In Lengthy Memo to AG, N.H. Liquor Commission Rejects ‘Bootlegging’ Allegations

Apr 19, 2018

Credit Joe Shlabotnik / Flickr/Creative Commons

The New Hampshire Liquor Commission is denying allegations made by Executive Councilor Andru Volinsky that the state-run agency is engaging in questionable business practices surrounding all-cash transactions and possible money laundering.

While Volinsky alleged the commission may be turning a blind eye to potentially illegal large cash sales at state-run liquor stores, the agency says he fails to offer any evidence to support his claims, and that the commission closely enforces policies designed to comply with federal financial reporting rules.

Volinsky, a Democrat who sits on the five-member Executive Council, first made his concerns public in a February letter to Gov. Chris Sununu and Attorney General Gordon MacDonald. He suggested the Liquor Commission was engaging in “practices that appear designed to avoid federal financial reporting requirements” and expressed concerns over the risk to liquor store employees who handle large cash purchases.

In a 109-page report, submitted to the attorney general’s office on April 9 and obtained by NHPR through a Right-to-Know request, a lawyer for the Liquor Commission responds point by point to Volinsky’s allegations.

“The Councilor’s allegations are not supported by fact, policy or practice,” attorney Rosemary Wiant wrote in the report.

The release of the document comes less than a week after the attorney general’s office issued an interim report on this matter, saying that it continues to collect information and question witnesses in response to Volinsky’s allegations.

At the center of the dispute is how Liquor Commission employees handle all-cash transactions that exceed $10,000, the legal threshold for reporting sales to the IRS. The agency’s current policy requires store managers to complete an official form, known as Form 8300, when a cash purchase exceeds that threshold. However, in its response to the attorney general, the commission writes that whether it is actually required by law to file this form “has never been definitively answered.”

This question of the commission’s requirements to comply with IRS reporting requirements have been the subject of inquiries dating back more than a decade. The IRS has opened at least two investigations, in 2009 and again in 2012, while the U.S Attorney’s Office in 2014 also questioned the Liquor Commission’s compliance with federal reporting requirements.

For his part, Volinsky says the commission’s response does nothing to refute his concerns.

“I’ve read through the 109-page release and it makes me even more concerned than I was before,” he says. “It shows an extreme lack of sophistication, at best, and a purposeful intent to obfuscate the issues, at worst.”

Volinsky adds that if the commission wanted clarity on its financial reporting requirements, it could have asked the IRS for a ruling, but it has chosen not to.

“I suspect that’s because they don’t want the answer,” he said.

Suspicious Transactions

In his February memo, Volinsky claimed to have witnessed customers inside the Keene state liquor store divide a large purchase into smaller transactions at the register to stay below the reporting threshold. Volinsky said this illegal practice is widespread at Liquor Commission retail stores and could “unquestionably facilitate money laundering related to criminal activities.”

The Liquor Commission, which is a key source of revenue for the state’s general fund, responds that it has “consistently taken appropriate personnel action,” including the dismissal of employees who violate store policies surrounding large volume sales.

The employee who completed the transaction Volinsky witnessed in Keene was fired by the Liquor Commission after the release of Volinsky’s memo. While Volinsky calls that employee a “whistleblower” who deserves legal protections, the commission says the employee deliberately violated stores policies.

In addition, the commission’s report points to a 2017 transaction when employees completed a large sale but failed to file IRS Form 8300. Two employees lost their jobs and three others were disciplined.

The Liquor Commission also notes that it “actively engages in training” its employees in how to handle large transactions, including mock sales and the use of money from the board game Monopoly. While the commission doesn’t mention previous IRS inquiries into its policies, it writes that it doesn’t believe customers going to multiple stores on the same day to avoid the $10,000 threshold would trigger the requirement to report those sales to the IRS.

It also directly disputes Volinsky’s allegations that an advisory sent by the Liquor Commission to its employees in 2015 was designed to “discourage the filing of IRS Form 8300.” The commission contends that advisory was in response to a string of forms completed by employees concerned over “suspicious” transactions, not purchases that crossed the $10,000 threshold. A common factor of these transactions, according to the commission, was that they involved customers with names of “particular ethnic origins such as Middle Eastern, African-American, Asian or Hispanic.”

The commission says it would have been negligent to not take action to stop potential racial profiling by its store employees.

Breakdown in Talks

The Liquor Commission also says it attempted to respond to concerns raised by Volinsky and State Employee Association president Rich Gulla months ago. The SEA represents many rank and file liquor store employees.

The Liquor Commission says staff from their agency met with Gulla in-person in September to discuss the resignations of employees who allegedly improperly completed a large cash sale. After the meeting, the Liquor Commission contends Gulla failed to follow up on requests for recommendations into how to improve their policies.

The Liquor Commission also says it was in contact with Volinsky around the same time. The commission says it provided the executive councilor with a cache of documents explaining its legal reasoning on policies related to large all-cash sales. The commission says it invited Volinsky to “sit down and discuss any questions he might have” about those policies, but that he declined.

“Both the Executive Councilor and the SEA rejected opportunities to work collaboratively with the NHLC to clarify questions and improve processes for the benefit of the State and its employees,” the Commission writes.

Volinsky says he saw no value in continued communication with the commission.

“I’d been told that this was an issue that has existed for 10 or more years, and that the commission was not receptive to honest discussions, and I didn’t think it would be productive,” he says. “Now that I see this 100-page report, my concerns about the lack of productive response are simply confirmed."

Hennessy In High Demand

Many of the large cash transactions in dispute have involved Hennessy cognac, the top-selling spirit in New Hampshire liquor stores in 2017. There have been several high-profile arrests made in other states involving large quantities of New Hampshire-purchased Hennessy being taken to New York and Massachusetts. Volinsky has questioned the Liquor Commission’s inventory practices of the cognac, which show thousands of bottles available at stores near the state’s southern borders, while just a handful of bottles are on the shelves at locations farther inland.

It remains unclear why Hennessy has become a favored spirit of out-of-state purchasers, but the cognac is in limited supply nationwide as a result of increased demand and limited grape growing capacity in France.

The Liquor Commission says its inventory practices are the result of steps taken to ensure that Hennessy is available in all of its retail stores. The commission granted its Director of Marketing, Merchandising and Warehousing Nicole Brassard Jordan the authority to manually allocate Hennessy across retail stores, rather than relying on automatic shipments.

But the state recently reversed this change in stocking procedure at the request of Hennessy’s supplier due to concerns it could reduce New Hampshire’s allocation of the product in 2018.

The Liquor Commission writes that a reduced allotment of the product would mean “lower revenues for the State of New Hampshire.” Emails between Jordan and a Moet Hennessy executive, which were included in the commission’s filing with the attorney general, confirm potential reduced allotments of the product due to decreasing sales in New Hampshire.

It isn’t clear when the attorney general’s office will release a final report on its inquiry into the New Hampshire Liquor Commission. In the weeks following Volinsky’s memo, the IRS has shown renewed interest in the commission, sending agents to retail stores and to its headquarters. The IRS was seeking information and contacts between any employees and two men from New York, one of whom is facing bootlegging charges in that state. The IRS has since withdrawn its request.

Volinsky says he doesn’t plan to respond in writing to the commission’s document, and will instead wait for the attorney general’s written report. He remains confident that his concerns have merit.

“I see a very significant economic driver for state government that doesn’t get it,” he says, "and is missing both opportunities to maximize profits, and doesn’t see that it is really being used as kind of a patsy for the bootleggers who run these periodic routes throughout New Hampshire.”