Report to the Conference of the Parties on the Implementation of the Framework Convention on Tobacco Control

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Part IV: Legislative, executive, administrative and other measures

1. Illicit trade in tobacco products
   
   1. Canadian Context
   2. Requiring marking of packaging to assist in determining the origin, destination and legality of the product
   3. Requiring that packaging information is in legible form and/or appears in its principal language or languages
   4. Enacting or strengthening legislation against illicit trade in tobacco products
   5. Enabling the confiscation of proceeds derived from the illicit trade
   6. Licensing or other actions to control or regulate production and distribution

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1. Illicit trade in tobacco products

(a) Canadian Context

• Clear plastic bags containing 200 cigarettes are the most popular and prevalent illicit product in Canada. They account for a significant proportion of seizures made by law enforcement agencies. It should be noted that these cigarettes originate from different manufacturing facilities, ranging from small plants run by organized crime groups, to fully equipped industrial plants located on First Nations communities.
  
  
• Manufacturing operations located on American First Nations communities supply the majority of the illicit market for tobacco products. Most of Canada's contraband tobacco has been and continues to be smuggled from the US side of the Akwesasne First Nations community. Illegal cigarettes are available across Canada, for approximately $20.00 per carton (compared to $65-70/carton).
  
  
• Cigarette manufacturing equipment has recently been acquired by illicit manufacturers in Canada that will allow them to significantly increase cigarette production.
  
  
• "Smoke Shacks" which are designed for large volume cigarette sales are increasing in numbers throughout the country. These are "on reserve" points of sale and constitute a major distributor for the underground market throughout the country. Couriers are often used by criminal organizations to drive great distances in order to reach distribution sites on First Nations communities.
  
  
• While Border Services Officers continue to seize illicit tobacco products, the majority of tobacco smuggling occurs between the ports of entry. The RCMP-led Cornwall Ontario Regional Task Force seized 233,376 cartons of cigarettes in 2005 between the ports of entry - a 190% increase from 2004. By contrast, seizures at the ports of entry in this region diminished nearly three fold during the same time frame.
  
  
• Raw leaf tobacco is regularly diverted from licenced tobacco growers and supplied to the illicit tobacco manufacturers within Canada.
  
  
• In 2005, Canada Border Services Agency (CBSA) seized 135,895 cartons of cigarettes, the majority of which included counterfeit Canadian and American brand cigarettes as well as Chinese brand cigarettes, seized at marine ports of entry concealed in marine containers. These products are sold in major cities in retail establishments and have also been seized in more remote areas. From January to September 2006 the quantity of counterfeit and Chinese brand cigarettes from marine containers originating in China has more than doubled that seized in 2005.
  
  
• Cigarette seizures from the postal/courier mode are on the increase. In 2005, there were 71 significant cigarettes seizures (25 cartons or more) in this mode. Of these 71 seizures, 75% originated in China.
  
  
• In addition to Chinese brand cigarettes, there is also a growing trend in the smuggling of other foreign tobacco products such as Egyptian water pipe tobacco and chewing tobacco, which supplies mostly ethnic communities. In 2005, there were 105 seizures of Egyptian water pipe tobacco originating in Lebanon, the United States and Egypt.

(b) Requiring marking of packaging to assist in determining the origin, destination and legality of the product

Part 3 of the federal Excise Act, 2001 (Appendix 3-B) is specific to "Tobacco"; sections 32 to 38 of this Act cover the stamping (duty-paid), marking (non-duty-paid) and package requirements for products: manufactured in Canada, imported into Canada and exported from Canada.

Information required on the tobacco product packaging includes the name and address or the licence number of the manufacturer. The place of origin can be determined indirectly from the name or licence number of the manufacturer.

The Stamping and Marking of Tobacco Products Regulations (Appendix 3-B-4) enacted under the Excise Act, 2001 detail the stamping, marking and other information required on tobacco product packages.

The stamp on the 'unit packets', ('CANADA DUTY PAID DROIT ACQUITTÉ') indicate that the federal duty has been paid. An absence of the stamp means the product cannot be sold in the duty-paid market in Canada. Markings ('NOT FOR SALE IN CANADA/VENTE INTERDITE AU CANADA' and 'DUTY NOT PAID CANADA DROIT NON ACQUITTÉ') indicate that the tobacco product cannot be sold in the domestic duty-paid market. These markings may be required on the package or case. Possession of unstamped tobacco is regulated in Canada and is restricted to persons licenced under the Excise Act, 2001 and who are permitted to possess that tobacco product.

In addition to these federal regulations, all provinces and territories have legislation and regulations around the marking and stamping of tobacco products for sale within their respective jurisdictions.

(c) Requiring that packaging information is in legible form and/or appears in its principal language or languages

The Stamping and Marking of Tobacco Products Regulations enacted under the authority of the Excise Act, 2001, require the stamping and marking information to be in both official languages, with minimum font size, font style and other requirements.

The cartons, cases and containers that contain tobacco products may also be required to have other information to identify the intended market as well as determining the quantity and weight of tobacco products. The regulations require that this information be provided in legible type.

(d) Enacting or strengthening legislation against illicit trade in tobacco products

In July 2005, the Canada Revenue Agency released a discussion paper entitled " Tobacco Stamping Regime - Review and Recommendations". This Discussion Paper (Appendix 4-I) proposes changes to enhance the tobacco-stamping regime by implementing new covert and overt identifiers to strengthen the integrity of the stamping regime. Implementation of the new stamping regime is planned for the fall of 2008.

The penalties and punishments under the Excise Act, 2001, provide appropriate remedies against illicit tobacco trade. A penalty of up to 200% of applicable duty is imposed for diversions of tobacco contrary to the Excise Act, 2001. Additional penalties and punishments apply, including forfeiture of proceeds and property derived from criminal activity and possible incarceration.

The Excise Act, 2001 also contains provisions making the possession and laundering of proceeds of crime resulting from the more serious tobacco-related offences an offence. Similar provisions also exist in the Criminal Code for the same types of offences. Penalties range from fines to incarceration, or both. Under both Acts, the property related to the commission of these offences is subject to forfeiture.

Section 109.1 of the Customs Act (Appendix 3-A) states that every person who fails to comply with any provision of the Act or a regulation is liable to a penalty. Section 110 of the same Act allows officers to seize as forfeiture any conveyance he believes was made use of in the contravention of this Act.

Section 160 of the Customs Act stipulates that a person who contravenes certain sections of the Act is guilty of 1) an offence punishable by summary conviction or 2) an indictable offence and is liable to a fine and/or imprisonment. A summary conviction encompasses the more minor offences in the Criminal Code of Canada and is considered a less serious offence with a maximum penalty sentence of 6 months of imprisonment, fine of $2,000 or both. An indictable offence is more serious, with penalties ranging from a fine of not more than $500,000.00 or imprisonment not exceeding 5 years or both.

In addition to the federal legislation, all provinces and territories in Canada have legislation in place to counter illicit tobacco.

(e) Enabling the confiscation of proceeds derived from the illicit trade

Section 267 of the Excise Act, 2001 allows anything to be forfeited if found to be used to contravene the Excise Act, 2001. Penalties and punishments apply for contraventions of the Excise Act, 2001, including additional penalties for proceeds of crime.

Section 110 of the Customs Act stipulates that a Canadian Border Services Agency officer may, with reasonable grounds, seize goods involved in a contravention of the Customs Act. Subsection 117(2) provides that raw leaf tobacco or tobacco products seized under this Act shall not be returned to the person from whom they were seized or any other person unless they were seized in error.

Section 462.37 (2) of the Criminal Code also allows for the forfeiture of proceeds of crime.

(f) Licencing or other actions to control or regulate production and distribution

The Excise Act, 2001 requires tobacco manufacturers and tobacco dealers to be licenced. The warehouses that possess non-duty-paid tobacco also require a licence. Licencees are required to file returns concerning their production and distribution activities. CRA undertakes regular audits and other regulatory activities to ensure compliance with the legislation.

In addition, all provinces and territories require that wholesalers have a permit or licence to sell tobacco within their respective jurisdictions. Most provinces and territories (with one exception) also require a retailer licence to sell tobacco.