RCMP allege Imperial Tobacco defrauded Ottawa of $600 million in taxes

Court documents used to obtain a search warrant against Imperial Tobacco last month allege the company was involved in a cigarette smuggling network in the early 1990s.

In the recently unsealed documents, the RCMP also allege the company and its alleged co-conspirators defrauded the Canadian government of more than $600 million in taxes in the early 1990s.

But Imperial Tobacco has denied the allegations, saying it has no involvement in any illegal activities.

The 172-page document claims Imperial Tobacco conspired with other tobacco firms as well as distributors to sell billions of cigarettes to the U.S. so that they could later be smuggled back into Canada.

The document says the cigarettes made their way into the country through the Akwesasne Mohawk reserve that borders Ontario, Quebec and the U.S.

Companies conspired to smuggle, police allege

The RCMP affidavit includes excerpts from some internal correspondence between Imperial and other tobacco companies.

Police allege those documents show Imperial and those companies not only knew about smuggling but conspired to make cigarettes available to smugglers.

One of the documents contains a letter dated June 3, 1993, written by Imperial Tobacco's president and CEO Don Brown to the managing director of its parent company British American Tobacco. The letter reads:

"Although we agreed to support the federal government's effort to reduce smuggling by limiting our exports to the U.S.A., our competitors did not. Subsequently, we have decided to remove the limits on our exports to regain our share of Canadian smokers ... Until the smuggling issue is resolved, an increasing volume of our domestic sales in Canada will be exported, then smuggled back for sale here."

Christina Dona, a spokeswoman for Imperial Tobacco, acknowledges Imperial knew about contraband activity but she says it only dealt with authorized wholesalers. She said knowing about smuggling in no way implies the company collaborated with criminals.

Company tried to hamper smuggling

Dona said Imperial actually restricted its exports to help undermine smuggling.

"We wanted to restrict the quantity of our tobacco products that were available for export and we were hoping that this would assist authorities in their ongoing investigation," she said.

Late last month, the RCMP launched a surprise raid on Imperial Tobacco's Montreal headquarters. In the three-day raid, hundreds of thousands of documents were seized.

Imperial Tobacco says it has been co-operating fully with the investigation and continues to do so.

"We're saying there are no grounds for the current search and we are completely proud of the ethical way in which we behaved," Dona said.

The investigation was launched following a Fifth Estate report in 1998 that linked several major tobacco companies to a cigarette smuggling ring based out of Akwesasne, Que.

Last year, following a lengthy investigation, the RCMP charged Toronto-based JTI-MacDonald and some of its former executives with fraud, related to cigarette smuggling in the early 1990s.

The Quebec government is now suing the company for more than a billion dollars in back taxes. JTI-Macdonald has denied any involvement in smuggling.

The RCMP haven't laid any charges against Imperial Tobacco and say their investigation is continuing. Nor will they give any indication if, or when, any charges will be laid.