The illegal trade in tobacco on the Kahnawake reserve seems plain enough. There are hundreds of smoke shops lining the highways and roads of this community of about 8,000, located across the St. Lawrence from Montreal among the bedroom communities of Chateauguay and Candiac. According to a recent report from Quebec's Public Security Ministry, the reserve's location fuels the province's illegal tobacco trade. "Federal tobacco licences issued in native territories has contributed to the amount of contraband tobacco in Quebec," says the document, displayed on the ministry website. Native leaders, the report adds, have stymied federal and provincial inspectors from visiting tobacco production facilities.

But there's more going on here than meets the eye. Tom O'Connell, an executive with Swirling Wind Tobacco, has been trying to sell cigarettes legally for two years. "We've had federal and provincial inspectors in here many times," O'Connell says. "We have our federal licence, and we've been told that our provincial licence is forthcoming." Although incorporated in 2005, the company has yet to make a single cigarette: it can't without provincial benediction. The company has letters of intent to sell in Cyprus, Lebanon and elsewhere, but can't even send a sample to potential clients. Noting Kahnawake's reputation as a smuggling haven, O'Connell laments the "assumption that everything that comes from natives is illegal."

That's quite an assumption, given the recent history of the smuggling trade in this country. In the '90s, it wasn't native companies but the tobacco giant then known as RJR-Macdonald that was behind a huge smuggling scheme designed to avoid the excise tax, which reportedly cost the federal government $1.5 billion in lost revenue — far more than all of Kahnawake's smoke shops combined.