For nearly two generations, court records show law enforcers have had evidence of large-scale illegal smuggling of Maryland-taxed booze to New York, where alcohol taxes are much higher. Only recently, though, have the revenue collectors taken to fighting it seriously, staging a raid last year on Northside Liquors in Elkton, Md., that resulted in the owner being criminally prosecuted and forfeiting to the government nearly $250,000 in seized, ill-gotten cash.
The crackdown continued this summer, according to a search-warrant affidavit filed in Maryland's U.S. District Court on Sept. 14, before it was sealed from public scrutiny by a judge on the same day. The document reveals a series of raids on five other Maryland liquor stores, all in Cecil County, also suspected of supplying booze smugglers from New York: Happy 40 Discount Liquors in Elkton, Chesapeake Wine and Spirits in Chesapeake City, North East Liquors in North East, and Crown Liquors and Park Liquors in Perryville.
The warrant, signed July 12 by U.S. District Judge Beth P. Gesner, was written by M. Lisa Ward, a special agent with Homeland Security Investigations, a branch of the U.S. Department of Homeland Security's Immigration and Customs Enforcement, also suggests that liquor distributors, not just liquor stores, are in on the alleged smuggling scheme.
The latest round of raids were based on an investigation started last July, according to Ward's affidavit, when law enforcers received information that liquor distributors in Maryland "have been engaged in selling liquor, knowing that it was being transferred for resale in New York, without paying New York State liquor taxes."
Booze in Maryland is taxed at $1.50 per gallon, Ward's affidavit explains, whereas in New York, the rate is $6.44 per gallon-plus another dollar per gallon in New York City. Thus, there is a significant margin of profit to be made in the alleged scheme-especially if, as Ward's affidavit and other court documents claim, it has been going on for a long time, involving large volumes of alcohol.
When City Paper called James E. Smith, chairman and chief executive officer of Reliable Churchill, one of the wholesalers named in the affidavit, on Sept. 20, and started to share with him what the affidavit states, he said, "I have no comment. I don't know anything about it," and hung up the phone. Smith is also president of his industry's trade group, Licensed Beverage Distributors of Maryland. Tom Cole, the New Orleans-based president of Republic National Distributing Company, the other wholesaler named in the affidavit, could not be reached for comment.
As for the law enforcers staging the investigation, ICE spokesperson Nicole Navas, in a Sept. 20 e-mail, stated "there is nothing for public release at this time," while Marcia Murphy, spokesperson for the Maryland U.S. Attorney's Office, also had no comment. Cary Ziter, spokesperson for the New York State Department of Taxation and Finance, which Ward's affidavit says is involved in the probe, writes in an e-mail that, while "our Criminal Investigation Division often is involved with local, state or federal officials around the country on investigations," he won't "comment on, or confirm, any particular investigation that might be in progress."
Messages left with the targeted liquor stores and their attorneys were not returned by press time. Joseph Shapiro, spokesperson for the Maryland Comptroller's Office, which court documents say has been aware of the alleged smuggling scheme, had no comment other than to say the agency "takes the illegal sales of alcohol very seriously" and is "very proud" of its "strong working relationships" with law-enforcement agencies.
According to sources cooperating with the probe, Ward's affidavit explains, "it would be perfectly obvious to anyone with knowledge of the retail liquor business that it literally would take years to sell in retail the quanties of liquor that Republic or Reliable was delivering to Northside every couple of weeks." (Emphasis in the original.)
Bank records, Ward's affidavit explains, "show deposits from most Republic and Reliable customers around the state of Maryland to be under $3,000; exceptional are the Cecil County customers who routinely paid more than $15,000 and sometimes paid up to hundreds of thousands of dollars in each check." The affidavit says, for example, that Chesapeake Wine and Spirits paid over $300,000 to Republic and $400,000 to Reliable in one 10-day period in late 2011.
Until the crackdown on Northside Liquors last year, law-enforcement attention to the problem had been spotty, according to court records. Though seven men from New York were charged federally, and five of them convicted, in a 2000 case involving Maryland liquor smuggled to Canada, Northside's prior owner, Robert Pagliaro, was given wide latitude for years, despite much evidence of the store's involvement in liquor smuggling.
In 1995, Pagliaro agreed to pay $5,000 to avoid criminal prosecution in connection with the alleged smuggling activities, according to court records. In 2004, when 160 cases of Northside-purchased booze were intercepted in a vehicle headed to New York, Pagliaro got another visit from authorities. In 2007, after Wilmington, Del., law enforcers seized a large amount of cash and liquor after a New York-bound vehicle was stopped, the driver said he'd been purchasing 100 cases of booze every three months from Northside. This time, when Pagliaro was visited by the authorities, he agreed to give up $5,000 in seized money and told agents he was selling the liquor store and moving to Italy.
Northside's new owner, Tushar Patel, kept the scheme going, according to court records-and also kept Pagliaro's son, Michael Pagliaro, in the corporate fold. Patel ended up pleading guilty to possession of untaxed alcohol in Cecil County Circuit Court and receiving probation before judgment. The federal government sued to keep nearly $250,000 in funds seized during the Northside raid, and Patel settled the matter by agreeing not to contest the money in return for the government returning nearly 600 cases of seized booze.
Ward's affidavit describes "a cycle of proceeds from the New York smugglers to the Cecil County liquor stores and then to Republic and Reliable," characterizing the conduct as breaking wire-fraud and money-laundering statutes. While her affidavit refers to several arrests of New York smugglers while on their return trips with vehicles laden with booze, it appears that none of the liquor store owners and wholesalers have been formally accused of committing any crimes.