Public Safety Committee on May 12th, 2008

[Jerry Montour]

I don't really have the exact answer to your question. All I can tell you is this: if there's a request for transparency, and these products are coming out of publicly traded companies, then they have an obligation, under the proceeds of crime act, to be totally transparent.

So if they are evading and doing some other form, and you prove that they have knowledge that they're evading that industry, it's indictable. You can go after them.

[Roy Cullen, Liberal, Etobicoke North, ON]

I'm not sure who among the three of you, Mr. Kemball, Mr. Montour, and Mr. McCarty, could best answer this next question.

Let's say you're picking up some of these smoke packs at whatever network and taking them to these doors of residential areas and selling them in those packs. First of all, is that a Criminal Code offence? And is the person buying them breaking the law?

So there are two parts to that.

[Donald McCarty]

Well, the distribution of the product would be the aiding and abetting of one of the myriad other offences I related to you before. I don't believe it's actually an infraction to buy them illegally, but I could be wrong on that.

[Roy Cullen, Liberal, Etobicoke North, ON]

I just have one final question.

When we talk about this—and I know what you're referring to, Mr. Kemball, when you talk about trying to get a whole range of stakeholders together, and the RCMP report alludes to that—let's face it, at the end of the day, whether in the United States or Canada, there is a whole range of illegal activities happening on first nations reserves, unless I'm misinterpreting all the data I've seen. And with respect, I know we're not saying that it's all happening on first nations reserves, but a lot.

We have this sensitivity about taking enforcement action on reserves, either in the United States or Canada. But if people are breaking the law of this country—and I can't speak to the United States—and we're allowing these things to go on without enforcing our own laws, don't we have a responsibility? I understand the need to look at it holistically, and maybe to look at the taxes and at the suggestions Mr. Montour is coming forward with, but don't we have a responsibility to enforce our laws? If they're being broken on reserve, it doesn't matter.

[Benjamin Kemball]

Absolutely, I totally agree. That's why on the last page of the presentation, when we come to potential solutions, first and foremost, it's proper enforcement of the law. And that's not just the law concerning tobacco taxes, but everything else Mr. McCarty referred to. Let's face it, if the law were being effectively enforced across the board, then this problem, to a large extent, would be much smaller than it is today. On top of that, the tobacco control policies that Canada has put in place over decades would not be under threat of failure.

[Jerry Montour]

You know the problem has been ignored for the last 10 years. So to just mount up the RCMP, have them get their infantry ready, and go marching into the reserves might not be the best solution in this particular climate. In this political climate, when you have land disputes and everything going on in Ontario and Quebec.... If this approach is going to take place, it should have been put into place by former governments 10 years ago—a long time ago. But now that we're all left with this mess to clean up, the real bottom line is really simple: if we at least start with one strategy and see a success with it, then we can move forward.

But I know that first nations people as a whole are asking, when was the last time a non-native person aiding and abetting this situation was indicted? If you pass laws saying there should no longer be acetate tow on reservations, and you trace it back and you indict the CEO of Eastman Kodak, and if another Indian were also to be in jail, that would be nothing.

Do you know how many Indians are in jail right now? Well, I guarantee you, there are no non-native CEOs in jail. If you start making them accountable for their activities, believe me, it will stop. That I'm sure of.

[The Chair, Conservative, Garry Breitkreuz]

Thank you.

I have two more people on my list.

Mr. St. Amand, you asked for some time, and then Mr. Hanger.

[Lloyd St. Amand, Liberal, Brant, ON]

Mr. Cullen already asked the question, but if Mr. Montour wants to answer this, he can. Is it illegal to buy a product that offends a dozen or so laws?

I understand from your answer, Mr. McCarty, that the buyer who's complicit in this scheme, so to speak, is doing nothing wrong by purchasing a cigarette at one-tenth of the value he would pay down the street at a convenience store.

[Donald McCarty]

I've never really examined that question. I believe it's not illegal per se for somebody to buy a cigarette that violates, for example, the Tobacco Act. I could be wrong on that. Certainly, if somebody were buying them in huge quantities and reselling them to all his buddies, that is a different story, because then he's aiding and abetting the illegal distribution. Whether or not it's illegal for someone to just buy them for their own use, if they go up to a smoke shack on Kahnawake and buy 200, I'm a little embarrassed to say that I'm not quite sure.

[Jerry Montour]

To help my colleague's argument, at the end of the day, it may not be illegal to buy them, but it certainly is illegal to obtain them. At the end of the day, if you're in possession of that product, you're in possession of something that's illegal. So that will help you get to that point, whether the person gets caught with one or you get caught with 50.

I do take offence when they cite a particular reserve, whether it be Kahnawake, or Wahta or Six Nations or Akwesasne, because the idea is not to come in here.... Because I'm from the first nations, I have an obligation to stick up for my people. There are a lot of people who are law-abiding first nations people who want to see the success of this industry, and there are a lot of people who are here to contribute in a very positive way. I don't think it's fair to ever attack just one area.

And you guys should agree with that, too, as you're in Quebec.

[The Chair, Conservative, Garry Breitkreuz]

Thank you

I now have three people on my list--Mr. Hanger, Monsieur Ménard, and Ms. Priddy.

Mr. Hanger.

[Art Hanger, Conservative, Calgary Northeast, AB]

Thank you, Mr. Chairman. I appreciate the opportunity to question the panel here.

I'm pleased that Mr. Montour came forward to testify. It's interesting. I've been invited down into your area several times by some friends who live in the community. Part of it has to do with the increased activity when it comes to contraband that is distributed in the region.

I was quite surprised that you mentioned the term “like a war zone” in regard to the area and the reserve. I assume that's what you meant by utilizing the term “war zone”. It obviously creates some concern for you about what might be happening or what might possibly be happening in the future. I don't know what you meant by that, but I would like some clarification.

I did actually buy some of those contraband cigarettes while I was there, and I was quite surprised that for $6 or $8 you can pick up a pack. But what surprised me even more was the amount of this contraband that's being sold in Calgary. Truckers pick it up, they move it right across the country, and they're selling it--what they can pick up here for $6--for $40 in Calgary. So I can see that there's quite a generation of capital, of cash, with no tax being paid on any of it.

The other thing that surprised me was the number of these smoke shacks, as Mr. McCarty has relayed, just in that one area that I was--I'm going to say--fortunate enough to visit, because I don't think anybody has a perspective on what's happening until you go and see for yourself. There are something in the neighbourhood of 200 just off the reserve. It's quite a business operation.

It concerns me, as a member of Parliament, as a former law enforcement officer. I have to say that I would like to see the law enforced evenly too. You, as a businessman, would like to see the law enforced. That would mean everybody gets equal treatment. What I get from you is that not everybody is getting equal treatment. And this is just in one area. It doesn't just apply to contraband; it probably should apply to all aspects of the law to create a safe environment.

Mr. Montour, you have a concern for the future of your reserve, your people, and I would have to assume that it goes beyond just your reserve and your people. It would deal with your business, and probably the community around you, because we don't live in isolation from one another.

I'm curious as to what you see happening with the youngsters in your community, then, when it comes to their involvement in dealing with some of this contraband, if it's just the young people in the Six Nations, for instance—and I don't mean to single out Six Nations, but that's the only place I've seen this kind of activity. What could we do together to get rid of the problem?

[Jerry Montour]

First of all, thank you and all the panel members very much for allowing us to come and address these issues.

In answer to your question on what I see for first nations young people, it's not just in Six Nations, but in a lot of first nations territories all throughout Ontario and Quebec I see confusion. I see constant struggle over jurisdiction, over land claims issues.

I'll give you one example. First of all, I happen to be a proud member of Wahta Mohawk, which is in northern Ontario. I conduct my business on Six Nations. Young kids are going to high schools. We don't have a high school. We had one that was a bilingual high school on a reserve, but they were trucked in there. There's really no warm reception for young first nations individuals when you're in the middle of a land claim dispute. There's a lot of fear-mongering amongst other people telling them what's going to happen to them. The way they strive to get ahead is economically. If the only tools you have to get ahead economically are perceived to be illegal, basically it doesn't give you much opportunity, does it? That's where I'm trying to get to the meat of the problem.

When you ask, what's our solution, I really truly believe in my heart that a very first step is what's happening here in this room. A second step is that if you get involved with the raw material aspect of the business, then we'll all have a true, transparent number of what we're working with. Then we can look at revenue-sharing to first nations communities. Who has the jurisdiction to tax the product? How somebody can choose to pay it into their own community...how they have that option. That option was explored 23 years ago. I can remember coming up to this same building. I had every first nations member in the community saying, “Don't sell me out or don't come home”. I went up to the Minister of Finance and asked if we could work on some kind of revenue-sharing. I remember Mr. Anderson's name as if I'm looking at this microphone. I said, “Is there was any way it can benefit our people?” Basically he sent me packing.

Here we are, 23 years later, and we have to start tackling these issues. I know everybody may not agree with me on the raw material perspective, but let's face it, I'm in the industry and I'm a native manufacturer, so I have a pretty good insight as to what I believe will control the issue.

[Art Hanger, Conservative, Calgary Northeast, AB]

You're a licensed manufacturer.

[Jerry Montour]

I certainly am a licensed manufacturer.

[Art Hanger, Conservative, Calgary Northeast, AB]

There are many there who are not.

The question I would ask is this. Is it not in your best interest to see that they don't operate any more?

[Jerry Montour]

If you're talking to me from a first nations perspective, it doesn't benefit the community as a whole. The licence does not serve me well if it doesn't help my people overall. Yes, I could lose everything I own for saying that, but do you know what? I'd rather be broke. At the end of the day, it has to benefit all people. There's no doubt about that. I've contributed $500 million to get that put out. Right now what I'm asking for here is a level playing field. There has to be a level playing field.

[The Chair, Conservative, Garry Breitkreuz]

Thank you.

We can come back to the government side later.

Monsieur Ménard, you indicated you have another question.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

I have a question for you before you go.

We've heard about a technology that would see each cigarette tagged in such a way that it would be possible to know if it was made by a licensed manufacturer. I'm not quite sure how the technology works.

When I was young, the package came with a stamp that you had to break with your fingernail. Later, packages came with a small piece of paper that you removed. Now we're hearing about a computerized identification system of some kind.

Have you heard about this technology?

[Benjamin Kemball]

I think Monsieur Ménard is referring to the CRA's proposal to bring in a stamp that basically has a hologram and coding linked with it that would be applied on all cigarette packs, with effect from 2010 onwards. It's an interesting idea. The reason for that is really to deal with the problem of counterfeit, which is a copycat product mainly brought in from places like China.

However, I think to deal with the problem of illicit trade in Canada today, it's pretty well totally irrelevant when 97% of the product is violating so many different laws, whether it's the absence of health warnings or the non-payment of taxes. You're not going to find the manufacturers of this product putting holograms of a CRA tax stamp on this.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

That is precisely the point. If inspectors dropped into a convenience store that sold illegal cigarettes, they would quickly be able to identify contraband by scanning the product. I don't know about holograms, but I think there would be computerized chip that would show up when the product is scanned.

Inspectors would be able to identify quickly any contraband products on which tax had not been paid. That's the technology I was thinking about. Have you heard about it?

Basically, I'd like to know if you have done a cost estimate? Also, would you be willing to cover the cost of this technology?

[Benjamin Kemball]

Yes, there is a possibility of using things like tax stamps for what has been described as track-and-trace technology. You need coding, which could be applied through the tax stamp, that would enable one to identify which manufacturer produced that cigarette, and when, and in which location.

These sorts of options are potentially of interest in terms of controlling illegal tobacco trade, but again, if the manufacturers of these products aren't enforcing any of the laws today, they certainly won't be applying track-and-trace technology to this--on the contrary.

[Serge Ménard, Bloc, Marc-Aurèle-Fortin, QC]

The thing that interest me is that this technology would address the problem of persons who put their contraband cigarettes in packages that are similar to the ones used by legitimate companies to market their product.

[Donald McCarty]

This technology could prove helpful in dealing with the contraband problem. Counterfeit occurs when a package of Player's is being copied perfectly and then brought back here. It would be useful for dealing with cases like this. However, according to our estimates, illegal products account for only 1% or 2% of the problem.

If counterfeit cigarettes accounted for 90% of the problem, then I would agree with you that using highly sophisticated technology would be one possible solution. However, as Mr. Kemball said, if the product maker is violating about twenty different laws, he is not likely to incorporate sophisticated technology into his products.

We don't need sophisticated technology to recognize an illegal product in a convenience store. We don't need an expert to tell us a product is illegal.

[Jerry Montour]

With respect to the honourable member, the stamping process is done in about 87% of all the countries in the world, though, so it is a good suggestion, and it can be part and parcel of a bigger strategy to view it. I asked my colleagues and I know it's done all over the world--