The 1990s Cigarette Smuggling Scandal

The Tax Increase That Backfired

In February 1991, the federal government doubled tobacco taxes as part of a “National Strategy to Reduce Tobacco Use” [citation:10]. The goal was to deter young people from starting to smoke by making cigarettes unaffordable. The policy had an unintended consequence — it created an enormous financial incentive for smuggling [citation:3][citation:8].

• The price gap between Canadian and American cigarettes became massive
• Organized crime saw a lucrative opportunity
• By 1992, an estimated 20% of cigarettes sold in Canada were smuggled [citation:4]
• By 1994, contraband share reached 60% in Quebec and 35% in Ontario [citation:4]

The Akwesasne Pipeline

The hub of the smuggling operation was the Akwesasne Mohawk Reservation, which straddles the Canada-U.S. border across the St. Lawrence River [citation:5].

• The reservation’s unique geography made it ideal for smuggling — boats could cross the river year-round
• In 1989-1990, the reservation was convulsed by violence involving tribal factions and police
• To cool tensions, police reduced their presence — creating an open territory for smugglers [citation:5]
• By the early 1990s, Akwesasne became the primary gateway for contraband tobacco entering Canada

The Corporate Conspiracy

In 1998, CBC Television’s The Fifth Estate revealed the connection between RJR-MacDonald (now JTI-Macdonald) and major American smugglers [citation:4]. The investigation uncovered a sophisticated scheme.

📦 How the Scheme Worked

• RJR-MacDonald supplied cigarettes to U.S. distributors, including LBL Importing (run by Larry Miller and the Tavano brothers)
• These distributors sold the cigarettes to traders on the Akwesasne reservation
• The cigarettes were smuggled back into Canada across the St. Lawrence River
• Smugglers avoided Canadian taxes of over $3 per pack [citation:5]
• The company even shifted production to Puerto Rico to circumvent a Canadian export tax [citation:5]

🧍‍♂️ The Insider: Stan Smith

Stan Smith was Vice-President of Sales for RJR-MacDonald when the smuggling exploded. Court documents showed he confessed to overseeing the scheme [citation:4].

• In return for co-operative testimony, Smith received a conditional sentence with 8 months house arrest
• The judge called him “the finest tobacco smuggling informant in the world” [citation:4]
• Smith claimed the conspiracy had been developed by more senior executives at the company
• RCMP officials said they wouldn’t have a case against the senior executives without Smith’s help [citation:4]

🧍‍♂️ The Other Insider: Les Thompson

Les Thompson, a regional field manager for RJR-MacDonald, supplied cigarettes to U.S. distributors, helping the company amass more than $600 million in revenue from contraband sales [citation:5].

• He pleaded guilty to money laundering and spent two years in a U.S. prison
• He revealed that company executives provided more than $1 million annually for high-end junkets for black marketeers
• Perks included bonefishing in the Bahamas, luxury golf clubs, and the World Series — always first class [citation:5]
• At the peak, RJR-MacDonald made a weekly profit of $1.2-1.3 million from the contraband trade [citation:5]

The Fifth Estate: Investigative Journalism

The Fifth Estate is CBC Television’s flagship investigative documentary series, premiering in 1975. The name is a play on the term “Fourth Estate” (the press), chosen to highlight the program’s determination to go beyond everyday news into original journalism [citation:1][citation:6].

• The program has won numerous Gemini Awards, including ten for Best Information Series
• It received the Michener Award (Canada’s top journalism prize) in 2000 and 2010
• The series has co-produced investigations with the BBC, The New York Times, The Globe and Mail, and PBS’s Frontline [citation:1][citation:6]
• In 1998, The Fifth Estate revealed Smith’s connection to major American smugglers [citation:4]

The Charges and the Fallout

In February 2003, the RCMP announced charges after a 4.5-year investigation [citation:9].

• 6 counts of fraud and 1 count of conspiracy against JTI-Macdonald Corp. and its subsidiaries
• 8 former senior executives were also charged
• Accused of defrauding the governments of Canada, Ontario, and Quebec of $1.2 billion in tax revenue between 1991 and 1996 [citation:9]

The company strongly denied the charges, calling them “politically motivated” and “an abuse of the Canadian criminal justice system.” JTI-Macdonald spokesman Guy Côté said the RCMP’s case appeared to be “based on false evidence offered by convicted felons” [citation:9].

The $1.15 Billion Settlement

On July 31, 2008, the federal and all provincial governments announced a landmark settlement with Imperial Tobacco Canada Ltd. and Rothmans, Benson & Hedges Inc. [citation:2][citation:7].

• Imperial Tobacco Canada: $400 million over 15 years
• Rothmans, Benson & Hedges: $450 million over 15 years
• Total civil settlements: $850 million
• Plus fines: Additional payments bringing total to approximately $1.15 billion [citation:2][citation:7]

JTI-Macdonald was not part of this 2008 settlement. However, the company had previously pleaded guilty in 2006, paying a $15 million fine for smuggling-related offenses [citation:5].

The Government’s Humiliating Reversal

In February 1994, the government announced its “National Plan to Deal with Smuggling” — which included reducing tobacco taxes [citation:3][citation:8].

• Health officials criticized the tax reduction, warning it would encourage youth smoking [citation:8]
• Dr. Richard Lessard, Director of Public Health for Montreal, argued that health considerations had been “put on the back burner” [citation:8]
• Opposition MPs noted that tobacco-related health problems cost $9.5 billion to Canada annually [citation:8]
• Public health advocates argued the only winners were tobacco companies [citation:8]

Legacy and Lessons for Today

The 1990s smuggling scandal offers important lessons for contemporary tobacco policy:

• Taxes without enforcement create black markets — the same dynamic that drives today’s contraband cigarette trade
• The Native market as a solution — Canada’s legal native cigarette market provides an affordable alternative, keeping smokers out of the black market
• Corporate accountability matters — the $1.15 billion settlement showed that tobacco companies could be held responsible
• Investigative journalism is essential — The Fifth Estate’s reporting helped expose a conspiracy that might otherwise have remained hidden