Another Department of Justice informant program is under scrutiny following a New York Times report disclosing the existence of an undercover financing operation–this one involving illegal cigarette sales.
Agents with the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) enlisted the help of a Virginia tobacco distributor in 2011, to swindle a farmers’ cooperative out of $24 million.
Some of the money was then used to finance ATF undercover activities, including $1 million payments each to two owners of the distribution company.
The Times expose was based on allegations made in poorly redacted public court records from a federal racketeering lawsuit brought by the web of tobacco farmers, US Tobacco Cooperative Inc. The company discovered the scheme in 2013, thanks to a whistleblower tip from within the distributor.
The target of the suit, the owners of Big South Wholesale, Jason Carpenter and Christopher Small, claim they were just working at the behest of the government, as informants.
Carpenter and Small, who had authority from US Tobacco to buy and sell cigarettes on its behalf, were allegedly distributing the co-op’s own tobacco back to itself, in a money-raising scam.
Big South would claim a tobacco shipment was headed to an international buyer, meaning it would not accrue US taxes. But rather than shipping it overseas, Big South would buy the shipment themselves at the tax-free price, keep it in their warehouse, and then later sell it back to US Tobacco at a mark-up, the cooperative claimed.
One exchange allegedly netted US Tobacco more than $500,000 dollars in profits that went into “management accounts” that were partly controlled by the ATF.
The Times described the operation as “not authorized under Justice Department rules.” It added that the secret account: “gave agents an off-the-books way to finance undercover investigations and pay informants without the usual cumbersome paperwork and close oversight.”
One reported example involved ATF using Big South-tied money to purchase iPads and televisions at Best Buy, to “curry favor with potential criminal targets.”
According to court records, an ATF supervisor, Ryan Kaye, testified that higher officials within the agency were aware of the operations. Kaye said the secret arrangement with Big South was maintained, “as a result of verbal directives from the ATF program office and other headquarters officials.”
The Justice Department’s Inspector General is reportedly investigating the matter.
Last September, the department watchdog released a scathing probe about a separate informant program run out of the Drug Enforcement Administration (DEA).
The report detailed how, over the last five years, the DEA employed more than 18,000 informants, paying them roughly $237 million, in a program rife with managerial woes.
The audit concluded the program left the agency vulnerable to “an unacceptably increased potential for fraud, waste, and abuse, particularly given the frequency with which DEA offices utilize and pay confidential sources.”
