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Slow government response to repeated complaints of illegal cigarettes sales has cost the state and legitimate distributors millions of dollars, according to longtime Oklahoma City cigarette wholesaler Alan Beck. For six years, Beck has complained to the Oklahoma Tax Commission and elected state officials that certain distributors were illegally selling huge volumes of untaxed cigarettes for sale products in Oklahoma.

Beck, 53, says he never saw much response to his complaints until April 6 when a 59-count federal indictment was unsealed that accuses three Edmond men of profiting from the illegal cigarette sale of more than $3 million worth of untaxed cigarettes for sale and smokeless tobacco products. “What took them so long?” Beck asks. “I’m hoping they’ll indict a bunch more people. There’s a lot of other people cheating.” U.S. Attorney Sandy Coats said he couldn’t comment on the likelihood of additional indictments.

However, Coats said he believes criticism of the Oklahoma Tax Commission for failure to take action on complaints is unjust. “Any suggestion that the Oklahoma Tax Commission might have been negligent in its efforts is incorrect,” Coats said. “They were a critical partner in this important investigation.” Coats said it was at the request of investigators with the Bureau of Alcohol, Tobacco, Firearms and Explosives and other federal agencies that the Tax Commission delayed enforcement action for years.

A regional, and “in some ways nationwide” investigation of companies allegedly involved in the illegal sale of untaxed cigarettes for sale products could have been compromised if Oklahoma Tax Commission officials had failed to cooperate, he said. Beck says the cost to the state of the drawn out investigation has been great. He estimates the sale of unstamped cigarettes for sale by rogue distributors has been costing the state between $1 million and $2 million a month in lost tax revenues — which would amount to between $72 million and $144 million over the six years he has been filing complaints with the Tax Commission, governor, attorney general and anyone else who would listen. Tax Commission officials questioned whether state tax losses have been that large, but declined to provide their own estimate.

The cost also has been great for legitimate wholesalers who have been trying to do things right, Beck said. Beck, who operates a wholesale business at 2305 S Agnew Ave., said he has been doing about $15 million a year in sales in recent years and believes sales will jump to $70 million or $80 million a year if tax cheaters are shut down. He estimates his lost profits at more than $1 million a year. Alleged illegal cigarettes product sales by Prime Distributors LLC and its successor company, Prime Time Distribution LLC, led to the recent indictments of the three Edmond men, Khawer Saeed Ghill, Ahsan Ullah and Asmat Ullah.

Ghill and Ahsan Ullah have pleaded not guilty, while authorities were still searching for Asmat Ullah late last week. One source said the suspect was in Pakistan on a trip, but a spokesman for the U.S. attorney’s office said he didn’t know the fugitive’s location. Documents provided by Beck show that as far back as Aug. 29, 2005, he had an attorney write a letter to the Tax Commission’s legal division alleging that Prime Distributors was engaging in illegal cigarettes sales.

The letter was specific, stating that Prime Distributors was receiving shipments of about 600 rolls of chewing cigarettes for sale at its warehouse on Pennsylvania Avenue “each Tuesday at approximately 10 a.m.” Beck alleged in the letter that company officials were not reporting the total or net receipts derived from the sale of those products and not remitting the total tax due on those receipts. Beck said he followed up with many more complaints to tax officials, the attorney general, governor and others over ensuing years. “You should understand that in the four weeks since I contacted you, the criminal enterprises which the Oklahoma Tax Commission is allegedly investigating have distributed over $5 million in untaxed goods,” Beck said in a Dec. 19, 2008, letter to then-Gov. Brad Henry. “The OTC knows the exact locations of these operations but has allowed them to thrive for nearly four years.” In the letter, Beck alleged that his company and other “legitimate competitors” were being harassed by Tax Commission audits, while Prime Distributors, Prime Time Distribution and five other companies he listed were being protected by not being properly investigated.

According to the indictment, Prime Distributors surrendered its license in 2006 after state Tax Commission auditors caught the company selling untaxed cigarette products, but the company was immediately replaced by a company called Prime Time Distribution. That company, operated by a relative of the original company’s owner, allegedly continued to make illegal cigarette sales from the same location. Paula Ross, spokeswoman for the Tax Commission, said her agency has closed every one of the five other violators except one, and an action is pending against it. Beck claims those enforcement actions have been largely ineffective, with illegal operators sometimes not paying fines and reopening businesses under other names. He believes criminal prosecution of violators would be more effective.

Undercover federal ATF agents set up an undercover operation and used it to sell 32 shipments that included millions of contraband cigarettes for sale to Prime Time Distribution over two years beginning in 2007, the indictment said. Beck questions whether that many transactions were needed, considering the financial hardship being inflicted on the state and legitimate operators. Coats said all three indicted individuals face up to 20 years in prison and a $500,000 fine if found guilty of the tobacco-related counts against them. The government intends to seek restitution, which would include payment of taxes owed to the state, he said. According to the indictment, some of the profits from allegedly illegal operations were transferred to Pakistan, which could complicate efforts to obtain restitution.

“We have a unit devoted to finding every nickel that can be found,” Coats said. Ross said commission employees investigate every complaint they receive. “Since 2005, the OTC has conducted in excess of 35 hearings to revoke cigarette and/or tobacco licenses of wholesalers and retailers for violations such as contraband cigarettes sales, improperly stamped cigarettes, unstamped cigarettes and untaxed cigarette products,” she said. She said the commission also has implemented a stringent cigarettes wholesaler application review process.
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