The RCMP has identified nearly 30 illegal cigarette manufacturing plants operating on three native reserves between Six Nations and Montreal, but the national police agency has only been able to put a single one of them out of business in the past two years.

"It's politically sensitive, there's no doubt about it," said RCMP Staff Sergeant Tim Ranger of the Customs and Excise branch.

According to the RCMP, seven of the unlicensed cigarette manufacturers are operating at Six Nations, one of Canada's main hubs in the contraband tobacco trade.

A spokesperson for Six Nations Police believes the number of unlicensed facilities could be even higher.

"We're hearing in excess of 10," said Deputy Chief Rocky Smith.

To date, the RCMP says, there haven't been any charges laid at Six Nations related to illicit tobacco manufacturing.

"As you're aware, the issue of external police presence in some communities is very sensitive," said Inspector Derek Simmonds, director of the RCMP's Customs and Excise branch.

"You simply cannot do this in isolation. The RCMP cannot just simply move in and do it all. We have to look at it as a partnership."

But Smith said his Six Nations police force doesn't lay charges related to illegal cigarette manufacturing because it's viewed as a taxation issue, not a policing issue.

"Six Nations Police has always maintained that we're not tax collectors," Smith said. "It's a tax issue that we're not involved in."

The growing connection between illegal cigarettes and some of Canada's First Nations territories has become a thorny issue for enforcement agencies because of a clash between Canadian law and native sovereignty and taxation issues, as well as traditional First Nations rights regarding the role of tobacco.

Contraband refers to any tobacco product that does not comply with all aspects of applicable federal and provincial statutes, including such things as importation, stamping, marking, and the payment of proper duties and taxes.

Almost one of every three cigarettes smoked in Ontario and Quebec last year was a contraband product, according to a recognized study, and more than 90 per cent of those illegal cigarettes originated on First Nations reserves.

Along with the seven at Six Nations, the RCMP has identified between 11 and 13 unlicensed manufacturers at Akwesasne, which straddles the Canada-U.S. border near Cornwall, and another 11 at Kahnawake, just south of Montreal.

"I don't think it's as simple as just showing up on the doorstep," Simmonds said. "These things involve long, protracted investigations.

"It's not as simple as walking up to all 29 or 31 that's listed ... and just dealing with them that easily," he added. "It involves getting partnerships, it involves consultations with the stakeholders, it involves the communities themselves.

"Everybody has to be part of this process."

Tackling contraband tobacco has become a major priority for law enforcement agencies, including the RCMP, the Canada Revenue Agency, the Canada Border Services Agency and the federal finance department.

For the past two months, a standing parliamentary committee on public safety and national security has been hearing testimony from all sides, including aboriginal leaders from those First Nations territories identified as major sources for the production and distribution of illegal smokes.

The problem is costing Canadian governments as much as an estimated $4 million a day in lost tax revenue, as smokers turn to unmarked bags of 200 cigarettes that can be bought for as little as $6 or $8 a bag on a native reserve. Compare that to the cost of a legal carton of 200 cigarettes that can sell for around $85 with all appropriate taxes included.

That's as little as 3 cents a cigarette for the contraband smokes versus almost 43 cents per legal cigarette.

Contraband tobacco is a problem that's growing dramatically, by all estimates.

Last year, the RCMP seized the equivalent of more than 123 million illegal cigarettes.

It marked an all-time high for the RCMP, more than 20 times greater than the amount of illegal cigarettes seized in 2001.

The pace of seizures this year is slightly higher still.

Through the first six months of 2008, police agencies have confiscated about 69 million illegal cigarettes.

Just three weeks ago, the RCMP and OPP stopped a tractor-trailer on Highway 401 near Brockville and seized a load of 17 million contraband cigarettes that were destined for the black market.

If convicted, the driver faces a minimum fine of $2.8 million.

Not all of Canada's contraband tobacco is connected to First Nations territories, however.

There's also been an increase in illegal tobacco products shipped from China. According to the Canada Border Services Agency, more than 95 per cent of the 54

million illegal cigarettes seized at the Canadian border last year came from China.

There has also been a sharp increase in the use of couriers and postal systems to move contraband tobacco. From 2006 to 2007, the number of seizures through these routes rose by 150 per cent, from 641 seizures to 1,610 last year.

"I'm not appearing before this committee today to state that we have control over the situation and that there is no problem," RCMP Chief Superintendent Mike Cabana told the parliamentary committee in May. "Yet I would not say that we have lost control of this particular situation. There is some distance between the two extremes.

"The problem is on the rise, which has been confirmed by the number of tobacco seizures made in recent years," he said.

More than 150 organized crime groups are involved in the contraband tobacco trade, according to the RCMP.

"These are criminals who also deal in drugs, firearms smuggling and money laundering," Cabana told committee members.

There's even an element of human smuggling, the RCMP noted.

"The public needs to understand that purchasing contraband tobacco directly supports organized crime," Cabana added.

At Six Nations, Smith said there is some evidence pointing to the involvement of organized crime in the contraband tobacco trade.

"I'm sure they're in the background somewhere," Smith said. "With organized crime, if there's money to be made, they certainly want to get their hand in it."

The deputy chief also said he has seen an increase in drugs and guns on the reserve.

"That relates to the money being available," he added.

The RCMP declined to identify any specific organized crime groups involved in the contraband tobacco trade.

"It's a pretty big field," Simmonds said.

"Tobacco is a commodity. (Organized crime groups) are commodity-based," he added. "If that window closes tomorrow, I suspect they will move on to whatever comes up as the next commodity of choice."

Some of the organized crime networks date back to the early 1990s, when cigarette smuggling last showed a spike because the government quickly and drastically raised taxes. Now some of the higher-end organized crime groups are trying to muscle out smaller rivals to create monopolies.

In the U.S., a report earlier this year for the House Committee on Homeland Security described how millions of dollars in profits from cigarette smuggling in the U.S. are being funnelled to Middle East terrorist organizations, such as Hezbollah, Hamas and al-Qaeda.

Simmonds said the RCMP is not aware of any links between Canada's contraband tobacco trade and the funding of such terrorist groups.

He was also quick to point out that the contraband tobacco trade involves only small groups on First Nations territories.

"We definitely do not want to leave the perception that it's the entire community," Simmonds said. "It's a small group.

"Just like there is crime in Hamilton, not every Hamiltonian is involved."

Ten billion cigarettes.

That's billion, with a "B."

That's the estimated number of illegal cigarettes consumed in Canada last year, according to an in-depth study of the country's tobacco market.

That's equal to about 330 cigarettes for every man, woman and child in the country. It's enough to fill a thousand 40-foot trailers.

According to Benjamin Kemball, president and CEO of Imperial Tobacco, the illegal trade has now overtaken Rothmans, Benson & Hedges and JTI-MacDonald to become the second-largest supplier of tobacco products in Ontario and Quebec.

"It's well on course to becoming the leading supplier nationally, ahead of even Imperial Tobacco, which manufactures 14 billion cigarettes a year," Kemball told the standing parliamentary committee in May.

Overall tobacco consumption, including contraband, is declining by 2 to 3 per cent a year, but about 8 per cent of the market is shifting to illegal cigarettes each year.

The ease with which people can now access illegal cigarettes is startling, and that easy access is spreading across the country.

Calgary Conservative MP Art Hanger told The Spectator that contraband cigarettes from Six Nations are flooding the streets of Calgary, where they're being sold through businesses, or out of the backs of vehicles.

A baggie of 200 illegal cigarettes bought for $8 at Six Nations can be trucked to Alberta and resold for $40, generating large amounts of tax-free cash.

"My question is, why is nobody doing anything about it on the enforcement side?" Hanger said.

"There's a tax issue here, there's distribution of contraband, and who's behind it all?"

Kemball told the committee he has heard anecdotes "of people leaving $10 in their mailbox and coming back that evening and they have their baggie of 200 in there."

"In parts of Montreal, and indeed in other parts of Quebec, you (find) a card under your door saying, 'Firewood, so much a cord; cigarettes $6, $8, $10,' " Kemball added. "So there is that network out there.

"How much of that is actually organized crime, in terms of the Mob or the gangs, and how much of it is entrepreneurs getting into the illegal market, we don't know. Either way, it's very bad news."

The limitless supply of cheap cigarettes through the black market leaves a couple of groups particularly vulnerable -- children and, somewhat ironically, natives themselves.

"Children now have access to cigarettes at pocket-money prices, and criminals do not ask for proof of age," Kemball told the parliamentary committee.

A study published last fall analyzed 11,000 cigarette butts collected from the area around 105 schools in Ontario and Quebec.

The median rate of contraband cigarettes at the schools was about half, and at schools in some lower-income neighbourhoods, the percentage of illegal cigarettes was as high as 75 per cent.

"What that means is that the market is extremely prevalent in the youth segment, which represents a highly vulnerable client group," said Michel Gadbois, senior vice-president for the Canadian Convenience Stores Association.

At the same time, smoking rates among aboriginals "are scandalously high," according to Rob Cunningham, senior policy analyst with the Canadian Cancer Society.

About 19 per cent of Canadians, on average, are smokers. Among aboriginals, however, the rates are as high as nearly 60 per cent.

"The most important explanatory reason for this is access to cheap cigarettes, including contraband cigarettes," Cunningham told the committee.

Last month, a handful of native leaders from Akwesasne and Kahnawake appeared before the parliamentary committee, warning the government that it's dangerous to use terms such as legal and illegal in the context of the First Nations tobacco industry.

"We resent the effects of our continued criminalization in the mainstream media," Michael Delisle, Grand Chief of the Mohawk Council of Kahnawake, told committee members.

"The term 'contraband tobacco' refers to your government's perception of the products manufactured and the industry itself."

Lloyd Phillips, public security adviser for the Assembly of First Nations of Quebec and Labrador, said linking organized crime with the native cigarette trade is also unhelpful when it comes to finding a solution.

"Including cigarettes and tobacco, which is primarily a taxation issue and highly political, in the same category as drug traffickers and other crimes is not only wrong, it sets the stage for conflict," Phillips said.

The native leaders also said the government needs to recognize the important role tobacco plays in the First Nations economy.

"When you talk about smuggling in Akwesasne to our community residents, they'll say 'Guns, drugs, aliens, terrorism,' " said Michael Mitchell, former Grand Chief of the Mohawk Council of Akwesasne. "You say 'cigarettes' and they'll give you a look like, 'Well, it's helping the economy.'"

According to the native leaders, the federal government needs to negotiate an agreement to the taxation questions that have been raised, instead of making it a law enforcement issue.

"We are law-abiding citizens," Delisle said, "depending on, I guess, what we consider and what you consider 'law-abiding citizens.'"

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