U.S. BUSTS VODKA SMUGGLERS - McCormick Distilling and Russian Mob

NEW YORK - Over the last two years, a federal investigation into Russian and Italian organized crime in the ports of Newark and Elizabeth, New Jersey, turned up the expected mix of mundane mob staples: extortion, cigarette smuggling, money laundering. But federal agents said they also came across a bit of criminal enterprise that for pure creative corruption struck them as remarkable: loose-knit web of companies was smuggling tens of millions of gallons of American-made grain alcohol - including some from one of the country's oldest distilleries - to Eastern Europe to slake a seemingly boundless thirst for that most Russian of spirits, vodka.

The smuggling genius, such as it was, lay in the fact that the 192-proof alcohol from America's heartland was disguised with dye and shipped in giant containers marked as windshield-wiper fluid, cologne, mouthwash and cleaning solvent. Once in Russia, the smugglers, using a chemical formula provided in some cases by an American distiller, removed the coloring, diluted the grain alcohol with water and sometimes added what the federal authorities said was vodka flavoring. The product, which was then distributed by groups controlled by the Russian mob, thus evaded millions of dollars in import taxes and tariffs.

The reconstituted mouthwash and cleaning solvents - investigators said that when the dye was effectively removed, it was, with all things Russian considered, not half bad - found a welcome and lucrative place in the black market.

As part of the case, agents from the Federal Bureau of Investigation and the Bureau of Alcohol, Tobacco and Firearms are investigating as many as six distillers around the United States, and nearly a dozen brokers and freight forwarders, several law enforcement officials said. Investigators suspect that the shippers have ties to some of the most powerful mob clans in Russia, and that the organizations, including the Solintsevskaya and Ismailovskaya groups, control the distribution of the alcohol there and in some countries in Eastern Europe, the officials said.

"It takes a lot of organization to get millions of gallons from the distilleries in the U.S. to the streets of Moscow," Edgar A. Domenech, the special agent in charge of the A.T.F.'s New York office, said recently. The agency, which in addition to investigating firearms and explosives trafficking regulates the alcohol industry, is handling that part of the joint investigation, while the F.B.I. is overseeing other aspects of the case, including those involving Russian organized crime.

Since the days of the tsars, when half of Russia's state revenues came from government-controlled vodka sales, the drink has played an outsize role in the nation's life and politics. It accounted for 35 percent of the Soviet Union's income until oil and gas became big money makers in the 1980's. But that number plunged to roughly 4 percent in Russia after President Boris Yeltsin liquidated the state monopoly in 1992. And with the collapse of the economy, many local producers failed and foreign distillers began to export vast quantities of grain alcohol to Russia and neighboring countries.

But when the Russian government slapped heavier tariffs on imported alcohol in the mid-1990's, the black market exploded, opening up more opportunities in the trade for the ubiquitous Russian mob. Now, untaxed, smuggled and home-brewed vodkas - known as samogon - are believed to account for more than half of the estimated 568 million gallons that are consumed in Russia annually.

The economics of the smuggling scheme are straightforward: The alcohol can be bought in the United States and shipped to Russia for far less than it would cost a Russian company to produce it legally or illegally in that nation, law enforcement officials said.

"Organized crime realized you can buy grain alcohol for dirt cheap in the United States and export it for free," said Bruce Gourlie, an FBI special agent in Newark who has traveled to Eastern Europe in connection with the case. "By smuggling, you can make a tremendous amount of money, because the tariffs are so high since they are trying to protect the domestic alcohol industry."

As a result, over the last few years a new class of bootleggers developed, riding shotgun on convoys of huge tanker trucks hauling illegal alcohol across the borders of Georgia and other countries into Russia. Enormous seizures became commonplace, and in at least one case, according to government news agency reports, smugglers with guided antitank missiles clashed with the border police, who halted their convoy of 550 tanker trucks. About the same time, another class of lower-level bootlegger was shipping grain alcohol to Russia and Ukraine by sea, disguising it as cleaning products. Now, a federal grand jury in Newark is hearing evidence in the case, several officials said.

Court papers show that one Russian immigrant involved in the scheme pleaded guilty in April to a single count of conspiracy and is cooperating with federal prosecutors in Newark. Also cooperating in the case, according to the court papers, is a Missouri distillery founded in 1856 that made its name selling rye whiskey in Wild West saloons and recently got caught disguising its grain alcohol for shipment to the wild East.

The company, McCormick Distilling of Weston, north of Kansas City, provided nearly 5 million gallons of disguised grain alcohol to a freight forwarder operated by the Russian immigrant, the papers said. The freight forwarder shipped the alcohol to Russia and the Ukraine from 1996 to 1999, according to the papers, filed in Federal District Court in Newark by Mark W. Rufolo, the assistant United States attorney who is overseeing the investigation.

McCormick, which boasts on its Web site that it is listed on the National Register of Historic Sites because it is the oldest distillery in the United States operating at its original site, dyed the alcohol and provided the shipper with a chemical formula to later remove the coloring, other court papers said.

In a written statement released by its lawyer, Christopher Lee Milner, McCormick said that no one at the company "knowingly conspired with organized crime elements to smuggle alcohol into Eastern Europe." The statement also said that no one at McCormick profited individually from the alcohol deals, that the company was never fully paid for the alcohol and that it was continuing to cooperate with federal investigators.

While U.S. federal authorities pursue their investigation, the government in Russia has begun an effort to stanch the hemorrhage in tax income there caused by vodka smuggling, which some estimates put at more than $400 million a year.

To consolidate state control over the industry, President Vladimir Putin has created a state-owned conglomerate to act as a holding company for the distilleries in which the Russian government has a stake.

Washington - Beginning July 1, 2000, the Bureau of Alcohol, Tobacco and Firearms (ATF) will suspend for seven days the distillery basic permits of McCormick Distilling Company, Weston, Missouri. The suspension is part of a settlement agreement that also includes McCormick's payment of a $1 million Offer-in-Compromise to resolve alleged violations of the Federal Alcohol Administration Act. The suspension and Offer-in-Compromise stem from McCormick's failure to comply with Federal record keeping requirements relating to the production, shipment, and exportation of distilled spirits.

In a related criminal case, McCormick pled guilty in United States District Court in Newark, New Jersey, to making false entries in required Internal Revenue Code distillery records by characterizing potable distilled spirits as industrial products. The false entries aided other parties who were allegedly involved in a scheme to smuggle distilled spirits disguised as windshield washer fluid and other solvents into the Ukrainian Republic and Russia. As part of the guilty plea, McCormick paid an additional $1 million in tax restitution to the Ukrainian Republic, and a fine of $10,250 to the U.S. Justice Department. On June 1, 2000, Assistant Attorney General James Robinson presented the Ukrainian Ambassador with the $1 million paid by McCormick in restitution for lost Ukrainian excise taxes.

The suspension of McCormick's permits, the $1 million Offer-in-Compromise, and the criminal investigation that resulted in an additional $1 million fine represent ATF's continued emphasis on investigating and taking action against alcohol and tobacco permitees involved in illegal diversion schemes.

Russian Mobsters are our friends. Or so FBI director Louis Freeh wants us to believe. "Crimes by Russians or Russian groups do not threaten the domestic or national security of the United States and, compared to other crimes, are on a very low level," he said at a news conference in Russia last week, and later repeated on CNN.

Well, Russian Mobsters may be his friends but they are not ours. His FBI has invited Russian Mobsters to the U.S. and collaborated with them in illegal extradition to Russia of immigrants who threaten to expose the massive crimes conducted by a network of Mobsters, KGB officers and police officers in Russia. Just ask Alexandre Konanykhine or Jouri Nesterov, whose cases have been covered in the Washington Weekly.

Just last year, Director Freeh testified before Congress about the dangers posed by Russian Mobsters trafficking in nuclear arms. What has made him change his mind, so that he now sees Russian Mobsters as his friends and dissident American citizens who post on the Internet, visit Fort Marcy Park, witness the Oklahoma City bombing, or investigate the government, as the enemy?

1 posted on 03/18/2002 8:14:24 PM PST by Uncle Bill

Look at that. Booze smuggling. And those American booze companies were more than happy to participate and try to reap excess profits.

< SARCASM > Thank goodness that would never happen with legalized marijuana. < /SARCASM >

2 posted on 03/18/2002 8:19:45 PM PST by DouglasKC

3 posted on 03/19/2002 3:12:14 PM PST by Inspector Harry Callahan

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