N.C. Businessman, Contractor Sentenced In Cigarette Fraud Case

The North Carolina cigarette manufacturer claimed that a shipment of tens of millions of smokes was destined for the tax-free climate of an Indian reservation in New York. But the cigarettes were sold and smoked in Western Virginia and Kentucky, part of an elaborate scheme to avoid paying Virginia and other states, the U.S. Attorney’s Office charged.
On Thursday, U.S. District Court Judge James P. Jones entered judgments against Ayden, N.C.-based CLP Inc., its president and a cigarette broker who contracted with CLP.
Terence Patrick McLaughlin, CLP’s president, and Georges Chernali, an independent contractor, both of North Carolina, pleaded guilty to single counts of conspiring to evade a federal cigarette excise tax and mail fraud, court records show. Each defendant will serve a year in federal prison and jointly forfeit more than $800,000 derived from illicit practices. McLaughlin will pay more than $950,000 in past due excise taxes as part of his plea deal.
Prosecutors alleged that CLP intentionally omitted sales of nearly 120 million cigarettes between Jan. 1, 2007, and May 1, 2008, and deprived Virginia, Tennessee and other states of legally mandated payments.
The conspiracy had two prongs, according to the U.S. attorney who prosecuted the case: By underreporting cigarette shipments, CLP skirted federal excise taxes and diminished what it owed to states, garnering a competitive advantage against competitors who had to absorb those costs.
Virginia, Tennessee and other states require that cigarette manufacturers excluded from a 1998 Master Settlement Agreement pay into an escrow account, with the funds designed to offset smoking-related health costs in the state where the cigarettes are sold.
By concealing where and how many cigarettes it sold, CLP “could sell cigarettes cheaper than other manufacturers,” said Assistant U.S. Attorney Randy Ramseyer. The government estimated that CLP reaped $800,000 in profit by not paying into state escrow accounts.
“It does seem to be problem,” Ramseyer said of cigarette manufacturers scheming to avoid federal and state monetary obligations. “One reason why we’re doing this case is to show that if you don’t pay into the escrow account, you’re going to be prosecuted.”
In one example, CLP in April 2008 represented to the Virginia attorney general that it sold 600,000 cigarettes, when in fact, the number was at least 31.4 million, according to the government’s charging documents.
“We saw enough to know that the government’s case was pretty solid,” said Pete Curcio, an attorney representing Chemali. “There was a very involved and lengthy investigation” that included undercover federal agents who had infiltrated CLP’s operations, he said.
Ramseyer would not elaborate on the sources the government used to charge CLP, but said the Bristol Bureau of Alcohol, Tobacco and Firearms was involved in the investigation.
In a letter submitted on the eve of sentencing, a North Carolina attorney and acquaintance of McLaughlin argued for leniency.
“I would trust his advice on any major decision he made,” wrote Trawick Stubbs Jr., who stated he has known McLaughlin for 30 years.
Disclaiming knowledge of the facts of the case, Trawick wrote, “I would be almost certain that the incident involved individuals with more sophisticated criminal experience and some degree of innocence of naivety on Terry’s part. He has experienced some financial downturns in the economy.”

| (276) 645-2558