In an article published today in the Ottawa Citizen, MLI's Brian Lee Crowley highlights the dangers facing Canada from illicit trade in the contraband pipeline along the 401 corridor.

A cross-border accident waiting to happen

By Brian Lee Crowley, the Ottawa Citizen, March 29th, 2013

Because keeping the border open and goods flowing with our U.S. neighbours is practically the definition of Canada's economic self-interest, anything that attracts the unfavourable attention of Washington to our border is to be avoided at all costs. Just ask the Mexicans.

That's why we should all be uneasy about large-scale smuggling across the border, especially where it involves, as it almost always does, organized crime.

Consider the so-called 401 Corridor, in which Mohawk communities that straddle the Canada-U.S. border around Cornwall, Ont. have become a conduit for a thriving contraband trade.

Contraband cigarettes originating in Mohawk communities on the U.S. side then pass through the "pipeline" to the Canadian reserves, where they sell for a tiny fraction of the value of legal cigarettes. Organized crime groups from outside the territory provide an extensive distribution network throughout Quebec and Ontario.

Tobacco taxes are generally lower in the U.S., and that differential drives the smuggling, in which criminal entrepreneurs simply pocket a piece of the price difference by braving the risk of being caught and punished.

But cigarettes have been trafficked illegally across the border for years. And in any case, the cigarettes are being smuggled into Canada. Why would Washington care?

Two reasons. According to research for the Macdonald-Laurier Institute, the illegal tobacco trade is clearing about $75 million a year in the 401 corridor alone. That attracts organized crime in a big way and generates ancillary activities such as bulk cash smuggling and money laundering. The U.S. invests major resources in trying to disrupt these money flows. They don't appreciate breaches in the border anywhere that accommodate these activities.

More disquietingly, although the pipeline may have been created with tobacco in mind, once the infrastructure exists, you can put almost anything in it. And some of those things are truly frightening.

I am not even talking about illicit drugs, although there is lots of evidence that the pipeline has been used to shift marijuana, ecstasy, cocaine and other drugs in both directions. Better policing has helped to squeeze, but not eliminate, those activities.

More worrisome are things like weapons, people and counterfeit merchandise.

Once the infrastructure is in place, and a culture of impunity before the law established, very little restrains the criminals in charge from putting in other things.

At the moment a kind of modus vivendi appears to prevail along the 401 corridor. Enforcement efforts focus on drugs and weapons, with tobacco getting a bit of a free ride, so long as the smugglers stay out of the worse stuff and keep violence minimal.

Drugs and other dangerous contraband are thus kept under relative control because while there is money to be made, the chances of being caught and not enjoying the profits is much greater than with tobacco. In a world where the police don't have enough people and equipment to enforce the law, and politicians don't have the stomach for a fight with First Nations, this is probably a rational outcome, although for a society supposedly based on the rule of law, it is ultimately corrosive of some of our most important values.

But the face of smuggling is changing. Organized crime is starting to see that some of the greatest returns from smuggling don't come from heavily criminalized activities like drug trafficking and human smuggling. It comes from smuggling counterfeit products like pharmaceuticals and expensive parts and equipment.

Roger Bate of the American Enterprise Institute in Washington has spent years documenting the extent to which phoney drugs are now circulating around the world, counterfeits that look and feel just like the real thing, but which have none of their therapeutic properties. And organized crime is now starting to manufacture what look like high-quality replacement parts for aircraft, for example, but are in fact cheap and dangerous knock-offs.

Unfortunately, as Bate documents, too often the penalties for such activities are relatively minor in far too many places, making them highly attractive for smuggling pipelines always on the lookout for high value contraband that brings low risk of serious sanctions.

The 401 corridor is, therefore, a cross-border accident waiting to happen.

High tobacco profits sustain a smuggling infrastructure that can move anything as long as the price is right, and new products with high profit margins but low risk are increasingly grabbing the attention of the organized criminals in charge.

Progress will only come when authorities on both sides of the border take tobacco smuggling seriously and take the steps to put it, and the pipeline it supports, out of business. If we could also bring the Mohawks into the mainstream of economic life and provide attractive economic alternatives for First Nations youth, we'd close off a major point of vulnerability in our relationship with the U.S., while clearing up a festering problem at home.

Brian Lee Crowley (twitter.com/brianleecrowley) is managing director of the Macdonald-Laurier Institute, an independent non-partisan public policy think tank in Ottawa: macdonaldlaurier.ca