Thank You for Not Frauding

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The history of “buttlegging,” or cigarette smuggling, is unfortunately rather established on the east coast of the US. The practice has commonly been used by organized crime and terrorist organizations to defraud the government of money and raise illicit funds. In fact, I-95, which stretches all the way up the eastern seaboard, is sometimes referred to as “Tobacco Road” because of the prevalence of this illegal trade on that interstate. Today’s “Fraud of the Day” involves a cigarette tax fraud scheme with a focus on a pair of tobacco wholesalers who added their small contribution to this long and storied history.

For the those who may not know, the taxes on tobacco products vary from state to state. For example, states like South Carolina, Virginia and Pennsylvania generally have lower taxes on tobacco than states like New York and Connecticut. Tobacco traffickers take advantage of this by purchasing cigarettes in low tax states and selling them in high tax states, while evading the high tax state’s tobacco tax. This allows the fraudster to claim the avoided difference in tax rates as profit for themselves. And that is exactly what our pair of fraudsters did.

The two worked together to import out-of-state tobacco into Connecticut while vastly underreporting the actual amounts imported. One of our fraudsters ran Connecticut Discounts LLC (not sure you want to advertise your fraud-generated discounts that blatantly, but ok…) for several years before selling it to his soon-to-be-accomplice. After the sale of the company, (and rebranding to the only-slightly-less-obvious named KDV Discounts) the two partners in fraud coordinated their basic, but effective tax fraud scheme. The former owner of Connecticut Discounts then took on the guise of a legitimate Pennsylvania-based wholesaler, named Discount Deals LLC (they just can’t help themselves, can they?).

Between 2013 and 2017, the owner of KDV Discounts underrepresented his imports from Discount Deals on required forms, defrauding Connecticut of approximately $5.8 million. Discount Deals made no tax payments to the state of Connecticut between 2014 and 2017 and about $400,000 in smokeless tobacco was not reported to Connecticut or other states. The pair was arrested in January 2018 and pleaded guilty. They now face a maximum of five years in prison as the result of a wire fraud charge and a maximum of 20 years in prison for Contraband Cigarette Trafficking Act violations. Additionally, they are responsible for paying back the stolen $5.8 million in restitution.

Today’s “Fraud of the Day” is based on an article entitled, Ex-Bridgeport tobacco wholesaler pleads guilty to tax fraud charges,” posted on westfaironline.com on October 31, 2018.  

Rishi Malik, a Fairfield resident who operated the Bridgeport-based tobacco wholesaler Connecticut Discounts LLC, has pleaded guilty to one count of conspiracy to commit wire fraud and to violate the Contraband Cigarette Trafficking Act (CCTA).

Malik and a business partner ran Connecticut Discounts LLC for several years before selling the company in 2012 to Pavan Vaswani, who changed the company’s name to KDV Discounts LLC. Prior to the sale, Malik underreported the amount of tobacco he imported into Connecticut for distribution on forms that are filed with the Connecticut Department of Revenue Services. After selling his company, Malik worked with Vaswani on importing tobacco products from out-of-state suppliers, sometimes delivering payments in cash. Between 2013 and 2017, Vaswani underreported his imports on the forms, defrauding Connecticut of approximately $5.8 million in taxes.

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Larry Benson
Larry Benson is currently the Director of Strategic Alliances for Revenue Discovery and Recovery at LexisNexis Risk Solutions. In this role, Benson is responsible for developing partnerships for the tax and revenue and child support enforcement verticals. He focuses on embedded companies that have a need for third-party analytics to enhance their current offerings.