All-cash bulk buys of cognac raise AML Compliance questions


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NH state liquor stores see huge all-cash buys of Hennessy cognac, raising AML Compliance questions

When’s the last time you bought $10,000 of Hennessy cognac? With cash. Over and over and at multiple liquor stores in the same area?

If you recognize that as weird, you might be in AML Compliance. Or you might just be an average person who can’t imagine why New Yorkers travel to New Hampshire state liquor stores with vast wads of cash and walk out with cases and cases of cognac.

New Hampshire Executive Councilor Andru Volinsky has sounded the alarm about these bizarre transactions, and neither the State Liquor Commission nor the governor is happy about Volinsky’s demands for an investigation into these state-sanctioned transactions that raise suspicions about AML Compliance and potential money laundering and tax evasion.

A bit of background first: New Hampshire, whose state motto is ‘Live Free or Die,’ proudly eschews taxes—residents there do not pay state income tax or state sales tax, and relatively little is available for state services as a result. To raise revenue, the state retains all rights to retail sales of hard liquor, via state-run New Hampshire Liquor and Wine Outlets located all over the state. In 2017 alone, New Hampshire state liquor outlets netted nearly $700 million in sales, $155 million of which went to the state’s general fund.

Volinsky, one of only five powerful executive councilors elected to the legislative branch of state government, made waves in state government when on Feb. 13 he sent a letter to the governor detailing what Volinsky describes as frequent suspicious transactions occurring at New Hampshire liquor outlets near state borders and easy-access interstate highways. Volinsky implicates the business practices of the State Liquor Commission (SLC) and called for an immediate investigative review of the SLC’s facilitation of bulk all-cash purchases by out-of-state customers.

In his letter to the governor, Volinsky writes, “The SLC facilitates the practice of selling large quantities of liquor typically to out-of-state customers who drive to New Hampshire to make their purchases with significant quantities of cash in ways designed to avoid providing identifying information to federal authorities. The practice appears to currently focus on the sale of Hennessy Cognac, although the sale of other liquors is also involved. For your frame of reference, the Commission sold approximately $26 million in Hennessey Cognac in FY 17.”

Volinsky also asserts that when bulk cash purchasers appear to structure their purchases in order not to exceed the $10,000 cash trigger requiring an IRS Form 8300, the SLC may be discouraging employees from filing those reports on the grounds that these employees are profiling customers and discouraging sales.

Volinsky also provides documentary evidence of what he terms “inexplicably high inventories of [the SLC’s] Hennessey products at its stores that are conveniently located adjacent to the state’s borders and near major highways for the benefit of out-of-state bulk cash purchasers.” Volinsky further notes in his letter that the SLC prohibits some of the retail locations from stocking these products on their shelves but rather requiring outlets to keep bulk-purchase favorites in case sets in the back, ostensibly for ease of transport by bulk purchasers.

In a move that irked the governor and the State Liquor Commission, Volinsky spent time in state liquor outlets observing operations and watching and photographing bulk sales in progress. He describes witnessing a sale in which a New York woman called in an order for $24,000 almost exclusively of Hennessy products. When she arrived later that day with wads of cash and a purchasing partner, the two split the cash wad at the register and each paid for $10,000 of the order and put the remainder on a card.

Volinsky went on to detail additional concerns in his letter to the governor, who now must decide whether to more closely monitor this revenue cash cow. While the SLC defends its practices as entirely legal, both Volinsky and tax officials from states like New York and Vermont want answers about the nature of the bulk cash purchases and their role in potential money laundering and tax evasion.

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