A former tobacco company executive will not serve any jail time after pleading guilty to conspiring to smuggle cigarettes, and defrauding the Canadian government of more than $1 billion in taxes, CBC News has learned.

Stan Smith was vice-president of sales for the former RJR-MacDonald company when high tobacco taxes sparked a wave of cigarette smuggling.

Stan Smith was sentenced to eight months of house arrest for his role in the conspiracy.
(CBC)

Court documents from his sentencing hearing show that Smith confessed to overseeing the scheme. In return for co-operative testimony, the judge gave Smith a conditional sentence with eight months house arrest.

The case dates back to the early 1990s when the Canadian market was flooded with tax-free cigarettes imported via native reserves on the Canada-U.S. border. 

By 1992, an estimated 20 per cent of cigarettes sold across Canada and 50 per cent in Quebec were smuggled. That figure rose to 60 per cent by 1994.

Accused of massive fraud

Investigators eventually accused JTI-MacDonald Corp., formerly known as RJR-MacDonald, Inc., and several of its subsidiaries of conspiring to defraud the federal, Quebec and Ontario governments out of $1.2 billion in tax revenue between 1991 and 1996.

The companies were alleged to have supplied the Canadian black market with Canadian-brand tobacco products manufactured in Canada and Puerto Rico.

The RCMP said in 2003 that the firms had provided the cigarettes "knowing that these products were being smuggled back into Canada and onto the commercial market."

However, the tobacco companies denied doing anything illegal.

Smith's connection to big American smugglers was revealed in 1998 by CBC Television's The Fifth Estate.

Later that year, he agreed to co-operate with the RCMP.  An investigation eventually led to charges against Smith, and other senior executives and the company.

The judge called it the biggest fraud case in Canadian history.

Pleaded guilty four months ago

Four months ago, after a private pre-trial hearing, Smith pleaded guilty to one count of conspiracy.

However, he claimed the conspiracy had been developed by more senior executives at the company. 

RCMP officials said they wouldn't have a case against the senior executives without Smith's help.

The judge who sentenced Smith called him the finest tobacco smuggling informant in the world.
  
None of Smith's co-accused or the company would comment on the developments.

Their preliminary inquiry is expected to wrap up this fall, after which a judge will decide if there is enough evidence to send the case to trial.