To Russia With Food Coloring

In June, McCormick Distilling Co. of Weston pleaded guilty in U.S. District Court in Newark, New Jersey, to a single misdemeanor charge of falsifying an export document. McCormick, a privately held company with reported annual revenues of more than $115 million -- and the oldest continuously operating distillery in America -- had been nabbed in a $40 million smuggling enterprise run by Russian organized crime. The government charged that a limited number of McCormick employees were involved, including one senior executive with "substantial authority" within the company; the plea bargain includes prosecutors' acknowledgment that "the case involves other participants more culpable than McCormick," and no individual at McCormick was charged with a crime.

According to prosecutors, the McCormick employees who were involved used food coloring to disguise beverage alcohol as "industrial type products" with such names as "Cleansol" and "Rainbow Cleaning Solution" to escape paying excise taxes and customs fees; some of the alcohol was shipped as windshield-washer fluid. Prosecutors say that the alcohol was disguised at the McCormick plant in Weston, which is one of only two distilleries listed in the National Register of Historic Places.

McCormick pleaded guilty to smuggling 4.6 million gallons of alcohol into Eastern Europe over five years. And documents obtained by PitchWeekly suggest that the distiller's involvement with the Russian mob is connected to the long-running Bank of New York money-laundering investigation.

Government prosecutors named Express Shipping Service Ltd. -- a freight-forwarding company in Linden, New Jersey, owned and operated by Russian immigrants -- as the buyer and exporter of much of the bootleg alcohol. Law enforcement sources decline to estimate the total amount of liquor smuggled over the life of the Linden operation, but documents related to federal criminal charges filed against Leonid Ivanutenko, the president of Express Shipping Service, show that the smugglers shipped more than 4.8 million gallons of alcohol to Eastern Europe, garnering more than $40 million. The government charged that the money was transferred to the Express Shipping Service Ltd. account at Corestates New Jersey National bank "through various accounts at the Bank of New York."

The Bank of New York, the oldest bank in the United States and one of the largest, has been the focus of an intense money-laundering and tax-fraud probe since late 1998, when investigators discovered that more than $7.5 billion flowed through a handful of commercial accounts in the bank's Eastern European division in less than two years. Most of the money went to or from Russian or offshore banks, and it has been widely speculated that at least some of it came from Russian organized crime operations in the United States. However, no specific criminal enterprise has ever been publicly linked with the investigation.

McCormick Distilling paid a $10,000 fine and $2 million in penalties and restitution, accepted a one-week punitive shutdown, and agreed to cooperate in an ongoing Justice Department investigation of Russian organized crime infiltration of the American liquor industry.

Documents filed with various New Jersey, New York, and California courts in conjunction with several lawsuits show that Express Shipping Service has been connected with the purchase of large quantities of beverage alcohol from several American sources for at least the past five years. PitchWeekly has also learned that the shipping company, which was founded in 1993, is closely tied to a dubious nonprofit organization called the CIS Development Foundation, which for a time shared the shipping company's address in Linden (see accompanying story).

Express Shipping Service Ltd. is controlled by Ivanutenko, chief executive officer Michael Dyakovetsky, and a man named Boris Varshavsky. All are Russian immigrants in the process of obtaining U.S. citizenship.

Russians consume almost 5 billion liters of vodka each year, and the country is experiencing an alcoholism epidemic of historic proportions. Two-thirds of Russian men reportedly die drunk; more than half of that number die in "extreme stages of alcoholic intoxication." Russian annual per capita consumption of pure alcohol is the highest in the world at an estimated 14.5 liters; the Moscow News reports that annual per capita consumption in some regions of the country exceeds 25 liters. (The United States, at fewer than 7 liters per capita per year, is not among the top 20 drinking nations.) "Drinking while working, let alone at lunchtime, is a common practice," noted a 1998 article in The Globe, a British magazine devoted to alcohol policy issues, "and it is not unusual for a doctor to brace himself with a few stiff ones during surgery hours." Street kiosks in major cities sell vodka 24 hours a day. Vodka retains value even in the most fractured sectors of the Russian economy: In the province of Altai, teachers receive their monthly salaries in the form of 15 bottles each, and in the province of Tula, state child benefits are paid in vodka and wine. Tula produces more vodka than milk.

Although it's home to many of the most famous and popular vodkas in the world, much of Russia's domestic output is exported, mainly to the West, to provide hard currency for a perpetually cash-starved government. The diversion of domestic production to the export market, combined with Russia's prodigious thirst and an artificially low price -- a liter of cheap vodka in Moscow or St. Petersburg costs about $2.50, or about as much as two loaves of bread -- has created an enormous demand for illicit liquor.