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September 25, 2013

Auditors blast ATF undercover tobacco business

#ATF undercover business operations suffer from a "serious lack of oversight," according to a critical new audit by the Justice Department's Office of Inspector General.

The highly critical report issued Wednesday examined so-called "churning" operations, in which Bureau of Alcohol, Tobacco, Firearms and Explosives investigators use proceeds generated from undercover operations to offset expenses related to the same operations.

This is big business for the ATF; the OIG auditors examined 20 of the 36 churning investigations conducted by ATF between February 2006 and June 2011 that generated total reported revenues of nearly $162 million. All of the operations involved tobacco sales.

"We found that ATF proceeded with churning investigations without proper approval, misused the proceeds from churning investigations, and failed to account properly for cigarettes and assets purchased during churning investigations," the OIG audit states.

One of the cases, a particularly big one, was never authorized by headquarters. Problems ensured, auditors found.

"The unauthorized churning investigation sold approximately $15 million of cigarettes in an 18-month period," auditors noted, adding that "the confidential informant was allowed to keep more than $4.9 million of the $5.2 million of gross profit generated from sales of tobacco to criminal targets."

Auditors further found they were "unable to reconcile the disposition of 2.1 million of the more than 9.9 million cartons of cigarettes purchased for those 20 investigations."

In the wake of the scathing audit, ATF officials have revised policies and procedures for administering churning investigations.

"Under current policy, income-generating undercover operations are subject to detailed and rigorous application, review, approval. and oversight mechanisms," ATF officials stated in their official audit response.

The ATF officials added that "readers of the report may inaccurately conclude that these historical problems continue to the current day. They do not."

During these undercover investigations, auditors recounted, ATF purchased cigarettes from manufacturers, and agents or informants then sold them to criminal targets at or below wholesale cost. The targets allegedly would transport the contraband cigarettes to a high-tax state, where they would be sold without collecting the proper state and local taxes. 


 

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mike

"Suits & Sentences" is a legal affairs blog written by Michael Doyle, a reporter for McClatchy's Washington Bureau. He was a Knight Journalism Fellow at Yale Law School, where he earned a Master of Studies in Law; he also earned a Masters in Government from The Johns Hopkins University with a thesis on the Freedom of Information Act. He teaches journalism as an adjunct instructor at The George Washington University's School of Media and Public Affairs.

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