U.S. Department
of Transportation

Federal Highway Administration

Memorandum

Subject: INFORMATION: Fuel Tax Evasion Date: June 11, 1997
Highlights

Reply to
From: Associate Administrator for Policy Attn. of: HPP-10

To: Regional Administrators
Division Administrators

Attached is the June 1997 issue of "Fuel Tax Evasion Highlights" which documents recent cases involving fuel tax evasion as well as other issues making news in this area. As you will see from the "Highlights," we are continuing to have success in fighting fuel tax evasion.

Enforcement efforts have yielded over $1 billion of additional highway user revenue annually. As a result of this kind of success, the program has been recommended for continuation at $5 million per year through 2003 in the National Economic Crossroads Transportation Efficiency Act (NEXTEA).

/s/ Gloria J. Jeff

Gloria J. Jeff

Attachment

FHWA:HPP-10:LMorris:ljm:69234:
cc: HPL-1, HPL Reader, HPP-1, HPP Reader, HPP-10 Reader,
Ms. Alston, Mr. Baluch, Ms. Morris, Subject File
(F:\HPP10\TAX\97JUN\HL97JUN.WPD)
File: 3200.16

U.S. Department
of Transportation

Federal Highway Administration

Volume 6, Number

June 1997

IN THE NEWS A Department of Defense (DoD) Defense Logistic Agency Debarring Official has debarred 3 individuals convicted of criminal fraud and conspiracy charges in connection with fuel delivery contracts at DoD installations. William Bartlett Jones, former sales manager for Domestic Industries Corporation of Virginia, and Lynn Franklin Payne, former terminal manager for Kenan Transport Company, Inc., were debarred from U.S. government contracts until 1999. Michael Lee Norfus, a former driver for Kenan Transport, was debarred indefinitely pending resolution of the criminal proceedings. DoD Information Release 10/10/96 In the largest Colorado Department of Revenue criminal tax liability case ever to result in a conviction, Daniel Roccaforte, Jr., of Fort Collins, and his son Michael Roccaforte were sentenced after their convictions in a case involving non-payment of $479,000 in fuel taxes owed to the State for motor fuel sales through their company, Martin Petroleum, Inc. Daniel Roccaforte was sentenced to 2 years in prison without parole and ordered to pay restitution, while his son was sentenced to 1 year probation and ordered to pay prosecution and court costs. Colorado Attorney General's Office Press Release 9/27/96, The Tax Enforcer Winter/Spring 97 A number of those convicted in the Federal prosecution of "Operation Gas Gangsters" and related mail, wire fraud, and narcotics investigations have been sentenced in U.S. District Court, Central District of California, Los Angeles, as follows: Akop "Apy" Hakopian-- 7 years, 3 months in prison, Youssef Kamel Keroles-- 27 months in prison, Larry Nadeen Tabbaa-- 12 months 1 day in prison, 36 months probation, Abid "Ed" Henein-- 12 months 1 day in prison, 36 months probation, Manouk Isahak Nalchian-- 24 months in prison, 36 months probation, Magdi Sabry Youssef-- 30 months in prison, Vahram Shakarian (on narcotics charges)-- 60 months in prison, 48 months probation, Andranik "Andy" Dzhrdzhyan-- 15 months in prison, 24 months probation, Mohsen Mohammed-- 8 months in prison, 36 months probation. Several defendants were also ordered to pay fines, assessments, restitution, or to forfeit seized assets. In related cases, Avetik Asatur Mkrtchyan pled guilty to perjury during Hakopian's trial, Elia Tawil entered a plea agreement that he made false declarations before the Federal grand jury, and Aram Gevorkian was charged with use of a communication device to facilitate

delivery of narcotics. All three are awaiting sentencing. The investigation was conducted by the IRS Criminal Investigation Division (CID), FBI, Defense Criminal Investigative Service, the U.S. Dept. of Transportation Office of Inspector General (OIG), the Los Angeles and Long Beach Police Departments, and the California Dept. of Justice, with assistance from the California Board of Equalization. Petroscan Current Alerts 11/27/96; Oil Price Information Service 12/18/96; U.S. Oil Week 12/9/96, 12/16/96; DoD Office of Inspector General Press Release 10/29/96, 11/4/96, 11/19/96, 12/5/96, 12/10/96 Serop Khachatourian, doing business as Diesel Country Truck Stop, received a sentence of 5 years probation and 450 hours of community service following his conviction for under reporting sales and fuel use tax obligations. California State Board of Equalization-- News Release 11/2/95; Narrative Report 9/30/96 Cool Fuel, based in Paramount, CA filed for Chapter 11 protection, despite claims that the company is "fully solvent," in order to get a hearing "as quickly as possible" in a tax dispute with the California Board of Equalization over fuel sold tax-free to firms that falsely claimed tax-free status. Oil Price Information Service 12/18/96 Robert and John Schilling were sentenced to 27 months in prison after pleading guilty to conspiracy to commit fraud to evade paying more than $1 million in Federal and State motor fuel taxes in 1987 and 1988. Hammond, IN Times 12/4/96 J.R.'s Smokeshop, a cigarette shop on the Seneca Indian Reservation in New York, is offering tax-free cigarettes by mail. Convenience store and petroleum marketer associations contend that tax-free sales to non-tribal members give Native Americans a substantial marketing advantage on gasoline and cigarette sales, and is urging congressional action to devise a way for States to collect the taxes they are entitled to. Oil Price Information Service 12/13/96 In Oklahoma, 2 tribes remain holdouts in reaching agreement with the State over collection of motor fuel taxes under the State's new motor fuel law, enacted May 31, 1996. Other tribes threaten to file suit over the new law. U.S. Oil Week 11/25/96 A U.S. District Court ruled that the Federal government cannot collect back taxes on gasoline sold during a 1987 tax evasion scheme in New York because the law at the time did not provide for it. Oil Price Information Service 11/26/96 Douglas W. Wiseman of Graham, Washington, pleaded guilty to conspiracy to evade more than $2.5 million in Federal excise taxes on highway truck tires between 1989 and 1996. The tire tax receipts are deposited in the Highway Trust Fund, which is used to fund transportation improvements throughout the country. The tax was evaded by falsely representing that the tires were for export in order to obtain fraudulent refunds of the tire taxes, and by importing truck tires from foreign suppliers and failing to remit the excise taxes due. Wiseman worked for North American Tire Company of Tacoma, Washington, until 1993 and subsequently began his own business called Network Tire, Inc. of Puyallup, Washington. The U.S. Attorney's office for the Western District of Washington prosecuted the case. Investigation of tire tax evasion by the IRS Criminal Investigation Division and the U.S. Customs Service is continuing. Tacoma, WA The News Tribune 12/22/96; U.S. Attorney's Office Press Release 12/20/96; US Oil Week, 1/6/97 The Travis County grand jury returned indictments against Bill Melot and Eddie Reynolds from Hobbs, NM, and Dennis R. Dickerson of Velma, OK. Each is charged with 2 counts of engaging in organized criminal activity and 12 counts of failure to remit motor fuel taxes to the State of Texas. It is alleged that the 3 operated a gasoline blending facility in Hobbs, NM, then sold the blended gas, tax included, and would pocket the tax money collected from retailers. The indictments are a result of a 2-year investigation conducted by the State Comptrollers Office, the Travis County District Attorney's Public Integrity Unit, and the Audit and Compliance Division of the Gasoline Tax Unit of the New Mexico Taxation and Revenue Department. State Comptroller, State of Texas, 11/25/96 The Wright City Board of Aldermen unanimously rejected a proposal by the Peoria Indian Tribe and the Greater Missouri Builders to construct a large truck stop on a 13-acre parcel in the city. Two areas of concern raised at the board meeting include the proximity of the

truck stop to an elementary school, and the unfair advantage this station would have over other gas stations that pay taxes. Developers did agree to pay the city and the school district money to replace what they would have gained in sales and property tax if the parcel was developed through some other means. The proposal was dropped after meeting with vocal opposition from the Missouri attorney general and many of the 80 attendees. St. Louis Post Dispatch, 9/27/96 A court date of August 11 has been set for New Jersey jobber Danny Enright. Enright, president of PetroPlus of Deptford, NJ, and 24 others are accused of running a bootlegging racket that siphoned off more that $140 million in Federal and State fuel taxes. In addition to the tax evasion charges, Enright is charged with extortion. Of the 24 others indicted in August 1995 with Enright, 13 have pled guilty to various tax evasion, conspiracy, wire fraud, and money laundering charges; 2 are fugitives; and the remaining 9, which includes New Jersey marketer Richard Pedroni, will stand trial. Oil Express, 2/20/97 Genaro Dellamonica, aka "Jimmy Sweats" of Staten Island, NY, pled guilty to 1 count of extortion in exchange for a reduced sentence. He will be sentenced to 18 months in jail. Dellamonica was arrested last year along with Daniel Pagano and Anthony Palumbo, aka "Tony D." The 3 were charged with participating in extortion and bootleg schemes in New York and New Jersey that resulted in $77 million in fuel tax losses. Authorities allege that Dellamonica was an enforcer for the Gambino family whose job was to intimidate and injure individuals who were part of the bootleg scheme. Oil Express, 2/26/97 WANT TO KNOW MORE? Fuel Tax Evasion Highlights will be available by electronic mail to those who have an Internet address. For more information or updates to the mailing list, call Stephen Baluch, (202) 366-9243, Federal Highway Administration (HPP-10), 400 Seventh Street, SW., Washington, D.C. 20590.

U.S. Department
of Transportation

Federal Highway
Administration
(HPP-10)
400 Seventh Street, SW.
Washington, D.C. 20590

Official Business
Penalty for Private Use $300

POSSIBLE ADD TO "GAS GANGSTERS":The investigation was conducted by the IRS Criminal Investigation Division (CID), FBI, Defense Criminal Investigative Service, the U.S. Dept. of Transportation Office of Inspector General (OIG), the Los Angeles and Long Beach Police Departments, the California Dept. of Justice and with assistance from the California Board of Equalization.

United States Department of Transportation - Federal Highway Administration