WINNIPEG — The diminutive shopkeeper glances up nervously at a new customer who has just asked to purchase two cigarettes.

She eyes the man up and down for a moment, then reaches into a container, hidden from view underneath her cash register, and pulls out two smokes.

They sell for 50 cents each.

They have no corporate markings on them.

They are, quite clearly, contraband.

The tiny convenience store, set amidst the dive bars and seedy hotels in Winnipeg’s tough north end, is just one of thousands of final destinations on Canada’s burgeoning underground railroad for illicit tobacco.

A Royal Canadian Mounted Police Web site says that officers seized 618,077 cartons of cigarettes across the country last year — an all-time record and five times the amount seized in 2004.

Police say most of the contraband comes through the Akwesasne Mohawk reservation that straddles the borders between the United States, Ontario and Quebec. It then streams up and down the Trans-Canada Highway in a steady, relentless flow of trucks, vans and cars.

“When I arrived here in 2001, there was just one manufacturer set up on the American portion of the Akwesasne Mohawk territory, and now there are over a dozen of these tobacco factories, and they are run by organized-crime groups,” said Sgt. Michael Harvey of the Central St. Lawrence Valley RCMP detachment based in Cornwall, Ont.

Using cheap loose tobacco from states such as North Carolina, the factories manufacture plain, unmarked cigarettes and divide them into plastic bags of 200, police say.

The “baggies,” as they are often called in the underground trade, have sold like hotcakes for years in Ontario and Quebec, where the $20 street price is about one-third the retail price of a carton of legal smokes.

What is now becoming more apparent is just how quickly the underground industry has spread across the country.

Last October, RCMP in Newfoundland and Labrador announced their largest seizure of contraband tobacco: 500,000 cigarettes from a home in St. John’s.

Earlier this year, Manitoba RCMP seized 1.5 million contraband cigarettes that police allege had been trucked in from Central Canada.

In March, Quebec Provincial Police reported breaking an organized-crime ring that allegedly brought contraband tobacco to Nova Scotia from Akwesasne and Kahnawake, south of Montreal.

Smuggling has become so big that RCMP detachments along the Trans-Canada Highway in eastern Ontario pull over transport trucks filled with contraband tobacco on an almost daily basis.

“There were a couple of years ago where a minivan was a typical seizure, but ... we are increasingly seeing larger loads,” said Cpl. Nancy Mason with the Kingston RCMP.

“We’re as busy as we can handle.”

As the cigarettes are transported farther afield, the price increases. Baggies sell for about $35 in Manitoba — still a bargain compared with the $86 retail price for a legal carton.

The smokes are sold almost in the open.

“Have I seen them? Absolutely,” said a provincial liquor inspector who did not want to be identified.

The inspector, who goes from bar to bar in Winnipeg to enforce compliance with provincial liquor laws, said he has visited a handful of drinking holes where contraband tobacco is sold at the beer vendor, known as the off-sale vendor in some other provinces.

“(Customers) just come up and say, ‘I’ll have a smoke’ (and) put their 50 cents on the counter. Done, gone, they walk away.”

The Mounties see it, too.

“We’re seeing it sold out of the trunks of vehicles. It then makes its way to areas such as community clubs or just about anywhere ... beverage rooms, legions, that type of thing,” said Staff Sgt. Ron Obodzinski, head of the anti-contraband division with the Manitoba RCMP.

“People will just approach you and say, ‘Are you interested in some cheap cigarettes?’”

Contraband smokes aren’t the only form of illegal tobacco. There are also smuggled foreign cigarettes on which taxes haven’t been paid, as well as cigarettes sold tax-free on reservations that make their way into non-aboriginal hands.

But law-enforcement officials say those problems pale in comparison to the cheaply manufactured baggie cigarettes that are now found everywhere.

The tobacco industry says the problem is so widespread that one in five cigarettes sold across the country is illicit. It’s become almost acceptable to buy contraband.

“The cost difference, that’s the biggest reason for me,” said Amanda, an office worker in downtown Winnipeg, who did not want her last name revealed.

Amanda buys a baggie almost once a week through a friend who gets it from another friend.

“Sometimes you have to wait a few days, but it’s pretty regular.”

Government coffers are feeling the pinch of the underground trade. Police estimate illegal smokes cost Canadians $1.6 billion in lost taxes every year. The Manitoba government expects its tobacco tax revenues to drop $34 million from last year to $170 million.

In the early 1990s, federal and provincial governments cut tobacco taxes to take away profit margins in the contraband trade. But the idea doesn’t seem to be on the table now.

“Taxes have been a major factor in reducing consumption of tobacco, especially among young people,” said Manitoba Finance Minister Greg Selinger.

“I think there are some enforcement issues that have to be followed up on by both federal and provincial governments.”

Following some big busts in the last six months, police are optimistic enforcement will pay off.

“We know who the players are, and we certainly are feeding (different) law-enforcement agencies to work these joint operations together ... so I think it will prove successful,” said Harvey.

Cornwall RCMP have been working co-operatively with police and band officials on Akwesasne, he said, but shutting down factories on the American side of the border is a challenge.

The Mounties and the U.S. Coast Guard have sworn in some of each other’s officers, allowing them to chase smugglers across the border.

Akwesasne officials did not return repeated phone calls requesting an interview. In previous media interviews, Police Chief Lewis Mitchell has said the community should not be blamed.

“We have to remember it’s organized crime from Montreal, the big cities, coming into our community and exploiting our borders, exploiting our community,” he told the CBC last month.

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