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Department of Justice

U.S. Attorney's Office
Western District of Missouri

For Immediate Release

Friday, June 5, 2015
Tammy Dickinson
, United States Attorney
Contact: Don Ledford

New York Business Pays $3.5 Million for Trafficking in Contraband Cigarettes

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 paid more than $3.5 million in penalties today for its role in a conspiracy to transport hundreds of thousands of cartons of contraband cigarettes from the Kansas City, Mo., area to the state of New York, where they were sold primarily on Indian reservations.

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 to the conspiracy to commit wire fraud and traffic in contraband cigarettes on Jan. 15, 2015.

In today’s sentencing before U.S. District Judge Brian C. Wimes, TSNE paid a fine of $950,000, a money judgment to the government of $700,650 (representing the company’s profits from the conspiracy) and restitution to the state of New York in the amount of $1,900,080 (representing the amount of excise tax revenue lost by the state). The total amount of fine, forfeiture and restitution is $3,550,730.

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.

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. Under the terms of the plea agreement, the government dismissed the charges against Tara Sundown (who operated Jan’s Smoke Shop) contained in an Aug. 12, 2013, federal indictment.

Co-defendant Craig Sheffler, 45, of Independence, Mo., is among 18 co-defendants who have pleaded guilty in this case Sheffler pleaded guilty to his role in the conspiracy on Dec. 19, 2014, and awaits sentencing. Sheffler forfeited $599,206 to the government from his company, Cheap Tobacco Wholesale in Independence. His wife, Nicole Sheffler, 37, of Independence, has also pleaded guilty and awaits sentencing.

Sheffler admitted that he made regular purchases of contraband cigarettes from undercover agents of the Bureau of Alcohol, Tobacco, Firearms and Explosives. The contraband cigarettes were transported to New York without prior approval by the New York Department of Taxation and Finance and without first paying the required $4.35 per pack excise tax. The unstamped, untaxed cigarettes were then sold to other smoke shops on the reservations in New York by several co-conspirators, including AJ’s Candy & Tobacco, LLC, a tobacco wholesaler located on a reservation in Irving, N.Y., thus allowing the sale of the cigarettes at a considerable discount and depriving the state of its tax revenue.

According to the indictment, conspirators purchased more than $17 million worth of contraband cigarettes from ATF agents during an undercover operation. Sheffler admitted that the amount of loss exceeded $7 million. Approximately 620,600 cartons of cigarettes – containing 10 packs per carton – were transported to New York without paying the required $4.35 per pack excise tax. The total state excise tax lost to the state of New York was more than $8 million.

AJ’s Candy & Tobacco 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.

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.

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.

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This news release, as well as additional information about the office of the United States Attorney for the Western District of Missouri, is available on-line at

http://www.justice.gov/usao/mow/index.html

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Field Division: Kansas City Field Division