From The Associated Press
LOUISVILLE, Ky. —
A Louisville businessman pleaded guilty Monday to playing a role in a scheme to sell more than $12 million in cigarettes online and avoid paying Kentucky taxes on the smokes.
Israel Chavez, 48, admitted in federal court in Louisville that he used two companies, Chavez, Inc., and Cigarettes Direct to You, to buy cigarettes from another Kentucky dealer and falsify invoices through an out-of-state company. By using false invoices for the sales, prosecutors said, Chavez and his alleged co-conspirators shorted Kentucky of more than $2 million in excise taxes.
“The purpose of this scheme was to buy and sell untaxed cigarettes,” Assistant U.S. Attorney Randy Ream said.
The case is linked to the ongoing criminal proceedings against a Florida businessman, who has been in the crosshairs of federal investigators for more than a decade, and two others who have pleaded not guilty to taking part in the alleged tax avoidance scheme.
Ream said Chavez did business with 43-year-old Pedro “Peter” Bello of Miami and his business, GT Northeast of St. Louis. Bello, his sister, Caridad Bello of St. Louis, and her husband, Juan Hernandez of St. Louis, have pleaded not guilty to conspiracy to commit wire fraud and money laundering. The case against them is pending.
Ream said Chavez and Bellow, who ran a Louisville-based business, would run “cross-county” sales of cigarettes, which were then sold online. Invoices for the sales would be run through GT Northeast to make it appear the cigarettes were brought in from Missouri and had not yet been taxed by Kentucky, Ream said.
“Is all that true?” U.S. Magistrate Judge Dave Whalin asked Chavez.
“That is correct, your honor,” Chavez replied.
Ream said the plea would also settle a civil case brought by the government against Chavez, his ex-wife, Pam Chavez, and the two companies. Details of that settlement were not immediately available Monday.
Whalin set Chavez’s sentencing for Aug. 7. Prosecutors are recommending a 33-month prison sentence for Chavez.
Federal investigators have been tracking Bello since at least 2002, when prosecutors in Texas sought to secretly listen to cellphone conversations involving him. He was linked to several large-scale investigations and named in a civil lawsuit brought by the city of New York over untaxed cigarettes.
The allegations against Bello are similar to the case brought against Chavez. Authorities say Bello bought massive amounts of cigarettes in Kentucky but used invoices written by GT Northeast. He then sold the cigarettes around the country while pocketing bigger profits by avoiding the Kentucky tax.
The federal government has cracked down in recent years on contraband cigarettes — smokes sold by people and businesses through illegitimate channels to avoid paying taxes. The Department of Justice estimates that federal, state and local governments lose out on $5 billion annually in tax revenue from the cigarette schemes.
Pedro Bello’s name has surfaced in several investigations at the heart of the ATF’s crackdown. Federal court records from Kentucky, New York and Texas depict Bello as a man involved in moving millions of cigarettes around the country without paying taxes to various states.
Bello was a subject of the Texas investigation in 2002 in which federal prosecutors sought to secretly listen in on the cellphones of dozens of people suspected of trafficking in contraband cigarettes. He avoided indictment, but 15 others were charged, with 13 people pleading guilty or being convicted. Prison sentences ranged from a year to six years behind bars.