Jury Convicts Major Tobacco Distributor In $16 Million Excise Tax Fraud Scheme
SACRAMENTO, Calif. — After a seven–day trial, a federal jury found Moo Hoon “Steve” Kim, 54, resident of Cypress, Calif., guilty today of mail fraud, United States Attorney Benjamin B. Wagner announced. The trial was held before United States District Judge William B. Shubb.
Between 2006 and 2009, Kim was responsible for bringing over $35 million in untaxed other tobacco products (“OTP”) into the State of California. OTP is any tobacco product other than cigarettes, and consists primarily of cigars, chewing tobacco, and leaf tobacco.
The evidence at trial showed that Kim went to great lengths to conceal his OTP purchases from the State. He used front companies, set up by others at his direction, to disguise his illegal purchases and subsequent sales of untaxed OTP from out-of-state sources. These companies included KS Wholesale located in Vernon, Calif., and Cheap Cig Distributor located in Paramount, Calif. Kim also used another front company as a retail outlet for some of the untaxed OTP that he sold through his company, Jobber’s Wholesale. That business was Discounted Tobacco located in Long Beach, Calif. As a result of Kim’s scheme, the State of California was defrauded of over $16 million in excise taxes. A large percentage of the proceeds of the excise tax are used to fund California’s early childhood development program, First 5 California.
This case is the product 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 State 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 United States Attorney Michael D. Anderson and U.S. D.O.J. Antitrust Division Trial Attorney Richard A. Powers, designated as a Special Assistant United States Attorney, prosecuted the case.
“The fraudulent importation and sale of untaxed tobacco punishes honest merchants who play by the rules, and it deprives the State of California of needed tax revenue,” said U.S. Attorney Wagner. “We are gratified by the jury’s verdict, as the conviction of Steve Kim is a significant milestone in our ongoing partnership with the State of California and the ATF to put an end to this practice.”
“ATF works diligently to investigate and disrupt tobacco traffickers. These investigations are arduous and require a long-term commitment from members of our task force and prosecution team,” stated ATF Special Agent in Charge, Joseph M. Riehl. “Today’s guilty verdict is a win for law enforcement, the state of California, and our community.”
“Today’s verdict is a significant win in our battle against the underground economy,” said Board of Equalization Chairman Jerome E. Horton. “It reinforces the need for continued, persistent, and intelligent prosecution of these types of crimes."
Kim is scheduled to be sentenced by Judge Shubb on June 1, 2015. Kim faces a maximum statutory penalty of 20 years in prison and a $250,000 fine. The actual sentence, however, will be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables.