Federal Indictment Unsealed as Rhode Island State Police and Federal Agents Arrest Seven; Search Ten Businesses and Residences; and Seize Cash, Vehicles, and Business Records in Alleged Cigarette Trafficking Conspiracy
Investigation and Indictment Alleges Complex Interstate Conspiracy That Allegedly Defrauded Rhode Island of More Than $1 Million in Tax Revenue
|U.S. Attorney’s Office May 08, 2013|
PROVIDENCE, RI—A federal grand jury indictment that names seven individuals and alleges a complex interstate contraband cigarette trafficking conspiracy responsible for the sale of more than $1.2 million dollars of contraband cigarettes in Rhode Island and the loss of more than one million dollars in tax revenue to the state was unsealed today in U.S. District Court in Providence. It is alleged that the cigarettes were bought in Virginia and sold in Rhode Island in convenience stores and other locations allegedly owned or operated by members of the conspiracy and others. The indictment also alleges that defendants engaged in other types of program fraud, including Social Security and food stamp fraud.
More than a dozen teams of federal and state law enforcement agents and officers early this morning executed federal arrest and search warrants, arresting seven individuals, and searching 10 locations where a significant quantity of contraband cigarettes, approximately $100,000 in cash, business records, and four vehicles, all allegedly connected to the trafficking operation, were seized. The majority of cash and cigarettes seized were discovered stashed in sophisticated hides in several of the locations.
The indictment was announced by Peter F. Neronha, United States Attorney for the District of Rhode Island; Colonel Steven G. O’Donnell, Superintendent of the Rhode Island State Police; Richard DesLauriers, Special Agent in Charge of the FBI in Boston; William P. Offord, Special Agent in Charge of the Boston Office of the Internal Revenue Service, Criminal Investigation; Bruce M. Foucart, Special Agent in Charge of Homeland Security Investigations in New England; Scott E. Antolik, Special Agent in Charge of the Boston Field Office of the Social Security Administration, Office of the Inspector General/Office of Investigations; and William G. Squires, Special Agent in Charge of the U.S. Department of Agriculture Office of Inspector General.
“United States Attorney Peter F. Neronha noted, “As alleged, today’s indictment has taken down a wide-ranging, complex interstate criminal enterprise. Members of this enterprise, often under the cloak of purportedly legitimate businesses, used any means possible to steal more than a million dollars from Rhode Island taxpayers. The means varied—cigarette smuggling and corresponding evasion of Rhode Island cigarette taxes, Social Security fraud, and food stamp fraud—but the result was the same.”
United States Attorney Neronha added, “I want to thank the many outstanding Rhode Island State Police detectives and the federal agents who tirelessly investigated this matter for many, many months. Our work to defeat this type of fraud continues on many fronts. There is certainly more to come.”
Colonel Steven G. O’Donnell, Superintendent of the Rhode Island State Police added, “The coordinated effort between state, federal, and local law enforcement resulted in today’s arrests. The Rhode Island State Police will continue to target any organized criminal group that profits by taking advantage of a system set up to help those who truly need it. I commend all law enforcement officers, prosecutors, and linguists who participated in this long-term investigation.”
The indictment charges Wissam Khalil, 40, of Central Falls, a Providence convenience store owner; his brothers Bassam Khalil, 48, and Najd Khalil, 25, of Pawtucket; Abdullah Alnahas, 36, of Cranston, a Providence convenience store owner; Bassam Kiriaki, 45, a Pawtucket accountant; and Richard Larrain, 23, of Providence, an enlisted soldier in the U.S. Army Reserves, with allegedly participating in a conspiracy to possess, transport, and distribute contraband cigarettes in Rhode Island.
A seventh defendant, Valeria Mendez (Khalil), 30, of Central Falls, wife of Wissam Khalil, is charged with conspiring to make and making false statements to a government official.
According to the indictment and/or information presented to the court, it is alleged that the conspiracy, which allegedly began as early as July 2011, included the creation of several “shell” corporations in Virginia and the rental of vacant retail storefronts in Virginia for the stated purpose of purchasing and reselling cigarettes in Virginia. The cigarette packages purchased included Virginia tax stamps, reflecting a Virginia tax of 35 cents per package.
According to information presented to the court, between July 2011 and continuing until this week, more than 30,000 cartons (six million) of cigarettes valued at more than $1.2 million were purchased in Virginia and shipped to Rhode Island in a truck bearing Rhode Island War Veteran Plates. It is alleged that on numerous occasions, the truck was driven by Richard Larrain while he was wearing his United States Army uniform. It is alleged that he wore his Army uniform in an effort to gain favor and avoid law enforcement detection.
It is alleged that the cigarettes were distributed and sold in Rhode Island at or near full-retail price, including a tax payment of $3.50 per package. It is alleged that the lack of payment of the cigarette tax to the state of Rhode Island resulted in a loss of approximately $1.05 million of tax revenue.
The indictment alleges that as part of the investigation, on March 30, 2013, Najd Khalil was stopped by Virginia State Police as he allegedly drove from Rhode Island to Virginia in a rental vehicle in which he allegedly concealed $30,000 in cash. It is alleged that the cash, seized by Virginia State Police, was to have been used to purchase cigarettes in Virginia for resale in Rhode Island. The indictment alleges that Bassam Kiriaki, Wissam Khalil, and Richard Larrain conspired to create a false IRS Form 8300, “Report of Cash Payment over $10,000 Received in Trade of Business,” which they allegedly backdated to March 25, 2013, and provided to Virginia State Police in an effort to persuade Virginia State Police to return the $30,000.
The indictment also alleges that between February 7 and February 26, 2013, Bassam and Wissam Khalil allegedly conspired to make false statements to a customer service representative of the U.S. Social Security Administration about the travel of their father. It is alleged that they conspired to make false statements that their father had not traveled outside the United States for a calendar month or 30 consecutive days since February 1, 2011. Information presented to the court alleges that the father, who collects Social Security disability benefits, had actually resided outside the United States.
It is also alleged in the indictment that Wissam Khalil and Valeria Mendez (Khalil), 31, of Central Falls, wife of Wissam Khalil, conspired to make false statements to a program specialist of the U.S. Department of Agriculture (USDA) Food and Nutrition Service, stating that Valeria Mendez was not related to Wissam Khalil. On March 7, 2012, Valeria Mendez allegedly completed a Supplemental Nutrition Assistance Program Application for a Providence convenience store identifying herself as the owner. She left blank questions about her relationship, if any, to the previous two owners, Wissam Khalil and his father. When questioned by a USDA program specialist, Valeria Mendez allegedly denied knowing Wissam Khalil and allegedly stated that she resided with her parents in Providence.
An indictment is merely an allegation and is not evidence of guilt. A defendant is entitled to a fair trial in which it will be the government’s burden to prove guilt beyond a reasonable doubt.
The case is being prosecuted by Assistant U.S. Attorney William J. Ferland
The matters charged in the indictment were investigated by the Rhode Island State Police, Federal Bureau of Investigation, Internal Revenue Service Criminal Investigations, United States Social Security Administration Office of Inspector General-Office of Investigations, Homeland Security Investigations, and the U.S. Department of Agriculture Office of Inspector General.
United States Attorney Peter F. Neronha also acknowledged and thanked the Virginia State Police, the Virginia Department of Attorney General, the Virginia Division of Taxation, the Rhode Island Department of Attorney General, the Rhode Island Division of Taxation-Excise Tax Compliance Unit, and the Cranston and Providence Police Departments for their assistance in this investigation.