Cheap tobacco

But the plan was a bust. The black market grew so large in Canada that Canadians didn't have to cross the border for cheap tobacco.

By the end of 1991, company executives realized that their sales efforts in border stores were not paying off. So, Thompson said, they ``took the gloves off and went directly into the black market.''

``Imperial and Rothmans were very, very successful in the business,'' he said. ``You could see their volume growing almost weekly. It was from the company's standpoint a pretty frustrating period of time. We just obviously hadn't met the right people.''

That problem was about to be solved.

Three men - Larry Miller from Las Vegas and two brothers, Lewis and Robert Tavano from Niagara Falls, N.Y. - wanted to expand their small but growing business of supplying cigarettes to Indian smugglers.

The Tavanos were well-known, politically connected figures in Niagara Falls. Robert had been a prominent Republican Party chairman until he was convicted in 1975 of defrauding a local county government of $384,601 U.S. and of bribing two local politicians. His brother Lewis was charged but not convicted in the 1970s of participation in an illegal gambling ring. He later moved to Las Vegas, where he ran a sports bookmaking and loan operation. Buffalo police had linked the brothers to the late Stefano Magaddino, a Buffalo crime boss.

Larry Miller was a Las Vegas casino equipment salesman who had come to the Akwesasne reserve in 1989 to sell slot machines. He gave up that business when he saw the big-profit opportunities in cigarette and liquor smuggling.

Through his Las Vegas connections, he joined up with the Tavanos and formed LBL Trading Inc. (for Lewis, Bob and Larry), based in a small house along the main strip in downtown Niagara Falls, N.Y.

They obtained a U.S. federal licence to sell tobacco to Indians and, with money initially fronted by Las Vegas investors, began by purchasing Rothmans Benson & Hedges brands out of a free-trade warehouse in Buffalo owned by Tim and John Palisano. (Free-trade warehouse owners are essentially freight-forwarders, storing cargo until it is picked up.)

The Palisanos' warehouse was stacked to the roof with Rothmans products which LBL and other companies trucked to Akwesasne.

LBL was a small player in this business and began looking for a more direct line to the tobacco manufacturers. Again the LBL owners relied on their Las Vegas connections. Through an executive with the Las Vegas Four Seasons Hotel, they obtained an introduction to a senior executive at RJR-Macdonald.

The introduction was timely. According to a company source, RJR-Macdonald's duty-free section had been unsuccessfully trying to push various ship chandlers (who supply duty-free goods to ships leaving for international waters) and duty-free companies in Montreal, Toronto and Vancouver to buy containers of cigarettes which they would divert to the U.S. to supply the smugglers. Some of these companies had set up affiliates in the U.S. officially to receive these shipments and then send them back through Akwesasne.

Yet despite constant sales pressure, these customers never bought enough volume to satisfy RJR-Macdonald's demands.

``We had them in Toronto a number of times,'' Thompson said. ``Sat down with (sales vice-president) Stan Smith and myself. They were frustrating times, because these people were so slow to fill in the volume request that we were putting on them.''

Then LBL showed up. Thompson said he was directed in March 1992 by Smith, his boss, to ``call Bob Tavano and specifically set up a meeting.''

``I asked Stan who Bob Tavano was and Stan Smith told me that (RJR-Macdonald CEO) Ed Lang had been introduced to the Tavanos ... that Ed Lang had received a call from an executive at the Four Seasons, a mutual friend, and he in fact handled the introduction to Lang to the Tavanos.''

Thompson and his assistant, Wade Blonheim, met with Miller and the Tavanos in March 1992 at the Como Restaurant, a popular Italian restaurant and deli in downtown Niagara Falls, N.Y. Thompson said they showed him their trading licence which allows them to sell to Indian reserves and boasted they had been successful with Rothmans brands but felt they could do more volume if they had a direct supply of Export `A's from RJR.

``These people were ready to do business,'' Thompson said. ``We weren't doing very much business there (across the border) and we were in the process of shifting gears and going direct to the black hole.''

The Tavanos were prepared to start with one container a week and possibly more later.

When Thompson got back from the meeting, he said, he gave a copy of LBL's Indian trading licence to Paul Neumann, RJR-Macdonald's vice-president of finance, whose department would vet the company's application to become a direct buyer.

Approval was almost immediate. A process that usually took weeks was fast-tracked. No applications had to be filled out or financial statements presented. Within a few days, LBL was granted a direct line to RJR-Macdonald. All it had to do was pay up front for every shipment. The word on LBL right from the beginning was a go. Basically, send in the money and we'll ship the goods.

Checking for Bugs

Les Thompson, now 52, was a hard-driving RJR-Macdonald salesman who had worked his way up the ranks by always reaching or exceeding his sales projections. An exceptionally fit long-distance runner, he was considered by colleagues to be aggressive, loyal, though not always likeable. But he brought in the deals and relentlessly pushed customers to buy more. He had been Ontario sales director and now Smith charged him with the task of pushing tobacco on LBL and a string of other third-party distributors the company had lined up.

Les Thompson never asked why. He just asked how high. But blindly accepting this job was probably the biggest mistake he would ever make. RJR's approach was ``take no prisoners,'' and Thompson was the field general who would end up behind bars.

Shipments began almost immediately. Every delivery was prepaid. ``They would fly cheques into whatever, Toronto Island, to our office, plenty of times couriers driving right to our office. Nothing would be shipped until it was paid,'' Thompson said.

``We were shipping one container a week, which represented 10 million cigarettes or about 20 per cent of our weekly production.''

Within a short time, RJR was shipping three to four containers a week to LBL and other distributors. Sales briefs to Smith demonstrated that what the company called the ``parallel market'' or ``re-entry market'' was fast becoming first 30, then 50 per cent of the company's volume on a weekly basis, all going through the black hole of Akwesasne.

The cigarettes were sent to a Palisano free-trade zone in Buffalo where they were picked up by LBL and five other traders who shipped directly to Akwesasne.

So fast and furious was the business that RJR-Macdonald had no time to change the packaging to meet export requirements. So Palisano had to hire people to unwrap every carton and place a ``Not for Sale in Canada'' sticker on each package, then rewrap them for delivery to Akwesasne to make the shipments look legitimate, Thompson said.

There was ``no doubt in anybody's mind at any level of management at First Canadian Place where these people were going to be selling cigarettes,'' Thompson said.