalf of OPP Commissioner Chris Lewis, who sends his regrets.

The Ontario Provincial Police sincerely thanks you for the opportunity to appear before you and to provide you with the information about how the Ontario Provincial Police contributes to the efforts to control the manufacturing, distribution, and sale of contraband tobacco. Contraband tobacco is closely linked to smuggling and organized crime. Since these activities cross many jurisdictions, the fight against contraband tobacco, smuggling, and organized crime requires effective partnerships on the part of police services and all agencies.

In 1996, the RCMP, OPP, and Revenue Canada, now known as the Canada Revenue Agency, partnered to fight these types of crimes by forming the Cornwall Regional Task Force. A significant amount of contraband tobacco smuggling was taking place on the St. Lawrence River near Cornwall and through the Akwesasne first nation. There was a period of a few years after 2000 when taxes on cigarettes were equalized on both sides of the border, and smuggling activities were considerably reduced. However, the problem quickly resurfaced when tax breaks ended within Canada.

By 2009, growing concerns about these activities motivated enforcement agencies to meet, discuss public safety concerns, and establish best practices for countering contraband tobacco and related criminal activity.

In 2010, we re-established our policing partnership within the Cornwall Regional Task Force team, which now consists of officers from the RCMP, OPP, Cornwall Community Police Service, the Ontario Ministry of Revenue, and Canada Border Services Agency. Public Prosecution Service of Canada and provincial prosecutions have also been integral parts of agency partnerships. The Cornwall Regional Task Force is a proven, effective joint-forces operation contributing to public safety.

From 2008 to 2012, 36.2% of all confiscated cartons of contraband tobacco nationwide were seized in Cornwall. During the same period, 28.7% of all confiscated loose fine-cut tobacco nationwide was seized in Cornwall. Current provincial legislation, the Ontario Tobacco Tax Act, authorizes a police officer to directly seize illegal, unmarked, fine-cut tobacco and unmarked cigarettes that are found within the course of his or her duty, in plain view, and lay appropriate charges, often done in partnership with the Ministry of Finance staff. These legal authorities support and enhance our front-line ability to effectively respond to contraband tobacco issues within the course of our duties.

New, more severe, fine levels for possessing illegal cigarettes in Ontario were also introduced with new legislation in 2011. The current fine levels for possessing illegal cigarettes in Ontario are: $100 plus three times the tax for possessing up to 200 illegal cigarettes; $250 plus three times the tax for possessing between 201 and 1,000 illegal cigarettes; and $500 plus three times the tax for possessing between 1,001 and 10,000 illegal cigarettes.

From 2010 to the present, Ontario Provincial Police highway enforcement teams have laid 286 charges for possession of contraband cigarettes under subsection 29(1) of the Ontario Tobacco Tax Act. Over the course of this same period, Ontario Provincial Police highway enforcement teams have confiscated more than 100,000 cartons of contraband cigarettes.

The OPP recognizes that smuggling is linked with organized crime groups and activities, and poses a serious threat to the safety and well-being of all Ontario citizens and visitors. Applying the principles of tactical priority setting, the OPP aligns its limited resources to proactively address important criminal activity.

Much of the enforcement responsibility has been assumed by front-line uniform officers, complemented by the dedicated operational teams previously mentioned. Through highly specialized multi-jurisdictional and joint forces capability, the OPP provides specialized support to border agencies in both Canada and the U.S.A., including the border enforcement security teams, known as BEST, led by the United States Department of Homeland Security, Immigration and Customs Enforcement Agency, or ICE.

The OPP also provides resources to support the RCMP-led integrated border enforcement teams, the integrated national security enforcement teams, the marine security enforcement teams, and other joint force operations, to safeguard against cross-border organized crime and terrorism.

The Ontario Provincial Police believes border security demands a concerted, rigorous, and coordinated approach to be successful. Municipal and provincial police services have a role to play in maintaining border security, as they respond daily to incidents at border crossings.

As the price of contraband tobacco has soared, increasing the criminal profits for those involved in its smuggling and distribution, we have seen public safety concerns also increase. Smugglers have taken to using private property, such as docks and waterfront homes, to smuggle contraband tobacco—to break the law. Smugglers have been known to act aggressively with anyone who tries to stop or challenge them. They also use high-powered boats at night, at great speeds and without running lights, creating a navigational hazard.

Of course, problems with contraband tobacco are not limited to smuggling in the Cornwall area. In addition to the Cornwall area within our east region, the area of Ontario where OPP highway enforcement teams have laid the most charges relating to contraband tobacco has been the southwestern part of the province. The contraband cigarettes confiscated in many of these stops were worth tens of thousands of dollars.

In several cases, the contraband cigarettes were manufactured within the Six Nations of the Grand River community south of Hamilton, the vehicles being registered to businesses located in this first nations community. Southwestern Ontario has also seen the phenomenon of smoke shacks progressively develop in recent years, mostly on the Highway 6 corridor, which borders the Six Nations community.

Properly taxed cigarettes that are legal to sell in Ontario have a yellow band that clearly shows: Ontario, Canada, Duty Paid, Droit Acquitté. In Ontario, some on-reserve retailers are authorized to purchase limited quantities of cigarette packages to be sold only within their first nations communities and to first nations consumers, as defined under the federal Indian Act, for their exclusive use.

However, it is clear that these smoke shacks on Highway 6 and elsewhere in the province are strategically located so that non-natives can purchase untaxed cigarettes, which is an illegal act. The sale of tobacco from smoke shops is a multi-agency issue and not one that the OPP alone can address. The OPP does not enforce federal tobacco legislation and provincial tax laws, but we do work in cooperation with the agencies responsible. When enforcement action is taken by the federal ministry of revenue, the OPP provides support to ensure public and traffic safety.

While anyone can smuggle or sell contraband cigarettes, the activity in Ontario is often tied to residents of various first nations communities. This can complicate enforcement, as the issues can be compounded with claims related to treaty rights and traditional native practices.

Contraband tobacco is a complex issue. I have only touched on a few aspects of the problem, as well as the responsive and proactive efforts of the Ontario Provincial Police. The OPP enforces laws. We don't make them. We do support any legislative changes that can be shown to reduce and deter the smuggling, distribution, and sale of contraband tobacco.

The Ontario Provincial Police appreciates the opportunity you have provided us today as you consider this bill.

Thank you very much. I would be happy to answer any questions.

Merci.

[The Chair, Conservative, Mike Wallace]

Thank you, Superintendent. We'll go to the questions now.

Our first questioner, from the New Democratic Party, is Madam Boivin.

[Françoise Boivin, NDP, Gatineau, QC]

Thank you, Mr. Chair.

I would like to thank our two witnesses.

My questions are mainly for Mr. Couture, who is representing the Ontario Provincial Police.

The headline in today's Le Droit was “Illegal Cigarette Butts by the Ton”. Mr. Bryans, a representative for the Canadian Convenience Stores Association, provides a fairly negative overview of the work being done to counter contraband in Ontario. I'll read you some passages from this article by Guillaume St-Pierre. He mentions some statistics, and I'm wondering if they are similar to yours:

A study shows that contraband cigarette use is “out of control” at the Rideau Carleton Raceway. The Ottawa gaming facility topped the ranking of 136 public places across Ontario where cigarette butts were analyzed. Exactly 46.6% of cigarette butts found near the doors of the race track were identified as coming from illegal cigarettes, according to a report commissioned by the convenience store lobby.

The article shows the link between gambling and contraband cigarettes. I'll continue:

In total, Mr. Bryans estimates that 20% of cigarettes smoked in Ontario were sold illegally.

In comparison, we are doing okay:

In Ottawa, 13.4% of the 2,000 cigarette butts analyzed were found to be illegal, placing the region at 21 out of 23, far behind Kitchener (28.9%), Barrie (28.5%), Brantford (28.4%) and Windsor (28%). Hospitals and schools were also targeted. ... Mr. Bryans estimates that inaction on the part of the authorities is depriving the governments of at least $500 million in revenue. ... Mr. Bryans estimates that there are 50 cigarette manufacturing plants on first nations reserves in these two Canadian provinces.

Does that somewhat match what you have seen?

[C/Supt Gary Couture]

Thank you.

As I came into the city this morning, I heard a report that was talking about a percentage of 50% or 46% at the race track.

First, I would like to make it clear that the Ontario Provincial Police provides public safety services. We work within the laws that are in force in order to eliminate smuggling. In 2009, we re-established our regional task force and we had a lot of success in this region. Let me give you some figures. When the regional task force was re-established, in 2009-2010, we were seizing 400,000 cartons of cigarettes a year. Last year, we seized about 180,000. You have to understand what that tells us. Personally, I consider it is a success, because we are limiting the number of offenders crossing our region.

As for the impact on contraband tobacco in our communities, if we see that contraband cigarette use is higher in specific places, it probably means that we should deploy our resources to those places.

[Françoise Boivin, NDP, Gatineau, QC]

When Bill S-16 was tabled, Vic Toews, the Public Safety Minister at the time, said that he would simplify the investigation procedure by allowing provincial and municipal police forces to lay charges.

Do you feel that Bill C-10 is actually going to make your investigation work easier because you will be able to become directly involved in criminal matters?

[C/Supt Gary Couture]

Yes, it is a tool that will give us more possibilities. We will be dealing with a criminal act. It is still a fact that cigarette smuggling is still an economic activity for a lot of people. If they take the risks, they can reap the financial benefits.

[Françoise Boivin, NDP, Gatineau, QC]

But the subsequent offences issue is going to be the biggest deterrent. Let us not kid ourselves.

Do you think that the penalities set in the bill for subsequent offences are enough to get the desired results? According to the RCMP report, it takes forever for the offences to get onto a person's criminal record. We found that out this year. It is all well and good to make provisions for subsequent offences, but if the offences do not appear on criminal records, it is not really very useful.

[C/Supt Gary Couture]

I think that it is a good tool. It is a good start, and things will move forward. First of all, we are going to have to look at what is happening in the courts specifically. Everyone takes this very seriously. Public safety organizations and other organizations want to work together to solve this problem, because it has an impact on our youth and on our communities. It is a good start.

As for knowing whether the provisions are exactly the right ones, I prefer not to comment. If these are the provisions that are implemented, we will see how they work out.

But the fact that it is a criminal offence will certainly make our job easier. Currently, we have good partnerships that help us to deal with the situation. The Minister of Finance supports us. He looks at our figures in Cornwall. We make seizures and charges are laid.

I would like to make a quick comment about the fact that a lot of fines remain unpaid. I do not have the exact figures, but I know that recently, a number of magistrates have started giving harsher penalties, given that the people were not paying their fines. This is still a serious problem, but everyone is trying to work together to solve it. For us, this bill is an additional tool.

[The Chair, Conservative, Mike Wallace]

Thank you very much.

Our next questioner is from the Conservative Party.

Not on this time, it will have to be another time. Sorry, we're at seven minutes.

Mr. Wilks, from the Conservative Party.

[David Wilks, Conservative, Kootenay—Columbia, BC]

Thank you, Mr. Chair.

Thank you, witnesses, for being here today.

Mr. Perley, you touched on something that was interesting, and that was public education. I want to go down that road a little further.

Should this bill be passed and enacted, what do you see as a public education tool not only from the Ontario perspective but from the federal perspective that we could utilize to educate people with regard to the enforcement of Bill C-10?

[Michael Perley]

I think it is extremely important that we have a clear message about contraband, and by clear message I don't simply mean a message about the new deterrent penalties and so on, but a message about what contraband actually is. While I'm sure most people know something is wrong or perhaps illegal with buying contraband from the smoke shack on reserve, the fact remains that most people who do it get away with it. That's not to criticize our law enforcement personnel, it's just that the numbers are what they are.

If I'm driving to Smokin Joes on Highway 2 outside Belleville, just inside the Tyendinaga line and buying contraband every week and no one bothers me about it, because I'm small fry, do I think it's really illegal? I'm not sure I know whether it's illegal or not. The bottom line is I can get away with it. If I can buy a carton or two from somebody with a truck outside Loblaws—I know several locations in Toronto where that happens—do I think that's illegal? Probably, but again, I'm getting away with it.

I think part of the challenge for law enforcement with its resources that are somewhat straightened, is getting to these many instances of local purchase. But if there is no message from the government about what is illegal and what isn't.... Especially now with Bill C-10, with the criminalization of trafficking and the whole contraband trade, this is a wonderful opportunity to say that the game has changed. You may have thought that contraband was this or that these cigarettes were not precisely illegal, now they are, now there's jail time, now the game has changed, and then something about the health effects.

It's a wonderful opportunity to change the whole way we look at contraband.

[David Wilks, Conservative, Kootenay—Columbia, BC]

I completely agree with you. I think there is a great opportunity for the federal government to do a public education piece.

Chief Superintendent Couture, you touched on the fines that are put under subsection 29 (1) of the Ontario Taxation Act. In my former position, I was a police officer as well. I think you would probably agree that getting a fine is part of doing business. In most cases if they do pay it, whether it be through the provincial act and/or through the Criminal Code, what I've seen a lot is they go from the courthouse to the court registry, pay the fine, walk out, and go. That's part of doing business.

But they don't like the imposition of a jail sentence because that takes away their ability to sell, to do business. I won't get into that with you, because I think that you would probably agree with that, but you did say at the end of your speech that you only touched on a few topics and you could speak about many more.

Carry on.

[C/Supt Gary Couture]

We could probably talk all day about this issue. It's impacting us nationally, provincially; it's impacting our youth, community safety, etc. But as my friend just commented, this is multi-agency, everybody needs to jump into this about the messaging, the activities we undertake. There can't only be enforcement, there has to be education; there has to be a concise, unified message on what we're going to do about contraband tobacco. It's a complicated one because of the first nations impact as well. We have to be conscious of that. In Ontario we have dealt with that considerably over the past few years.

We have to put everything in our favour to try to address that the best we can. I heard they deferred their raw leaf legislation in Ontario, but they are looking to try to establish partnerships with the first nations communities and address regulation in that respect. We are partnering, we are addressing all the aspects we can. We can't be the only agency addressing tobacco issues. Frankly, ladies and gentlemen, we have a lot of other public safety issues to address. We have to find a balance in everything we work on.

I know our commissioner would say that we don't have the resources to just focus on every pack or bag of cigarettes that comes off a certain shack. But there are things we need to put in our favour. Legislation's a great tool.

We've talked about the Akwesasne/Cornwall area already. I know our minister has communicated that we believe the border crossing is being placed in the wrong place. It is going to expose us to further activity. In the last four years we have been very successful with our task force down there to control and limit the contraband activity, and I think the number of seizures speak to it. We are there 24/7.

I talked earlier about the marine activity, the boats. Just three weeks ago we stopped a boat coming on shore, seized hundreds of cases of contraband. We're very effective that way, but I'm not so naive as to believe we've lowered it. I think we've been active there for us and the public safety concerns of our communities. It has unfortunately simply moved to other locations.

[The Chair, Conservative, Mike Wallace]

Thank you very much.

Thank you for those questions and answers.

Our next questioner, from the Liberal Party, is Mr. Casey.

[Sean Casey, Liberal, Charlottetown, PE]

Thank you, Mr.Chair.

Thank you for being here, gentlemen.

Mr. Perley, you expressed some frustration with regard to the delay in the coming into force of the raw leaf provisions in Ontario, and the chief superintendent just referenced that.

Can you give us some sense of the rationale for the delay, and when it's likely to come into force, and what difference it's going to make?

[Michael Perley]

Following the changeover from a quota system to a licensed system a few years ago, when the federal government spent about $300 million buying out the quota, and then farmers were able to pick up licences, provided they had contracts with companies, the crop size has more than doubled. We have a huge amount of tobacco circulating around the province, transported here and there and so on, but we have not had a means of actually registering and tracking, by markings, actual shipments as to where they start and where they end up.

The problem with that is, with this great increase in the crop size we've had some expression of concern about the fact that some of the crop is being diverted. We would have had a problem anyway, and there were some anecdotal reports in the Ontario media from law enforcement officers prior to this delay of the regulations and prior to the passage of Bill 186, which created the regulations for the marking system.

There was one story about a farmer who alleged that somebody had stolen it out of his barn, and it turned out, in fact, that he'd sold it to a contraband manufacturer.

There's not been a huge amount, but you don't need a lot to supply a number of smaller contraband manufacturers. So it's not a huge percentage, but it's some.

The reason for the delay, as far as we can tell, is that there are negotiations going on with two bands in particular to set up some form of what I'll just call a tobacco control bylaw on the two reserves whereby the band would take more responsibility for controlling its tobacco manufacturing and sales activities. We certainly don't oppose those kinds of efforts at all.

Fundamentally the problem is that selling tobacco is of benefit to first nations because of the huge price differential between contraband and regular product. If we're looking at changing the way tobacco is dealt with on reserve, how are we going to do that in a way that maintains an economic benefit for the first nations, while controlling the huge levels of smoking prevalence that Mr. Cunningham referred to, and at the same time reducing contraband without eliminating the price differential and therefore the benefit to first nations of making tobacco in the first place?

So there is a fundamental inherent conflict between the idea of trying to give first nations more control over their tobacco manufacturing activities and the ideas that we have in public health about controlling tobacco use, along with this issue of contraband. I don't know how we get to a point where reserves are able to manage their own tobacco supply and derive some economic benefit while at the same time we maintain the price differential between regular product and on-reserve manufactured product without continuing to promote a contraband market. That's the difficulty.

Reserves may have more of a hand in how they do business directly—that's fine, and nobody has a problem with that—but at the end of the day we, as health agencies, want to reduce tobacco use. We don't want to create a system that makes it easier to make and sell more product and give more profit to one group as opposed to another. I don't think that serves public health in any way.

[Sean Casey, Liberal, Charlottetown, PE]

This may or may not be related to the answer you just gave, but as parliamentarians, in preparation for these meetings, we receive a briefing from the Library of Parliament. In the briefing we received for this meeting, we were told that:

Statistics Canada also notes that production of tobacco products by Canadian manufacturers has been rising since...2011 while reported tobacco use has remained relatively constant.

Does that come as a surprise to you? Is there an explanation for that, and is it the one you just gave?

[Michael Perley]

I don't know whether it's the one I just gave. If production by the manufacturers has been rising, does that mean people who smoke are smoking more? I don't think we have any evidence to indicate that pack-a-day smokers are suddenly becoming pack-and-a-half or two-pack-a-day smokers. Are they exporting more? I don't know the answer to that; they may be exporting more.

Contraband has diminished, and BAP and PMI have been particularly forthcoming with public information about how much product has come back from the illegal market into the legal market. Contraband is still functioning more or less as it was; it's just that people are moving away from that market into the legal market. This may be partly because of law enforcement, but beyond that, we don't know. We still have this grey area. We don't have any indications, despite Mr. Bryans' survey of yesterday. I was at that news conference. He couldn't tell us anything about the makeup of the population that was smoking these illegal butts. It could be that we have a very small number of heavily addicted smokers who buy contraband. We don't know.

[The Chair, Conservative, Mike Wallace]

Thank you very much for those questions and answers.

Our next questioner, from the Conservative party, is Mr. Calkins.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Thank you, Mr. Chair.

I'm going to ask one of you the question. You can do rock, paper, scissors to see which one of you should answer. I would like one of you, in 30 seconds or less, to edify the committee on the difference between selling legal tobacco off reserve and selling legal tobacco on reserve. How do taxes and exemptions and contraband fit into that picture?

[Michael Perley]

If I buy a pack of du Maurier from a convenience store, federal and provincial tobacco taxes and excise taxes have been paid or I am paying them on the spot. If I'm buying a bag of cigarettes from Smokin Joes on Tyendinaga, no taxes have been paid—no taxes will be paid either by me or by the manufacturer. It's that simple.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

But if you're buying legal tobacco on reserve, you have to be, my understanding is, a member of that reserve. You have to have some kind of identification.

[Michael Perley]

I was talking strictly about the on-reserve manufactured product. If I'm buying Rothmans, I have to be a first nations, carded individual to buy that tax free.