Federal prosecutors from Raleigh boarded planes Tuesday for Los Angeles, hoping to close a four-year, multimillion dollar cigarette smuggling case.
Avedis Djeredjian, a California man who owned a tobacco shop in Glendale, Calif., operated a scheme in which he bought cheap, untaxed wholesale cigarettes in North Carolina and then sold them at nearly triple the rate, pocketing steep taxes owed to California.
Prosecutors were in the air when they learned that today's sentencing had been canceled, another complication of prosecuting a case in a courthouse 3,000 miles away, instead of downstairs. Raleigh-based prosecutors and agents have been criss-crossing the country prosecuting Djeredjian for years. In 2008, the team moved to Los Angeles for a monthlong trial.
"This has taken so long," said George E.B. Holding, U.S. attorney for the Eastern District of North Carolina. "We've had such a steep learning curve."
Holding and his prosecutors didn't set out to pursue a case three time zones away, nor did they foresee the resources it would demand. Holding could not say how much his office has spent on the prosecution. A grand jury in Raleigh indicted Djeredjian and his crew in 2006, and prosecutors prepared to haul Djeredjian out of California to try him in North Carolina.
But Djeredjian's lawyers persuaded a judge to move the case to Djeredjian's home state to ease the burden and expense on the 70 or so witnesses they planned to call.
Holding turned to his counterpart in Southern California and asked whether he would pick up the prosecution; a band of cigarette smugglers was not that prosecutor's top priority. So Holding's team stuck with the case. "We're just not in the practice of letting cigarette smugglers off the hook," Holding said.
Low state tobacco taxes have long made North Carolina cigarettes a popular black-market item in high-tax states such as New York and New Jersey. In 2002, a federal jury in Charlotte convicted two Lebanese citizens of diverting millions of dollars in cigarette-smuggling proceeds to the Islamic group Hezbollah by shipping North Carolina cigarettes to Michigan for resale.
Some say North Carolina also makes it easier to ship cigarettes to other states because it doesn't require tax stamps be affixed on each pack sold, as most other states do. According to The Associated Press, state lawmakers are considering restoring the stamps, in part to discourage smuggling of cigarettes into the state from South Carolina, which has a 7-cent-per pack tax and also doesn't use stamps. North Carolina's 45-cent tax has grown ninefold since 2005, creating a cross-border difference of $3.80 per carton.
Holding suspects that cigarette smuggling is prevalent in a state that still sells the commodity at a bargain, but operations as extensive as Djeredjian's are rare, he said.
Smoke and mirrors
Djeredjian's scheme in California made him millions, which prosecutors hope to collect as part of his punishment. Djeredjian hired Armenian immigrants to buy cigarettes in Eastern North Carolina at discount retailers such as J.R.'s in Johnston County. Djeredjian's team stockpiled the smokes at a Raleigh warehouse, then shipped them west to a team set up to distribute them to retailers around Los Angeles. Djeredjian printed fake California revenue stamps to trick regulators into thinking his cartons complied with tax law.
The state of California was cheated out of at least $3 million in tax revenue.
California collects 87 cents on each pack of cigarettes, and Djeredjian's team bought nearly 400,000 cartons of 10 packs. California, a health-conscious state, funnels most of its cigarette tax revenue to health programs, specifically benefiting cancer patients and at-risk children.
Jerome E. Horton, vice chairman of California's Board of Equalization, which collects taxes and investigates fraud, lauded Holding and his assistants for pushing a case that could have gotten lost in the shuffle.
"This was not easy for them, I know," said Horton. "But this type of activity is feeding our underground economy, and it's unfair to legitimate businesses that are playing by the rules."
Horton is hoping the state can share its windfall with North Carolina's prosecution team, at least to recover some of the expense of prosecuting the case.
For now, Djeredjian's attorneys are trying to limit the amount of restitution owed, arguing that he's only able to afford to pay $500,000.
Getting more could be a challenge: Djeredjian has been locked up since his jury conviction in spring 2008 and is now looking at an extended stay. Prosecutors are asking the judge to send him to prison for as long as a decade.
