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Potential Remedies to Curb Tobacco Contraband Associated with Reserves

Potential Remedies to Curb Tobacco Contraband Associated with Reserves. Rob Cunningham, B.A., LL.B., M.B.A. Canadian Cancer Society Presented at A Taxing Issue: Public Health and Contraband Tobacco February 4, 2009, Buffalo, N.Y. Thank you. Why?.

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Potential Remedies to Curb Tobacco Contraband Associated with Reserves

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  1. Potential Remedies to Curb Tobacco Contraband Associated with Reserves Rob Cunningham, B.A., LL.B., M.B.A. Canadian Cancer Society Presented at A Taxing Issue: Public Health and Contraband Tobacco February 4, 2009, Buffalo, N.Y.

  2. Thank you

  3. Why? • #1 priority to reduce smoking in NY State, Canada • Aboriginal and non-aboriginal health • Revenue, crime, border security Buffalo, N.Y. Feb. 5, 2009

  4. Is it hopeless? NO. • The situation is solvable. • Comprehensive strategy, but with key priorities Buffalo, N.Y. Feb. 5, 2009

  5. Curbing Illicit Tobacco Trade • Problem of supply, not price • Focus on the source(s), as far up distribution chain as possible • Very cost-effective • Once of prevention worth a pound of cure Buffalo, N.Y. Feb. 5, 2009

  6. Native Reserves Buffalo, N.Y. Feb. 5, 2009

  7. Native Reserves Buffalo, N.Y. Feb. 5, 2009

  8. Buffalo, N.Y. Feb. 5, 2009

  9. Evolving Context • U.S. taxes to increase by US$6.10/carton (61¢ per pack) • NYS Gov. Paterson signs bill Dec. 15, 2008 to curb contraband related to reserves • Mayor Bloomberg announces NYC lawsuit related to reserves (Sept. ’08) Buffalo, N.Y. Feb. 5, 2009

  10. Action • Take action • Move forward in a determined way • Do it • Do it now – the longer the delay, the worse it gets Buffalo, N.Y. Feb. 5, 2009

  11. Key Recommendation • Stop tax-exempt product flowing into the distribution system • Cheap products are the incentive for diversion • In NYS, products shipped to reserves do not have state tax included • Products shipped to reserves should include an amount equal to provincial/state tobacco tax Buffalo, N.Y. Feb. 5, 2009

  12. Canada - refund system • 5 provinces: Alta, Sask, Man, Que, NB • Products sent to reserve with amount equal to provincial tax • On-reserve retailers apply to provincial government for refund after sale to eligible purchasers • Other approach: coupons • Alberta: provincial photo ID card (potential for real time electronic monitoring for each tax-exempt on-reserve purchase) Buffalo, N.Y. Feb. 5, 2009

  13. Canada - quotas • 5 provinces: BC, Man, Ont, NB, NS • Quota for tax-exempt product shipped to each reserve based on reserve population • Ontario formula: A=[(R x 2.5 x 0.423) + (OR x 2.7 X 0.423)] X 12 where, A is the annual quantity in cartons; R is the number of individuals in the reserve community; OR is the number of individuals in the off-reserve community. • Should have both refund system and quota Buffalo, N.Y. Feb. 5, 2009

  14. Wholesale Monopoly/Duopoly • Government licensed monopoly/duopoly for wholesale supply tax-exempt sales on reserves • Canada does this for sales to diplomats Buffalo, N.Y. Feb. 5, 2009

  15. New York State • 10 reserves, ave. 1700 residents each • Each resident smokes 1000+ cigarettes per day! 1 of 3 cigarettes in NYS goes through reserves (ICIJ, 2008) • Action: Quota system for each reserve. • Action: Quota system for each wholesaler. Currently 7 wholesalers (ICIJ, 2008) Buffalo, N.Y. Feb. 5, 2009

  16. St. Regis • #1 source of contraband to Canada • ~10 unlicensed factories • Baggies low as $6 per carton, compared to $50-$70 fully legal price in Ontario, Quebec • Native Trading Associates is licensed, but their products available in Canada as contraband Buffalo, N.Y. Feb. 5, 2009

  17. Akwesasne/St. Regis Buffalo, N.Y. Feb. 5, 2009

  18. Akwesasne/St. Regis • Border security/national security issue for U.S. • Criminals that bring cigarettes to Canada return to U.S. with drugs, weapons and sometimes people • Shutting down contraband factories on St. Regis reduces drug flow to U.S. • U.S. would never tolerate the reverse, with contraband from Canada flooding US costing US gov’t $10 billion/year • Risk that baggies will start flowing more to U.S., not just Canada Buffalo, N.Y. Feb. 5, 2009

  19. Prohibit Supply of Raw Materials to Unlicensed Manufacturers • Cigarette filters, cigarette paper, packaging, acetate tow (filter material), electricity, in addition to leaf tobacco • Ontario bans supply of gaming instruments to anyone without a gaming licence • Some seizures made heading to St. Regis • Satellite monitoring? raw materials and finished product Buffalo, N.Y. Feb. 5, 2009

  20. Prohibit Mail Order, Interstate Sales, Internet Sales Buffalo, N.Y. Feb. 5, 2009

  21. Canadian Legislation (Tobacco Act): • Prohibits mail order sales • Prohibits shipments between provinces to consumers • Prohibits advertising an offer for delivery between provinces or by mail • Internet sales in Canada are largely a non-problem compared to U.S. Buffalo, N.Y. Feb. 5, 2009

  22. Tax-paid Markings Holland US – New York State Germany Buffalo, N.Y. Feb. 5, 2009

  23. California System Buffalo, N.Y. Feb. 5, 2009

  24. Separate tax-markings for reserves: BC, Alta, Ont, NS Buffalo, N.Y. Feb. 5, 2009

  25. Tax-Exempt Markings UK UK Canada Buffalo, N.Y. Feb. 5, 2009

  26. More Remedies (1) • License all levels of distribution, including manufacturer, distributor, retailer (incl. by state/province) • Substantial monetary bonds to encourage compliance • Increase enforcement resources • Cross-appoint federal/state inspectors, state tobacco sales to minors inspectors • Seize packages without required health warnings • Role of U.S. Attorney • Role of District Attorney • File a “complaint” Buffalo, N.Y. Feb. 5, 2009

  27. More Remedies (2) • Civil, criminal proceedings against Lorillard, Reynolds, Philip Morris? • Tracking and tracing • Reporting by manufacturers/distributors, including purchaser, including state/provincial • Record keeping • Farmers: licensing, record keeping, reporting • Permanent inspector presence in factories/distributors (with office) • Health awareness campaigns to reach reserve residents Buffalo, N.Y. Feb. 5, 2009

  28. Penalties • Increase penalties • Confiscate proceeds of crime • Possible prison, including for NYS offences • Vehicle seizure • Strict liability – manufacturers/importers • Ticketing option, e.g. for off-reserve retailers • Prohibit possession by individuals of improperly marked packages • Maximum sales limit to consumers of one carton per day Buffalo, N.Y. Feb. 5, 2009

  29. First Nation/Tribe Tobacco Tax • Equal to provincial/state tax • Long-term Buffalo, N.Y. Feb. 5, 2009

  30. - Djibouti – decree creates authority- New Singapore marking, Jan. 1, 2009 Buffalo, N.Y. Feb. 5, 2009

  31. Markings on Individual Cigarettes Buffalo, N.Y. Feb. 5, 2009

  32. Ban Cigarette Cases (sold empty) Buffalo, N.Y. Feb. 5, 2009

  33. Ban Cigarette Cases (sold empty) Buffalo, N.Y. Feb. 5, 2009

  34. Avoid pre-condition to action • Illegal tobacco sales are NOT sustainable in terms of native economic development Buffalo, N.Y. Feb. 5, 2009

  35. Advocacy Necessary Dan Demers Director of Public Issues Canadian Cancer Society Letters to all U.S. Senators, Representatives Buffalo, N.Y. Feb. 5, 2009

  36. Key Recommendations 1.Focus on the source 2.Stop tax-exempt product flowing into the distribution system - Better than chasing afterwards 3.Shut down illegal manufacturing on St. Regis Buffalo, N.Y. Feb. 5, 2009

  37. Thank you!

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