$84 million sought in contraband cigarette indictment in Yakima 6-15-07

YAKIMA, Wash. (AP) - Two wholesalers in Spokane, their owners and three other people have been accused of supplying at least 4 million cartons of untaxed cigarettes that were shipped into Washington state.

A U.S. District Court grand jury on Thursday returned a 58-count indictment seeking forfeiture of a total of $84 million from L.A. Nelson Co., doing business as Burke's Distributing, and Black Sheep Distributing Inc., both of Spokane, and from six individuals.

The individuals are Douglas E. Burke, 51, and Brandon E. Donahue, 34, both of Spokane, owners of Burke's; Brian T. Donahue, 30, of Spokane, owner of Black Sheep; Joseph D. Dunsmoor, 30, of Spokane; Marianne Willard, 55, of Plummer, Idaho, and Mitchell Sivina, 36, of Miami.

The case centers on accusations that Burke's and Black Sheep sold untaxed cigarettes to smoke shops on the Coeur d'Alene Indian Reservation in northern Idaho which shipped the cigarettes to stores on other reservations in Washington state.

Smoke shops on reservations may legally sell cigarettes without state taxes only to tribal members, and the federal Contraband Cigarette Trafficking Act requires that large shipments of cigarettes bear state tax stamps.

“This is a significant case. That's obvious by the amount of money involved,” U.S. Attorney James A. McDevitt told The Spokesman-Review of Spokane.

David J. Groesbeck and Carl J. Oreskovich, lawyers for the distributors and their owners, denied any wrongdoing by the businesses and said they would vigorously fight the criminal charges and demands for forfeiture.

In previous legal proceedings, Washington state Revenue Department officials have “confirmed that Burke's Distributing has always had an exemplary record and passed every department audit in the company's 40 years of existence,” Groesbeck said.

“Over those years, the company has sold cigarettes to many wholesale distributors and retailers and businesses operating on Indian reservations,” he added. “The company has always complied with federal, state and local laws and followed the spirit and the letter of the law.”

The indictment, the latest development in an investigation that began with a series of raids on the Coeur d'Alene reservation in 2003, includes three counts of conspiracy, 12 of trafficking in contraband cigarettes, 12 of record-keeping violations, 27 of money laundering and four of counterfeit goods trafficking.

Since the raids, eight people have pleaded guilty to charges involving efforts to smuggle millions of dollars of untaxed cigarettes from smoke shops on the Coeur d'Alene reservation to 12 businesses on Washington state Indian reservations where investigators found they were sold to non-Indians at well below the typical retail price.

Washington state officials have estimate the resulting loss in tax revenue between 1999 and 2003 at $23 million.

The indictment seeks a $78 million judgment against L.A. Nelson and the owners and forfeiture of the company's warehouse; $5 million from Black Sheep and the owner, and $30,420 from Sivina. Black Sheep is operated from a leased location.

The indictment also seeks forfeiture of $384,240 from the sale of nearly 12 million contraband cigarettes seized by federal and state agents in May 2003 in Plummer, Idaho, $399,000 that was seized from a bank account and another $500,000 seized in Plummer.

“When Burke's Distributing had questions or concerns pertaining to the sale of cigarettes to Indian tribes and retail outlets on reservation, the company has always followed Department of Revenue instructions and advice, Groesbeck said.

“The company complied in this instance, too, and got specific instructions that it was perfectly legal to sell wholesale cigarettes to tribal businesses on the Coeur d'Alene reservation,” he said.

Oreskovich, representing Black Sheep and its owner, Brian T. Donahue, offered a similar response.

“It is unfortunate that the government has chosen to turn what it previously recognized as a civil case now into a criminal proceeding, Oreskovich said. “However, we will play the cards we are dealt and take the government to task in the courtroom.”

In a related development earlier in the week, U.S. District Judge Robert H. Whaley cited an appellate ruling on tribal treaty rights in an order to drop cigarette smuggling charges against Roger Fiander, 67, of Wapato, a Yakama tribal member who had pleaded guilty.

Fiander was one of those who had been charged as a result of the raids in 2003.

Last month a ruling in the 9th U.S. Circuit Court of Appeals freed Yakama tribal members Harry Smiskin, 55, and his 31-year-old son, Kato, both of Wapato, who were indicted on federal charges in August 2004 after more than 4,000 cartons of untaxed smokes were seized from a trailer parked outside their home.

The appeals ruling cited Yakama tribal members' rights to freely travel and trade as stated in the Treaty of 1855.