Tobacco giants to pay up to $1.15B over contraband sales

Canada's two biggest tobacco companies pleaded guilty Thursday to customs charges and agreed to pay as much as $1.15 billion in fines and civil payments in connection with aiding contraband tobacco sales.

Imperial Tobacco was issued a $200-million fine and will pay up to an additional $400 million over the next 15 years, while Rothmans Benson & Hedges was fined $100 million and will pay up to $450 million more in civil payments over the next 10 years.

The companies pleaded guilty to "aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act."

Revenue Minister Gordon O'Connor called the fines a "clear message" to companies that the government is committed to fighting illegal tobacco in Canada.

The additional amounts the companies have agreed to pay by way of civil settlements with the federal government, Ontario and Quebec will be administered by the Canada Revenue Agency. The civil agreement also includes a commitment by the companies to combat contraband tobacco activities in Canada.

"These represent the largest criminal fines and civil settlements in Canadian history," O'Connor told reporters in Lévis, Que., after the fines were announced. "The companies have accepted their actions and have agreed to a comprehensive settlement package."

In a release, Benjamin Kemball, president and CEO of Imperial Tobacco Canada, said the company was " pleased to have resolved this issue."

Minutes after the fines were announced, Rothmans released a statement saying it has agreed to a friendly takeover bid by U.S.-based Philip Morris International Inc. for $30 per share in cash, valuing the company at $2 billion.

'No company is above the law': RCMP

The charges stem from contraband tobacco sales between 1989 and 1994, which involved products being produced in Canada and shipped to locations in the United States to be distributed to smugglers or black market distributors, who brought it back into Canada for illegal sale, the RCMP said.

The fines and civil payments conclude more than eight years of investigation by the Mounties in Ontario and Quebec, assistant RCMP commissioner Mike Cabana said.

"The message sent today is that no company is above the law," he said.

Cabana said the past practices do not reflect today's "huge" tobacco-smuggling business, which he said is dominated by foreign manufacturers smuggling products into Canada with the help of organized criminal groups.