Edward R. Myers
Wednesday, November 25, 2015 - 1:10 PM EST

Black Market, Black Eye

By Edward R. Myers

(Source – FrontLine Security)

(FSCwire) - According to Danya Mere, a seasoned investigative journalist writing in Mexico’s newspaper, Reforma, “Canada is not only famous for its maple syrup or for Niagara Falls, it is also famous for producing cigarettes sold in the international market illegally.” 


This indictment comes after a group of Mexican journalists visited Canada this summer and found out that the source of a huge illicit cigarette trade and tax defrauding scheme in Mexico is in large part due to contraband cigarettes coming from Southwestern Ontario, Canada’s tobacco belt.


Some fact-checking of the Mexicans’ findings has served to support Danya Mere’s accusations.


Open source research points to a 2012 accounting by the Mexican government that has determined that $443 million USD in tax revenues was lost to the black market.  In any jurisdiction, that is a lot of money to disappear in one year – and the problem has grown by double digits annually since 2012. 


Obviously, any government would put effort into rooting out a problem of this magnitude.  Senora Mere writes that, “Lack of controls at the Mexican customs, corruption of the authorities in ports to enter the country, and an excessive tax element to tobacco, are factors that make Mexico attractive to smugglers”. 


Further investigation uncovers the fact that Canada is responsible for 12% of all the lost tax revenues for the Mexican Government from illicit cigarettes.  That amounts to an annual sum of $53.2 million USD that is stolen from the Mexican coffers by Canada alone.  Mere states that,  “Government sources in Canada indicate that there are companies established in Six Nations that introduce up to 500 million cigarettes a year illegally to Mexico without paying taxes in either country.”


The fact is that it is possible that Canada Revenue Agency may be profiting from this smuggling operation.  The math works out that the Canadian Government has likely made $27.2 million from the sale of illegal cigarettes to Mexico in 2012.  This estimate is based on a deal that was made in 1994 to exempt First Nations companies from paying provincial sales tax so long as they paid an initial fine for past sins and promised to pay federal excise taxes in the future.


So either the Canadian Treasury has benefitted by tens of millions annually from excise taxes from Canadian companies smuggling tobacco into Mexico and other Latin American countries, or it too has been duped as the export license holders continue to defraud domestically as well as internationally – most likely this scenario indeed!


Canada’s reputation is about to take a body blow when the dust settles on this smuggling ring.  Today it is pretty much common knowledge that proceeds from contraband cigarette sales fuels organized crime and terrorism – witness the recent Mali massacre that was spearheaded by the One-Eyed Sheik, Mokhtar Belmokhtar, aka Mr. Marlboro.  If Canada continues to turn a blind eye to the international smuggling operations going on over tobacco, it will end up with a black eye in the view of the global diplomatic community.


Reports are now emanating from a variety of Latin American countries that point to more international corruption attributable to Canada.  Costa Rica, El Salvador, Guatemala, and Panama are all making similar noises to the Mexicans.


Clearly CRA has had a history of malfeasance in relation to this issue, perhaps unwittingly.  Now, however, there is no denying that the international smuggling in contraband tobacco is a scourge that promotes the interests of terrorist groups and organized crime groups domestically and internationally.  The previous Conservative Government failed to address the source of this problem and illicit Canadian cigarettes have continued to harm the tax base of foreign countries and Canada as well. 


Perhaps the recent change in political stripe in Canada will have a positive impact on a growing international embarrassment perpetrated by international smugglers and a complicit Canada Revenue Agency.  Other than diplomatic measures that are unlikely to have any effect on the Mexican regulatory environment, Canada needs to look at its role in permitting the international free flow of contraband tobacco that funds criminal networks and deprives citizens of both Canada and Mexico of tax revenues that could be used for social program development.


Edward R. Myers is a freelance journalist and former Editor of FrontLine Security magazine.

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