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Non Smokers Rights Association. What Were They Smoking? 2013

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Non Smokers Rights Association. What Were They Smoking? 2013 “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 tobacco 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 Canada; Melodie Tilson, Director of Policy and Elsa Sykes of the Non- Smokers’ Rights Association; François Damphousse, Director of the NSRA’s Quebec 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 Ontario’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.
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