Liquor bootleggers go north Smugglers tap market in Canada, where sin taxes are high

April 24, 1996|By Scott Higham | Scott Higham,SUN STAFF

Gunbattles. Rumrunners. Federal law officers hot on their trail.

Reminiscent of an age-old racket, bootleggers from states such as Maryland are running booze to Canada, where stiff sin taxes are rekindling the lucrative trade that once dominated the Roaring '20s and the rumrunning days of Al Capone.

In federal court in Baltimore this month, a Cecil County liquor store owner was sentenced for his role in a busy, international smuggling ring. Federal agents say it is all part of a new trend for lawbreakers in the United States -- boxing up cases of liquor and heading to the Great North.

"It's becoming a big problem," said M. Stewart Allen, special agent in charge of the U.S. Bureau of Alcohol, Tobacco and Firearms in Maryland and Delaware, the modern-day Treasury Depart- ment that made Eliot Ness and his "Untouchables" famous nearly 70 years ago.

In a racket that would impress the legendary crime fighter, liquor smugglers are learning there's big money to be made these days by taking boxes of American-made liquor across the border.

Taxes on Canadian liquor are so high -- 83 percent on each bottle -- that consumers there have trouble affording it.

The U.S. tax is 42 percent, making American liquor as good as gold on the Canadian black market. In the United States, a 750 milliliter bottle of Gordon's vodka costs $6.49. In Canada, it's $19.50.

A case of six 1.7-liter bottles of bottom-shelf liquor costing as little as $30 in the United States can fetch $100 per case on Canada's black market. The same case costs $200 in Canada, if purchased legally.

Constables with the Royal Canadian Mounted Police say it's not so easy catching the bootleggers of the '90s. Too many people are plying the bootlegging business. Each year, smugglers make an estimated $500 million profit.

"Even if we stationed someone every hundred yards along the border, they will still get it across," said Sgt. Gilles Duguay, supervisor of an anti-smuggling task force for the Mounties in Ontario.

The smuggling network hasn't changed much since the days of Prohibition, when alcohol was banned in the United States between 1920 and 1933, and Canada was one of the biggest sources of illegal liquor.

Today's bootleggers start in places such as Maryland and Virginia, where they buy cases of alcohol from liquor stores. They load trucks and cars equipped with special suspension systems and drive the liquor to the Akwesasne Mohawk Indian Reservation on the banks of the St. Lawrence River in upstate New York.

The smugglers load boats on the shores of the reservation -- a sovereign nation where tax laws do not apply -- and ship the liquor across the St. Lawrence. After slipping into secluded coves along the Canadian coast, they toss the liquor into waiting cars, trucks, vans and even snowmobiles.

The liquor is sold just about everywhere -- to restaurants and bar owners, in mall parking lots and outside hockey games. The estimated tax losses in Canada: about $800 million a year.

With the losses climbing and more investigators being assigned to track smugglers in Canada and the United States, Canadian Mounties and ATF agents are trying to crack down on large-scale liquor running rings.

The case against the Cecil County liquor store owner started two years ago, when Mounties pulled over a truck loaded with liquor and found phone records tracing the shipment to Maryland, according to court records.

Relying on confidential informants and undercover surveillance, Mounties and ATF agents followed shipments from two liquor stores owned by Arthur Johnston Jr. -- Johnston's Cut Rate Liquor in Rising Sun and Johnston's Discount Liquor in Conowingo, court records show.

Bootleggers drove from Canada, bought hundreds of cases of booze from Johnston's two stores and took the liquor back to the Akwesasne reservation and then to Canada, the records state.

This year, Mounties and ATF agents broke the ring, announcing the arrests of 37 people on 228 smuggling-related charges in Canada and the United States. Among those arrested was Arthur Johnston Jr. He was charged in U.S. District Court in Baltimore with violating Internal Revenue Service tax laws by selling the liquor without a wholesale license. He pleaded guilty to the misdemeanor charge and was ordered to pay $7,000 in fines a few weeks ago.

Mr. Johnston's lawyer downplayed the significance of the case.

"Look at what Mr. Johnson was charged with, and you can see the seriousness with which the government viewed his conduct," attorney Gregg L. Bernstein said.

Law enforcement officers say liquor store owners in the United States like Mr. Johnston are costing taxpayers on both sides of the border millions of dollars in lost revenue. And the smuggling trade they are fueling with illegally sold booze is becoming more dangerous as organized crime groups and violent motorcycle gangs muscle in on the black-market business.

Gunbattles along the St. Lawrence River are not uncommon.

"It is a very serious situation," said Mr. Allen of the ATF.

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