Final defendant in $10 million tobacco tax evasion scheme sentenced to prison
For Immediate Release
U.S. Attorney's Office, Western District of Washington
Conspired with tribal smoke shop to avoid state taxes and filed false corporate federal tax return
Seattle – The final player in a scheme to cheat Washington State out of more than $10 million in tobacco excise taxes was sentenced today in U.S. District Court in Seattle to 22 months in prison announced U.S. Attorney Nick Brown. Tae Young Kim, 45, of Las Vegas, Nevada, was the registered owner of TK Mac, a company that owned and operated two smoke shops in Federal Way and Lynnwood, Washington. Together with Hyung Il Kwon, 48, of Henderson, Nevada, Kim devised fraudulent schemes to evade tobacco excise taxes, and Kim filed a false corporate tax return. In January 2019, Kim pleaded guilty to one count of wire fraud and one count of filing a false tax return. At the sentencing hearing, U.S. District Judge James L. Robart said, “People need to understand this is a crime and it will be punished.”
“This scheme to cheat on state taxes lasted for years and robbed the people of millions in funding for state programs,” said U.S. Attorney Nick Brown. “The coconspirators used false documents to conceal their actions from regulators and law enforcement. Their deceit did more than cut their taxes, they obtained a competitive advantage over other tobacco retailers.”
According to records filed in the case, between 2009 and 2017, Kim, Kwon, and their coconspirators engaged in two schemes to defraud the state of tobacco excise taxes. The schemes involved two tribal smoke shops on the Puyallup reservation which sold significant quantities of tobacco products to TK Mac, the non-tribal tobacco distributor. Most of the sales were in cash, and TK Mac failed to report the purchases to the state, thus avoiding millions of dollars in excise taxes. When TK Mac then resold the products for cash, the company had a problem, since large deposits of cash would have triggered state scrutiny of its tobacco business. So, beginning in 2013 and continuing until 2017, Kim and his coconspirators engaged in a money-laundering scheme: the two tribal smoke shops wrote checks to TK Mac as if the tribal smoke shops had purchased tobacco products from the non-tribal store. In fact, TK Mac simply provided the tribal smoke shops with large amounts of cash equal to the checks. The purported transactions were a sham. In fact, no tobacco products changed hands, but TK Mac received an excise tax credit. As a result of these schemes, Washington State suffered losses of more than $10 million.
The president of the company that owns the tribal smoke shops, Anthony Edwin Paul, was sentenced in December 2021 to 14 months in prison, a $5,000 fine, and $1,764,818 in restitution. Paul’s subordinate, Theodore Kai Silva, who operated the scheme on behalf of the tribal smoke shops, was sentenced to four years of probation with six months of home confinement, plus $25,000 in restitution. Kim’s coconspirator and business partner Kwon was sentenced last month to 26 months in prison, a $10,000 fine and $5,098,249 in restitution to the Washington State Department of Revenue.
The government seized more than $5 million in assets and cash from Kwon and Kim. Today, Judge Robart ordered Kim to pay $4,339,407 in restitution to the Washington State Department of Revenue.
The case was investigated by IRS-CI, with assistance from Homeland Security Investigations (HSI).
The case was prosecuted by Assistant United States Attorneys Jim Oesterle and Jonas Lerman
Press contact for the U.S. Attorney’s Office is Communications Director Emily Langlie at (206) 553-4110 or Emily.Langlie@usdoj.gov.
Updated February 22, 2022
Indian Country Law and Justice