Canadian tobacco firms settle smuggling lawsuit for $550 million

Two major Canadian tobacco-makers agreed on Wednesday to pay the federal and provincial governments $550 million, the largest amount ever levied in Canada, to settle smuggling cases pending against them in the country's courts.

The settlements relate to the movement of contraband tobacco products in the early 1990s by tobacco manufacturers RJ Raynolds Tobacco Company (RJ Raynolds) and JTI-Macdonald Corporation.

Tax-free cigarettes manufactured in Canada were distributed to smugglers in the US who sent them back to Canada to be sold at very cheap prices. Responding to the menace, the Canadian government resorted to heavy tax cuts on tobacco to make contraband goods less attractive, thereby losing billions in tax revenues and making smoking cheap.

According to the terms of its settlement, RJ Reynolds will pay the governments $325 million. In addition, Northern Brands International Inc, a company related to RJ Reynolds, pleaded guilty to a conspiracy offence and has been fined $75 million in the Ontario Court of Justice and JTI-Macdonald has been fined $150 million for its offence.

Canada's minister of national revenues Keith Ashfield said in a statement: ''Our government is actively working to make sure that companies in Canada do not profit from illegal activity. 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 total amount will be distributed among the federal government and the provinces according to the percentages agreed by all, with the federal government getting around $266 million. The biggest provincial chunk of about $97 million will be given to Quebec, followed by Ontario 76 million, British Columbia $61 million and others.