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Imperial Tobacco, Rothmans Fined $1.1B

Two of Canada's largest tobacco companies have been fined $1.1 billion in criminal and civil penalties after pleading guilty to customs charges related to contraband cigarettes and smuggling.

OTTAWA (AP) -- Two of Canada's biggest tobacco companies will pay $1.1 billion in criminal and civil penalties after pleading guilty to customs charges related to contraband cigarettes and smuggling.

Under separate court settlements in Montreal and Toronto on Thursday, Imperial Tobacco Canada Limited was fined 200 million Canadian dollars ($195 million) and Rothmans Benson & Hedges will pay 100 million Canadian dollars ($97 million) as part of the criminal charges.

The companies will pay another 815 million Canadian dollars ($795 million) in civil damages to the federal and provincial governments over the next 15 years.

In total, Ottawa will receive 575 million Canadian dollars ($561 million), with the provinces getting the rest.

The companies pleaded guilty to "aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act," the Royal Canadian Mounted Police said.

Revenue Minister Gordon O'Connor hailed the settlement and the RCMP said the fines are the largest ever levied in Canada.

"Together the civil and criminal payments effectively ensure that no monetary benefit was realized as a result of these activities," O'Connor said.

Almost immediately following the announcement, Rothmans announced it will be acquired by Philip Morris International Inc. for 2 billion Canadian dollars ($1.95 billion).

Both companies said they were pleased to be able to turn the page on the matter.

"We are pleased to have resolved this issue," said Imperial Tobacco president Benjamin Kemball. "Today's events give our business the stability it needs to move forward."

In a statement, RCMP assistant commissioner Mike Cabana said the guilty pleas bring to an end more than eight years of investigation by the force and the Excise sections in Ontario and Quebec.

The charges involved the shipment of contraband tobacco in Canada to locations in the U.S. and near the Canada-U.S. border between 1989 and 1994.

From there, the government said it was distributed to smugglers or black-market distributors who brought it back into Canada for further illegal distribution.

The smuggling operations became so pervasive that it caused governments to roll back tobacco taxes, reducing the price of cigarettes to similar levels that existed in the U.S.

That brought an end to smuggling, but it made "cheap" cigarettes available throughout Canada, said Rob Cunningham, an anti-smoking activist and author with the Canadian Cancer Society.

As well, it set the stage for today's black marketing in cheap cigarettes. He said since taxes were hiked after 1999, independent manufacturers have taken up shop in several native reserves, most notably in Akwesasne, near Cornwall, Ontario, and the Six Nations reserve near Brantford.

"We now have a different problem today, and it's very significant and growing," he said. "But the actions of the tobacco companies 15 years ago did fuel a capacity for contraband networks to exist."