U.S. Department of Justice
United States Attorney
Eastern District of California
Eastern District of California
For Immediate Release
Tuesday, May 01, 2012
Benjamin B. Wagner, United States Attorney
Contact: Lauren Horwood
Burbank Tobacco Distributor Pleads Guilty in a Scheme to Avoid Over $500,000 in Excise Tax
SACRAMENTO, Calif. — United States Attorney Benjamin B. Wagner and California Attorney General Kamala D. Harris announced another plea agreement in the continuing investigation of excise tax fraud in the State of California. Jack Haroun, 63, of Burbank, pleaded guilty today in U.S. District Court in Sacramento to one count of mail fraud for his role in a scheme to defraud the State of California of over $500,000 in state tobacco excise taxes. Haroun also pleaded guilty on behalf of his corporation, Wholesale Palace, which will be subject to a corporate fine at time of sentencing between $500,000 and $1 million.
According to the plea agreement, from 2006 to 2008, Haroun mailed intentionally fraudulent tobacco excise tax returns to the California Board of Equalization (BOE) that dramatically underreported the amount of tobacco he sold in the state. Consequently, he avoided paying a large amount of the excise taxes owed. California tobacco distributors of unstamped tobacco (like cigars and chewing tobacco) must send monthly reports of in–state sales to the BOE and pay approximately 46 percent of the wholesale price in excise taxes.
According to court documents, Haroun carried out the scheme to defraud the state by buying a large amount of untaxed tobacco products from a Las Vegas supplier using a phony company name on the invoices and shipping records. This was done to avoid a paper trail that law enforcement might use to unravel the scheme. Tobacco ordered and received in this way was never reported to the BOE, and the defendants did not pay the excise taxes to the state. To give their company a veneer of legitimacy, however, the defendants periodically purchased a smaller amount of tobacco from the Las Vegas distributor in a legitimate manner, i.e., the product was sent directly to their place of business and the invoices and shipping documents had the true company name on them. The defendants reported and paid taxes on these smaller, legitimate transactions.
This case is the product of a continuing cooperative effort between U.S. Attorney’s Office for the Eastern District of California, the California Attorney General’s Office, the Bureau of Alcohol, Tobacco, Firearms and Explosives, and the California Board of Equalization. Assistant U.S. Attorney R. Steven Lapham and California Deputy Attorney General Peter Williams, cross–designated as a Special Assistant U.S. Attorney, are prosecuting the case.
Together with the California Attorney General’s Office, we are making progress in rooting out excise tax evasion in the tobacco products industry, and securing restitution for the State of California, said U.S. Attorney Wagner.
Our efforts are continuing.
ATF is working diligently to disrupt and remove criminals who illegally traffic in tobacco products, stated Special Agent in Charge Stephen C. Herkins.
We owe it to our community to aggressively pursue those who violate the law and defraud the State of California, in conjunction with our law enforcement partners who are a crucial part of the ATF Task Force.
For the last several years, these offices have supported a task force dedicated to combating the systemic problem of tobacco excise tax evasion in California. In 2007, the BOE estimated that the state lost approximately $90 million in unstamped tobacco excise taxes to contraband distributors, and approximately $120 million in excise taxes for taxed stamped tobacco like cigarettes. Because California has a relatively high tobacco excise tax rate, it is a frequent target for contraband tobacco smugglers and tax evaders.
Haroun and Wholesale Palace are scheduled to be sentenced by United States District Judge John A. Mendez on October 2, 2012. Haroun faces a maximum statutory penalty for mail fraud of 20 years in prison. The actual sentence, however, will be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables. The defendants will be ordered as part of the sentence in this case to pay restitution to the State of California.