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Illegal tobacco is prevalent across Canada, and especially in the Okanagan. Experts on the topic say it’s a bigger problem than just cheating the taxman.

Danny Fournier is the manager of illicit trade prevention at Rothmans Benson and Hedges, a cigarette company. Fournier has law enforcement experience and was invited to give a talk about illicit tobacco at the recent Crime Stoppers Association's annual meeting in Kelowna.

Fournier said the problem with illicit tobacco is bigger than lost tax revenue and economic impact.

“The commodity is somewhat irrelevant to organized crime. As soon as they can make money off of it, they'll just invade that space,” he said. “Contraband tobacco, first and foremost, is controlled by organized crime. That's the same thing whether you're in B.C. or anywhere else in the country. From a community perspective or a community safety perspective, every time organized crime gets involved in any business, they always bring violence to our communities.”

Fournier said aside from financial incentives for the government and companies like Rothmans Benson and Hedges, illicit tobacco is a serious problem and smokers ought to care about what their cash is funding.

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“Our company has an incentive, but I would say everyone has an incentive. Because if we can take back a portion of that illegal revenue generated in an underground network and transfer it to legitimate retail, then everyone benefits from that. Governments collect more taxes. They can reinvest in different public services. Communities can benefit from that from a community safety perspective,” he said.

A 2023 study from Ernst and Young, a financial research and advisory organization, investigated illicit tobacco in Newfoundland, Ontario and British Columbia.

The study listed examples of areas where organized crime is heavily invested in producing and selling contraband cigarettes. One of the examples cited in the study was an incident in the Okanagan where a Lumby man was stopped with 1.5 million illegal cigarettes in Vernon in January 2023.

“While anecdotal, this does show that multiple rings are actively facilitating and selling large volumes of illicit tobacco across the country,” the study said.

Between 2019 and 2022, the B.C. government lost between $215 million and $591 million in tax revenue because of illicit tobacco.

During that same time period, Ernst and Young estimated organized crime in B.C. made between $265 million and $727 million in gross revenue from illegal tobacco sales.

A pack of 20 cigarettes in B.C. costs about $16, more than almost anywhere else in Canada.

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Fournier said lowering tobacco prices through decreasing taxes could help reduce the prevalence of illicit tobacco, and reduce criminal organizations' profits, but the solution is more complicated.

“Referring to taxation, many smokers cannot afford a carton of cigarettes at $180, for example, in B.C. They will resort to the $35, $40, $50 carton, which comes from contraband. So yes, taxation plays a role. It is not the only factor or the determining factor, but it certainly has an influence in migrating people from legitimate to illegitimate sources,” he said. “What we need are concerted and coordinated efforts between all levels of government and private sector and communities to tackle it from different aspects.”

These days a lot of illicit tobacco is sold online, and Fournier said the government struggles to handle digital crime.

“Law enforcement simply does not have a sustained or permanent presence online. So imagine if law enforcement is not tackling gun trafficking online or drug trafficking. When we speak of relatively lesser infractions or less serious infractions like contraband tobacco, or untaxed products, there is no way they are present and there is no way they can tackle that volume either,” he said.

The best method, Fournier said, is to take down ads and platforms where illegal cigarettes are sold rather than going after the individual criminals.

“The approach is different. We're aiming at stopping the infraction, but not necessarily stopping the individual, because the volume is just way too high,” he said.

Fournier said the illicit tobacco is imported from the United States and manufactured into cigarettes and other products in Canada. He said a common misconception is that a lot of First Nations participate in illegal tobacco production and sale.

“To put things into perspective, it is not the majority of First Nations that are involved in the illegal manufacturing of tobacco products. Actually, when it comes to manufacturing, it's probably less than one per cent of all First Nations communities. We have roughly, in Canada, around 619 First Nations communities representing over 50 different nations. So when you break all that down, we only end up with five or six locations that do manufacture illegal tobacco products,” he said.

While there are several different ways to combat contraband tobacco, as long as people keep buying contraband cigarettes, organized crime will continue to sell them.

“So often people say I'm just scamming the taxman, but it is organized crime. And the way, as I said at the beginning, organized crime has always brought violence to our communities. They always will. They always have. That's not going to change. So keep in mind from a consumer's perspective, when you're purchasing contraband tobacco, you're funding organized crime.”

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