Federal Deposit Insurance Corporation
Office of Inspector General

Virginia Man Pleads Guilty to Contraband Cigarette Trafficking

 

PRESS RELEASE

 

FOR IMMEDIATE RELEASE

January 23, 2015

Virginia Man Pleads Guilty to Contraband Cigarette Trafficking

KANSAS CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that a Virginia man pleaded guilty in federal court today to his role in a multi-million dollar, multi-state 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.

Gerald E. Barber, 68, of Virginia, pleaded guilty before U.S. District Judge Brian C. Wimes to participating in a conspiracy to commit wire fraud and contraband cigarette trafficking from July 2010 to Jan. 26, 2012.

Barber was the president of the Seneca-Cayuga Tobacco Company (SCTC) in Grove, Okla., which is a corporation operated by the Seneca Cayuga Tribe of Oklahoma, a federally recognized Indian tribe.

Although SCTC manufactures its own brands of native cigarettes, Barter was interested in selling unstamped and untaxed premium-brand cigarettes to smoke shops on other Indian nations, specifically in 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.

Barber ordered premium-brand contraband cigarettes from a co-conspirator, who in turn purchased those cigarettes from co-defendant Craig Sheffler, 45, of Independence, through his business, Cheap Tobacco Wholesale.

Sheffler, who pleaded guilty to his role in the conspiracy on Dec. 19, 2014, made regular purchases of contraband cigarettes from undercover agents of the Bureau of Alcohol, Tobacco, Firearms and Explosives.

Barber then sold those premium-brand cigarettes to smoke shops located on New York Indian reservations, including Jan's Smoke Shop and AJ's Candy & Tobacco, LLC, both of whom have pleaded guilty to their roles in the conspiracy. 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 benefit to those smoke shops was that they did not pay New York state cigarette taxes; thus, they could undercut the prices charged by off-reservation cigarette retailers by over $40 per carton.

To pay for the cigarettes (which were charged on delivery), the Indian smoke shops wired money across state lines, often to SCTC. SCTC then wired money across state lines to co-conspirators, who wired money across state lines to Cheap Tobacco Wholesale. Sheffler paid the undercover ATF agents, often in cash.

Under the terms of today's plea agreement, Barber must pay a money judgment in the amount of $80,000, representing the remaining profits obtained by SCTC as a result of his role in the conspiracy.

According to the indictment, conspirators purchased more than $17 million worth of contraband cigarettes from ATF agents during an undercover operation. 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.

Under federal statutes, Barber is subject to a sentence of up to five years in federal prison without parole, plus a fine up to $250,000. A sentencing hearing will be scheduled after the completion of a presentence investigation by the United States Probation Office.

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.

This content has been reproduced from its original source.

 

 

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