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Businessmen Charged in Scheme to Evade $1.9 Million in Taxes on Sales of Ozone-Depleting Chemical

Release Date: 07/02/2003
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WASHINGTON, D.C. - Thomas L. Sansonetti, Assistant Attorney General for the Justice Department's Environmental and Natural Resources Division, Roslynn R. Mauskopf, United States Attorney for the Eastern District of New York, and Paul L. Machalek Special Agent-in-Charge, Internal Revenue Service, Criminal Investigation, New York, today announced the unsealing of an indictment charging Dov Shellef of Great Neck, New York, and William Rubenstein of Colts Neck, New Jersey, with conspiring to evade approximately $1.9 million in excise taxes due on sales of an ozone-depleting chemical called thichlorotrifluoroethane, or CFC-113.

The defendants were scheduled to be arraigned this afternoon before United States Magistrate Judge E. Thomas Boyle at the U.S. Courthouse, 610 Federal Plaza, Central Islip, New York.

CFCs, which are used primarily as refrigerants and industrial solvents, are ozone- depleting substances that are subject to strict regulations under the Clean Air Act because of the danger they present to the Earth's ozone layer. When released into the air, CFCs migrate into the upper atmosphere, where they destroy ozone, a naturally occurring gaseous compound that protects the earth from the sun's harmful ultraviolet radiation. These chemicals are subject to a substantial excise tax of several dollars per pound, which is imposed to discourage their use and to promote the transition to more ozone-friendly replacement products.

Today's federal criminal case is the first involving CFC-113. Once widely used as an industrial solvent and as a refrigerant in centrifugal chillers for large buildings, CFC-113 now has a limited domestic market and is used in relatively small quantities for laboratory and analytical purposes.

"There is a simple explanation for why the most harmful ozone depleting substances are banned from production and importation in our country - they are dangerous to the environment and seriously jeopardize our health," stated Assistant Attorney General Thomas L. Sansonetti. "Those who intentionally disobey the ban for profit will be brought to justice."

"The defendants' scheme not only deprived the government of substantial revenue, but also was designed to circumvent a tax intended to protect the environment," stated United States Attorney Roslynn R. Mauskopf. "Working with the Environmental and Natural Resources Division of the Department of Justice and the Internal Revenue Service, this office will be vigilant in prosecuting those who would illegally profit by risking damage to the environment."

During the period relevant to the indictment, Dov Shellef controlled two businesses involved in the purchase and sale of CFC-113: Poly Systems, Inc. ("Poly Systems") and Polytuff USA, Inc. Shellef operated both businesses from an office in his home.

William Rubenstein controlled two businesses involved in the purchase, packaging, warehousing, shipping and sale of CFC-113: Dunbar Sales, Inc. and Steven Industries, Inc., both of which operated out of the same warehouse facility.

While the federal Clean Air Act banned the continued importation and production of CFCs in the United States as of January 1, 1996, manufacturers were permitted to sell and export CFC that had been stockpiled prior to the ban. The excise tax applied to domestic sales of stockpiled CFCs, but not sales for export.

The indictment alleges that the defendants purchased large quantities of CFC-113, Shellef from Allied Signal, Inc., and Rubenstein from another domestic manufacturer, representing to the manufacturers that they intended to export the product. Based on those representations, the manufacturers did not collect or pay any excise tax on the product.

The indictment further alleges that beginning in approximately July 1997, knowing that they had purchased the CFC-113 tax-free, the defendants nonetheless illegally diverted the product to a number of domestic customers. The indictment further alleges that in order to conceal the fact that they were selling the product domestically, the defendants removed references to the original manufacturers on the drums of CFC-113 and relabeled the product. In addition, they created false shipping documents stating that the product was being sold "For Export Only," when in fact they knew it was being sold domestically. For all of the domestic sales of CFC-113, the unpaid excise taxes totaled approximately $1.9 million.

Shellef and Rubenstein are charged with defrauding Allied Signal by inducing Allied Signal to supply Shellef with the CFC-113 tax-free based on his representations that the product was to be sold domestically. Shellef is charged with money laundering for diverting over $700,000 in proceeds from the domestic sales of CFC-113 in 1999 into undisclosed bank accounts, and then wiring the money to personal bank accounts overseas. Finally, Shellef is charged with subscribing to two corporate tax returns that omitted a substantial amount of his business' revenue from the sale of CFC-113, as well as personal income tax evasion.

If convicted on the conspiracy and fraud charges, Shellef and Rubenstein each face maximum sentences of 25 years in prison and $500,000 in fines. Shellef also faces a maximum sentence of 20 years if convicted of the money laundering charges, and a fine of $500,000 or twice the property involved in the offenses. The indictment also seeks the forfeiture from Shellef of over $1 million of funds involved in the money laundering offenses. In addition, the false corporate tax return charges each carry maximum sentences of 3 years and fines of $250,000, and the personal income tax evasion charge carries a maximum sentence of 5 years and a fine of $250,000.

The government's case is being prosecuted by Assistant United States Attorneys Thomas R. Fallati and Sarah Lum, and Lary Larson, Trial Attorney with the United States Department of Justice, Environmental and Natural Resources Division.