Charles Dharapak / AP
This Thursday, Jan. 23, 2014, photo shows the building housing the national headquarters of the Bureau of Alcohol, Tobacco, Firearms and Explosives in Washington.
Tuesday, April 11, 2017 | 10 a.m.
WASHINGTON — Agents with the Bureau of Alcohol, Tobacco, Firearms and Explosives used a secret, off-the-books bank account to rent a $21,000 suite at a NASCAR race, take a trip to Las Vegas and donate money to the school of one of the agent’s children, according to records and interviews.
Agents also used the account to finance undercover operations around the country, despite laws prohibiting government officials from using private money to supplement their budgets, according to current and former government officials and others familiar with the account.
The revelations highlight the lax oversight at the ATF that allowed agents and informants to spend millions while avoiding the normal accounting process. The Justice Department’s inspector general, who is investigating the secret account, criticized the ATF recently for mismanagement and said the agency did not know how many informants it had or how much they were paid.
The New York Times revealed the existence of the bank account in February, prompting an investigation by the House oversight committee. The Justice Department, which oversees the ATF, has denied any wrongdoing, and the department has refused to say whether the bureau continues to operate such secret accounts, which the government called “management accounts.”
The ATF has also refused to say who authorized the account, which was created by agents based in Bristol, Virginia, who were investigating tobacco smuggling. One government official said the bureau regarded the account as a hybrid of government funds and private money, a combination that is not authorized under federal law. Ryan Kaye, an ATF supervisor, is quoted in public court documents as saying the agents received “verbal directives” from unidentified officials at headquarters to open the account.
The arrangement dates back at least to 2011, court records show. Records show that a pair of ATF informants who ran a tobacco warehouse in Bristol, Jason Carpenter and Christopher Small, opened the account. The informants helped the bureau’s investigations into tobacco smugglers, who move cigarettes across state or national borders to avoid taxes.
Sometimes, the ATF agents used the money for expenses that normally would be paid from the agency’s own budget, such as leasing cars and renting warehouses under fake names to conceal the government’s involvement in undercover investigations. The account also helped pay for a trip to a tobacco convention in Las Vegas in early 2012, according to a former law enforcement official and a former industry official. The officials said the ATF supplemented its travel budget with money from the management account.
Current and former government and industry officials who discussed the case did so on the condition of anonymity because the Justice Department has argued successfully to keep nearly all the records in the case sealed. The Times has been fighting since last summer to make the documents public.
Other expenses, such as renting a 16-person suite at Bristol Motor Speedway in Tennessee, had no obvious connection to law enforcement operations. ATF agents, along with some community members, used the suite in 2012 for the Irwin Tools Night Race, a NASCAR event, according to two people who worked closely with the bureau at the time. A receipt obtained by The Times shows the suite cost $21,000.
Agents also donated money from the account, according to documents and interviews, including thousands of dollars to the high school and volleyball team of the daughter of an ATF agent in Bristol. The agent, Thomas Lesnak, is now retired and did not respond to messages seeking comment. He has previously dismissed suggestions that anything was done improperly.
ATF agents also had their credit card bills paid with money from the account, according to a former law enforcement official and two former industry officials. It is not clear whether the bills involved personal credit cards or government-issued cards, but both possibilities might violate federal laws.
Government spending typically requires a strict audit trail, but the money deposited in the bank account came from an unlikely source. ATF agents told the informants to buy untaxed cigarettes, mark up the cost and sell them at a profit. The sales made millions of dollars, which poured into the account.
ATF agents concealed the scheme using phony shipping documents and middlemen. Those transactions are at the heart of a federal racketeering lawsuit brought by a tobacco cooperative, which says it was defrauded.
The ATF did not answer any of a list of questions about its policies and the expenses, not even whether management accounts remain in use and, if not, whether they were ever considered legal. The agency issued a statement acknowledging problems with undercover tobacco operations, but only from 2009 until 2011.
“Since that time, A.T.F. has implemented substantial enhancements to its policies, and has markedly improved leadership, training, communication, accountability and operational oversight,” the statement read.
When it was pointed out that the Bristol account was opened after the new policies went into effect and continued at least until 2013, the ATF did not elaborate.
The management account made the Bristol warehouse an important part of many ATF investigations, according to former law enforcement and industry officials.
One focus of the Bristol operation was the Paraguayan tobacco manufacturer Tabesa, according to public records and two former industry officials. Tabesa was founded by Horacio Cartes, a prominent businessman who in 2013 was elected president of Paraguay. A diplomatic cable released by WikiLeaks showed that U.S. agents were investigating Cartes in 2010 to determine whether he was involved in money laundering and tobacco smuggling, and public court records show that agents used the secret bank account as part of the “Tabesa case.” Cartes was never charged.
Some of the same ATF agents were also involved in a bungled tobacco smuggling investigation in Hampton, Virginia, which the police chief shut down over allegations of financial misconduct. The operation lasted for 19 months, generated millions of dollars in unaudited money, and led to no arrests, according to the newspaper The Daily Press.
It is not clear whether Obama administration officials authorized the unorthodox account, which was opened at a time when the ATF said it was tightening restrictions on undercover operations. The agency was also moving to improve its management after a botched gun trafficking investigation known as Fast and Furious.
Normally, agents use government-controlled funds known as “churning accounts” to finance tobacco smuggling investigations. The new rules imposed greater oversight over churning accounts. By using the secret bank account, agents in Bristol avoided that oversight.
After an investigation, the inspector general said the ATF is now in full compliance with its churning rules. But that investigation did not cover management accounts like the one in Bristol, which the ATF still has not publicly addressed.
