SMOKE SHOP OWNERS PLEAD GUILTY TO CONSPIRING TO TRAFFIC IN CONTRABAND CIGARETTES AND STRUCTURING $2.1 MILLION OF CASH TRANSACTIONS

         HENRY GOTTFRIEDSON, 61, and ALISON GOTTFRIEDSON, 56, owners of Frank’s Landing Indian Discount Tobacco, pleaded guilty today in U. S. District Court in Tacoma to Conspiring to Traffic in Contraband Cigarettes and Structuring Currency Transactions, in connection with a scheme to sell contraband cigarettes to the public at large without paying the applicable State of Washington taxes. The GOTTFRIEDSONs admitted to unlawfully avoiding more than $9.2 million in Washington State taxes and agreed to forfeit more than $1.5 million in cash.

         HENRY and ALISON GOTTFRIEDSON owned and operated the smoke shop, which did business in Olympia, Washington, as part of the Frank’s Landing Indian Community. Both defendants entered pleas earlier today before U.S. District Court Judge Benjamin H. Settle.

         As part of the plea agreements, the GOTTFRIEDSONs admitted to conspiring from January 2001 until October 2007, to purchase, receive, and sell contraband cigarettes. Contraband cigarettes are a quantity of cigarettes which bear no Washington tax stamp, and thus no Washington cigarette tax has been paid. Defendants sold at least 701,075 cartons of contraband cigarettes from the smoke shop, which sales generated at least $21,327,061 in revenues. The defendants’ actions deprived the State of Washington of $9,201,982 in taxes, which resulted in substantial profits they kept for themselves.

         The GOTTFRIEDSONs also admitted to scheming to structure cash deposits at local banks to avoid bank reporting requirements. Banking laws require that financial institutions report cash deposits of more than $10,000. The defendants admitted that from February of 2003 until October 2007, they intentionally made deposits into their accounts below the $10,000 threshold to avoid the reporting requirements. These deposits totaled in excess of $2.1 million.

         On May 15, 2007, pursuant to a federal search warrant, the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) and the Internal Revenue Service (IRS) seized more than 53,870 cartons of contraband cigarettes from the smoke shop, and more than $1.3 million in cash. Agents subsequently seized more than $200,000 from the GOTTFRIEDSONs’ bank accounts.

         As part of the plea agreements, the GOTTFRIEDSONs agreed to forfeit more than $1.5 million in cash, 53,870 cartons of contraband cigarettes, and a 2007 Cadillac Escalade. They also agreed to pay restitution to the State of Washington in the amount of $9,201,982.

         It is a federal crime to transport, possess, or sell contraband cigarettes, whether on federal land, including tribal reservations, or elsewhere. This prosecution reinforces the government’s commitment that trafficking in substantial quantities of contraband cigarettes and reaping substantial profits will not be tolerated. “The trafficking of contraband cigarettes and the structuring of currency transactions to avoid paying Washington state cigarette taxes hurt vital state programs like health care, water quality and preventing youth violence," said Kenneth J. Hines, the IRS Special Agent in Charge for Washington. “IRS Criminal Investigation will continue to work with our law enforcement partners to stop schemes that undermine the public’s trust in our state and federal tax systems.”

         Combating the illicit contraband cigarette trade remains a priority for these state and federal agencies and the government will enforce the law vigorously. “Cigarette trafficking can be complex. ATF takes these investigations extremely seriously,” said Seattle Field Division Special Agent in Charge, Kelvin N. Crenshaw. “Through diligence, perseverance and teamwork we are letting the criminal element know we are here, we are watching and we will not tolerate it.”

         Sentencing is scheduled for November 17, 2008 beginning at 1:30 p.m. before Judge Benjamin H. Settle in U.S. District Court in Tacoma.

         The case was investigated by the Internal Revenue Service (IRS), the Bureau of Alcohol, Tobacco, Firearms & Explosives (ATF), and the Washington State Liquor Control Board. The case was prosecuted by Assistant United States Attorneys Mary K. Dimke, J. Tate London, and Richard E. Cohen.

For additional information, please contact Emily Langlie, Public Affairs Officer, United States Attorney’s Office, Western District of Washington at (206) 553-4110.

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