First, let me provide you with some information about the size and scope of illegal tobacco and the links to organized crime.
Since I appeared before you in October, new data has been released on the illegal market in Ontario, which has jumped by more than 37%, a 66% increase in just three years. A recent report by Ernst & Young suggests that Ontario alone will lose up to $5 billion in tax revenues from tobacco by 2020.
We are also seeing alarming declines in tobacco tax revenue in provinces like Alberta and Saskatchewan, suggesting there has been a significant increase in illegal activities in western Canada, where the illegal rate has been 12% to 15%, depending on the province. Meanwhile, rates in Atlantic Canada have been consistent, between 15% and 20%. The only province seeing a significant decline is Quebec, where aggressive law enforcement actions have seen rates drop from over 40% to less than 15%.
We estimate that the national illegal tobacco rate to be 20% to 25%, or around seven billion cigarettes, the equivalent of 35 million cartons. From there, you can do the math. If they're sold for $40 each, which is not uncommon, that's over $1.4 billion. We're talking about big money. In fact, the Sûreté du Québec recently said that the importation of illegal tobacco is eight times more lucrative than cocaine, which is why it is so attractive to organized crime groups. According to the RCMP, there are more than 175 organized crime groups involved in illegal tobacco in Canada. There are also at least 50 illegal cigarette factories in Canada and more than 300 smoke shacks selling tobacco outside existing legal, regulatory, and tax frameworks.
As Kevin mentioned, in March 2016, police forces in Ontario, Quebec, the U.S., and around the world were involved in the largest illegal tobacco bust in Canadian history, Project Mygale. This criminal operation involved much more than just tobacco. Also seized were millions in cash, over 800 kilograms of cocaine, meth, marijuana, and enough fentanyl to kill ten thousand Canadians.
This committee should also be alarmed that illegal tobacco from Ontario is now being found throughout Mexico and Central America. You can draw your own conclusions on why this is happening.
For your current study, our recommendation is fairly blunt. Laws are only useful if they are enforced. Therefore, our recommendation is to enforce the existing laws, which are not presently being enforced when it comes to illegal tobacco. Billions of dollars are being diverted to organized crime, often in plain sight. The government can barely bring itself to mention the problem, let alone act. Compare that to the U.S., where extensive action is being taken to address illegal tobacco because of the links to other criminal activities and terrorism.
I also have to flag that MPs will soon be asked to vote on a bill called Bill S-5, which seeks to impose plain and standardized packaging of tobacco products and standardization of cigarettes themselves, making it impossible for consumers, retailers, and law enforcement to differentiate a legal pack or product from an illegal one. This is even more so because the federal excise stamping system has been compromised, with legal stamps already routinely turning up on illegal products.
Health Canada even wants to impose the pack and cigarette formats made by illegal operators rather than pack and cigarette formats used in the legal industry. If you asked organized crime groups to come up with a piece of legislation to help them gain even more of the market share, it would be hard to beat Bill S-5. I know this is outside the scope of this study, but these issues cannot be looked at in isolation. If you want to combat money laundering and organized crime, legal tobacco companies must be given some means to differentiate their products—as is allowed for cannabis—and that means not passing Bill S-5 as is.
Thank you, and we look forward to your questions.