Firms settle Canadian cigarette smuggling case

Tue Apr 13, 2010 4:49pm EDT
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By Allan Dowd

VANCOUVER (Reuters) - Two cigarette makers reached settlements with Canada on Tuesday over their alleged role in smuggling operations that ran so rampant in the 1990s they forced Canadian anti-smoking taxes to be rolled back.

R.J. Reynolds Tobacco Co will pay C$325 million ($325 million) and Japan Tobacco's JTI-MacDonald unit will pay C$150 million to settle out of court claims brought by federal and provincial governments.

Under a separate settlement, R.J. Reynold's former Northern Brands unit will pay C$75 million.

The deals bring to an end more a decade of litigation over allegations the companies exported Canadian cigarettes to the United States knowing they would actually come back to Canada illegally and not be taxed.

Canada settled similar allegations in 2008 against, Imperial Tobacco Canada Ltd, a unit of British American Tobacco, and Rothmans Benson & Hedges Inc., which is partly owned by Philip Morris.

Cigarette smuggling was widespread the early 1990s as Canadians attempted to avoid big tax hikes on tobacco designed to deter smoking. The flood of contraband eventually forced those taxes to be reduced in 1994.

"It had a devastating impact on Canada's anti-smoking initiatives," said Rob Cunningham of the Canadian Cancer Society.

Much of the smuggling happened through aboriginal reserves that straddle the New York-Ontario border. The situation was worst in Quebec and Ontario.   Continued...