In Canada, a significant market in contraband liquor products has developed over the past five years. The growth of the problem of smuggled liquor has been fueled by high liquor taxes in Canada versus those in the U.S. and the resulting high prices for legal liquor. This situation has created an opportunity for individuals and groups to buy inexpensive liquor in the U.S., smuggle it into Canada, avoid the payment of Canadian taxes, sell the contraband liquor at approximately one-half the legal price and make a significant profit. When this situation is combined with the Canadian public's willingness to buy illegal liquor, all of the ingredients for a large-scale smuggling problem are present.

Based upon research and interviews, the following is a summary of our findings with respect to the nature of liquor smuggling in Canada:

1. Liquor smuggling occurs throughout Canada. The bulk of the liquor smuggling occurs in Ontario and Québec, but there is also an apparent problem in British Columbia.

2. The source of contraband liquor appears primarily to be a product that is distilled and/or bottled in the U.S. Our research has indicated that there are relatively few incidents of Canadian bottled liquor exported for sale abroad and then smuggled back into Canada in commercial quantities.

3. The largest area of smuggling occurs in and around Cornwall, Ontario across the Akwesasne First Nations reserve. It has been estimated that 90% of all liquor smuggled into Ontario enters Canada through Akwesasne.

4. Liquor is smuggled into the country in commercial quantities by organized crime. Once in Canada, the distribution network is fragmented and there is a broad range of groups and individuals involved in conveying the liquor into the hands of the end user.

5. The places where illegal liquor is sold to individuals include work sites and sporting events, as well as bars and restaurants. Individuals operating businesses such as coffee trucks, taxis, gas stations, motels, small retail stores and coffee or donut shops are known to operate as contraband liquor distributors. Many distributors operate after-hours liquor delivery services whereby they accept orders by cellular phone with immediate delivery.

6. The smuggling of liquor products is a broad-based and well-entrenched problem that involves a wide spectrum of the Canadian population. Consumers of smuggled liquor come from all walks of life and income brackets. The common link amongst consumers purchasing smuggled liquor appears to be the desire to avoid the payment of high prices for legitimate beverage alcohol generated by high liquor taxes. Under the current liquor tax structure, 83% of the retail price of a typical bottle of Canadian spirits is paid to federal and provincial governments. By comparison, in the U.S., on average, 42% of the retail price represents taxes.

7. The use of smuggled liquor by licensed establishments is widespread in Ontario and Quebec. The purchase of contraband liquor by licensed establishments is influenced by the need to remain competitive by offering lower prices, avoiding the special hospitality gallonage tax (in Ontario) and the potential for increased profitability and sustainability.

8. The primary reasons for the development of a market for smuggled liquor in Canada are as follows:
   • a continuation of high liquor taxes in Canada compared to those in the U.S. and the resulting price disparity;

   • growth in the availability of smuggled liquor;

   • and growth in demand for smuggled liquor.

Copyright © 1999 Association of Canadian Distillers