Federal agents with the Bureau of Alcohol, Tobacco, Firearms and Explosives initiated their investigation into contraband cigarette sales in December 2009 after discovering untaxed cigarettes were being sold at a Kansas City convenience store, court records show.
Agents reportedly traced the cigarettes to a Kansas City-area company called Cheap Tobacco Wholesale LLC. They then proceeded to conduct an elaborate investigation that involved intercepted cellphone calls, tracking devices and a series of transactions in which undercover officers sold suspects several million packs of untaxed cigarettes.
Prosecutors allege that Seneca-Cayuga Tobacco Co. helped broker and conceal the sale of contraband cigarettes to a Nebraska distributor and a New York smoke shop.
The Seneca-Cayuga Tobacco Co. profited by keeping a portion of the New York state sales taxes that were evaded, prosecutors claim in forfeiture documents.
Alan Beck, a longtime Oklahoma City tobacco wholesaler, said Wednesday that he is glad to see federal officials taking some action, but he believes they need to go further and lock up violators.
Beck has complained to the Oklahoma Tax Commission and other state officials for at least seven years that illegal tobacco sales in the state have been costing the state and legitimate wholesalers millions of dollars.
He estimates the sale of untaxed cigarettes by rogue distributors has been costing the state between $1 million and $2 million a month in lost tax revenues.
Undercover ATF operations have actually harmed legitimate wholesalers – at least in the short run – by helping flood the market with cheap, untaxed cigarettes, he said.
“I can't compete with the government,” he said. “It's amazing anyone legitimate is still in business.”
After reviewing the Kansas City forfeiture court filings, Beck said it did not appear to him that Oklahoma and other states have been receiving tobacco settlement funds from the millions of packs of cigarettes that government agents have been selling during their undercover operation.