OTTAWA, ONTARIO, Apr. 13, 2010 (Marketwire) -- The Honourable Keith Ashfield, Minister of National Revenue, and Minister Denis Lebel, Minister of State for the Economic Development Agency of Canada for the Regions of Quebec, announced that the federal, provincial and territorial governments entered into civil settlement agreements with tobacco manufacturers JTI-Macdonald Corp. (JTI-MC) and R.J. Reynolds Tobacco Company (RJR) to resolve potential civil claims related to the movement of contraband tobacco in the early 1990s.
In addition to the civil settlements, JTI-MC pleaded guilty in the Ontario Court of Justice to a single count of "aiding persons to be in possession of tobacco not packaged in accordance with the Excise Act," while Northern Brands International Inc., a company related to RJR, pleaded guilty to a conspiracy offence under the Criminal Code. The fines in these prosecutions, combined with the civil settlement, will result in the companies paying $550 million to governments. This amount, along with those from the previous agreements reached in 2008 with other tobacco manufacturers, will result in a total of $1.7 billion being paid to governments.
"Our government is actively working to make sure that companies in Canada do not profit from illegal activity." said Minister Ashfield. "The settlement agreements bring closure to issues that have been outstanding for more than a decade so that governments can focus on tobacco tax compliance and contraband tobacco."
The settlement agreement with JTI-MC also includes a compliance protocol to ensure that the company has effective internal compliance controls in place. It also requires the company to assist governments in the battle against contraband tobacco.
The Canada Revenue Agency is responsible for administering the agreements. Payments received from the companies will be distributed to federal, provincial and territorial governments according to percentages agreed upon by all. The settlements announced today are the collective effort of federal, provincial and territorial governments working together to resolve issues that have been outstanding for more than a decade.
BACKGROUNDER: Federal, provincial and territorial governments enter into civil settlement agreements with two tobacco companies
On April 13, 2010, the federal and provincial / territorial governments entered into civil settlement agreements with tobacco manufacturers JTI-Macdonald Corp. (JTI-MC) and R.J. Reynolds Tobacco Company (RJR) in connection with governments' civil claims relating to contraband tobacco in the early 1990s. Under its civil settlement, RJR will pay governments $325 million.
At the same time, JTI-MC pleaded guilty in the Ontario Court of Justice to a single count of "aiding persons to be in the possession of tobacco not packaged in accordance with the Excise Act", and has been fined $150 million, while Northern Brands International Inc. (NBI), a company related to RJR, has pleaded guilty to a Criminal Code conspiracy and has been fined $75 million.
Payments received from the companies will be distributed to the federal, provincial and territorial governments according to percentages agreed to by all. Out of the $550 million paid by companies, $491 million will be shared according to the agreed percentages, while the balance will be distributed to certain participating governments in recognition of expenses and other rights and obligations that they had. These payments are as follows: Government of Canada - $12 M; British Columbia - $40 M; Ontario - $5 M; and Quebec - $2 M.
The civil settlements with JTI-MC and RJR bring to a close the governments' actions against tobacco manufacturers relating to their involvement in the movement of contraband tobacco in the early 1990s. As a result of these and previous settlements and convictions, tobacco manufacturers are paying a total of $1.7 billion to federal, provincial and territorial governments. Companies that contravene Canada's revenue laws will not profit from their actions and will be held accountable.
In addition to the financial component, JTI-MC, a Canadian tobacco manufacturer, has consented to implement measures to strengthen controls over the movement of tobacco products and to help combat contraband.
The Canada Revenue Agency is responsible for the administration of the terms of the civil settlement agreements and will do so in cooperation with the provinces and territories.
Tobacco Compliance Measures
JTI-MC has committed to a compliance protocol that recognizes a common objective to implement efficient and effective programs to control the movement of tobacco products and combat the contraband market. These programs include but are not limited to:
-- Recognition of both the governments' and the company's ongoing efforts
to enhance compliance with existing laws and regulations to control the
movement of tobacco products and combat contraband.-- A 'Know Your Customer' Program to enhance accountability for the
distribution of tobacco products throughout the supply chain.
There are further measures such as the establishment of internal compliance programs, anti-money laundering procedures, enhanced information sharing, and increased oversight of tobacco production at companies' foreign facilities.
For more information, the civil settlement agreements and related documents are available on the CRA Web site at www.cra-arc.gc.ca/gncy/tbcc/menu-eng.html.
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Financial Settlements Schedule
Year 2010
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R.J. Reynolds Tobacco Company $325
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JTI Macdonald Corp.(i) $150
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Northern Brands International (i) $75
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TOTAL $550
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(All dollar amounts in millions)
(i) Fine amounts relating to criminal charges-------------------------------------------------------
Government Distribution Schedule
Year 2010
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Provinces Percentages Dollar Amounts
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Alberta 1.561 7.7
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British Columbia 4.243 20.8
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Manitoba 1.066 5.2
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New Brunswick 2.020 9.9
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Newfoundland & Labrador 2.071 10.2
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Nova Scotia 2.525 12.4
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Ontario 14.412 70.7
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Prince Edward Island 0.264 1.3
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Quebec 19.329 94.9
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Saskatchewan 0.734 3.6
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Northwest Territories - 0.125
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Nunavut - 0.100
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Yukon - 0.100
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Canada 51.775 254.0
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TOTAL 100% $491
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(Subject to rounding adjustments)
(All dollar amounts in millions)
Individual payments are provided for as follows: Government of Canada - $12 M; British Columbia - $40 M; Ontario - $5 M; and Quebec - $2 M. The remaining $491 M will be divided among all participants according to the sharing agreement percentages noted above.
