Agents’ Off-the-Books Account Broke A.T.F. Rules, Memo Indicates

https://www.nytimes.com/2017/06/23/us/atf.html

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WASHINGTON — Agents from the Bureau of Alcohol, Tobacco and Firearms were running a multimillion-dollar, off-the-books bank account in Virginia to fund undercover operations at a time when the bureau had imposed strict rules about the use of such accounts.

In an April 2011 memo, the A.T.F. told agents around the country that operating a bank account outside of those rules “would constitute embezzlement.”

The secret bank account is at the heart of a racketeering lawsuit in North Carolina. Agents used the account to help finance undercover tobacco smuggling operations around the country, donate money to their children’s schools, and pay for a Las Vegas trip and a $21,000 suite at a Nascar race.

Details about when the account was opened remain sealed, but records show that the account was in use as far back as mid-2011 and continued until at least 2013.

The A.T.F. has repeatedly refused to say who authorized the account, but the bureau has denied any wrongdoing. Thomas Lesnak, the lead agent who is now retired, said in a brief interview earlier this year that the operation was done by the book.

But the 36-page memo from 2011 indicates otherwise. Written by an assistant A.T.F. director, Mark Chait, the memo lays out strict rules for how agents can spend money in undercover operations. Using money from an undercover account to supplement the A.T.F.’s own budget is prohibited.

The rules required strict accounting and approval from senior managers at every step of the investigation.

By contrast, court records related to the Virginia case describe an account with little oversight. Ryan Kaye, an A.T.F. supervisor, testified that agents received “verbal directives” to open the account, but the documents do not identify who gave the directives.

Agents in Bristol, Va., moved tens of millions of dollars through the account, records show, financed through a web of shadowy cigarette deals. The process was convoluted, but the result was clear: Agents had a steady supply of money and wide discretion about how to spend it.

The Justice Department’s inspector general is investigating the use of the account.

The 2011 memo, which was followed in 2013 by a strict new policy, describes the policies for operating what are known as “churning accounts,” which agents use to buy and sell cigarettes as part of an undercover investigation.

The A.T.F. has argued the account in Virginia was different, something it called a “management account.” But the 2011 memo offers no exception to the rules and never mentions management accounts. An A.T.F. spokeswoman decline to comment on Friday.

The New York Times, which revealed the existence of the account in February, sued the A.T.F. to obtain the memo. The Times is still fighting for other records.

The A.T.F. issued the 2011 memo amid an internal audit that uncovered widespread misuse of undercover bank accounts. Because the Virginia account was kept off the books, however, it was never scrutinized as part of that audit. The A.T.F. has refused to say whether it still operates management accounts.