KANSAS CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that an Independence, Mo., business owner 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.
Craig Sheffler, 45, of Independence, 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. Sheffler has forfeited $599,206 to the government from his company, Cheap Tobacco Wholesale in Independence.
The state of New York imposes excise taxes on all cigarettes sold in the state, unless expressly exempted by law or by private agreement between the state and an Indian nation or tribe. Only licensed wholesalers may purchase unstamped cigarettes, either through the cigarette manufacturer or through other wholesalers. Under New York state law, it is the obligation of state-licensed stamping agents to prepay the excise tax and affix stamps on all cigarette packs. Tobacco wholesalers must report the sales of cigarettes to the state.
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., to other smoke shops on the reservations in New York, thus allowing the sale of the cigarettes at a considerable discount and depriving the state of its tax revenue.
AJ’s Candy & Tobacco was sentenced for its role in the conspiracy on Aug. 1, 2014, and ordered 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.
According to the indictment, conspirators purchased more than $17 million worth of contraband cigarettes from ATF agents during an undercover operation. Sheffler admitted in today’s plea agreement 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 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, Sheffler 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.