Editor’s Note: ATF’s Tobacco Enforcement Fact Sheet which explains that the agency becomes involved in tobacco diversion cases that have “a nexus to violent crime” is available here.
From: The United States Attorney’s Office | The Western District of Missouri
KANSAS CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a retail business operating on a reservation in the state of New York pleaded guilty in federal court today to its role in a conspiracy to commit wire fraud and contraband cigarette trafficking, for which it must pay a total of more than $3.5 million in fine, forfeiture and restitution.
TSNE, doing business as Jan’s Smoke Shop, in Bascom, New York, a gas station and convenience store business recognized by the Tonawanda Seneca Nation, pleaded guilty before U.S. District Judge Brian C. Wimes.
TSNE participated in the conspiracy from September to November 2011 by ordering contraband cigarettes from co-conspirators and causing those cigarettes to be transported into the state of New York. New York pre-collects an excise tax of $4.35 per pack of cigarettes from wholesalers for sales to Indian nations and tribes. Federal and New York state law requires that tax stamps be affixed to cigarette packages – prior to their sale to consumers – reflecting that the required state taxes have been paid.
As part of this conspiracy, New York’s state excise tax of $4.35 per pack was not paid. As a result, TSNE’s foreseeable amount of total excise tax loss to the state of New York is approximately $1,900,080. Federal law enforcement agents reviewed invoices and other records and determined that TSNE made a profit of $700,650 on the sale of the contraband cigarettes.
Under the terms of today’s plea agreement, TSNE must pay a fine of $950,000, a money judgment to the government of $700,650 and restitution to the state of New York in the amount of $1,900,080. The total amount of fine, forfeiture and restitution is $3,550,730.
TSNE must also serve two years of probation. During that time, Jan’s Smoke Shop will be prohibited from buying and selling any cigarettes (including premium brands and native brands), wholesale or otherwise. The government will dismiss the charges against Tara Sundown (who operated Jan’s Smoke Shop) contained in an Aug. 12, 2013, federal indictment.
According to the indictment, conspirators purchased more than $17 million worth of contraband cigarettes from ATF agents during an undercover operation in the Kansas City metropolitan area. Approximately 201,340 cartons of cigarettes – containing 10 packs per carton – were transported to New York without paying the required $4.35 per pack excise tax. The untaxed cigarettes were sold by New York retailers and smoke shops on the reservations in the state of New York. The total state excise tax lost to the state of New York was more than $8 million.
In addition to the federal indictment, the undercover operation resulted in a $3.5 million civil forfeiture. Following the seizures that occurred as a result of the investigation, the U.S. Attorney’s Office started a $3.5 million civil forfeiture case naming the assets taken up to that point. On Oct. 23, 2012, the court entered a default order of forfeiture for more than $2 million seized from bank accounts and by agents, more than 300 cases of seized cigarettes, a 2009 Cessna T206H Stationair aircraft, two 2012 Peterbilt 389 trucks and two 2012 Peterbilt 386 trucks. The seized cigarettes have been sold at auction for $532,500. The 2009 Cessna Aircraft has been sold for $450,000. The four trucks have been sold for the following amounts: $115,000; $115,000; $113,000; and $113,000. The civil case has been stayed pending the resolution of the criminal case.
In a related case, AJ’s Candy & Tobacco, LLC, a tobacco wholesaler located on a reservation in Irving, N.Y., pleaded guilty to its role in the conspiracy and has been sentenced. The court ordered AJ’s to pay a $1 million fine. The company also must forfeit to the government $221,550, which represents the proceeds of the offense. The court also ordered the company to pay an additional $535,050 in restitution to the state of New York. Under the terms of the company’s plea agreement, AJ’s is prohibited from selling premium cigarettes for two years.
This case is being prosecuted by Assistant U.S. Attorneys Paul S. Becker and Justin G. Davids. It was investigated by the Bureau of Alcohol, Tobacco, Firearms and Explosives, IRS – Criminal Investigation, the Federal Deposit Insurance Corporation – Office of Inspector General and the Kansas City, Mo., Police Department.
