Federal memo estimates up to 30% of lobster catch in Atlantic Canada goes unreported

The federal Department of Fisheries and Oceans suspects hundreds of millions of dollars worth of lobster is caught in Atlantic Canadian waters each year but never reported to authorities, raising both tax evasion and conservation implications in the country's largest fishery.

An internal memo in August to DFO's deputy minister said it's estimated that between 10 and 30 per cent of lobster landings in the region are unreported, and the department said in a statement it is working to map out criminal networks and money laundering in the sector.

"It's mind-boggling," said Osborne Burke, the president of the Nova Scotia Seafood Alliance, which represents about 150 lobster buyers and processors and has urged a crackdown on unreported cash sales.

"It's tough for the ones that are playing by the rules to be able to compete in this industry when you have this other illegal activity occurring."

Allegations of illegal and unreported fishing have become a flashpoint on the East Coast, both in the lobster sector and the enormously profitable but highly fraught spring fishery for juvenile eels. Some critics have blamed DFO for what they call a lack of enforcement.

Commercial lobster fishermen are required to fill out logbooks daily, including dates, vessel and licence numbers, location fished, the number of traps hauled and the weight of lobster when it is sold. The information provides valuable data to DFO to help analyze the health of the stock.

In recent years, the value of reported lobster landings has fluctuated between $1.2 billion and $2 billion annually. The internal DFO memo, which was released under access-to-information laws, said if estimates are applied to 2018-2021 landings data, unreported catches range from $176 million to $681 million annually.

DFO declined an interview request. A statement said the estimates were prepared by department economists and provided to a steering committee last year. Officials were unable to come up with exact figures showing the scope of the problem.

The memo said DFO is working with the Canada Revenue Agency to do audits in the sector to "gather insights." The department is also turning to FINTRAC, the country's financial intelligence unit, with the aim of identifying "key players."

"Unreported catches can contribute significantly to the decline of stocks and the fragility of our marine ecosystems," the statement said.

"It also undermines economic stability and fairness among participants in a fishery and can damage Canada's international reputation for sustainable fishing."

Morley Knight, a retired former assistant deputy minister with DFO, said the problem has grown in the last decade, as a fishery that once provided a modest living can now ring in hundreds of thousands of dollars a year or more in income for a licence holder.

That kind of big money brings with it a lot of tax. Some income tax can be shaved off if the fisherman is willing to under-report how much lobster they are bringing to shore, selling a portion for cash at the wharf to a buyer also willing to fudge the numbers.

Knight said he's been told the problem is being fuelled, in part, by buyers from outside the Maritimes, some of whom deploy intermediaries to show up at wharves with "briefcases of cash." That puts pressure on local buyers who feel forced to follow suit.

Aside from income that is hidden from the Canada Revenue Agency, he said, the main concern if there is significant misreporting is DFO doesn't have a good handle on whether lobster catches are going up or down and if the stock remains healthy.

Knight has advocated for a dockside monitoring program for the lobster industry where employees of third-party companies verify catches when they are weighed at the wharf, similar to what already happens in quota-based fisheries such as crab.

He said such a system is "not perfect," people do find ways to cheat, and he acknowledged there may be pushback from fishermen and buyers worried about the logistics, but he believes it would be a "significant improvement over the current situation."

Burke pointed in frustration to a lawsuit launched this week by the Unified Fisheries Conservation Association alleging a lobster pound in Nova Scotia's Shelburne County is buying illegally caught lobster. In his view, industry is being forced to investigate and take action against those breaking the law when that should be the responsibility of DFO.

The broader issue, he said, are the criminal elements that have descended on the sector. He said he's seen photos of trucks with bags of cash on the back, and suspects the lobster fishery is being used to launder dirty money from other criminal enterprises.

Those willing to pay cash for lobster and keep it off the books are offering fishermen better prices, Burke said, which means they are able to out-compete legitimate buyers.

The other concern, he said, is that unreported catches undermine the sustainability of the fishery in the eyes of world markets, noting Maritime lobster is currently certified by the Marine Stewardship Council, an international non-profit that sets standards for sustainable fishing.

Nova Scotia Fisheries Minister Kent Smith has said organized crime linked to out-of-season illegal lobster fishing in the province's southwest is "terrorizing the community," while the fishery for young eels, also known as elvers, along Nova Scotia and New Brunswick rivers has been riven by poaching, threats and violence.

DFO has pushed back against criticism from both the commercial fishing sector and Smith that enforcement has been inadequate. It has noted trap, vessel and lobster seizures, and highlighted dozens of arrests this spring after the elver fishery was cancelled, although it is still unclear how many are leading to prosecutions.

Last May, federal Fisheries Minister Diane Lebouthillier sent a letter to all fish harvesters in Atlantic Canada and Quebec that said the department was working to detect and stop "unreported cash sales."

This fall, following a meeting between Lebouthillier and Smith over illegal fishing, DFO released a statement suggesting the province should outlaw cash sales in the lobster sector, a focus Smith said "misses the point."

The province did bring in new licence requirements for fish buyers and processors, and Smith said more holding facilities will be inspected and their records audited.

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