UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF NEW YORK

CASE SUMMARY

1. To protect its youth from the health hazards of smoking, and to implement anti-tobacco programs and other public benefits, Canada doubled tobacco duties and taxes in February 1991. Tobacco duty and tax increases, and the resulting higher tobacco prices, held the promise of deterring young people from becoming addicted to a harmful drug. Tobacco duty and tax increases also held the promise of encouraging established smokers to quit.
   
2. The Defendants frustrated these goals by engaging in a pervasive tobacco smuggling scheme. The Defendants violated the laws of the United States and thwarted the anti-tobacco public policies of Canada by engaging in various enterprises to smuggle tobacco into Canada.
   
3. Canada brings this action under the laws of the United States to vindicate the laws of the United States, to recover damages suffered by  Canada, to restrain Defendants and their co-conspirators from engaging in fraud and other unlawful conduct in the future, and to compel Defendants to disgorge the proceeds of their wrongdoing.
   
4. Twenty-one individuals and one of the corporate Defendants in this action have already pled guilty in this District to criminal charges under United States. laws stemming from illegal tobacco smuggling into Canada.
   
5. Those pleas were obtained in Case No. 97-CR-199, presided over by the Honorable Thomas J. McAvoy. Other guilty pleas were obtained in Case Nos. 98-CR-561 and 99-CR-93, also presided over by Judge McAvoy.
   
6. This action results from the discovery and development of facts obtained as a result of those guilty pleas. The facts uncovered show an elaborate scheme by Defendants and their co-conspirators to smuggle tobacco into Canada without paying applicable duties and taxes.
   
7. Pursuant to the scheme, Defendants sold enormous amounts of Canadian tobacco to a small group of United States distributors. Distributors resold the tobacco primarily to customers on the St. Regis/Akwesasne Reservation, which straddles the border between the United States and Canada. As part of the scheme, customers on the reservation smuggled the tobacco back into Canada for distribution throughout Canada and sale on the "black market."
   
8. Defendants acted in concert with each other, with distributors who supplied to smugglers, and with other co-conspirators to further their fraudulent scheme. Beginning not later than 1991, Defendants subverted a lawful association-in-fact "enterprise" within the meaning of 18 U.S.C. § 1961(4), turning it away from its purpose of providing tobacco, subject to Canada. s regulatory scheme, from farmers to smokers. At the same time, Defendants and their various agents, employees, and co-conspirators, also formed a series of "enterprises" within the meaning of 18 U.S.C. § 1961(4). These enterprises functioned to transport Canadian tobacco to the United States and to smuggle it back into Canada, in violation of United States law, for sale on the black market.
   
9. Each Defendant participated in the operation and management of the lawful enterprise as well as these unlawful enterprises. Each Defendant committed numerous acts to acquire and maintain and operate the various enterprises. These acts included a pattern of unlawful activity within the meaning of 18 U.S.C. § 1961(1)(B), including mail and wire fraud.
   
10. While Canada knew that smuggling was occurring along its borders, it was not aware of Defendants. participation in smuggling. Canada recognized the devastating impact upon Canadian society and the integrity of the Canadian regulatory framework. Thus, Canada augmented efforts to control tobacco smuggling and embarked upon an almost decade-long effort to eliminate the growing smuggling problem.
    
11. To avoid discovery of their fraudulent conduct, Defendants engaged in a scheme to frustrate Canadian authorities by making false and deceptive representations and by concealing facts that they knew would have exposed their scheme.
    
12. Canada pursued the smugglers and the smuggling activity with reasonable diligence. However, given the complexity of the activity and because of Defendants. efforts to conceal their activities, Canada only recently discovered sufficient evidence to bring claims for relief against Defendants for their involvement in the smuggling.
    
13. Defendants. unlawful conduct caused Canada to abandon its attempt to decrease smoking by raising duties and taxes, to lose substantial revenue from duties and taxes, and to spend significant sums investigating the smuggling scheme and combating associated criminal activity.  In addition, Defendants. conduct produced immense illegal profits. The effect of Defendants. fraudulent scheme and wrongful conduct continued to at least 1998. The full extent of Defendants. unlawful conduct is unknown, but is believed to have continued beyond that date.