Backgrounder

What is the Government of Canada doing today?

The Government of Canada today filed a notice of appeal in the United States Federal Court in its anti-smuggling lawsuit against RJR-Macdonald Inc., R.J. Reynolds Tobacco Holdings Inc., several related companies and the Canadian Tobacco Manufacturers Council. Today's filing of notice merely sets the process in motion by notifying courts and defendants that Canada intends to appeal.

Canada had 30 days from entry of the Court's June 30, 2000 judgment in which to file its notice of appeal. As the 30^th day falls on Sunday, July 30, 2000, notice had to be filed in the Northern District of New York by Monday, July 31, 2000.

Canada's Lawsuit

In its claim, the Government of Canada alleges that there was a conspiracy, beginning in 1991, to defraud Canada, through smuggling, in violation of the racketeering laws of the United States. At issue is the damage this conspiracy inflicted on Canada. Massive cross-border smuggling frustrated Canada's national strategy to reduce tobacco consumption, especially among young people, and in 1994 forced the Government to significantly reduce excise taxes. Through this appeal, the Government demonstrates its commitment to stop those who, it is alleged, would engage in unlawful conduct that undermines important Government policy.

The Government of Canada launched its action against the defendants on December 21, 1999 in U.S. District Court in Syracuse, New York.

The Revenue Rule

On June 30, 2000, the United States District Court dismissed Canada's case on a point of law, citing specifically the Revenue Rule, an 18^th century common law that permits a court to decline to enforce another country's tax laws. The District Court said that the origin of the Rule and whether it should continue to apply are subject to serious question, but it felt bound by precedent set in higher courts. The District Court did not examine the merits of Canada's case in reaching its decision.

The Government of Canada believes the Rule has no application in this case. The Government alleges that the defendants conspired with known distributors and smugglers to illegally smuggle their tobacco products into Canada. The lawsuit alleges that high level executives were involved in encouraging and authorizing the smuggling conspiracy.

The Government also alleges that defendants and their co-conspirators made hundreds of millions of dollars from illegal activity in the United States. At the same time, the Canadian government suffered over one billion dollars in damages, including lost taxes and enforcement costs incurred while combating this smuggling operation. It is these damages that are at issue in the Government's lawsuit.

Jurisdiction

The lawsuit was launched in the United States under the U.S. federal statute known as the Racketeer Influenced and Corrupt Organizations Act (RICO). Canada remains committed to resolving this issue in the United States. Many of the defendants involved are based in the United States, much of the alleged illegal activity took place in the United States, and many of the witnesses and documents relating to the case are in the United States. Pursuing the case in American courts is both cost-effective and efficient.

Other Cases

The European Union recently announced that it also would file a United States lawsuit against tobacco companies to recover billions of dollars of unpaid duties on cigarettes smuggled into the EU.

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Department of Justice
July, 2000