Alex Lukov - Russian Mafia in New York Gasoline Tax Scam
Stefan Lemieszewski
In Red Mafiya, author Robert I. Friedman described some
of the gasoline scams by the Russian Mafia's Organizatsiya
of Brighton Beach, New York, netting the mob several billion
dollars. He gave us the names and the arrests. But it seems
that the scams have not gone away.
Stefan Lemieszewski
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http://attjcw1.newsedge.com/1stbin/read_story/FIRST/010601/44/2/169/2
A Criminal Comeback / Bootleggers
profit from evading NY's high gas tax
Newsday, 02/04/01
"They picked him up, brought him in and that's it," said Alex Lukov,
known by his associates as "Alex the Russian."
"Got to get a lawyer," Lukov said on a cell phone to a man identified by
federal agents as a Luchese organized crime family member. "We need
it for Friday. Someone cheap."
"What's the charge?" the Luchese associate asked.
"Bootlegging," Lukov replied.
This conversation last summer, caught on tape by the Federal Bureau of
Investigation, is one piece of evidence that a phenomenon of the
1980s-gasoline bootlegging-is making a comeback. The phone call
came a day after authorities arrested a man identified as a driver for
Lukov for smuggling a load of gasoline from New Jersey to New York
without paying New York State's much higher gas tax.
Each tanker that evades the tax can net criminals nearly $2,000. If the
volume of bootlegging is as high as some officials suspect, the total cost
to New York taxpayers approaches $200 million a year. And yet
investigators, trade groups and individual retailers say little is being
done
by New York State's tax enforcement unit to stop bootlegging.
"We have seen a resurgence in motor fuel tax evasion," said Keith
Halton, a detective for the New Jersey State Police who tracks
organized crime. Lured by the potential of 20-cents-per-gallon in illegal
profits, organized-crime syndicates have made the metropolitan area a
hot spot for bootlegging, he said.
Lukov is allegedly the principal figure in a scam whereby he and other
Russian immigrants are splitting $8 million in illegal profits a year from
gasoline bootlegging, according to an affidavit in support of a warrant to
search Lukov's Queens office. The affidavit, filed by the FBI, was
marked to be placed under seal, but was left in an open court file. It
alleges that the Luchese crime family is an active participant in the scam,
and identifies four Long Island and Queens gas stations that are buying
bootlegged gas.
Lukov was indicted in November on charges of committing wire fraud
related to the alleged bootlegging scheme but the case didn't garner any
press coverage. The charges were brought not by state tax enforcers
but by the federal government. Lukov, who has pled not guilty, is out on
$300,000 bail, pending trial.
His Manhattan attorney, Daniel A. Hochheiser, said the government's
case is largely based on audio tapes of phone calls, and he and Lukov
will have to review up to 300 tapes, many in Russian, as he puts
together Lukov's defense. The government intercepted approximately
12,000 calls.
The prosecutor, Assistant U.S. Attorney Tom Firestone, said that he
plans to indict Lukov on additional charges, as well as seek indictments
against others involved in the alleged scheme, by the end of March.
While many bootlegging scams were established by Russian mobsters in
the mid-1980s, they appeared to be held at bay by the mid-'90s,
authorities said. At the time, a joint task force conducted by federal and
state agencies clamped down on the scams, but the task force no longer
exists.
Bootlegging schemes typically start with gasoline haulers who go to
New Jersey terminals to fill up their trucks. Drivers claim their loads are
going to be delivered within New Jersey and are billed about 10 cents
per gallon in Jersey state taxes. But they then drive into New York and
unload at local retail stations. With the New York State taxes being a
little over 30 cents, the tax evaders make a quick profit of
approximately 20 cents per gallon.
Roger Berger, who was an enforcement supervisor for the New York
State Department of Taxation and Finance, until 1997, said that for
organized criminals "this is real, hard cash-it's not just tweaking a tax
return."
With a typical gasoline hauler carrying 9,500 gallons, each trip across
the George Washington or Verrazano Bridge adds $1,900 to the
mobsters' coffers, while New York State loses about $3,100 in taxable
revenue. If a bootlegged load comes to New York City or Long Island,
the city, Nassau or Suffolk County loses its share of those taxes, which
equals about $400 a truck.
Each truck driver can make two or three trips per night, and a criminal
group could theoretically employ a large number of drivers. Yet, they
act almost with impunity, many officials say.
"There is not enough money for monitoring motor fuel evasion," said
Cathy Kenny, associate director of the New York State Petroleum
Council, a group that represents the major oil companies.
For its part, the Tax Enforcement division, an arm of the tax
department, says it has approximately 65 investigators whose primary
role is to ferret out downstate evaders of cigarette, alcohol and gasoline
taxes.
Yet 80 percent of the department's time is spent on pursuing cigarette
tax evaders, said Anthony Norta Roberta [CORRECTION:In a
Sunday story about gasoline bootlegging, the name of the
spokeswoman for the New York State Department of Taxation and
Finance was spelled incorrectly. Her name is Karin Kennett. In the
same story, the name of the supervising investigator with the state
enforcement division of the tax department also was misspelled. His
name is Anthony Notar Oberta. (pg. A02 ALL 2/7/01)], a supervising
investigator with the the state enforcement division. He said that the
disproportionate amount of time spent on cigarette evasion is due to the
way the department is funded-even though New York State expects to
collect $1.5 billion in gasoline related taxes for the fiscal year 2000,
compared with $643 million on cigarettes.
Last year, Norta Roberta said, only "20 or maybe 30" summons or
arrests were made for breaches of gasoline taxes.
Some critics say the courts don't seem to back up the tax enforcers,
either.
In "New York City, the courts see thousands of cases a day, and these
are not seen as high priority," Norta Roberta said, referring to gasoline
tax evasion cases.
Robert Shepherd, who was the deputy commissioner of New York
State's enforcement division until two years ago, agreed. He said
prosecutors don't aggressively throw the book at bootleggers, since the
crime is viewed by many as a victimless offense. Furthermore, they are
only E felonies, for which the maximum sentence is only 4 years
imprisonment-which is rarely handed down, he added. Lukov was
convicted in 1996 for cheating New York State out of gasoline taxes
and received a $1,000 fine, the FBI document says.
In the new indictment, Lukov's alleged crime, like most of this type,
relies on the "daisy chain" model of old, whereby organized crime
groups establish front companies and obtain motor fuel licenses from the
state tax department. Once the license is obtained, the front company is
then able to buy gas at the terminals and becomes responsible for
paying state taxes. The front company then sells the gas, at least on
paper, to a so-called legitimate company.
Should investigators catch on to the scam, the front company simply
disappears, while the supposedly legitimate company admits no
wrong-doing, claiming that it didn't know it was buying gas from a
dishonest entity. After all, so the story goes, the so-called legitimate
company is buying gas from a licensed corporation.
According to the FBI affidavit, Lukov has bought gasoline in New
Jersey using front companies such as Panther Oil, Express I and Dye-
Wreck Petroleum, all of which were based out of Jamaica, Queens.
The affidavit also alleges that Lukov used Whirled-Wide Petroleum,
based in Brooklyn, and O.K. Petroleum, based in Farmingdale, as front
companies to buy gas.
Whirled-Wide Petroleum did not respond to the allegations.
Marvin E. Kramer, a lawyer who represents O.K. Petroleum, said the
company "wasn't a knowing conspirator," adding that the company is
"an innocent victim." O.K. Petroleum is operated by John Musacchia,
who was previously convicted and imprisoned for federal gasoline tax
evasion in the early 1990s, according to court records.
Berger, the former supervisor with the tax enforcement unit, charges
that with the long history of daisy chain schemes in New York, the tax
department should have become more vigilant in assuring that only
legitimate companies receive motor fuel licenses.
Berger said that when he worked at the department until 1997, he saw
that some companies were issued licenses, even though they hadn't
completed all of the required paperwork, which included providing
bank account numbers and Social Security numbers.
Karin Kennet [CORRECTION: In a Sunday story about gasoline
bootlegging, the name of the spokeswoman for the New York State
Department of Taxation and Finance was spelled incorrectly. Her name
is Karin Kennett. In the same story, the name of the supervising
investigator with the state enforcement division of the tax department
also was misspelled. His name is Anthony Notar Oberta. (pg. A02
ALL 2/7/01)], a spokeswoman for the tax department, countered that
the department, with the help of its enforcement division, does check
who the principals and directors of a company are before issuing a
license. As to Berger's claim of incompleted paperwork, she said, "I
can't comment."
Typically, in bootlegging scams, the tax-evaded profits are divvied up all
along the distribution chain-where the $1,900-per- load is shared by the
wholesaler all the way to cheap gas for the retailer.
Of the four local stations named in the FBI court filing, none are
affiliated with major oil companies. The big players such as Exxon
Mobil, Shell or Texaco, would not dare jeopardize their business
empires by getting involved in such scams, investigators said.
Bootleggers tend to drive beaten up, unbranded trucks and then deliver
it to no-name stations. "It usually ends up at, say, Joe's gas station,"
Norta Roberta said.
Halton, the New Jersey detective, said, "The Northeast is an ideal place
for bootlegging because the small size of the states make the
transporting across states lines profitable." He added that officials also
believe bootlegging is going on between South Jersey and Pennsylvania,
where the tax rates differ.
Even Norta Roberta said, "There is a significant amount of it going on,"
referring to bootlegging. However, like others, he has difficulty putting a
number on how many trucks illegally smuggle gas into New York State.
"Some nights five trucks [with bootlegged gas], some nights 10," he
said.
Shepherd said he believes the losses are greater than this. "It's a $200
million-a-year problem," he said.
With 11 years of tax enforcement experience, Shepherd said the way to
solve the problem is to have inspectors on the ground checking the
trucks' paperwork as they come into the state. However, he
acknowledged that that approach would not be easy because it would
block already congested traffic.
By law, truck drivers must have the right paperwork saying where the
truck is going and who the load is for. Therefore, if a truck is going
down the Long Island Expressway and its paperwork says the load is
meant for New Jersey, it's likely the driver is evading gasoline taxes.
But Norta Roberta said the department was not putting in place road
blocks or checking the trucks as they drive over the bridges into New
York. No one is stopping the gasoline trucks right now, he said.
At best, observers say, the tax enforcement unit is acting on tips- and is
then following the trucks from New Jersey to see if they illegally sell gas
in New York.
The lack of enforcement is a further invitation for organized crime
groups, investigators said. And organized crime has been quick in the
past to take advantage of slow enforcement, Berger said.
In the 1980s, the gasoline bootlegging scams of old netted "Italian and
Russian organized crime hundreds and hundreds of millions of dollars,"
Michael Franzese, a one-time member of the Colombo crime family,
testified before Congress in 1996.
Through profitable bootlegging gas scams, many Russian gangsters built
crime networks in this country at a blistering pace, officials said. They
were initially able to evade both state and federal taxes entirely, a much
more lucrative scheme than today's state-tax scam.
A few legal changes and a crackdown by law enforcement agencies
reduced these massive gasoline tax evasions by the mid-1990s. For
instance, from the late 1980s to the mid-1990s, the Long Island Motor
Fuel Task Force, established by a number of federal and state agencies,
convicted more than 100 people, totalling hundreds of millions of
dollars.
In recent times, the bootleggers have come back "just a little smarter,
and a little less greedy," Shepherd said. For instance, they are not
evading federal taxes-so the IRS, with its massive enforcement
resources, doesn't investigate them.
Richard Spiegel, the president of M. Spiegel & Sons Oil Corp., a
gasoline wholesaler based in upstate Tuxedo Park, said that bootlegging
is a problem for him and complains that it is making business tough. "I
have quoted gasoline prices below cost [including taxes] and still some
stations don't want to buy from me," he said. It makes him wonder, he
said.
While Ralph Bombardiere, executive director of the Brooklyn-based
Gasoline and Automotive Service Dealers Association, agrees that
some shady operators are bootlegging, he is unsure to what degree. He
said that it's not like the late 1980s or early 1990s, when the problem
was especially bad.
But James Rodeo, who led the Long Island Motor Fuel Task Force,
said that "when I came to look into these cases [in the '80s], many
people said that it wasn't a major problem."
State Assemb. Jeffrey Klein (D-Bronx) introduced a bill to the
Assembly in 1999 and again in 2000 that clamps down harder on
bootlegging crimes.
The proposed legislation calls for gasoline tax evasion to be classified as
a D felony, increasing the penalty to 7 years imprisonment, he said.
Furthermore, station dealers-who he claims know when they get cheap,
bootlegged loads-would have their gas pumps padlocked. Currently,
station owners are not prosecuted, he said. Both attempts to pass the
bill were defeated in committee, Klein said.
The bill has been sponsored in the Senate by Sen. Michael Balboni
(R-Mineola), However, Balboni said that it has failed largely because
service station dealers are against it. They are nervous that they may be
mistakenly closed down, he said.
There are plans to try to pass the bill again this year, Klein says.