LOUISVILLE, Ky. (AP) -- Federal prosecutors have reached a $3.1 million settlement with the owners of an online cigarette dealership over taxes owed on the smokes, just days after one of the owners pleaded guilty to taking part in a scheme to avoid paying the tariffs.
The agreement released Wednesday requires 48-year-old Israel Chavez of Louisville and his ex-wife, Pam Chavez, to turn over the contents of 12 financial accounts, as well as more than 10 million assorted tobacco products and a variety of warehouse equipment.
Israel Chavez pleaded guilty last month to buying cigarettes from another Kentucky dealer and falsifying invoices through an out-of-state company. Prosecutors say the invoices were an attempt to avoid more than $2 million in excise taxes. Israel and Pam Chavez owned two companies, Chavez, Inc., and Cigarettes Direct to You.
The case is linked to the ongoing criminal proceedings against a Florida businessman, who has been in the crosshairs of federal investigators for more than a decade, and two others who have pleaded not guilty to taking part in the alleged tax avoidance scheme.
Prosecutors have said that Chavez did business with 43-year-old Pedro "Peter" Bello of Miami and his business, GT Northeast of St. Louis. Bello, his sister, Caridad Bello, and her husband, Juan Hernandez, both of St. Louis, have pleaded not guilty to conspiracy to commit wire fraud and money laundering. The case against them is pending.
Chavez's sentencing is scheduled for Aug. 7 and prosecutors are recommending 33 months.
Pam Chavez, who lives in California, was not criminally charged.
Bello's criminal trial is set for June 3 in Louisville. Bello's attorney, Kent Westberry of Louisville, declined to comment on Chavez's plea and settlement.
Federal investigators have been tracking Bello since at least 2002, when prosecutors in Texas sought to secretly listen to cellphone conversations involving him. He was linked to several large-scale investigations and named in a civil lawsuit brought by the city of New York over untaxed cigarettes. Chavez's plea agreement and financial settlement with prosecutors specifically spells out that Chavez and his ex-wife deny any wrongdoing in New York.
Authorities say Bello bought massive amounts of cigarettes in Kentucky but used invoices written by GT Northeast. He then sold the cigarettes around the country while pocketing bigger profits by avoiding the Kentucky tax.
The federal government has cracked down in recent years on contraband cigarettes — sold by people and businesses through illegitimate channels to avoid paying taxes. The Department of Justice estimates that federal, state and local governments lose out on $5 billion annually in tax revenue from the cigarette schemes.
Pedro Bello's name has surfaced in several investigations at the heart of the ATF's crackdown. Federal court records from Kentucky, New York and Texas depict Bello as a man involved in moving millions of cigarettes around the country without paying taxes to various states.
Bello was a subject of the Texas investigation in 2002 in which federal prosecutors sought to secretly listen in on the cellphones of dozens of people suspected of trafficking in contraband cigarettes. He avoided indictment, but 15 others were charged, with 13 people pleading guilty or being convicted. Prison sentences ranged from a year to six years behind bars.
Follow Associated Press reporter Brett Barrouquere on Twitter: https://twitter.com/BBarrouquereAP