An explosive investigation by The New York Times has revealed the existence of a secret account used by agents at the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”) to dispense millions of untraceable private dollars to informants and agents for over seven years.
The story reads like something straight out of Hollywood. In 2006, Agent Thomas Lesnak, a veteran agent specializing in tobacco smuggling investigations in Bristol, Virginia, recruited an established tobacco distributor to open a warehouse in the city and work undercover as an ATF informer. The distributor, Jason Carpenter, partnered with Christopher Small and soon had a booming business selling untaxed cigarettes and tobacco to smugglers. ATF agents worked the floor, tracked the sales, and sometimes arrested the smugglers.
“It got to the point where we were, you know, warehouse workers as opposed to criminal investigators,” Agent Lesnak said last year in a confidential deposition, according to The New York Times.
Business was good, and profits were up. But where did the profits go? Carpenter was running a real company with legitimate money, but sometimes he was working for the government. In a normal operation such as this, there would be no question because it would have been funded and tracked by government auditors. This was far from a typical situation, however, and the solution was just as unheard of: the establishment of a secret slush fund account nominally controlled by Carpenter, but with all spending decisions made by ATF Agent Lesnak. How those funds were distributed and spent were not subject to the standard controls to prevent abuse.
According to The New York Times, the account became known as the “management account.” ATF agents nationwide soon learned that they could get things for their cases without going through Washington. They simply called Bristol, and cars, cash, and cameras were on the way. Agent Lesnak said that senior officials in Washington were not only aware of the slush fund, they sent agents to him for untraceable goods.
“We had so many vehicles that we actually set up a company just for leasing,” Mr. Small said in a deposition obtained by The New York Times. The company, Big South Wholesale, also paid for routine expenses such as gas and hotel bills. “We had 14 or 15 agents carrying American Express cards that we paid the bill on,” Small said.
During the many years that the operation ran, millions of dollars went through the so-called management account. Approximately $12 million of those dollars went directly to Carpenter and Small in less than two years. No one from the government ever audited the account. That work fell to a single bookkeeper, Wendi Davis, who balanced the slush fund account on her computer using QuickBooks.
The management account may have never seen the light of day had Carpenter and Small not sold the company. The buyer, U.S. Tobacco Cooperative, a farmer-owned cigarette manufacturer, was unaware that they were also purchasing a secret ATF operation. When CFO Stuart Thompson learned that the ATF was running operations out of the company warehouse, he blew the whistle. According to The New York Times article, company lawyers descended on the warehouse and seized everything, essentially raiding the ATF.
The article notes that federal “law prohibits mixing government and private money. The ATF now acknowledges it can point to no legal justification for the scheme.” Despite that acknowledgement, no one has been punished or otherwise held accountable for the rogue operation, and Agent Lesnak is now retired and collecting his pension.
Originally published in Criminal Legal News on January 19, 2018.