Large all-cash transactions. Out-of-state customers going store to store to buy enormous quantities of Hennessy cognac. Employees unsure about how to handle potentially illegal liquor sales.
Those are the details at the center of a memo released last week by Executive Councilor Andru Volinsky. But they also mirror - to a remarkable degree - the content of an independent New Hampshire legislative report released nearly six years ago.
Read NHPR's earlier reporting on this story
“We need significantly more oversight to determine if this is a rogue agency,” said Republican Bill O’Brien in 2012, when he was Speaker of the New Hampshire House. He launched a bipartisan Special House Committee that year to conduct a wide-ranging review of the New Hampshire Liquor Commission.
The committee, which met twelve times between September and November 2012, was charged with investigating, among other areas, the Liquor Commission’s alleged use a government-hired lobbyist, how $100,000 worth of wine went missing in Portsmouth, how the agency handled government records, and - relevant to Volinsky’s current allegations - how the agency managed “bootlegging,” an industry term for large, all-cash transactions, usually involving out-of-state buyers.
With the assistance of an outside law firm, the committee completed interviews and reviewed reams of documents obtained through Right to Know requests. Those materials reveal that the issue of how to enforce state and federal laws surrounding large cash transactions was a divisive topic within the Liquor Commission.
“The Commission tends to view this issue as posing a conflict between their statutory directive to optimize profits for the State and the obvious need to refrain from complicity in the knowing violation of the laws of other states,” wrote the outside counsel.
Records from the 2012 House investigation detail several areas where that conflict was at the surface. And they match many of the allegations raised by Volinsky last week, including:
- Disagreement among top officials within the Liquor Commission about how to monitor large cash sales that could violate federal reporting requirements;
- Concerns raised by state-run liquor store managers and employees about how to process these sales, and whether they are potentially exposing themselves to legal action;
- Potential communication between Liquor Commission employees and “bootleggers” regarding inventory and sales.
The wide-ranging final report, which was prepared by Republican state Rep. Lynne Ober, who chaired the Special Committee, devotes three of its 57-pages to the topic of ‘Large Volume Sales.’ The report concludes with a list of legislative recommendations, though none of those items directly address the issue of bootlegging.
Former director raised questions about “structured” sales
The 2012 House investigation includes statements from Peter Engel, a longtime employee of the Liquor Commission who retired as Director of Store Operations in April of that year. According to the outside counsel's report, Engel “firmly believed that stores were being used for bootlegging and money-laundering,” and that instead of doing “the right thing” regarding large cash transactions, he was ordered by his managers to revise an internal policy that appeared to him to make it harder to follow federal reporting requirements.
Under federal law, cash transactions in excess of $10,000 require the purchaser to complete IRS Form 8300, which was created to monitor potential money-laundering activities. It is illegal to divide large transactions into multiple smaller purchases to stay below the $10,000 threshold, a technique known as “structuring.”
Engel told investigators he was directed to issue an email to state liquor store managers on December 1, 2011 informing them that they were no longer required to “examine whether a large transaction was possibly part of a related transaction,” and that even related transactions were to occur “without exception.”
According to the report, Engel believed this policy change “invited structuring transactions and put the (state liquor store) employees at risk.”
Despite disagreeing with the change, Engel said he did as instructed by top officials at the Liquor Commission, sending out the new policy via email. Five months later, he retired from the Commission, telling the investigators he saw the agency going in a direction he couldn’t support.
The issue of structuring is also at the heart of Volinsky’s recent allegations. He says earlier this month, he witnessed customers in the Keene liquor store divide a large purchase of Hennessy cognac so that each individual transaction would fall below the $10,000 reporting requirement.
Volinsky contends that what he saw was a single example of a “widespread practice.”
For its part, the Liquor Commission, in a statement to NHPR, directly disputes Volinsky’s assertion that the employee willingly violated federal reporting rules.
“What we find disheartening is that a political figure...allowed or pressured a long-tenured manager to continue with the sale,” the Commission’s statement says. The Commission also states “there’s nothing illegal or unscrupulous about making large sales to out of state customers as long as our employees follow the politics in place set forth by the State and federal government.”
Concerns about coordination, “advance notice”
It remains unclear, then and now, how often out-of-state customers make large all-cash transactions at New Hampshire liquor stores. It’s also unknown how often these customers are taking deliberate steps to keep purchases below the $10,000 reporting requirement, and if state liquor store officials are aiding in those efforts.
Descriptions of two such illegal transactions are provided in the 2012 report. In one case, Massachusetts State Police arrested two people who had an estimated $19,000 worth of liquor in their possession, as well as $19,500 worth of New Hampshire Liquor Store gift cards. The alcohol and gift cards were obtained during four transactions, three of which were rung up by the same cashier.
In a second case highlighted in the documents, a man with New York license plates was pulled over in Chelmsford, Mass., and found to be in possession of 1,676 bottles of Hennessy cognac, the same brand of liquor at the center of Volinsky’s recent allegations. In this case, the liquor was apparently purchased at two different New Hampshire liquor stores. The report also says the suspect’s cell phone allegedly had text messages from a New Hampshire liquor store employee that appear to have been notifying the buyer of availability at the store.
Volinsky, in his memo last week, also raises concerns about communication between Liquor Commission employees and bulk out-of-state buyers. He claims that these customers “get advance notice” of gift card promotions, which he says raises questions “about the potential level of coordination” taking place.
Efforts to track bulk liquor sales
According to the 2012 inquiry, Liquor Commission Chairman Joseph Mollica was interested in monitoring large cash sales that fell just under that reporting requirement. He told the Committee that his agency instituted a new internal form to better track cash sales between $5,000 and $9,999, though the report doesn’t detail how many of those forms the Commission may have received.
The Liquor Commission stressed to lawmakers in 2012 that all of its actions were legal and in line with strict generally accepted accounting controls.
“The fact is, large volume sales take place by cash and check in almost every similar retail environment in the country and all retailers are subject to these rules...and most importantly, these transactions are perfectly legal,” reads a document submitted by the Commission.
Current Deputy Commissioner Michael Milligan, in his testimony to the Special House Committee in 2012, added that the agency’s “primary task is to sell alcohol and that large volume sales are not only legal, they are highly desirable.”
(The Liquor Commission, then and now, is an important source of revenue for state coffers. Last fiscal year, it generated $153 million in revenue, accounting for roughly six-percent of the entire budget.)
Former Liquor Commissioner Mark Bodi provided a different perspective during his statements in 2012. He described large cash transactions as a “sensitive internal topic,” and accused Mollica of being more concerned with promoting large volume sales than he was in the “potential legal issues” involved.
Bodi also raised the case of a Hinsdale liquor store manager who was “very close to being indicted by a New York grand jury for bootlegging and conspiring to evade taxes in New York.” No other details of this incident were provided in the report, though Peter Engel, the former Director of Store Operations, told outside counsel the incident in Hinsdale “created significant concern among store employees.”
Again, Volinsky’s recent memo echoes these concerns. He writes that “these cash bulk sales practices place our hard working state employees at risk for criminal prosecution or robbery.”
Rich Gulla, the head of the union representing rank and file liquor store employees, told NHPR that he’s heard concerns from his members about handling large amounts of cash, saying that some employees feel like “drug dealers.”
A list of recommendations, but none on “bootlegging”
At its conclusion, the 57-page final report of the Special House Committee recommends 13 specific areas for legislative reform. Those recommendations touch on the structure of the Liquor Commission, its license application processes, and how the Commission can better promote local wineries. It doesn’t, however, offer any direct recommendations for how or if the Liquor Commission should alter its handling of large all-cash transactions.
The Liquor Commission, in a statement made to NHPR on Thursday, reiterated the Committee’s findings:
“While the 2012 report references large volume sales, it doesn’t suggest any corrective actions. Despite this, several years ago, NHLC instituted strict policies regarding large cash transactions and created a simple, step-by-step employee guide to processing these sales.”
The Liquor Commission adds that its policies on this topic have been reviewed numerous times, and have always found to be “legally sound.”
There still appears to be an open question among some officials about how these transactions should be monitored.
If customers are violating the liquor or tax laws of other states, there are disparate views about what role New Hampshire should play in enforcing that state’s laws. Volinsky contends that lawmakers can’t turn a blind eye to bootlegging because it would “expose New Hampshire to potential suits” from neighboring states.
Perhaps even more complicated is what, if any, additional steps the Liquor Commission should take to adhere to federal reporting requirements. The Commission contends it is already following proper guidelines. Volinsky states otherwise, and is calling for an investigation by an outside auditor and the state Attorney General.
The Attorney General’s office says it is still reviewing the documents submitted by Volinsky, and isn’t yet able to comment on their contents. More than five years after the House took a close look at the Liquor Commission, the Attorney General now must decide if it is their turn to investigate.
