“The acts committed in furtherance of the conspiracy here represent the largest offense of its nature in Canadian history. The quantum of the fraud committed in the furtherance of the conspiracy exceeds one billion dollars.… The enormity of the offense is unparalleled. There is no precedent.”

The Honourable Justice E.F. Ormston Remarks on the sentencing of executive Stan Smith, January 4, 2006

Garfield Mahood, OC, Executive Director of the Non-Smokers’ Rights Association from 1976 to 2011, is the author of this report. The Association is a national health organization with offices in Ottawa, Toronto and Montreal. The NSRA was the inaugural recipient of the international Luther L. Terry Award established by the American Cancer Society. The award, in the “Outstanding Organization” category, was for global leadership in tobacco control.

Thanks to Distinguished Research Professor Allan C. Hutchinson, Osgoode Hall Law School; Neil Collishaw, Research Director, Physicians for a Smoke-Free ; Melodie Tilson, Director of Policy and Elsa Sykes of the Non- Smokers’ Rights Association; François Damphousse, Director of the NSRA’s office; Janice Forsythe, Cypress Con- sulting for their comments and assistance and Lise Viens and Charles Montpetit for their translation of this report. However, the contents of What Were They Smoking? are entirely the responsibility of the author. He can be reached at gmahood@ justiceontobaccofraud.ca.

Suggested citation: Mahood G., Non-Smokers’ Rights Association, What Were They Smoking? The Smuggling Settlements With Big Tobacco, Toronto, 2012 WHAT WERE THEY SMOKING? THE SMUGGLING SETTLEMENTS WITH BIG TOBACCO

In the early 1990s, Canada’s three largest tobacco companies and affiliated transnational corporations were engaged in tobacco smuggling. Canadian governments lost billions of dollars from the illegal cross-border traffic in untaxed tobacco. In 2008 and 2010, these governments reached tobacco-friendly out-of-court settlements with all of the companies involved.

“The first two settlements occurred in 2008, one with Imperial Tobacco Canada Limited and, the other, with Rothmans, Benson & Hedges Inc. and its parent, Rothmans Inc.” A third set of settle- ments, with JTI-Macdonald Corp. (formerly RJR-Macdonald), JTI-Macdonald employees, R.J. Reynolds Tobacco Company and affiliates, was signed in 2010.

These settlements were slow in coming. In 2003, after a decade of demands for criminal prosecutions from health and legal experts, it appeared that the process of holding these companies responsible for their misconduct had started. That year, criminal charges were laid against the JTI-Macdonald group of companies and several of their executives for fraud and for conspiracy to commit fraud and to possess the proceeds of crime. Then, a few months later, the federal government filed a $1.5 billion civil suit against the same companies, alleging “fraud, deceit, fraudulent misrepresentation, spoliation [destruction of documents]” and a “massive conspiracy.” 1

Industry documents show that the two largest Canadian companies at the centre of the 2008 settlement were engaged in activity similar to the alleged wrongful behaviour of the JTI- Macdonald group. But, inexplicably, no criminal charges were revealed to the public until the day that single guilty pleas under the Excise Act were filed in the courts for Rothmans, Benson & Hedges, Rothmans Inc. and Imperial Tobacco Canada Limited. The pleas were registered the same day that the civil settlements were announced. The settlements were reached even though no lawsuits were filed.

Whatever the criticisms of the 2008 settlements, the 2010 settlements with the JTI-Macdonald/ R.J. Reynolds group and with tobacco executives still facing criminal charges were even more disturbing. This report explains why critics believe these settlements were seriously flawed, why the financial recoveries were completely unacceptable, and why they harmed both public health and the Rule of Law. After all, when the admitted wrongdoing of all the companies involved is evaluated, the destructiveness of the fraud is even more stunning than what the Royal Canadian Mounted Police (RCMP) alleged was “the largest case of corporate fraud in Canadian history.” 2, 3

1 Justice Canada news release quoted by Valerie Lawton, “Tobacco giants face $1.5 billion smuggling suit,” Toronto Star, August 14, 2003. http://archive.tobacco.org/news/135058.html (Accessed December 13, 2012) 2 Fraud is an act of trickery or deceit, an intentional false representation or mispresentation, a concealment or non-disclosure for the purpose of inducing a person who is relying on disclosure to give up something valuable, for example a legal right, property, money or health. 3 Alexander Panetta, “Ottawa sues tobacco giants for $1.5 billion,” National Post, August 14, 2003.

1 Why is an understanding of the smuggling settlements so important? Because Canadian provinces and territories are now engaged in or planning litigation involving these same companies to recover health care costs that were allegedly caused by Big Tobacco conspiracy, fraud and negligence over at least four decades. And the claims now exceed $100 billion. This report will reveal why a repetition of the smuggling settlements must be avoided in this cost recovery litigation. And why tobacco manufacturers, finally, have to be put on trial.

I THE 2008 SETTLEMENTS WITH IMPERIAL TOBACCO, ROTHMANS, BENSON & HEDGES AND ROTHMANS, INC. The federal government tries to bury the story

When governments have to issue an embarrassing news release about a broken promise or reveal a decision that will attract severe criticism, they often wait until just before a long holiday weekend. 4 Or they delay the announcement until Christmas or New Year’s Eve. The expectation is that everyone will be so involved with vacations or festive activities that the bad news story will be missed or forgotten.

And so it was with the federal/provincial/RCMP settlements in 2008 with Canada’s two largest tobacco manufacturers, Imperial Tobacco Canada Limited (Imperial) and Rothmans, Benson & Hedges (RBH), along with its parent, Rothmans Inc., over their involvement with tobacco smuggling in the early 1990s. On the Thursday before the August Civic Holiday weekend (observed the first Monday of August in most provinces and territories) as Canadians readied their barbecues or packed for the cottage, then federal Revenue Minister Gordon O’Connor announced that the federal and provincial governments, along with the RCMP, had reached settlements with the two Canadian tobacco giants and Rothmans Inc. for $1.15 billion in fines and civil damages.

The announcement of the settlements by the federal government, which also negotiated on behalf of the provinces, was made on Thursday to facilitate related revelations the next day of a huge gift to another arm of the tobacco industry. That day, the Friday that started the holiday break, the Minister revealed the federal government’s $300 million bailout of ’s tobacco farmers, many of whom were located in the riding of the then Minister of Citizenship and Immigration, Diane Finley. The timing of the announcements strongly suggested that the smuggling settle- ments and the latest hand-out to the growers would not stand up to public scrutiny.

As this report will show, because of the magnitude of the government claims against them, Imperial and RBH faced financial ruin. And if criminal charges had been laid against individuals as well as the companies, it seems likely that some executives and directors would have faced jail time for the alleged wrongful behaviour. But for reasons that have never been explained, the

4 André Picard, “Harper’s disregard for aboriginal health,” The Globe and Mail, April 10, 2012. http://www.theglobeandmail.com/life/health/new-health/andre-picard/harpers-disregard-for-aboriginal-health/article2396146/ (Accessed December 13, 2012)

2 Government and law enforcement officials involved were reluctant to challenge the industry seriously. The RCMP failed to lay criminal charges against these companies or against their executives or directors before negotiations started (if evidence of individual responsibility suggested charges were warranted as with JTI-Macdonald Corp. executives). And the federal government, acting on behalf of the provinces, neglected to file lawsuits. By doing so, the government and the RCMP revealed that in order to close the file they were willing to be cavalier with justice and with money owed to all Canadians. Big Tobacco’s awareness that the government was not prepared to use the leverage that prosecution of criminal charges and potential bankruptcy would have created left significant negotiating power in the hands of the manufacturers.

Governments give birth to a mouse

By any reasonable standard, the governmental elephant dallied with Big Tobacco in secret negotiations and gave birth to a mouse. The 2008 agreement failed to punish the companies in a manner commensurate with the crime, secured a completely inadequate financial recovery and neglected to produce any positive health outcomes. Moreover, the 10-15 year payment schedule involved made it easier for the companies to pass the costs of the settlement on to smokers, instead of shareholders. And it granted immunity to those who were alleged to have directed the illegal activity. The 2008 settlement was panned by critics as a “sweetheart deal” 5 with “disastrous public health consequences.” 6

Unfortunately, the 2008 Big Tobacco settlement was not a “one-off.” The government and the RCMP repeated the process with another giveaway in 2010. This time it was with JTI-Macdon- ald Corp. (JTI-Macdonald), one of the most aggressive companies involved in supplying the smug- gling market, along with R.J. Reynolds Tobacco Company (Reynolds) and affiliated companies. Our sources informed us that champagne flowed that day in the offices of the cigarette makers.

Why take the time to critique these settlements? “What’s done is done; move on,” might be a view worth some weight in their wake. Except for one consideration. Early settlement talks with Big Tobacco could very well be underway for the third time. 7 This time any talks may be in response to the pan-Canadian litigation effort mentioned earlier involving lawsuits filed by Canadian provinces and planned by the territories to recover costs to their health care systems allegedly caused by, again, tobacco industry conspiracy and fraud. The predatory behaviour this time includes decades of lying about the risks of tobacco addiction, illness and death, as well as deception over ‘light’ and ‘mild’ cigarettes and second-hand smoke. And then there was the dishonesty about nicotine manipulation and the targeting of kids. The grave concern associated

5 William Marsden, “Smoking Foes Call For Probe: ‘Cozy Deal’. Doctors ask why execs not charged in smuggling,” The Gazette, September 12, 2008. http://www.canada.com/montrealgazette/news/story.html?id=9f6057bd-5746-40d6-baa2-518729e7a745 (Accessed June 21, 2012). 6 Dr. Atul Kapur, Physicians for a Smoke-Free Canada news release, as quoted in “Government makes a bad deal with tobacco companies”, September 10, 2008. http://www.smoke-free.ca/eng_home/2008-media/news_press_10_Sep_08.htm (Accessed February 3, 2012). 7 Julius Melnitzer, “Big Tobacco on Trial,” Lexpert Magazine, January 31, 2009. Julius Melnitzer interviewed lawyers on both sides who were involved in the 2008 tobacco smuggling settlements. Tobacco industry lawyers initiated the settlement talks early when, it is safe to surmise, it was clear that criminal charges and civil suits were a distinct possibility.

3 with such talks is this: if Canadians fail to understand the serious flaws in the smuggling settlements, history may repeat itself as the cost recovery lawsuits proceed. In the absence of any public input and an informed electorate, Canadians may be saddled with more industry-friendly settlements that exclude health benefits. And champagne corks may pop once again.

The alleged civil misconduct and criminal behaviour that led to the anaemic settlements

There is a consensus in the global health community based on many studies that a high taxation policy is one of the most powerful ways to reduce tobacco consumption. The World Bank says, “The most effective way to deter children from taking up smoking is to increase on tobacco.” 8 High prices encourage quitting, prevent kids from starting, discourage relapse among ex-smokers and reduce consumption among current users. 9

To the surprise of many, Canada had the highest per capita consumption of tobacco in the world in 1982, higher than France, Germany and Greece. But, thanks primarily to Canada’s high tobacco strategy, in the decade that followed, Canada had the largest decline in per capita tobacco consumption in the world. 10 The plummeting sales presented a real threat to Big Tobacco.

There is considerable evidence that by the early 1990s Canada’s three major manufacturers dealt in the illegal cross-border trade of untaxed cigarettes. The sale in Canada of cheap tobacco ensured that the high-price tobacco policy being used by the federal government and the provinces to reduce tobacco use and to increase revenues was being derailed. The alleged industry strategy was to flood the market with smuggled product and “force the roll-back of tobacco taxes.” 11

Evidence shows that the tobacco giants were exporting their untaxed products, ostensibly for foreign markets, to bonded, duty-free warehouses in the United States. The cigarettes were then smuggled back into Canada by criminal elements through the Akwesasne First Nation reserve that straddles the Canada-US border. By the end of 1993, smuggled tobacco had captured close to 30 percent of the domestic market. 12

8 Prabhat Jha and Frank J. Chaloupka, Curbing the epidemic: Governments and the economics of tobacco control. International Bank for Reconstruction and Development, World Bank, 1999. http://www.usaid.gov/policy/ads/200/tobacco.pdf (Accessed April 30, 2012) 9 Non-Smokers’ Rights Association, Contraband Tobacco, 2009. http://www.nsra-adnf.ca/cms/index.cfm?group_id=1661 (Accessed April 30, 2012) 10 “The Tobacco Trade: The Search for El Dorado,” The Economist, May 16, 1992. http://www.highbeam.com/doc/1G1-12246547.html (Accessed February 3, 2012) 11 “Statement of Claim,” The Attorney General of Canada on his own behalf and on behalf of all the creditors of JTI-Macdonald Corp. [including the provinces] v. R.J. Reynolds Tobacco Holdings, Inc., et al., Ontario Superior Court of Justice, Court File 03-CV-253858-CM1, August 13, 2003, p.18. http://www.nsra-adnf.ca/cms/file/files/pdf/030813_Ontario_Statement_of_Claim_Superior_Court_Justice.pdf (Accessed December 13, 2012) 12 Thomas Stephens, “Trends in the Prevalence of Smoking, 1991-1994,” Chronic Diseases in Canada, 1995; 16(1). http://tobaccodocuments.org/pm/2060486184-6196.html (Accessed December 13, 2012)

4 Calls for action by the police were made by the national health community and by, among others, the former director of police policy research for the federal solicitor-general. In 1993, criminologist Dr. Margaret Beare said, “federal authorities should consider charging the companies under provisions in the Criminal Code for abetting, conspiracy and possession of the proceeds of crime.” 13

Industry-fuelled smuggling caused multi-billion dollar tax losses to government treasuries. Worse, in 1994, in response to the industry’s dishonest anti-tax campaign, the smuggling led to severe and, from a public health perspective, tragic tobacco tax rollbacks that resulted in half-price cigarettes in much of Canada. Sadly, until the late 1990s, there was no visible sign of any serious, proportionate enforcement action directed at Big Tobacco, the source of the smuggled products.

Fortunately for Canadians, award-winning investigative journalists like CBC TV’s Victor Malarek and William Marsden of Montreal’s The Gazette 14 prodded the RCMP into action on the smuggling file. Malarek’s documentary onthe fifth estate even televised pictures of known tobacco smugglers celebrating with tobacco executives at a B.C. mountain lodge. 15 As well, United States prosecutors obtained a criminal conviction of Northern Brands International Inc., a subsidiary of the American tobacco giant Reynolds, for “willfully aiding and abetting … false and fraudulent practices” involving the smuggling of tobacco into Canada. 16 RJR-Macdonald, “the Canadian arm of R.J. Reynolds,” was supplying the Export ‘A’ brand of cigarettes that was so prominent in smuggling during the 1990s. 17 When one RJR-Macdonald executive involved was jailed in the United States, authorities in Canada could no longer ignore the criminality.

And so, on February 28, 2003, following what the RCMP claimed was four and a half years of work (which curiously places the start of the RCMP investigation a good half year after the hard-hitting TV documentary by the fifth estate), the national police force finally acted. The RCMP laid criminal charges against JTI-Macdonald, Reynolds and related companies, as well as eight of their current and former executives. Justice seemed to progress further when, about five months later, the $1.5 billion federal civil suit was filed against the same corporations.

13 Then Queen’s University criminologist Dr. Margaret Beare, cited in a full-page advertisement published by health interests asking Prime Minister Jean Chrétien, “Are 250,000 tobacco deaths and a federal tax giveaway of $1 billion your government’s idea of bringing integrity to Ottawa?,” The Globe and Mail, February 1, 1994. 14 William Marsden, “Tobacco Insider Talks: Major firms were deeply involved in cross-border smuggling, former executive says,” The Gazette, December 18, 1999. http://www.nsra-adnf.ca/cms/file/files/pdf/Tobacco-insider-talks_MontrealGazette_18Dec1999.pdf (Accessed February 3, 2012) 15 Julian Sher, producer director, Victor Malarek, investigative journalist, “The Smoke Ring,” the fifth estate, CBC TV, January 20, 1998. 16 “Information” in Criminal Action No. 98-CR that incorporates the plea of guilty, United States of America v. Northern Brands International, Inc., United States District Court for the Northern District of New York, December 22, 1998. 17 Myron Levin, “Cigarettes, Greed and Betrayal: An Insider’s Saga,” Los Angeles Times, November 10, 2002, p.A1.

5 Criminal charges and lawsuits directed at JTI-Macdonald put the spotlight on Imperial and RBH

By early 2002, with JTI-Macdonald and related companies about to face the justice system, the pressure on the RCMP to focus on Imperial and RBH mounted. The urgency increased with a 2004 Quebec government tax ruling related to smuggling that forced JTI-Macdonald to seek bankruptcy protection. 18

The investigations into Imperial and RBH took place over at least an eight-year period. The RCMP even raided their offices: RBH in 2002 and Imperial in 2004. But, incredibly, even though there was sufficient evidence to force the companies to agree to pay over $1 billion in the 2008 settlement package, until the very day of the settlement announcement, no charges had been laid. Certainly, no lawsuits had been filed against these companies. Physicians for a Smoke-Free Canada, the Non-Smokers’ Rights Association and other critics found this incomprehensible in the face of “clear evidence of serious crimes having been committed.” 19 In fact, William Marsden, an expert on organized crime and smuggling said, “the evidence was overwhelming.” 20

Unknown to the public, settlement talks accelerated in the spring of 2008. But the bargaining position of the federal government was weakened due to the absence of any criminal charges or lawsuits. Undoubtedly, executives of the companies concluded that there was a real reluctance on the part of the RCMP and of governments to take them to trial, something tobacco companies fear. The relationships in such a secretive environment were far too cozy for the comfort of the critics who were monitoring the smuggling issue. Given the dramatic agreements announced at the height of vacation time in 2008 and effectively buried as planned, scrutiny of the settlements is warranted.

The RCMP conducts its 2004 raid at Imperial Tobacco Canada Limited offices

18 William Marsden, “Tobacco giant hit with huge tax bills,” The Gazette, July 21, 2005, p.A10. 19 Physicians for a Smoke-Free Canada, Letter to Sheila Fraser, Auditor General of Canada, asking for an investigation into the 2008 smuggling settlement process, September 10, 2008. http://www.smoke-free.ca/pdf_1/FraserS.pdf (Accessed January 25, 2012) 20 William Marsden, “How To Get Away With Smuggling,” The Gazette, October 19, 2008, and “How To Get Away With Smuggling – Canada’s Billion Dollar Deal for Big Tobacco,” The Gazette, October 20, 2008. http://www.ataxingissue.com/documents/howtogetawaywithsmuggling10.19.pdf and http://www.publicintegrity.org/2008/10/20/6362/how-get-away-smuggling (Accessed April 30, 2012)

6 The grave health impact of the criminal and civil misbehaviour

Before the federal government and several provinces rolled back the tobacco taxes in 1994 in response to the widespread smuggling, they received stark warnings about the effects of cutting the price of tobacco. In a full-page ad in The Globe and Mail in 1994, 25 national and regional health organizations warned Prime Minister Jean Chrétien:

“You and your government are on the verge of producing a disaster, the largest setback in the history of [Canadian] public health.… The price of the tax rollback plan is 21 mind-numbing, the number of deaths chilling.”

Future tobacco deaths caused by youth starting to smoke or ex-smokers relapsing in a low price market, the health community warned, could be in the hundreds of thousands!

But the prediction of a public health disaster was not just coming from outside government. A confidential mortality impact assessment by Health Canada’s Laboratory Centre for Disease Control (LCDC) was later obtained by the Non-Smokers’ Rights Association under the Access to Information Act. The document predicted that the reduction of Canadian tobacco taxes would be devastating. The LCDC analysis estimated that the tax cuts which were being promoted by the manufacturers, and which were ultimately implemented in most of Canada, would lead to 40,000 additional tobacco-caused deaths in the future just from the increase in smoking among adolescents in the five years that would follow the availability of half-price cigarettes in Canada. 22

Increased disease and death in the future was just one societal injury caused by the smuggling and the tax rollbacks. There were others, like increased health care costs to treat smokers and, as discussed above, the loss to Canadian governments of billions of dollars in tobacco tax revenues. As the ad in The Globe and Mail made obvious, there was nothing like this in the annals of Canadian business or public health.

The components of the 2008 settlement that cry out for comment

As shown above, “the largest case of corporate fraud in Canadian history” 23 created huge losses in government revenues. However, let this critique be clear. The greatest damage to Canada from this illegal activity was not financial harm to government treasuries but massive harm to public health. With that underlined, let’s look at what critics found so offensive in the 2008

21 “Are 250,000 tobacco deaths and a federal tax giveaway of $1 billion your government’s idea of bringing integrity to Ottawa?”, op.cit. 22 P. Villeneuve, H. Morrison, Y. Mao, D.T. Wigle (Bureau of Chronic Disease Epidemiology, Laboratory Centre for Disease Control, Health Canada), “The Impact of the Cigarette Price Rollback on the Future Health of Canadian Adolescents,” draft, 1994. Completion of this paper may have been prevented when the draft was leaked and led to an Access to Information Act request. The LCDC findings created extensive national news coverage. 23 Panetta, op. cit. The only fraud that is now larger than the smuggling fraud of the 1990s relates to Big Tobacco’s decades-long denial of addiction and other tobacco risks discussed earlier, the alleged fraud over which provinces are now suing Big Tobacco in order to recover health care costs.

7 settlement between the federal and provincial governments, the RCMP and cigarette manufacturers Imperial, RBH and Rothmans Inc..

1. Governments settled for “chump change.” The settlement was “insane” according to Paul Finlayson, the tobacco executive who drew up the plans to ship Imperial’s products into the smuggling market. 24 Finlayson said of the settlement, “This is chump change. It’s just peanuts. It means nothing.” 25 Based on the $10 billion claimed against JTI- Macdonald (as discussed in Section II below), and the larger market share of Imperial and RBH, it could be argued that the affected governments have lost $20-40 billion in tobacco tax revenues and interest due to the smuggling by the latter two companies alone. 26 It should also be noted that, due to the reduced level of taxation established at the time of the rollbacks, the base upon which future tax increases would be added, these governments continued to lose billions in revenue post 1994.

Instead, they settled for $1.15 billion. This included $300 million in fines (RBH $100 mil- lion and Imperial $200 million) and $750 million in civil damages (RBH $200 million, parent Rothmans Inc. $200 million and Imperial $350 million). Added to the civil damages was an additional $100 million to combat contraband tobacco activities in Canada– $50 million each from Imperial and RBH. (Contraband tobacco includes both smuggled tobacco and trade in counterfeit products.) Despite what appears on the surface to be a significant settlement, $1.15 billion is a recovery of pennies on the dollar for the losses inflicted on Canadians.

The “chump change” assessment raises an important question. Why were the governments not prepared to increase the leverage in negotiations with Imperial and RBH by litigating and taking these companies to trial?

The companies received another break. Because the damages will be paid over 10-15 years, they will benefit by paying in discounted dollars.27 Payments are also being made as a percentage of sales, giving Canadian governments the perverse incentive to keep the cigarette makers operational by keeping cigarette sales strong. 28

But even the announcement of a $1.15 billion settlement overstates what the government claimed the federal and provincial treasuries would recover. The day after the settlement

24 William Marsden, “Smuggling fine was a bargain,” The Gazette, September 6, 2008. http://www.canada.com/montrealgazette/news/story.html?id=18862e3c-793d-4cec-9ba0-f1934cfc9ca7 (Accessed May 2, 2012) 25 Marsden, “How To Get Away With Smuggling,” op. cit. 26 As explained later in this report, the claims against JTI-Macdonald over smuggling in a similar fact situation were ultimately raised to $10 billion. Again, based on market share, the claims against Imperial, RBH and parent Rothmans Inc. could have been $20-40 billion. 27 The value of money in the future will be less than it would be today due to inflation, the loss of potential interest on the money and other factors. 28 Comprehensive Agreement between Rothmans, Benson & Hedges Inc., Rothmans Inc., the Crown and the provinces, July 31, 2008 and Comprehensive Agreement between Imperial Tobacco Canada Limited, the Crown and the provinces, July 31, 2008. http://www.cra-arc.gc.ca/gncy/tbcc/itcan-eng.pdf or http://www.cra-arc.gc.ca/gncy/tbcc/menu-eng.html for all agreements (Accessed December 13, 2012)

8 was announced, the Harper government handed $300 million back to that other arm of the tobacco industry in the form of a buyout of tobacco farmers, “to help [tobacco] producers exit the industry, transition to other crops, or find new opportunities outside agriculture.”29 Or so it claimed (see point 2. below). Federal government news releases linked the buyout to the smuggling settlement. This linkage reduced the true settlement total to $850 million. Was it just a coincidence that the $300 million so-called farmer buyout was identical to the amount of the fines levied on the companies involved?

2. The tobacco farmer buyout props up the growers. Did the latest farmer buyout — there have been several — create the promised decrease in tobacco production? In fact, tobacco production increased from 2008 levels. Many farmers who received the average $270,000 bailout are still growing tobacco, but growing it for relatives or associates who acquired licences in the new system. The bailed out farmers received the exit money but stayed in tobacco production,30 a giant boondoggle. “The story is the same throughout ’s tobacco belt, with almost 50 million pounds (22,680 metric tonnes) of the leaf projected to be grown this season [2010], more than double the size a year before the $286 million Tobacco Transition Program was offered [part of the total $300 million buyout]. The province has issued more than 260 growing licences, nearly 2 ½ times the number in 2009, the first post-buyout season, according to Agriculture Ministry figures. …

“The tobacco belt’s unexpected and politically awkward rebound — it has not seen a crop this big since 2006 — may ironically be a partial result of the federal government’s own rules. They allow farmers who took the payments to rent their land and equipment and hire out themselves to licence holders, who are often children or acquaintances, dubbed ‘fake farmers’ by some.” 31

In his 2011 assessment of the tobacco farming exit program, the Auditor General of Canada said the “design of the Tobacco Transition Program [TTP] was rushed, making its delivery challenging.” 32 “Rushed” of course was a magnificent understatement. The $300 million handout, including the $286 million TTP, appears to have been put together in about 30 days or less, just in time for the upcoming fall election.

29 Minister of Citizenship and Immigration Diane Finley, as quoted in the Agriculture and Agri-food Canada news release “Gov- ernment of Canada Delivers Real Action for Tobacco Farmers and Their Communities,” August 1, 2008. Note: Minister Finley’s seat in a tobacco riding may have been saved by the now discredited $300 million buyout in the election that followed soon after. http://www.agr.gc.ca/cb/index_e.php?s1=n&s2=2008&page=n80801 (Accessed February 3, 2012) 30 Hank Daniszewski, “Critics say tobacco growers exploiting loophole,” London Free Press, February 17, 2010. http://www.lfpress.com/news/london/2010/02/16/12895161.html (Accessed January 19, 2012) 31 Tom Blackwell, “Tobacco troubles: Crop shift up in smoke,” National Post, May 7, 2010. http://www.tobacco-news.net/tobacco-troubles-crop-shift-up-in-smoke/ (Accessed January, 19, 2012) 32 Thandi Fletcher, “Auditor general wants to roll up tobacco buyout loopholes,” Postmedia News, November 22, 2011. http://malcolmallen.ndp.ca/post/auditor-general-wants-to-roll-up-tobacco-buyout-loopholes-thandi-fletcher-postmedia-news (Accessed February 20, 2012)

9 Neil Collishaw, of Physicians for a Smoke-Free Canada, and the former head of the World Health Organization’s tobacco programme, called the TTP a “bait and switch.” According to Collishaw, on at least 11 occasions, the government told Parliament and the public that the purpose of the TTP was to help farmers get out of tobacco growing. It was implied that this was its sole purpose. But the agreement between the farmers and the government, which became public later, shows that there were other goals, specifically “removal of the quota system,” which the manufacturers wanted and “improved viability of remaining and future tobacco producers,” precisely the opposite of what Parliament and the public had been led to believe. 33

In covering the Auditor General’s report, Canadian Press called the TTP “a confusing fiasco”:

“[The] Tobacco Transition Program was not well-planned and the department got flim-flammed. More than half the people who received money weren’t active tobacco farmers at the time, although they were entitled to grow it under the quota system run by the provincial Tobacco Marketing Board. Some farmers ended up taking money to get out of the business, then shifted their land and equipment to relatives who kept on growing tobacco. Tobacco production doubled the next year.” 34

Was the government “flim-flammed” by the growers? Or did it design the TTP this way to save the seat of Minister of Citizenship and Immigration Diane Finley in the upcoming election? 35 That it was designed to benefit the tobacco growers may be deduced from a letter that Greg Meredith, an Assistant Deputy Minister with Agriculture and Agri-Food Canada, sent to the Ontario Flue-Cured Tobacco Growers’ Marketing Board. Meredith wrote: “The TTP participant could rent land and/or equipment to a family member; rent land and become an employee or a licensee; and/or loan or co-sign a loan for a licensee.” 36 Sounds more like Collishaw’s “bait and switch” than the government being flim-flammed.

33 Neil Collishaw, “Bait and switch on tobacco road: How Canadians were baited and switched on tobacco policy by their own Government, and how the big winner is the tobacco industry,” Address to the 7th National Conference on Tobacco or Health, Toronto, November 2, 2011. 34 Canadian Press, “A-G’s report slams waste in $284-million federal tobacco program,” Toronto Star (online edition), November 22, 2011. http://www.thestar.com/news/canada/politics/article/1090788--a-g-s-report-slams-waste-in-284-million-federal-tobacco-program (Accessed April 30, 2012) 35 Journalist Jim Coyle covered the release of the Auditor General’s report. He wrote “One Norfolk County resident said there was a scent of political motivation about the program. The local MP in Haldimand-Norfolk is, and was, Diane Finley. She is, among other things, married to Senator Doug Finley, who was, for a time, a sort of Karl Rove of the Harper government. ‘They probably did some polling that showed she could go down to defeat and they needed to come up with something to save her,’ the resident said. ‘I don’t think the Agriculture Department wanted to do it. If nothing else, it would set a precedent for getting out of other supply-management agreements. And if you applied this to chicken or beef or dairy, it would cost billions.’ Be that as it may, Diane Finley was re-elected in October 2008.” Toronto Star, November 26, 2011. http://www.thestar.com/news/canada/2011/11/26/after_quitting_tobacco_the_possibilities_are_endless.html (Accessed April 30) 36 Letter from Greg Meredith, Assistant Deputy Minister of Agriculture and Agri-Food Canada, addressed to Linda Vandendriessche, Chair of the Ontario Flue-Cured Tobacco Growers’ Marketing Board, May 7, 2009 as quoted in Physicians for a Smoke-Free Canada, The Canadian Tobacco Market: Tobacco is Still Being Grown in Ontario, September 2009, page 3. http://www.smoke-free.ca/pdf_1/Tobacco%20is%20still%20being%20grown%20in%20Ontario.pdf (Accessed May 1, 2012)

10 3. Criminal responsibility was negotiated away, damaging the justice goals of punishment and deterrence. The smuggling settlements gave tobacco executives and directors get-out- of-jail-free cards. They walked. Finlayson said the criminal investigation was a “sham.” 37 He told William Marsden of The Gazette, “We [at Imperial’s parent company Imasco Limited] didn’t think the government would have the balls to come after us.” 38

Marsden, the recipient of national newspaper awards, continued, “He [Finlayson] said his planning document basically proved that Imperial was intentionally sending cigarettes into the U.S. to be sold into the black market.” 39

How outrageous was the decision to grant immunity to Imperial executives? Marsden quotes Finlayson, “The RCMP knows all about this. They could have walked in and just handcuffed everybody at Imperial … [The government] did not have the guts of a field mouse to go after the executives of the company.” 40 Marsden reported that Finlayson “admitted that this group could have included him.” 41

Finlayson made another very significant accusation: “Governments didn’t want to disrupt the company by laying criminal charges or imposing heavier fines because such action would disrupt the huge revenue flow in taxes.”42

A documentary on CBC’s national TV news also pursued the settlement story. Host Carole MacNeil said that the settlement “prevented trials from happening that might have gotten to the bottom of just how involved the companies were in smuggling and what executives were responsible.” 43

The documentary said that Imperial Tobacco “executives dropped the price [of Imperial products] in the smuggling market in order to keep their brands dominant.” 44 The CBC reported that during the smuggling Imperial president Don Brown wrote to his United Kingdom parent company: “Until the smuggling issue is resolved, an increasing volume of our domestic sales in Canada will be exported then smuggled back for sale here.” 45

4. The settlement damaged confidence in the Rule of Law. In its May 2008 annual report, Rothmans Inc., which owned 60 percent of RBH, says, “the Company [Rothmans Inc.] and RBH believe that the RCMP and federal and provincial government authorities intend to lay

37 Marsden, “Smuggling fine was a bargain,” op. cit. 38 Marsden, “How To Get Away With Smuggling,” op. cit. 39 Marsden, “Smuggling fine was a bargain,” op. cit. 40 Ibid. 41 Ibid. 42 Ibid. 43 Bruce Livesey, producer, “Investigating Big Tobacco,” Sunday Night, CBC TV national news, February 1, 2009. 44 Ibid. 45 Don Brown, Imperial president and CEO, in a letter to parent company BAT senior executive Ulrich Herter on June 3, 1993, cited in “Investigating Big Tobacco,” op.cit.

11 charges or commence other legal proceedings involving the Company or RBH and certain of their employees, officers and directors relating to or arising from these [smuggling] allegations.” 46 This warning to shareholders was a dramatic departure from earlier emphatic declarations of innocence by RBH executives.

At the time of the 2008 settlements, there was an outstanding offer on the table from Philip Morris International to buy all of the shares of Rothmans Inc. that it did not already own. Lawyer Dean Blain, acting for RBH, said, “Closing an open RCMP investigation was high on our priority list, and not just because it was a precondition of the Philip Morris offer that this situation be resolved.” 47 Immunity was a priority and Big Tobacco got exactly what it wanted. The Philip Morris offer helped make the settlement even sweeter for Rothmans Inc., as discussed later in this report.

“Closing an open RCMP investigation was high on our priority list.” 48

Dean Blain, counsel for Rothmans, Benson & Hedges, wanted get-out- of-jail-free cards for tobacco executives and realized this objective.

Commenting in a news release on the problems that flow when out-of-court deals are crafted behind closed doors, Cynthia Callard of Physicians for a Smoke-Free Canada said:

“‘It’s more of a business deal than a sentence,’ she said, pointing out that government and tobacco industry officials assessed their circumstances and brokered a mutually agreeable conclusion in isolation. There was no public disclosure and there was no input from those affected other than government revenue departments. Nor are the conditions agreed to by the companies directly intended to reduce tobacco use. ‘Neither the health community, nor, as far as we can tell, government health ministries were allowed input into this decision.’” 49

What went on in the discussions between the federal government, which, it should be stressed, negotiated on behalf of the provinces, and the RCMP between May 16, 2008, when Rothmans Inc. said it expected criminal charges and July 31, 2008, when the settlement was

46 Rothmans Inc. news release, “Rothmans Inc. Announces Financial Results for Fiscal 2008,” Canada Newswire, May 16, 2008. http://www.newswire.ca/en/story/215593/rothmans-inc-announces-financial-results-for-fiscal-2008 (Accessed February 20, 2012) 47 Melnitzer, op. cit. 48 Ibid. 49 Physicians for a Smoke-Free Canada news release, “Tobacco smuggling agreement fails justice and fails health – Physicians plea for better approach than corporate plea bargain,” July 31, 2008. http://www.smoke-free.ca/eng_home/2008-media/July- 31-smuggling.htm (Accessed February 3, 2012)

12 announced and tobacco executives walked? What happened to the essential separation of the operations of the national police force from the political interests of the governing party, in this case the Revenue Minister, the Agriculture Minister, and the Minister of Citizenship and Immigration whose riding was smack in the middle of the tobacco belt? What message does the immunity deal send to executives in other industries who might be tempted toward criminal behaviour to line their pockets?

These are just a few of the questions that the government hoped to bury with its holiday weekend news releases. Unfortunately, the absence of any signs of real justice and the conspicuous signs of political expedience combine to undermine confidence in the Rule of Law.

5. There was no disclosure of documents. From a public health and public education perspective, one of the most important global tobacco control developments of the last half century was the disclosure of 40 million pages of confidential tobacco industry documents as a result of litigation in the United States. Whereas American jurisdictions seemed to understand the importance of disclosure as an extremely valuable public health measure and an important outcome of litigation, the federal government, as the lead negotiator, never made tobacco document disclosure a deal-breaking demand. 50

The RCMP conducted 275 interviews and analyzed more than 763,000 documents related to the smuggling.51 However, because charges were never laid and the settlement ended the possibility of a trial, the interview contents, the corporate documents and other intelligence known to the RCMP will never see the light of day. This was a major loss, for the health community in particular. The failure to expose the behaviour of these manufacturers was a lost public education opportunity and an extraordinary coup for Big Tobacco. It was able to hide its dirty secrets.

6. The settlement failed to address the harm inflicted on individuals. Thousands of Canadians, many of them adolescents, were lured into tobacco addiction by half-price cigarettes. Others relapsed into smoking or failed to consider quitting due to the lower price of smuggled cigarettes or to the price of tobacco after the tax rollbacks. This low price environment has already caused increased morbidity and mortality and will inevitably lead to thousands of preventable deaths. Yet, there was nothing in the settlement that acknowledged the harm to the thousands of individuals side-swiped by the smuggling and by the smuggling-induced tax rollbacks.

50 Outside counsel for the State of Minnesota and the Minnesota Attorney General understood the importance of the disclosure of tobacco industry documents. Roberta Walburn, the lawyer who led the Minnesota fight for the document disclosure that produced 35 million pages of secret industry documents, reported “we were forced to bring motion after motion to compel the production of the documents. There were more than a dozen appeals including two to the United States Supreme Court on discovery issues.” Cited in: Roberta B. Walburn, “The Role of the Once-Confidential Industry Documents (at the symposiumTobacco Regulation: The Convergence of Law, Medicine & Public Health), William Mitchell Law Review, Vol. 25, No. 2, 1999, pp.431-438. 51 Speaking notes accompanying the news release of Assistant Commissioner Mike Cabana, “RCMP closes book on historic tobacco investigations,” Royal Canadian Mounted Police, July 31, 2008. http://news.gc.ca/web/article- eng.do?crtr.sj1D=&mthd=advSrch&crtr.mnthndVl=&nid=412819&crtr.dpt1D=&crtr.tp1D=&crtr.lc1D=&crtr.yrStrtVl=2008&crtr.k w=&crtr.dyStrtVl=26&crtr.aud1D=&crtr.mnthStrtVl=2&crtr.yrndVl=&crtr.dyndVl= (Accessed May 8, 2012)

13 Another external cost related to the industry’s behaviour but not addressed by any remedy in the settlements is the millions of dollars spent by cancer, heart and lung organizations in the last two decades running smoking cessation and other programmes attempting to repair the damage caused by Big Tobacco’s role in the smuggling. Of course, individual Canadians also took a hit. Some of the charitable donations that could have been used to advance other important elements of the mission of these organizations had to be used to encourage an increasing number of smokers to exit the tobacco market.

Increased support for smoking cessation programmes would have been one obvious step toward remedying the damage to public health. Performance-based corrective actions to change the industry’s behaviour (see point 9. below) would have been an even better way for the governments involved to have forced the offending companies to repair some of the harm that they had caused. As if to underline the absence of any public health considerations in the deal struck with the manufacturers, at the same time that they poured $300 million of the settlement into the discredited farmer buyout, the federal and provincial governments were cutting funding to tobacco use prevention and cessation programmes.

7. The settlement was framed so as to ensure the future financial viability of the tobacco companies. Without blushing, Revenue Minister O’Connor said, “Together the civil and criminal payments effectively ensure that no monetary benefit was realized as a result of these [smuggling] activities.” 52 William Marsden had a different take: “The settlement of the case appeared to reinvigorate the tobacco companies. …” 53 Tobacco executive Finlayson’s assessment also clashed with the ministerial spin:

“So the Canadian governments were losers. Imperial Tobacco never lost a cent. … The $600 million settlement with Imperial represented a small fraction of the profits Imperial earned during that period and an even smaller fraction of the taxes and duties governments lost to smuggling. … They [the RCMP and the governments] had Impe- rial cold, on the ground screaming. [But] they reached down and gave it a hand and pulled them up and said, ‘Ah, give us 50 million bucks and we’ll forgive and forget.’” 54

Fifty million bucks was the amount in the settlement earmarked for Imperial’s contribution towards the contraband prevention strategy. According to the settlements, $100 million in total was set aside for the strategy. But, to date, the federal government has only allocated $20 million over 3 to 4 years.

52 Canadian Press, “Big tobacco to pay $1.15 billion over contraband tobacco,” August 1, 2008. http://www.numberswatchdog.com/numbers%20docs/Big%20tobacco%20to%20pay%20billions%20over%20contraband%20tobacco.pdf (Accessed February 20, 2012) 53 William Marsden, “Tobacco firms cough up,” The Gazette, August 1, 2008. http://www.canada.com/montrealgazette/news/story.html?id=d0300c7d-63e0-4833-9e11-ede335306e89 (Accessed February 3, 2012) 54 Marsden, “Smuggling fine was a bargain,” op. cit.

14 Here are just some of the financial benefits that the companies gained in the settlement or will reap in the future from the illegal activity that the Revenue Minister overlooked:

• They will profit from the lifetime of revenue from the thousands of smokers who became addicted as minors during the smuggling scam or those who had quit, relapsed and re-entered the tobacco market.

• They profited by not having to pay incentives to retailers for any smuggled cigarettes they sold or to those who sold smuggled products in the street and on school grounds.

• They will benefit by being able to take years to settle their civil liabilities. Imperial and RBH will pay a percentage of their annual net sales revenue over the next 10 to 15 years to pay their civil damages. Rothmans Inc. will pay $200 million over the next 10 years, at a rate of $20 million annually. As discussed earlier, all three companies will also benefit from paying over time in discounted dollars.

• Also mentioned above, and for emphasis, they will not have to pay governments for foregone revenue, income from tobacco taxation that the government would have received if taxes had not been rolled back. This would have added billions to any claims had a lawsuit been filed.

• The settlement did not include interest on the monies lost by the governments.

• Rothmans Inc. and RBH received an immediate major benefit. The Philip Morris International Inc. offer mentioned above led to remaining shares in Rothmans Inc. being sold for $2 billion. 55 As stated above, the sale was conditional, dependent upon the Canadian company, RBH, settling its criminal and civil problems. The U.S. tobacco giant completed the offer to purchase within hours of the settlement announcement.

8. Fraudulent conveyance was alleged. Ronald Slaght, a lawyer acting for the federal Attorney General, admitted that the government wanted to keep the tobacco companies operational, presumably at least in part to keep the settlement payments and tobacco tax revenues flowing. “For his part,” wrote legal commentator Julius Melnitzer, “Slaght agrees that the government had no desire to put the companies out of business. ‘In trying to get some feel for what was reasonable, we were very aware that we were dealing with domestic companies that had a limited ability to pay.’” 56

But, wait a minute. If Imperial and Rothmans only had a limited ability to pay, was this because these tobacco companies, facing lawsuits, had been fraudulently conveying assets out of the country, precisely what was alleged by the Attorney General of Canada in its claim against JTI-Macdonald and related companies? The excerpts below from the Attorney General’s “Statement of Claim” against JTI-Macdonald provide an example of how the game

55 Paul Waldie, “Philip Morris nabs Rothmans,” The Globe and Mail, August 1, 2008. http://www.tobacco.org/news/269448.html (Accessed May 2, 2012) 56 Melnitzer, op. cit.

15 is played. They also reveal why Canadian governments should have played hardball and sought to reverse the conveyance transactions or to recover their losses from the international parent companies. This is what provinces are now ostensibly preparing to do in their litigation to recover fraud-related health care costs.

From the federal Attorney General’s claim:

Fraudulent conveyance

160. A series of corporate reorganizations and inter-company transactions undertaken between 1999 and 2001 relating to the assets and business of RJR-Macdonald were conveyances intended to defeat, hinder, delay or defraud the creditors or others of RJR-Macdonald (including the plaintiff) of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures and were and are void against such persons and their assigns.

161. RJR-Macdonald and Japan Tobacco (together with its related entities named in this claim in paragraph 12) (collectively the “Fraudulent Conveyance Defendants”) orchestrated a complex series of corporate reorganizations, the particulars of which are within the knowledge of the Fraudulent Conveyance Defendants but not the plaintiff.

162. RJR-Macdonald was a federally incorporated company until 1999. Subsequently:

(a) it was continued as a corporation;

(b) it was amalgamated with a new entity incorporated following the JTI transaction described above and known as JT Nova Scotia Corporation;

(c) the shares of RJR-Macdonald were transferred to an entity called JT Canada LLC II Inc. (“LLC II”) which was a wholly owned subsidiary of another new entity, JT Canada LLC Inc. (“JT LLC”);

(d) JT LLC was wholly owned by JT International Holding B.V., a Netherlands corporation;

(e) the trademarks owned by RJR-Macdonald, which were assets of value, were transferred to another new entity known as JTI-Macdonald TM Corp., newly incorporated in 1999 (“TM Holdco”);

(f) JT LLC then loaned $1.2 billion to TM Holdco, taking as security the trademarks pledged in return. The trademarks were assigned a value of $1.2 billion;

(g) TM Holdco then loaned the funds to predecessor corporation of JTI-Macdonald Corp; and

(h) In 2000, JT LLC lent $410 million to JTI-Macdonald Corp. and received corporate debentures in return. The debentures were then transferred to TM Holdco in exchange for notes payable to JT LLC, in the aggregate amount of $410 million.

16 163. By correspondence dated January 30, 2002, RJR-Macdonald’s auditors, Deloitte & Touche, expressly admitted to the plaintiff that the 1999 asset transfers (including of the trademarks) from a predecessor entity to the defendant JTI-Macdonald Corp. was carried out ‘for creditor proofing purposes’. That admission is binding on the Fraudulent Conveyance Defendants.

164. In conjunction with the transactions described above, Japan Tobacco affected a further complicated series of inter-corporate loans and transactions among its affiliates, designed to defeat and hinder the enforcement of any judgment in this action.

165. The particulars of these transactions are within the knowledge of the Fraudulent Conveyance Defendants. Their effect was to create a circular arrangement pursuant to which each of the entities was encumbered by secured debt in favour of a related party. JT LLC was indebted to RJR-Macdonald. RJR-Macdonald was indebted to TM Holdco. TM Holdco was indebted to JT LLC. All loans were secured. This arrangement was a further attempt to insulate the assets of Japan Tobacco and was designed to effect a circular security arrangement.

166. The plaintiff is entitled to a declaration that this and other conveyances stripping RJR-Macdonald of its assets and/or submerging them under related party debt were intended to defeat and hinder the enforcement of a judgment in this action. All transactions should be unwound and any necessary tracing orders granted. 57 [Emphasis added]

Marsden on Imperial/Rothmans assets being conveyed offshore

“The evidence was overwhelming. Why, then, did the government settle for ‘chump change’? It was public knowledge by at least 1997 that Big Tobacco was involved in supplying smugglers. Yet federal revenue officials failed to take timely action to seize or freeze [the Imperial and Rothmans] assets before they were sold off or shifted offshore. Ottawa has never explained its tardiness. The result greatly played to the advantage of Imperial and its executives, who obtained large compensation packages when Imperial’s assets were sold.” 58 [Emphasis added]

William Marsden Award-winning investigative journalist at Montreal’s The Gazette

57 “Statement of Claim,” The Attorney General of Canada on his own behalf and on behalf of all the creditors of JTI-Macdonald Corp. [including the provinces] v. R.J. Reynolds Tobacco Holdings, Inc., et al., op. cit. 58 Marsden, “How To Get Away With Smuggling,” op. cit.

17 The Non-Smokers’ Rights Association has consulted with professors of law on the possibility of recovery of financial losses when fraudulent conveyance and foreign parents are involved. They agree that these companies may now be structured “to make it very difficult to pierce the corporate veil,” but they also advise that “the corporate veil can be pierced.” 59, 60 Given that this was, at the time, the largest fraud in the history of Canadian business and the most destructive in the history of public health, would this not have been the time to make a serious effort to pierce that veil?

9. Performance-based health outcomes or targets, such as requirements to reduce youth smoking, were not part of the settlement. Tobacco-related performance-based regulation “rests on the simple proposition that the tobacco companies themselves should be required to achieve sharply improved public health outcomes. … Hence, insisting that cigarette makers take responsibility for curtailing that death rate would be the most direct application of the performance-based regulatory approach.” 61 And precedents for performance-based approaches to public issues already exist in Canada. The federal government said on its website:

“The Government of Canada is committed to creating a performance-based regulatory system that will protect and advance the public interest in the areas of health, safety, the quality of environment, and the social and economic well-being of Canadians.” 62

The demand in settlement talks for a performance-based outcome could have rested on the industry’s professed disinterest in the child and adolescent market. For example, the governments could have made the price of avoiding a trial a reduction in youth smoking prevalence of 50 percent over a given number of years. Such a target could have created an environment where, with the threat of large court-supervised penalties, the financial

59 “When a corporation is a sham, engages in Fraud or other wrongful acts, or is used solely for the personal benefit of its directors, officers or shareholders, courts may disregard the separate corporate existence and impose personal liability on the directors, officers, or shareholders. In other words, courts may pierce the ‘veil’ that the law uses to divide the corporation (and its liabilities and assets) from the people behind the corporation.” The Free Dictionary by Farlex. http://legal-dictionary.thefreedictionary.com/Piercing+the+Corporate+Veil (Accessed February 20, 2012) 60 Supreme Court of Canada Justice Bertha Wilson opined, “As a general rule a corporation is a legal entity distinct from its shareholders. The law on when a Court may disregard this principle by lifting the corporate veil and regarding the company as a mere agent or puppet of its controlling shareholder or parent corporation follows no consistent principle. The best that can be said is that the separate entities principle is not enforced when it would yield a result too flagrantly opposed to justice (or) convenience. ... I have no doubt that theoretically the veil could be lifted in this case to do justice. ...” (Kosmopoulos v. Constitution Insurance Co., [1987] 1 SCR 2 per Bertha Wilson J.) http://csc.lexum.org/decisia-scc-csc/scc-csc/scc- csc/en/item/190/index.do?r=AAAAAQAbS29zbW9wb3Vsb3Mgdi4gQ29uc3RpdHV0aW9uAAAAAAAAAQ (Accessed December 13, 2012) 61 Stephen D. Sugarman, “Performance-Based Regulation: Enterprise Responsibility for Reducing Death, Injury, and Disease Caused by Consumer Products,” Journal of Health Politics, Policy and Law, Vol. 34, No. 6, December 2009. http://www.law.berkeley.edu/sugarman/JHPPL346_07_Sugarman.pdf (Accessed February 20, 2012) 62 Treasury Board of Canada Secretariat. Regulatory Affairs: Welcome to the Government of Canada Regulation Web Site [Online], 2002 as quoted in Physicians for a Smoke-Free Canada, Future Options for Tobacco Control: Performance-Based Regulation of Tobacco, June 2010. http://www.smoke-free.ca/pdf_1/2010/Performance-based%20regulation%20of%20tobacco.pdf (Accessed February 20, 2012)

18 incentive to achieve the target of reduced teen smoking could have been greater than the revenues that would accrue in the future from bringing youth into the tobacco market. 63

Had the governments filed and proceeded with lawsuits against Imperial and RBH, it is likely that these companies would have faced bankruptcy and sought bankruptcy protection. Under such circumstances, we suspect that the companies could have been persuaded to accept performance-based targets in any settlement in order to avoid a trial and outcomes that would threaten their trademarks or even their very existence. An attempt to seize fraudulently conveyed trademarks by “piercing the corporate veils” would have been an exercise in the public interest. Given what was at stake for public health, the absence of performance-based commitments from the settlement was a serious missed opportunity for corrective action.

10. The smuggling settlement created an ugly precedent for health care cost recovery litigation. Since police forces have the responsibility to lay charges when they have evidence of criminal activity, it is not common practice for them to meet with plaintiffs considering a civil suit and to decide how the alleged criminal conduct and civil litigation will be rolled into one response from the justice system. The criminal justice process is usually allowed to run its course before a civil complaint is litigated. Not so in this case.

By the RCMP failing to lay charges and, instead, pursuing plea bargains linked to overall settlements, by governments backing away from lawsuits and trials, unlike what took place with the historic Minnesota litigation, 64 no evidence was revealed to the public and no disclosure of documents mandated. Because there was no transparency, the public and the press were denied the opportunity to fully assess the magnitude of the illegal behaviour and the relative justice that was dispensed. This experience underscores the need to avoid similar “sweetheart” outcomes related to the provincial litigation now underway over health care cost recovery.

11. Fraud and conspiracy were kept out of the language of the settlement agreements and government media releases, a public relations coup for Big Tobacco. In February of 2003, the RCMP “laid six counts of Fraud and one count of Conspiracy to Commit Fraud and to Possess the Proceeds of Crime” against the JTI-Macdonald group of companies and a number of their senior executives. 65 Later that year, in the Statement of Claim in the Attorney General of Canada’s civil action against the same group of companies, accusations of “conspiracy” and “fraud” were repeated throughout.

63 Allan M. Brandt, The Cigarette Century: The Rise, Fall, and Deadly Persistence of the Product that Defined America, New York: Basic Books, 2007, pp.427-8. Note: A performance-based disease prevention standard in the form of “look-back provisions for the reduction of teen smoking” was part of the McCain bill introduced in the U.S. Senate in 1998. The bill was approved by the Senate Commerce Committee before it was derailed by industry lobbying. Many in the health community also opposed the bill, not because of the look-back provisions, but because it would have banned class-action tobacco lawsuits and capped punitive damages. However, the McCain bill demonstrated that performance-based targets are legitimate tobacco control objectives. 64 Ibid., p.417, 419, 423. 65 Royal Canadian Mounted Police news release, “RMCP lays criminal charges against Canadian tobacco company,” February 28, 2003. http://www.smoke-free.ca/litigation/us-cda- litigation/canada%20litigation/criminal/rcmp%20lays%20criminal%20charges%20against%20canadian%20tobacco%20company.mht (Accessed May 4, 2012)

19 Imperial, RBH and Rothmans Inc. were allegedly engaged in the same misbehaviour. But when they reached their settlements in 2008, these companies only admitted guilt to a seemingly trivial, technical breach of the Excise Act — “aiding persons to sell or be in possession of tobacco products manufactured in Canada that were not packaged and were not stamped in conformity with the Excise Act …” 66 From a public relations perspective, the language of the settlement was a coup for the companies. No admission of guilt for “abetting, conspiracy and possession of the proceeds of crime.” 67 In fact, not a peep about fraud or conspiracy, the alleged misbehaviour at the root of the criminal charges against the JTI-Macdonald group. Big Tobacco is now able to spin its message to the public, the international media and legislators in other countries that it was not convicted of fraud or conspiracy in Canada, only a minor technical breach of the Excise Act.

The purported victory for the Rule of Law

The communications line at the time was that these settlements represented a victory for the Rule of Law, proving that no companies are above the law. However, as discussed above yet not mentioned in the RCMP or government news releases, we have that extraordinary concession: the tobacco executives and directors behind the precedent-setting fraud were given those get-out- of-jail-free cards.

But the Victory-for-the-Rule-of-Law spin had to be given a boost. To help ensure that the story was spun to the media exactly as planned, the RCMP invited key tobacco control experts to its national headquarters in Ottawa, asked for their cell phones and then briefed them on the settlement in a closed door session far from the courtrooms where the corporate guilty pleas and settlements with the companies were being registered. And far from the Quebec City news conference where the settlements were announced. No reporters and TV cameras at RCMP headquarters to record timely, critical comments about the sweetheart deal.

The contents of the settlements actually show the opposite of the story line in the communications spin. These settlements reveal that crime may very well pay if a corporation’s legal strategy is aggressive and its lawyers are able to negotiate with governments in the absence of other stakeholders. These settlements were a victory for the cigarette manufacturers, not for the Rule of Law as the media releases boasted.

66 Royal Canadian Mounted Police news release, “RCMP closes book on historic tobacco investigations,” op.cit. 67 “Are 250,000 tobacco deaths and a federal tax giveaway of $1 billion your government’s idea of bringing integrity to Ottawa?”, op.cit.

20 Irresponsible on all counts

Legal writer Julius Melnitzer asks “just how did the [federal] government determine that $1.15 billion was appropriate? After all, Quebec alone obtained a court ruling to seize almost that much from JTI Macdonald whose 14 percent market share was about one-sixth of the combined share of Imperial, at 52 per cent, and RBH, at 33 per cent.” 68 In other words, settlements at least proportionate to the amount claimed by the Quebec revenue department would have warranted a tax recovery for Canadian governments of about $7 billion.

In an attempt to justify recovering only pennies on the dollar from potential claims, government lawyers told Melnitzer that they focused on what might have been the “financial gain to the companies,” 69 not the amount of the claims, i.e., not the tax revenues out of which the governments were defrauded. Giving up billions in legitimate claims and, more concerning, failing to secure any non-monetary health remedies or concessions from the tobacco manufacturers was irresponsible.

By pressing for criminal charges, by filing lawsuits and by taking the companies to trial, Cana- dian governments could have extracted a more appropriate financial settlement and significant public health concessions.

The bottom line is this. By ignoring remedies to correct harm to public health from the smuggling, by failing to seriously punish the companies financially, by making it easier for the companies to pass the cost of the settlement on to the addicted victims, by putting concerned shareholders at ease and granting immunity to the executives and directors responsible, these settlements undermined confidence in the civil law and criminal justice systems. They also forced taxpayers to absorb the tax revenue losses, allowed the companies to escape responsibility for expanding their teen customer base and ultimately strengthened, rather than penalized, the very people that governments knew were responsible for the tobacco epidemic.

68 Melnitzer, op.cit. 69 Ibid.

21 II THE JTI-MACDONALD / REYNOLDS SETTLEMENT IN 2010

In 2003, when Ottawa filed its claim for the recovery of lost tax revenues against JTI-Macdonald, Reynolds of Winston-Salem, N.C. (RJR-Macdonald’s parent at the time of the smuggling), Northern Brands (the defunct Reynolds subsidiary set up to facilitate smuggling) and related companies, the government alleged that it had been defrauded out of $1.5 billion. However, as mentioned earlier, at the time this suit was filed, JTI-Macdonald was facing even more serious legal chal- lenges. Criminal charges related to this activity had already been filed against the company, as well as against past and current executives.

Then, in 2005, with JTI-Macdonald in bankruptcy protection since 2004 following a tax ruling by the Quebec revenue department, the court issued a Crown Claims Bar Order that imposed a deadline on all governments that had claims similar to the federal government over smuggling-related tax losses to register them with the court. In response, the federal government increased its claim from $1.5 billion to $4.3 billion. The provinces then added claims that brought the total being sought to $9.6 billion, close to $10 billion with interest and assorted penalties added. 70

“Punitive Damages

The defendants [the JTI-Macdonald group of companies] should pay punitive damages to the plaintiff [Attorney General of Canada and all other creditors]. The defendants are law-breakers. They deliberately and with impunity conspired to break Canada’s law and they acted unlawfully for illicit gain. The RJR Group made fantastic profits from its actions. They conspired to conceal their conduct. They set about to defeat government policy designed to discourage the spread of smoking, which they knew to be harmful, including to Canada’s youth. They succeeded in their efforts, and deprived Canada of more than a billion dollars in taxes and duties.” 71

Allegations from the initial Statement of Claim in Attorney General of Canada [including the provinces] v. R.J. Reynolds Tobacco Holdings, Inc. et al., Ontario Supreme Court of Justice. The amount being claimed by the federal government was later increased to $4.3 billion. Because all of the governments litagating settled out-of-court, these allegations were never proven.

70 Gloria Galloway, “10-billion ‘wake-up’ for tobacco companies,” The Globe and Mail, July 20, 2005. http://looped-ca.blogdrive.com/archive/270.html (Accessed February 20, 2012) 71 “Statement of Claim,” The Attorney General of Canada on his own behalf and on behalf of all the creditors of JTI-Macdonald Corp. [including the provinces] v. R.J. Reynolds Tobacco Holdings, Inc., et al., op. cit.

22 After the Imperial/Rothman’s settlements were announced in 2008, critics feared another cave-in with regard to the ongoing lawsuit against JTI-Macdonald, Reynolds and Northern Brands. And of course, they worried about what would become of the outstanding criminal charges against the same companies and their executives. The critics feared the worst and their fears were realized. Virtually all of the criticisms directed at the 2008 agreement involving Imperial, RBH and Rothmans Inc. apply to the April 2010 settlement. When this third smuggling settlement was reached, Reynolds agreed to pay $325 million, JTI-Macdonald ponied up a paltry $150 million and its defunct subsidiary Northern Brands, $75 million, for a total of $550 million, not even close to the $10 billion claimed.

After thousands of hours of RCMP investigation, after millions of dollars had been spent on the investigation and on a preliminary inquiry into the criminal charges, after two JTI-Macdonald executives pled guilty and were providing vital evidence to the prosecutor, after the preliminary inquiry committed JTI-Macdonald and another senior executive to trial and the Ontario Court of Appeal told the lower court to reconsider sending others to trial, after this huge investment of time and resources, the RCMP stayed the criminal charges. The tobacco executives were all given get-out-of-jail free cards. In the settlement, Reynolds admitted no wrongdoing and JTI-Macdonald pleaded guilty to what was then conveyed to the public as a relatively minor Excise Act offence. And, despite numerous mentions in the government’s statement of claim, once again the offences “conspiracy” and “fraud” were never mentioned in the settlement or in media releases. In the language of the street, where individual responsibility was concerned, everybody walked. And, we strongly suspect, champagne flowed once again.

Despite the fact that the JTI-Macdonald settlement stayed the criminal charges and prevented the civil litigation from going to trial, we have at least one court judgement on the repugnant behaviour at the root of the settlement. Here is an excerpt from what Justice E.F. Ormston had to say when he sentenced JTI-Macdonald executive Stan Smith for his role in the smuggling:

“The acts committed in furtherance of the conspiracy here represent the largest offense of its nature in Canadian history. The quantum of the fraud committed in the furtherance of the conspiracy exceeds one billion dollars. … The enormity of the offense is unparalleled. There is no precedent.”

The Honourable Justice E.F. Ormston, January 4, 2006. Stan Smith pled guilty before the 2010 settlement with JTI-Macdonald and eight of its other executives was reached.

23 III ISSUES TO BE ADDRESSED RELATED TO PROVINCIAL / TERRITORIAL LAWSUITS TO RECOVER TOBACCO-RELATED HEALTH CARE COSTS

The role of litigation in comprehensive tobacco control

Rob Cunningham, lawyer and senior policy analyst for the Canadian Cancer Society, understands the importance of Canadian health care cost recovery litigation. “For reasons of justice, compensation, industry accountability and industry reform, the sooner the provinces take action the better. Lawsuits take time,” warned Cunningham, “but the potential benefits are enormous.”72

As we press for a pan-Canadian health care cost recovery strategy, we stress that litigation should be seen as one component of or a complement to:

“... a broader, comprehensive approach to tobacco control policy making, rather than as an alternative to the traditional political apparatus of formulating and implementing public health policy.” 73

Therefore, if the provinces and territories share resources, stay united and litigate aggressively, the provincial lawsuits underway could be an important part of efforts to reduce tobacco-related death and disease. At a minimum, when considering provincial contributions to the cost recovery process, there should be recognition of the lead- ership and investment in this process by the province of British Columbia.

The tobacco industry is being extremely aggressive in response to this litigation and is using the most experienced private sector defence counsel. In contrast, legal scholars advise us that in-house counsel available to some if not all provincial and territorial attorneys general are often not “leading litigators.” Moreover, the volume of work will be enormous. Without question, the Canadian industry will Canadian Lawyer Inhouse magazine continue with the decades-long scorched earth litigation (December 2011) features Imperial Tobacco’s “cross-border legal team.” policy of its international parents, a strategy that is designed It will implement the Canadian version of Big Tobacco’s “scorched earth litigation policy.”

72 Rob Cunningham, “Tobacco Industry Must Be Held to Account,” Briefly Speaking, Ontario Bar Association, December 2005, p.12. http://www.oba.org/en/pdf_newsletter/brieflyDec05.pdf (Accessed September 15, 2012) 73 Peter D. Jacobson and Kenneth E. Warner, “Litigation and Public Health Policy Making: The Case of Tobacco Control,” Journal of Health Politics, Policy and Law, 1999; 24(4): 769-804.

24 to wear down the in-house counsel available and the long-term political commitment of most governments.74

Melnitzer quotes Imperial lawyer Tamara Gitto saying, “We had a team of 30 lawyers on 12 hour shifts day and night for three days” on one occasion. 75 Are provincial and territorial attorneys general prepared to counter such legal muscle when a challenge appears?

The issue is not one of legal competence or dedication. It is resource availability and experience in highly specialized areas of litigation. If strong and seasoned outside counsel is needed to augment in-house counsel in order to achieve justice related to cost recovery and public health, then such counsel must be retained.

Unless the provinces and territories play hardball, pursue discovery aggressively and go to trial, Big Tobacco will not agree to serious remedies that have any potential to begin to address the harm caused by their decades of deceit. 76 For emphasis, because tobacco manufacturers will not agree in a pre-trial scenario to measures that will change their behaviour, governments must take the predators to court.

(Note: It is of some interest that Imperial is currently suing its insurers over the maintenance of coverage related to potential judgements or settlements, legal fees involved in product liability suits, and any damages arising from class action suits. Some health care cost recovery awards could conceivably come from insurance claims filed by tobacco manufacturers.)

The “senior partners” dodge

The provinces must also be aggressive in their opposition to the industry’s argument that governments have been “senior partners” with the tobacco industry via tobacco taxation. This is an industry tactic that goes back at least two decades. In 1987, Imperial’s President Jean-Louis Mercier and its marketing head Wilmat Tennyson talked about shifting blame to governments in a confidential planning document to the company’s most senior executives: “The industry, by its inaction and apparent apathy, has been shouldering the entire burden of guilt. There would have been merit in shifting more of the onus to government. … In the near term, industry must in simple convincing fashion shift the burden to government… .” 77

74 Michael Pinze quoted by Jon Wiener, “Big Tobacco and the Historians,” The Nation, February 25, 2010. http://www.thenation.com/article/big-tobacco-and-historians (Accessed January 19, 2012) 75 Melnitzer, op. cit. 76 Walburn, op. cit. 77 Document discovered in a Quebec class action lawsuit against Big Tobacco. Imperial Tobacco Ltd., J.L Mercier. and W. Ten- nyson, Some Thoughts on: Smoking and Health, Social Acceptance, Social Cost, Environmental Tobacco Smoke, Trial Exhibit 187, March 19, 1987. http://legacy.library.ucsf.edu/tid/obg40a99;jsessionid=D9342403540CCBB043679AD30D77ACDB.tobacco03 (Accessed December 13, 2012)

25 This may be an effective PR strategy. But it is not governments that lied about addiction, risks, second-hand smoke, nicotine manipulation and targeting kids. Nor does the collection of tobacco taxes prove government partnership in conspiracy, negligence and fraud.

In the United States, several state attorneys general spoke out forcefully in support of an aggressive litigation plan in response to Big Tobacco’s unconscionable behaviour. To date, no provincial attorney general (or health minister in B.C.’s case) has emerged as a persuasive national spokesperson committed to building support for this critical litigation. In contrast, in the United States, state attorneys general and prominent health officials raised public awareness of the corporate misbehaviour at the heart of the litigation. For example, explaining the need to adequately fund the legal services required to go after this industry would help maintain public support. Leadership and an effective, coordinated communications strategy by the provinces and territories are essential.

Understanding the challenge of taking on Big Tobacco

To obtain an understanding of the enormity of the challenge of taking on the tobacco industry in cost recovery litigation and the importance of ‘champions’ in a legal undertaking of the scale involved in such litigation, see William Mitchell Law Review, Vol. 25, No. 2, 1999. (This is out of print and is not online, but copies are available from the Non-Smokers’ Rights Association.)

To better understand both the role of leadership inside government and the difficulties the civil service faces in taking on Big Tobacco, see Sharon Y. Eubanks and Stanton A. Glantz, Bad Acts: The Racketeering Case Against The Tobacco Industry, Washington, D.C.: American Public Health Association, 2012. Eubanks was the lead attorney for the U.S. Department of Justice in its landmark suit against Big Tobacco under the Racketeer Influenced and Corrupt Organizations Act.

To appreciate the magnitude of the conspiracy and the detailed planning behind the fraud, and to understand the shock and dismay of critics of the smuggling settlements, especially when almost all of the tobacco executives dodged jail time, read the 2003 Attorney General of Canada’s “Statement of Claim” against the JTI-Macdonald group of companies. 78 Although the allegations in this claim were never proven in court, they make for interesting reading. To more fully understand the fraud and conspiracy that is alleged to be behind the health care cost recovery litigation, see: Allan M. Brandt, The Cigarette Century: The Rise, Fall, and Deadly Persistence of the Product that Defined America, New York: Basic Books, 2007.

Robert N. Proctor, A History of the Knowledge – and Ignorance – of Harms from Cigarettes in Canada, 1950-2000, Expert Report submitted by plaintiffs for Letourneau v. Imperial Tobacco Canada Ltd., et al. and Conseil québécois sur le tabac et la santé c. JTI-Macdonald Corp. et al., Quebec Superior Court, Montreal, August 2011. http://www.nsra-adnf.ca/cms/file/files/pdf/110819_robert_proctor_expert_report.pdf

78 “Statement of Claim,” The Attorney General of Canada on his own behalf and on behalf of all the creditors of JTI-Macdonald Corp. [including the provinces] v. R.J. Reynolds Tobacco Holdings, Inc., et al., op. cit.

26 APPENDIXAPPENDIX

HealthWorth Remembering organizations condemn the tobacco tax cuts WorthIn the early1990s, Remembering the tobacco industry waged a relentless campaign to force the federal Importantgovernment as well as the provincescontext to dramatically for reduce the tobacco settlement taxation. High taxes and critique high price cigarettes were driving down consumption, especially among youth. And Big Tobacco Inwas the hurting. early1990s, The manufacturers the tobacco funded fronts industry to press itswaged roll-back-the-taxes a relentless campaign campaign and to force the federal planted tobacco-funded comment articles in newspapers. It even paid a retired assistant governmentcommissioner of theas RCMPwell asto hold the news provinces conferences to across dramatically Canada arguing reduce that the tobaonly cco taxation. High taxes and highsolution price to the cigarettessmuggling problem were was driving to lower thedown taxes. consumption, especially among youth. And Big Tobacco was hurting. The manufacturers funded fronts to press its roll-back-the-taxes campaign and Five days before the federal government caved in to the industry pressure, the health community plantedpublished whattobacco-funded arguably could be commentcalled the hardest-hitting articles inpiece newspapers. of tobacco-related It advocacyeven paid in a retired assistant commissionerCanadian history. Here, of thefor historical RCMP context to hold related news to the conferencessmuggling settlements, across are excerptsCanada arguing that the only from that full page ad in The Globe and Mail in 1994. solution to the smuggling problem was to lower the taxes.

Five days before the federal government caved in to the industry pressure, the health community publishedPrime what Minister, arguably could be called the hardest-hitting piece of tobacco-related advocacy in CanadianYou andhistory. your government Here, arefor on historical the verge of producingcontext arelated disaster, the to largest the smuggling settlements, are excerpts from thatsetback full in thepage history ad of in Canadian The Globe public health. and Mail in 1994. If Cabinet approves a plan to roll back tobacco taxes, you could destroy all of the gains in reducing tobacco use made by the health community in the last decade.

We appeal to you, Prime Minister. Turn away from the debacle ahead. “Prime Minister, Canada has precedent-setting declines in tobacco consumption. Much larger than in the U.S. where governments have protected the tobacco industry with taxes far Youbelow andworld your levels. governmentThe result of our tobaccoare on taxation the verge policy willof producingbe a disaster, the largest thousandssetback of prevented in the historytobacco deaths of Canadian in the future. public health.

The major factor in Canada’s world leadership has been our tobacco tax policy. HighIf pricesCabinet have kept approves thousands a of plan price-sensitive to roll teensback out tobacco of the tobacco taxes, you could destroy all of market.the gainsBut, just in as reducinghigh prices keep tobacco kids from use becoming made addicted, by the low health prices community in the last lure them into the market. Also by the thousands. decade.

We appeal to you, Prime Minister. Turn away from the debacle ahead.

Canada has precedent-setting27 declines in tobacco consumption. Much larger than in the U.S. where governments have protected the tobacco industry with taxes far below world levels. The result of our tobacco taxation policy will be thousands of prevented tobacco deaths in the future.

The major factor in Canada’s world leadership has been our tobacco tax policy. High prices have kept thousands of price-sensitive teens out of the tobacco market. But, just as high prices keep kids from becoming addicted, low prices lure them into the market. Also by the thousands.

27 A chillingly irresponsible proposal

The price of the [government’s] tax rollback plan is mind-numbing, the number of inevitable deaths chilling: • An increase of two hundred and fifty thousand tobacco-caused deaths in the future. This estimate is conservative. This is 6 times the Canadian casualties in World War II. We say 250,000. How many deaths does your health impact statement predict? Fifty thousand? One hundred thousand? How many?

• $1 billion in lost tax revenue. Your own officials say the federalgovernment would lose $1 billion in revenue annually from this tax giveaway. Quebec and Ontario would lose an additional $100 million and $325 million respectively. We predict annual losses nationally of over $2 billion. These losses will have to be replaced by higher taxes on Canadians generally.

Prime Minister, if your advisors have not taken into consideration the illness and death associated with this plan, they are incompetent. If they have and are still prepared to go ahead, they are immoral. The proposed policy is irresponsibility run amok.

The tobacco industry role

Canadian manufacturers produce over 90% of all cigarettes smuggled into Canada. The industry supplies the contraband market, has undermined attempts to block the smuggling and has orchestrated a mammoth campaign to undermine health policy and confuse the public about solutions.

According to Queen’s University criminologist Dr. Margaret Beare, in 1992 director of police policy research for the federal Solicitor-General, ‘federal authorities should consider charging the companies under provisions in the Criminal Code against abetting, conspiracy and possession of the proceeds of crime’ (Globe and Mail, January 28/94) …

Prime Minister, health organizations have to tend to the victims of tobacco

industry products. The health community is enraged by what is planned. At every turn, your government has refused to seriously consider solutions to the “ smuggling problem, other than the tax rollback desired by the tobacco industry.

The ad proposed solutions to the smuggling problem other than giving half-price cigarettes to much of Canada. To their credit, over 25 national and regional health organizations courageously endorsed the ad in less than 72 hours, in order to head off the predicted tobacco tax cuts. Publication of the ad was one of the finer hours in the history of Canadian tobacco control.

28 BIG TOBACCO RHETORIC TO WEAKEN SUPPORT FOR HEALTH CARE COST RECOVERY LAWSUITS

Spin Tobacco taxation is already a huge part of the cost of cigarettes. Using lawsuits to take even more is excessive and unfair. It is “simply a cash grab.” *

Response As Canadian Cancer Society lawyer Rob Cunningham points out, Exxon would not escape responsibility for negligence after a major oil spill because governments collect gas tax. Nor should tobacco companies be able to “spin” their way out of civil lawsuits and criminal charges because governments keep tobacco taxes high to reduce tobacco use. The collection of taxes does not prove partnership in any alleged fraud and conspiracy.

Spin “Governments are senior partners in the tobacco industry. Governments in Canada earn from tobacco 18 times the profits of the entire tobacco industry, they heavily regulate the industry and have been fully aware of the risks associated with tobacco products for decades. … It is hypocritical that governments, like , turn around and sue a legal industry that they oversee and license. ...” *

Response The United States Attorney General sued Big Tobacco under the Racketeer Influenced and Corrupt Organizations Act. That U.S. racketeering decision documents the unconscionable behaviour of the industry as it developed a massive fraud to persuade the public that there was a scientific “controversy,” that the risks of tobacco use had not been proven. The same wrongful behaviour took place in Canada. Canadian governments, whatever their failings on the tobacco file, were not “senior partners” in the behaviour that is the focus of the litigation now planned or underway.

Spin “This lawsuit will take years to be resolved and will cost the New Brunswick taxpayers millions of dollars. … This lawsuit is a waste of taxpayers’ money. … The only real winners here will be the lawyers…” *

Response The high-priced-lawyers dodge is intended to play on any public disaffection with lawyer income. Here is a comparison for perspective. The state of Minnesota settlement of US$6.1 billion for the same offensive behaviour over which Canadian provinces are now suing, when adjusted for currency rates at the time and population differences, would have brought Ontario approximately $1 billion a year for 25 years. The 2008 Ontario claim is $50 billion. Even if this province spent $50 million on legal fees, this would only be one tenth of one percent of the amount of the claim to recover its losses. No matter what the size of the recovery – you pick the number – the amount spent on lawyers will be a very small percentage of the amount claimed. Stewardship with taxpayer dollars demands that the provinces invest in lawyers whatever is necessary to recover monies that governments are owed.

The real “waste of taxpayers’ money” is the waste of the money that the industry caused the provinces and territories to spend on health care costs for smokers.

* Benjamin Kemball, President and CEO, Imperial Tobacco Canada, as quoted in “New Brunswick’s lawsuit has nothing to do with public health,” Canada Newswire, March 13, 2008. http://www.newswire.ca/en/story/388347/new- brunswick-s-lawsuit-has-nothing-to-do-with-public-health (Accessed February 20, 2012)