Records reveal widespread ATF scheme
Federal agents faced no repercussions after multimillion-dollar slush fund was exposed
BRISTOL, Va. — For seven years, agents at the Bureau of Alcohol, Tobacco, Firearms and Explosives followed an unwritten policy: If you needed to buy something for one of your cases, do not bother asking Washington. Talk to agents in Bristol who controlled a multimillion-dollar account unrestricted by Congress or the bureaucracy.
Need a flashy BMW for an undercover operation? Call Bristol.
A vending machine with a hidden camera? Bristol.
Travel expenses? Take this credit card. It’s on Bristol.
When the New York Times revealed the existence of the secret account in February, publicly available documents made it seem like the work of a few agents run amok. But thousands of pages of newly unsealed records reveal a widespread scheme—a highly unorthodoxmerger of an under cover law enforcement operation and a legitimate business. What began as a way to catch black-market cigarette dealers quickly transformed into a nearly untraceable ATF slush fund that agents from around the country could tap.
The spending was not limited to investigative expenses. Two informants made $6 million each. One agent steered hundreds of thousands of dollars in real estate, electronics and money to his church and his children’s sports teams, records show.
Federal law prohibits mixing government and private money. The AT F now acknowledge sit can point to no legal justification for the scheme.
Yet no one was ever prosecuted, Congress was only recently notified, and the Justice Department tried for years to keep the records secret. The Times intervened in an ongoing fraud lawsuit and successfully argued that a judge should unseal them. The documents tell a bizarre story of how federal agents set up shop inside a southern Virginia tobacco business and treated its bank account as their own.
‘If you build it ... ’
At least tens of millions of dollars moved through the account before it was shut down in 2013, but no one can say for sure how much. The government never tracked it.
Thomas Lesnak, a veteran agent, operated out of a government office building tucked behind a Burger King in Bristol.
Lesnak specialized in investigating tobacco smuggling, one of the ATF’s core missions. The ATF tried setting up front companies to infiltrate smuggling rings, but with limited success. Gangs and cartels were too smart to deal with companies that appeared out of thin air. Lesnak had a solution: Rather than pose as a real company, go into business with an existing one.
In late 2006, Lesnak persuaded Jason Carpenter, an established small-time Alabama tobacco distributor, to open a warehouse in Bristol, become an informant and let the ATF operate alongside him. “We basically merged ourselves with a tobacco business,” Lesnak said last year in a confidential deposition.
“The idea was, ‘If you build it, they will come ,’” Carpenter said in a deposition. “And lo and behold,” he said, “they came.”
Would-be smugglers appeared, looking to buy untaxed cigarettes. Some offered cash. Others offered to trade stolen property or guns.
The ATF allowed Carpenter and his business partner, Christopher Small, to conduct illicit tobacco sales in the hopes of catching criminals. Lesnak, Carpenter and Small declined repeated interview requests.
Normally, undercover operations run entirely on government money, from a government account that is reviewed by government auditors. But Carpenter was running a real company, BigSouth Wholesale. Sometimes he worked for the government, sometimes for himself, and it was not always clear where the profits should go.
Outside reach of Congress
So the ATF devised a solution: When it was unclear where the money belonged, it went into a private account that Carpenter controlled. That kept the money outside the reach of Congress. Lesnak dictated all the spending and said he expected the government to balance the books at the end of the investigation. That never happened.
The responsibility fell to the Big South bookkeeper, Wendi H. Davis, who testified that she managed the government’s secret account on a QuickBooks file on her computer.
The unusual business arrangement and the secret account helped make Carpenter and Small two of the ATF’s most valuable informants. Their work helped lead agents to more than 100 arrests, Lesnak said. Records show they aided the FBI, the Drug EnforcementAdministration, even British intelligence.
In early 2011, the operation moved into a new, more expansive phase. Carpenter and Small sold Big South to U.S. Tobacco Cooperative.But they remained on the job.
Documents show Carpenter and Small making money in ways that have no obvious connection to ATF investigations.
In one such transaction, court records show, U.S. Tobacco sold cigarettes for $3 a carton, then bought back those same cigarettes at nearly $17. Carpenter and Small were both buyers and sellers, making nearly $600,000.
“I smell cash??” Small wrote in an email. “Ka-Ching!” Carpenter replied. When the operation was exposed, U.S. Tobacco lawyers descendedon the warehouse, seizing everything. A tobacco company had just raided the ATF.
Carpenter, Small and Davis were fired. U.S. Tobacco is suing Carpenter and Small, accusing them of a $24 million fraud. The informants say they are being unfairly blamed for the ATF’s actions.
In September 2013, a Justice Department review found widespread problems with ATF tobacco investigations. Court documents show no record that the ATF punished anyone. Kaye was promoted. Lesnak retired with his pension — “never an oral reprimand, never a written reprimand, never a suspension,” he said.