Canada tobacco firms admit aiding smuggling

OTTAWA (Reuters) - Two Canadian tobacco firms admitted on Thursday they had aided the contraband tobacco trade and will pay out more than C$1 billion ($980 million) in record fines and payments to boost anti-smuggling efforts over the next 15 years.

The two firms are Imperial Tobacco Canada Ltd -- a unit of British American Tobacco BATS.L -- and Rothmans Benson & Hedges Inc, a unit of Philip Morris PM.N and Rothmans Inc ROC.TO.

The charges relate to the years between 1989 and 1994, when tobacco taxes in Eastern Canadian provinces were so high that they prompted widespread smuggling.

Tobacco exported from Canada to the United States was then illegally brought back into the country.

“The result we’ve seen today brings to a close a significant chapter in contraband tobacco history ... the message sent today is that no company is above the law,” said Mike Cabana of the Royal Canadian Mounted Police.

Both tobacco companies admitted in court to a single charge of “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 and its amendments and ministerial regulations.”

Imperial Tobacco paid a C$200 million fine and Benson and Hedges paid a C$100 million fine. Canadian police said the fines were a record.

In addition, Imperial Tobacco Canada agreed to pay up to C$400 million more over the next 15 years to fund various anti-smuggling efforts. Rothmans Benson & Hedges Inc will pay C$450 million more over the next 10 years.

Imperial Tobacco Canada Chief Executive Benjamin Kemball said the firm was pleased to have resolved the case.

“Today’s events give our business the stability it needs to move forward to address, with clarity and focus, the issues, opportunities and challenges it faces today and will face in the future,” he said in a statement.

Canadian Revenue Minister Gordon O’Connor said the government was “pleased today to close this chapter of our history” and said the two firms would now help fight smuggling, which is increasing again as tobacco taxes climb.

“We must do more ... fighting contraband tobacco has required and will continue to require substantial expenditures of public funds and manpower,” O’Connor told reporters in Levis, Quebec.

($1=$1.02 Canadian)

Reporting by David Ljunggren; Editing by Peter Galloway