Councilor Says N.H. Liquor Commission Aiding Cross-Border 'Money Laundering' Scheme

Executive Councilor Andru Volinsky is calling for an investigation into the New Hampshire Liquor Commission, alleging that the state’s liquor stores are engaging in business practices that could “unquestionably facilitate money laundering related to criminal activities.”

The liquor commission, which reported record-breaking $698.2 million in sales last year, acknowledges no such wrongdoing — and, in turn, accuses Volinsky of conducting a “sting operation” in an attempt to turn the agency into a “political football.” (Read the commission's full statement here.)

In a letter to Gov. Chris Sununu and Attorney General Gordon MacDonald on Tuesday, Volinsky raises questions about a number of liquor commission business practices that he says are designed to make it easier for out of state buyers to avoid federal financial scrutiny. Sununu's office deferred comment to the Department of Justice, which also declined comment while it continues to review the documents.

(Read Volinsky's full letter here.)

Executive Councilor Andru Volinsky at the New Hampshire State House Thursday
Credit Allegra Boverman for NHPR

While Volinsky acknowledges that none of the examples he details in his letter, on their own, prove that the liquor commission is deliberately turning a blind eye to illegal activity, he says the practices still warrant outside review.

“Notwithstanding the legal application of a reporting requirement, it is clear that our state is profiting from cash bulk transactions where at least some of the cash is coming from illegal trafficking, whether in drugs, guns or humans,” Volinsky wrote. “The stories are widespread of customers arriving at stores in out-of-state trucks and SUVs with wads of cash stuffed into their pockets, money belts and socks.”

Specifically, Volinsky zeroed in on the liquor commission’s handling of Hennessy cognac products, which appear to be clustered in large quantities in stores “conveniently located adjacent to the state’s borders and near major highways for the benefit of out-of-state bulk cash purchasers.”

While most state liquor outlets maintain inventories in the single or double digits, Volinsky notes that stores in Keene and Londonderry recently logged thousands of bottles of 200 ml Hennessy vs Cognac in stock. As of Thursday afternoon, publicly available inventory listings showed 3,537 bottles in Londonderry, 2,640 bottles in Keene, 2,509 in Manchester and 1,980 in Bedford.

The Democratic executive councilor, who represents a district spanning from Keene to Durham, says the issues outlined in his letter were brought to his attention by liquor store employees, but he also observed some of them firsthand.

Separately, State Employees’ Association President Rich Gulla told NHPR that liquor store employees have voiced concerns about the same issues but fear that speaking up publicly would put them at risk for retaliation from the commission.

“They are starting to feel like a drug dealer,” Gulla said. “Because it is not common for folks to come in and drop $9,000 all on Hennessy products, and then leave and go to another store and do the same thing.”

[Related story: Sununu Questions 'Sting' Operation into Alleged Money Laundering at Liquor Stores]

IRS filings and state oversight

Central to Volinsky’s complaint is an allegation that the liquor commission, which reported record-breaking profits in 2017, is undermining its own policies — and potentially skirting federal tax laws — when it comes to tracking large sums of cash flowing through its stores.

With few exceptions, the IRS requires businesses to document when someone spends more than $10,000 in cash on a single purchase. State liquor rules also require employees to fill out this IRS documentation anytime someone is “purchasing a volume of product totaling $10,000 or more in cash, either through one or multiple related transactions.”

But Volinsky says there are several indications that the state’s liquor commission may be allowing bulk liquor buyers to evade that reporting requirement, or steering staffers away from documenting smaller purchases that are in fact part of larger buying sprees.

For one, he points to a memo from liquor commission leadership discouraging store employees from reporting cash liquor purchases to the IRS unless they have a definitive reason to believe a customer is making a series of purchases that add up to $10,000 or more.

The memo was framed as a response to what liquor commissioners described as excessive filing patterns and potentially discriminatory practices at some of their stores. Commissioners wrote that some staff were allegedly “profiling customers” and reporting cash transactions that fell under the IRS threshold “without providing any proof of illegal activity.”

Beyond those directions from the commission, Volinsky claims he’s been told that state liquor store employees have been instructed not to look closely at the cars of people buying bulk liquor in cash, “to avoid learning that the customer has purchased cases of liquor at other [New Hampshire Liquor and Wine Outlet] stores.” He also claims that the liquor commission has installed cash counting machines in some of its stores, which he interprets as a further indication that the state is at some level aware of the problem.

With the help of an employee who was acting as a whistleblower, Volinsky said he recently witnessed two people spend $24,000 in a series of bulk purchases of Hennessy products — all in increments under the $10,000 limit — paid for using “a very large wad of cash” and a credit card.

“What I personally observed on February 3, 2018 confirmed what I had been told; that is, that cash bulk sales transactions appear to be done openly, are widespread and the practice is long running,” Volinsky wrote in his letter to the governor and attorney general. “The practice is facilitated by [state liquor commission] controlled inventory practices.”

The liquor commission, in turn, says “there’s nothing illegal or unscrupulous about making large sales to out of state customers as long as our employees follow the policies in place set forth by the State and federal government.”

And they claim Volinsky is the one who may have broken state rules.

“Among those infractions included violating policies set to protect the security of our store, privacy of our customers and integrity of our inventory,” the liquor commission wrote in a statement. “More awkward and alarming was the three hours of video footage of the Councilor lurking around the interior, exterior and backroom of the store, and curious attempts to conceal is [sic] identity during his ‘sting operation.’ ”

The commission also suggests that Volinsky and Gulla “allowed or pressured a long-tenured manager to continue with the sale, when they knew of the potential personnel actions that could be taken against an employee in violation of these policies.”

Concerns about federal and state tax oversight aside, Volinsky also raised questions about the risks posed to the state liquor store employees responsible for handling large piles of cash that accumulate as a result of these purchases. He points to an instance from Jan. 31 in which employees at the Keene liquor outlet reportedly had to deposit $100,000 in cash to a nearby bank without an armored car or other added security measures, “placing them at great risk for robbery.” The liquor commission did not directly address this in its response to Volinsky’s letter.

N.H. pipeline irks neighboring states, on IRS’s radar

This photo by the New York State Department of Taxation and Finance shows 757 liters of liquor that were allegedly purchased across five different stores in New Hampshire.
Credit N.Y. Tax Department

Large, illicit purchases by out-of-state residents at New Hampshire liquor stores are well-documented in recent years. In December, a New York City man was arrested with 757 liters of liquor in his vehicle, including multiple cases of Hennessy.

The driver of the vehicle, Juncheng Chen, drove to New Hampshire, where he made purchases at five different liquor outlets in the state, according to law enforcement officials there. He was arrested in Rye, N.Y, and has pleaded not guilty to two counts of felony tax evasion, which carry up to a four year prison sentence.

In Vermont, local law enforcement were notified by New York State officials to be on the lookout for vehicles carrying large quantities of liquor purchased at New Hampshire liquor stores during promotional periods.

In the last six months, Vermont Commissioner of Liquor Control Patrick Delaney says his enforcement officers made two arrests — one with an estimated $40,000 worth of New Hampshire purchased liquor in the back of an SUV, the other with an estimated $28,000 worth.

“The products that was the most prominent in both of these cases was Hennessy cognac,” says Delaney.

In each of those cases, Delaney believes the defendants made all-cash and reward-card based bulk purchases at multiple liquor store locations.

“By using cash, there is obviously no paper trail, if an authority were to investigate it,” says Delaney. “The activity itself is basically tax evasion.”

The two drivers allegedly violated Vermont state law, which prohibits anyone from carrying more than nine liters of distilled spirits across its state line.

Delaney adds that his agency’s focus is not on transactions taking place between New Hampshire liquor stores and their customers, but does note that the IRS did contact him about all-cash transactions in the Granite State.

The IRS would not confirm to NHPR any active investigation into all-cash bulk transactions.

“While we will not discuss a particular taxpayer’s situation,” writes a spokesperson for the IRS, “we are aware of this and similar schemes being used in a variety of different forms in order to evade certain reporting requirements.”

Neither of these cases confirm Volinsky’s allegations that the New Hampshire Liquor Commission is facilitating money laundering activities, or turning a blind eye to potentially illegal bulk cash transactions. And the councilor acknowledges as much.

But ruling that out, he says, requires some kind of independent investigation.

“I don’t know that anyone has committed a crime; I don’t know that anyone is doing anything illegal,” Volinsky told NHPR on Thursday. “But there is enough here that this needs to be looked at, and you can’t count on the agency that’s being looked at to provide you the answers.”