Tobacco News

Federal authorities targeting contraband cigarette sales arrested a group of suspected wholesalers on charges of dealing thousands of cartons of untaxed cigarettes and millions of counterfeit tax stamps.

An unrelated investigation in Hampton led to state warrants lodged Wednesday against a number of businesses selling contraband cigarettes.

Untaxed cigarettes purchased wholesale in Virginia can yield huge profits in other states with high excise taxes for tobacco products. At 30 cents a pack, Virginia has the country’s third-lowest tobacco excise tax.

A lengthy investigation by the Bureau of Alcohol, Tobacco, Firearms and Explosives led to federal charges lodged against five suspects: Tao Zhang; Yong Jin Li; Qui Rong Li, known as Amy; Fajun Zhang; and Mei Zhang, known as Michelle. All but Amy Li were in custody as of Wednesday.

They are accused of operating a large contraband cigarette ring, smuggling thousands of cartons from Norfolk, Virginia Beach and the Eastern Shore to New Jersey, where they live, and New York.

Federal authorities said the group purchased about $3 million worth of contraband cigarettes that were distributed in New Jersey while at the same time selling millions of counterfeit tax stamps used for each pack. The phony stamps were imported from China, the authorities said.

The investigation began a year ago when two undercover ATF agents acting as cigarette wholesalers met Michelle Zhang and Yong Jin Li on the Eastern Shore. They soon developed a business arrangement, buying hundreds of cartons of untaxed cigarettes at a time from the undercover agents, according to a court affidavit filed by an ATF agent.

Michelle Zhang, the only member of the group who speaks English, soon introduced her father, Fajun Zhang, to agents, who in turn acted as the money man, the affidavit says. The agents learned that Fajun Zhang operates the Golden Garden restaurant in Elizabeth, N.J., where officials there seized untaxed cigarettes in early 2009.

The sales then moved to Virginia Beach and Norfolk, where the agents began recording conversations with the suspects. One suspect said in a recorded conversation that the group, using other connections, smuggled 500 cases (at 50 cartons a case) per week, the affidavit says.

In October, the group introduced the undercover agents to Amy Li and Tao Zhang, who offered to sell them counterfeit merchandise, such as shoes, wallets, handbags, jewelry, purses and clothing, the court records say.

From October through March, the undercover agents purchased eight shipments of counterfeit goods, deducting the costs from their weekly supply of cigarettes to the ring, the affidavit says. By then the agents were supplying 5,000 cartons or more per meeting.

In the p ast year, the ring bought about $3 million worth of contraband cigarettes from the agents while also providing the agents with more than 2 million counterfeit tax stamps, made in China.

In Hampton on Wednesday, local, state and federal authorities issued warrants to a number of business owners accusing them of selling untaxed, contraband cigarettes. That operation was unrelated.

By Tim McGlone, hamptonroads.com, June 10th, 2010