Simon Chapman and Becky Freeman: A light and mild settlement?

On July 31, two of Canada’s biggest tobacco companies, Imperial Tobacco Canada Ltd and Rothmans Benson and Hedges Inc, agreed to pay $300 million in fines and an additional $815 million in civil damages over the next 15 years for their admission that both companies aided persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in compliance with the Canadian Federal Excise Act. In other words, these ever so respectable companies had been facilitating wholesale smuggling. The settlement is a result of an eight year battle over the smuggling of tax-free cigarettes across the Canadian border that occurred from 1989 through to 1994.
$1.1 billion is rather a lot of money. But, if the funds are for crimes that not only resulted in massive tax evasion, but also in the nicotine addiction of thousands of young Canadians induced to take up smoking by cheap cigarettes, is it big enough?
Putting aside issues of whether the settlement is actually large enough to cover the lost tax revenue during this period of tobacco industry coordinated smuggling, what of the costs of the increase in numbers of young people who took up smoking as a result of this illegal activity? In 1994, due to the pressures of tobacco smuggling, Canada slashed the rate of tobacco tax to try and stem the flow of contraband products. Smoking rates among Canadian youth increased as a result and Canada’s national tobacco control strategy took a huge backward step. Price is one of the most effective means of reducing smoking rates, particularly among price-sensitive young people. Rolling back the tax because of the criminal actions of Imperial and Rothmans thus mean further cases of cancer, heart disease, stroke, and emphysema down the track.
And what of the tobacco industry executives who orchestrated and approved the illegal smuggling ring? Criminal charges alleging these individuals personally liable for both tax evasion and the addiction of young people would have sent a collective shiver of fear throughout all multinational tobacco companies.
Eric LeGresley, a noted legal expert on tobacco control in Canada, is “cautiously lukewarm” that the settlement will result in the tobacco companies “changing their ways.” This remains to be seen. Tobacco industry track records do little to encourage optimism that corporate social responsibility will be a top priority.

Becky Freeman
Simon Chapman
University of Sydney

  • A mess of potage

    The Canadian government has entered into a multi-year agreement with two of the world’s biggest multinational tobacco companies to resolve both criminal and civil legal actions. They did so without, reports suggest, consulting the Health departments about what conditions should have been included in the settlement.

    The money provided by tobacco companies to the Canadian government were spent the very next day on a government offer to help some tobacco farmers exit the business. Future payments to government are contingent on future tobacco sales — a perverse incentive where a more appropriate incentive that worked to decrease tobacco sales could have been devised.

    This agreement suggests that the lessons of the ‘global settlement’ and the ‘master settlement’ agreements have not been adequately studied, and that the health community (including health ministries) have not yet articulated clearly or forcibly the elements that should be included in any resolution of tobacco industry liability.

    More liability cases are set for resolution – in Canada and elsewhere. It is not too soon to begin the work of deciding what should be the outcome of these cases.

  • Gallege Punya Alvis

    Can I have two points clarified
    One,Criminal charges against addiction of young people for Tobacco, How are the Tobacco Companies liable.I strongly feel they are liable, But finding it difficult frame the charge.
    Second, What do you actually mean when you say “Eric LeGreasly is’cautiously lukewarm’ that the settlement will result in the tobacco companies’changing their ways'”
    Punya