Tarbell Inc. has received a U.S. Treasury Department permit to legally manufacture cigarettes effective April 7. (Canadian Press)

An unlicensed U.S. cigarette factory on a Mohawk reserve near Cornwall, Ont., has signed a deal to legalize its operations.

Tarbell Inc., one of the biggest cigarette manufacturers on the New York side of the Akwesasne Mohawk Territory, received a U.S. Treasury Department permit to legally manufacture cigarettes, effective April 7, reported the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives this week.

That means its cigarettes, sold under brands such as Signals, will be taxed, stamped and monitored. The company will also be required to keep all records required by law, which will be subject to inspection.

As part of the deal, the company also paid $1.75 million US in fines to the bureau for prior cigarette trafficking and tax law violations.

Akwesasne straddles the Canada-U.S. border as well as the Quebec-Ontario interprovincial boundary near Cornwall, Ont. In 2008, RCMP reported that Akwesasne was the source of 90 per cent of illegal cigarettes in Canada and estimated that cigarette smuggling costs the federal government as much as $2 billion in lost tax revenue per year.

According to the bureau, Tarbell is the second manufacturer on the reserve to resolve cigarette regulation violations with the U.S. government.

The bureau's Special Agent Joseph Green said the government is currently in talks with several other producers in the area to work out similar deals.

While U.S. authorities have been unwilling to enter the reserve to shut down the factories, which are the main employer there, they have been seizing tractor-trailer loads of raw tobacco heading into the reserve from plantations in the Carolinas. Green said those seizures have been costly for the unlicensed plants.