The following is a transcript of a segment of the Bill Good Show (CKNW Radio, AM 980, Vancouver) that aired from about 10:00 to 10:30 a.m. on Wednesday, January 21, 1998.
Bill Good, Host - The CBC's fifth estate program has done a blockbuster report that links Canadian tobacco executives with cigaret smugglers. The report alleges that some tobacco executives in Canada knew their best US customers were smuggling cigarets back into Canada. It links one convicted smuggler with Imperial Tobacco -- another alleged tobacco runner with RJ Reynolds. The program claims that in the early '90s, company officials were part of a pipeline of cigarets to the US, lower taxes in the US cut the price in half, then the cigarets were brought back to Canada for illegal sale. Rob Cunningham is a senior policy analyst with the Canadian Cancer Society. Greg Connolly is with the Massachusetts Department of Public Health. I welcome them both to the program. Mr. Cunningham, good morning to you.
Rob Cunningham, Canadian Cancer Society - Good morning.
Good - What is your reaction to the program, to the allegations? And for people who didn't see it, can you give us a bit more of an outline of what is alleged to have been going on in this country and in the United States?
Cunningham - Well, there was an outstanding piece of investigative journalism that was broadcast on CBC last night and indeed, what was reported is very disturbing. But let's just go back in time. In the 1980s and the early 1990s, federal and provincial governments in Canada increased tobacco tax rates dramatically. And we saw how this had a very positive benefit for governments in terms of their own revenue, going from about $2 billion per year, in the early '80s, to about more than $7 billion per year in 1991. It also had a very beneficial impact in terms of reduced smoking. There are a number of other factors that contribute to reduced smoking, but tobacco taxes was the most important. In 1992, per capita cigaret consumption in Canada was 40% lower than in 1982 -- and there had been an even greater decline, proportionately, among young people. And that's not surprising -- young people have little money, they're more price sensitive and many, many studies show that, approximately, for every 10% increase in smoking (sic), an almost 14% decrease in teen-age smoking. Higher prices are a great way to reduce teen smoking. Now, as prices in the 1990s were higher, there was, indeed, a greater differential in prices between Canada and the United States. And what we saw was a dramatic increase in exports. Normally, the Canadian brands -- du Maurier, Export "A", Player's, Craven A -- there's no demand for them in the United States, except maybe in some duty-free stores. The traditional level of exports is 1 billion cigarets per year. The Canadian market, just for a point of comparison, about 50 billion per year -- in terms of units, 55 billion. But we saw an increase in exports, such that in 1992, there were 10 billion cigarets exported. In 1993, 18 billion cigarets exported -- way up. And so, where were these cigarets going? They were coming back into Canada, as smuggled cigarets. 90%, 95% of those cigarets originated in Canadian factories. Many members of the general public are not aware of that. We had so much pressure in terms of smuggling that 25%, 30% of the Canadian market was contraband. A huge debate, there was pressure from the tobacco lobby, they were infiltrated -- some organizations in Canada had links with them, at least -- in terms of putting pressure on the government, particularly in Quebec, where the smuggling was most severe. Perhaps 80% of the cigarets came back into Canada through the Akwasasne Indian Reserve. This reserve straddles the Canada/United States border -- New York state, part of the reserve in Canada is in Quebec, part is in Ontario. It's very close to the major urban market of Montreal. In Quebec, the smuggling was the most severe -- and there was pressure to reduce tobacco taxes. Those were reduced in February, 1994 -- by the federal government, by 5 provinces -- and the result was cheap cigarets for everybody in those jurisdictions. The retail price, before the rollback, was about $48 a carton -- after, about $24. So we've since seen an increase in smoking rates among adults -- an increase in smoking rates among young people.
Good - So the pressure to reduce the price of tobacco products in Canada really came by Canadian product being exported to the United States and then smuggled back into Canada, selling at prices that drove the retail price down and forced governments to decrease taxes that they had increased in order to get kids off cigarets -- or keep them off.
Cunningham - That's exactly right -- and the contraband product, in Canada, was available on a reserve -- I saw it for sale for $17 a carton. You can also get it for $20, $25, $30 a carton, depending on where you were, how close you were to Montreal or to the reserve and so on.
Good - But the jump from 1 billion cigarets per year going to the United States to 18 billion dollars (sic) a year should have made it very clear to somebody what was going on.
Cunningham - Yes. I mean, you don't need to be a rocket scientist to see that there was something going on here that's different. In 1994, after the tax rollback, the exports plummeted back to 2 billion per year, so there's a tremendous correlation between the smuggling and the tobacco company exports. When you are trying to deal with a trafficking problem, you should go to the source of the problem. That is what the RCMP does when they're looking for drug traffickers -- you go up as far, in the chain, as you possibly can. But we heard, on the report last night, that the RCMP hasn't even questioned tobacco company executives! I just can't believe that -- they're asleep at the switch! And it's 4 years later -- and they still haven't done it! And we have, in the United States, the US Justice Department now investigating RJ Reynolds -- and RJR Macdonald has put out a news release to this effect (the Canadian affiliate). We have, in the United States, not only an investigation, but a prosecution and conviction of an official from Brown & Williamson, Michael Bernstein. Brown & Williamson is a sister company to Imperial Tobacco. And these investigations and this conviction of Mr. Bernstein relate to the smuggling of Canadian cigarets back into Canada -- product that had originally been manufactured in Canada.
Good - This is starting to sound like the Alan Eagleson investigation -- or lack of such -- all over again. I introduced Greg Connolly from the Massachusetts Department of Public Health a few minutes ago. He's been patiently on the line, listening to this. Mr. Connolly, you think this was a deliberate effort to target kids.
Dr. Greg Connolly, Massachusetts Department of Public Health - Well, it's my opinion that the tobacco industry needs kids for the future -- and higher prices is an anathema for recruiting kids to smoke. So if you're seeing a major decline in cigaret consumption, particularly among teens in Canada, one way to offset that decline is to get the prices lower. The way you do that is to get the government to cut taxes. What's the best way to get the government to cut taxes? It's to allege, somehow, that smuggling is eroding tax revenue. The tobacco industry says that's no, but one only has to look at what they benefit from smuggling. Number one, they make money, because of the fact the product is sold. Number two, if it's a closed market, that is, in mid-Latin American markets or Asian markets, smuggling weakens the resolve of governments from maintaining these closed markets. So we see, throughout the world, cabins of smuggling of the international brands, not of local brands. And then finally, if you want to keep taxes low or, in the case of Canada, taxes high -- and you want to get those down -- smuggling is just the best tool, made for the tobacco industry, to do so.
Good - Of course, it might have been very helpful if the United States governments had increased taxes on the product in the United States. It would have helped us in this country, but....
Connolly - Well, it's no accident that in '93 and '94, this nation (the US) was looking at a dollar price increase on cigarets, to finance health care reform, as part of the Clinton health care reform proposal. That was on the table! It was serious! In that same time period, we saw the major smuggling increasing in Canada, to force Canada to lower that tax. So again, in my opinion, I think the industry was looking at this very large price in Canada, deathly afraid that the Clinton administration -- the United States Congress and Senate -- was going to raise to equalize. And so that's when we saw the push on smuggling to knock those Canadian taxes down.
Good - And again, that increase of a billion cigarets per year going to 10 billion to 18 billion wasn't reflected -- in any way, shape or form -- by Canadian cigarets suddenly becoming popular in the United States.
Connolly - (laughing) No. Regretfully, Americans are not switching to Canadian cigarets. But keep in mind, one third of US cigaret exports are never accounted for. That is, they wind up going into black markets in Latin America, in Asia, in Eastern Europe -- they're never accounted for. If we were selling computers and one third of US computer exports were never accounted for, it would be a national scandal! This nation is finally waking up and trying to curb the smuggling problem but, in reality, the industry can curb the problem. The industry has no problem whatsoever in putting identifiers on their cigaret cartons or large bulk shipments -- and tracking the billing invoices to where the cigarets go. They can control it, they can curb it. But, not surprisingly, we don't see the industry doing it. Why? Because they've benefited from it.
Good - This is fascinating. I'd ask you both to stand by. We'll come back and open the lines, take some calls on the topic. 280-0491. Toll free, 1-800-667-0946. Back after this, with your calls -- questions or comments -- to my guests on the issue of tobacco smuggling and the alleged complicity that the tobacco companies in Canada knew exactly what was going on -- and were a part of it. 280-0491. Back after this.
Commercial break
Good - A dramatic and explosive CBC report this week alleges that some tobacco executives in Canada knew their best US customers were smuggling cigarets back into Canada. It linked one one convicted smuggler with Imperial Tobacco, another alleged tobacco runner with RJ Reynolds. The program claimed that in the early 90s, company officials were part of a pipeline of cigarets to the US. Lower taxes in the US cut the price in half, then the cigarets were brought back to Canada for illegal sale. Rob Cunningham, a senior policy analyst with the Canadian Cancer Society, has been studying this issue for some time. Greg Connolly is with the Massachusetts Department of Public Health. He believes it was part of a program to keep teenagers actively buying cigarets in this country, when high taxes were driving them from the retail market. I invite your calls to them -- 280-0491. (to first caller) Good morning.
Caller - Is this me?
Good - It is.
Caller - In British Columbia, we did not see the tax decrease that we saw in some of the other provinces. How much did teen smoking decline in British Columbia?
Good - Mr. Cunningham, do you know the answer to that?
Cunningham - I don't know the specific answer. I do know that the federal taxes in BC and the other 3 western provinces -- the 4 western provinces -- did go down by $5 a carton. And I have seen a study that shows that the change in smoking rates in the 4 western provinces was better than in the provinces which reduced their tobacco taxes, but the specific question you have, I don't have an answer for.
Caller - Thank you.
Good - That's it?
Cunningham - Yup.
Good - 280-0491. Mr. Cunningham, one of the problems I have when people run statistics by us, when it comes to the reduction of taxes and the relationship to purchases, is that no one is able to measure the smuggled cigarets accurately.
Cunningham - Well, the Department of Finance, Revenue Canada and even the tobacco industry did come up with estimates of smuggling. They based their methodology, actually, on the quantity of cigarets that were exported. That was the principal way that they calculated (how many of[?]) those were coming right back into Canada. So that is something that has been -- efforts have been made in that area to try and do the best possible.
Good - 280-0491. But when you talk about smuggled cigarets, or cigarets exported to the United States, going from a billion to 18 billion -- I mean, that's just a figure that leaps out at you, to tell you that there's a big problem.
Cunningham - It's astounding and....
Good - ....especially if nobody seems to be buying them in the United States.
Cunningham - Yes. There is no legitimate market except perhaps a few retirees in Arizona and Florida and a few other places -- and the duty free stores. And then what we saw on the report last night was the tobacco executives making contact, alleged to have regular meetings, they were going to parties in BC, at that particular resort (Sonora), lots of money being spent -- even after the prices went down and, according to the show, after RJR Macdonald was aware that a particular individual had been involved in smuggling.
Good - 280-0491. Your calls welcome. (to Errol) Good morning.
Errol Povah, AIRSPACE - Good morning.
Good - Yes.
Povah - Good morning, Bill -- and Rob and Greg. It's Errol Povah calling. Some of your listeners may not be aware of it, but I was dubbed the 'Billboard Bomber'. About a year and a half ago, I threw a couple of paintballs at a cigaret billboard in downtown Vancouver and I was caught by an off-duty RCMP officer, went to trial, etc. Ultimately, bottom line was, I got an absolute discharge. I was found guilty but.... In any case, I'm so happy to see this story finally coming to light and being exposed for what it is. And, quite frankly, Bill, I guess I'm curious as to -- in all fairness to the tobacco industry -- I'm wondering why you don't have Rob Parker on the line as well. I personally suspect his head is buried farther in the sand than it normally is right now.
Good - Well, I'd be happy to try to get him on, frankly. I mean, we were reacting in fairly short time to this -- it's not the only program we'll do on it, but I would certainly make an effort to get Mr. Parker on the program. He's a fairly up-front apologist for the tobacco industry.
Povah - You just hit the nail right on the head -- he's an apologist. And, like I say, I suspect his response will be very similar to that of so many of the industry people on Venture (sic) last night -- and that is, "No comment."
Good - Well, I think it was fifth estate -- and it was Victor Maleric, who did outstanding work on the program and is to be complimented for it. Rob Cunningham, the tobacco companies have taken a lot of heat, but I can't remember anything quite like this. Do you think this is going to be a definitive moment for tobacco companies, the public and government?
Cunningham - It was, indeed, a block-buster report. And health groups, today, have asked for, first of all, a criminal investigation of the tobacco companies, by the RCMP. We've also called for a Royal Commission. This is pushing everything over the edge. There's been a long-standing set of misbehaviour by this industry, that we have to investigate. We have to have the ability of a Royal Commission -- subpoena power -- to get these executives to testify under oath, to produce all the documents related to marketing to youth or health research that they've concealed for decades. And it may well be a very defining moment.
Good - Greg Connolly, is there any reason to think that this report -- most of what happens in Canada doesn't get a lot of attention in the United States -- do you think that this might get some attention in the United States?
Connolly - Oh, I think there's no question. The Justice Department has initiated a number of investigations relative to the behaviour of tobacco industry executives, involving suppressing information about clean indoor air, lying to Congress. I think this is going to get on the radar screen of people in the Justice Department and in the FBI. It's going to pick up investigations that they've already done. It was only 2 years ago that they launched an investigation, in New Orleans, against Brown & Williamson -- where there, we saw the same type of behaviour -- middle-level people, at the Brown & Williamson Tobacco Co., were involved in smuggling cigarets to Canada. When they initially gave their depositions to the FBI, they said, "Our promotions, our rankings, were rated on how well we smuggled." They later recanted those depositions. Bernstein recanted a deposition later, saying he gave that under duress. But one really has to question, "Was it really under duress, or was that the truth?" So I think that this is going to result in major investigations by the FBI and the Justice Department, right at the heads of the tobacco industry, examining whether or not they're complicit with organized crime, in smuggling. Another example, in Hong Kong, a middle-level BAT employee, Gerry Lui, again was complicit with known smugglers in Singapore, smuggling Brown & Williamson -- BAT -- cigarets into China. He fled the country, was arrested, actually, in Boston and then later exported back to Hong Kong, to stand trial. But we see patterns, across different companies, where middle level people involve themselves with organized crime, to smuggle. So one has to really wonder whether or not the industry's claim that the senior executives are involved is really valid or true. There's a shareholder resolution, filed with Philip Morris this year, that's requesting the company to carry out an investigation about smuggling -- to report back to shareholders and see if there is actual involvement with known smugglers.
Good - Well, certainly one of the people who was identified in that report last night -- it was alleged, in the report -- to have an involvement that is questionable, was Stan Smith, who is currently the Executive Vice-President and Chief Operating Officer of RJR Macdonald. He was then Vice-President in charge of sales from 1992 to 1996. He's from British Columbia, if memory serves me right. Mr. Cunningham, he was very much in the forefront of that fifth estate investigation.
Cunningham - Yes, he certainly was. And that's extremely senior -- you can't go much higher than....
Good - That's not a middle-level executive.
Cunningham - No, Chief Operating Officer or the head of the sales. That's right there. RJR Macdonald is a fairly small enough unit at its head office level in Toronto that the RCMP should get its act together. If journalists from the fifth estate can be digging around and finding out things, especially now that smuggling is no longer an issue and some of the people that were further down the stream are willing to talk and to squeal, as they did to journalists on television, the RCMP should be getting out on the hustings.
Good - The RCMP today, as far as I can tell, is simply saying it can't comment. It can't say whether or not there is an investigation. It's continuing to be very low profile.
Cunningham - That's, in part, horse-feathers! Because we heard on television last night -- I think I mentioned before -- that they haven't even asked any questions yet. And then my inquiries were such that I was told that there had not been an investigation. Just very recently, we heard, publicly reported, that the RCMP had begun an investigation out of matters related to the Krever inquiry. So if they can announce that they're going to have an investigation related to the Krever inquiry, they can certainly announce that they're going to have an investigation, that's ongoing, with respect to tobacco companies and tobacco company executives.
Good - I thank you both very much. When we come back, a super-bug at MSA hospital in Abbotsford....