U.S. Department of Justice
United States Attorney
Eastern District of California
Eastern District of California
For Immediate Release
December 17, 2013
Benjamin B. Wagner, United States Attorney
Contact: Lauren Horwood
Las Vegas Tobacco Distributors Sentenced to Two Years in Prison and Over $1 Million Restitution for Tax Evasion Scheme
SACRAMENTO, Calif. — Ideal Tobacco Wholesale Inc. president Raed Mouri, 47, and executive vice-president George Bittar, 53, both of Las Vegas, were each sentenced today to 24 months in prison by United States District Judge John A. Mendez for their role in a scheme to defraud the state of California of more than $24 million in state tobacco excise taxes, United States Attorney Benjamin B. Wagner and Alcohol, Tobacco, Firearms, and Explosives Special Agent in Charge Joseph M. Riehl announced. Judge Mendez also ordered the defendants to pay $1,060,417 in restitution to the State of California.
Bittar and Mouri are the latest defendants to be prosecuted by the U.S. Attorney’s Office in collaboration with the California Attorney General’s Office in an ongoing federal and state investigation into tobacco wholesalers trading Other Tobacco Products (OTP) that evade California excise taxes.
OTP consists of tobacco products other than cigarettes such as cigars, chewing tobacco, and leaf tobacco. During the relevant time period, California imposed an average excise tax of 46 percent, based on the wholesale purchase price of the product. California licensed tobacco distributors are required to collect this tax when they distribute the product within the state. The distributor must then submit to the California State Board of Equalization (BOE) in Sacramento, monthly reports reflecting the amount of untaxed OTP sold in the previous month and the amount of excise tax owing, and the payment.
According to court documents, for the calendar years 2006 and 2007, Ideal Tobacco reported on its Nevada excise tax return more than $24.4 million in OTP sales to California customers. OTP sold to California customers is not subject to taxation in Nevada. As required by Nevada law, Ideal listed the name and address of each of these California customers on the Nevada return.
Investigation revealed that 94 percent of these reported sales, or approximately $22.9 million, were to companies or addresses that do not exist. An additional $500,000, or 2 percent, was reported to California businesses or locations that do exist but are not licensed by the State of California to receive untaxed OTP. The purpose of this subterfuge was to evade payment of the California excise tax.
Ideal used a variety of shipping companies — from UPS to small trucking companies. Ideal provided the same fictitious company names and addresses on the bills of lading as it listed on its Nevada tax returns. The OTP would be delivered to a trucking terminal in Southern California where the real customers would pick up their shipments. In this way, the shipping company did not become aware that the names and addresses on the bills of lading were fictitious. Typically, the customers would pay for their purchases with cash or money orders, which would further disguise their identities.
Ideal also underreported sales to licensed customers in California, disguising the difference as sales to some of the fictitious companies. This permitted the real companies to underreport and underpay the tax owed on this product.
Of the $22.9 million of untaxed OTP referenced above, approximately $2.3 million consisted of smokeless tobacco. Defendants routinely sold this product to California customers in shipments that were in excess of 500 single unit sized cans or packages or their equivalent. At the time the defendants sold this product, they knew that their California customers did not intend to comply with California law with respect to accounting, tax and payment requirements relating to this smokeless tobacco. As a result of this conduct, the tax loss to the State of California was over $1 million.
This case is the product of a series of investigations by a specialized task force comprising the U.S. Attorney’s Office, the California Attorney General’s office, the Bureau of Alcohol, Tobacco, Firearms and Explosives, and the California Board of Equalization. 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.
Assistant U.S. Attorneys R. Steven Lapham and Michael D. Anderson and California Deputy Attorney General Peter Williams, cross-designated as a Special Assistant U.S. Attorney for purposes of these cases, prosecuted the case.