Why Are New Hampshire's Tax-Free Liquor Stores Selling So Much Hennessy?

New Hampshire doesn't have a signature drink, unless you like your maple syrup served neat.

But in recent years, sales of one particular brand of cognac have surged at state-run liquor stores. So much Hennessy is being sold, in fact, that one New Hampshire official is asking state Attorney General Gordon MacDonald to investigate whether the Liquor Commission is turning a blind eye to bootlegging and money-laundering activities.

New Hampshire, despite its pronounced libertarian streak, is one of 17 "control" states, meaning the government manages the distribution of spirits. The state's Liquor Commission, which is run by an appointed chairman, oversees 79 retail stores.

Andru Volinsky, a Democrat who serves on the state's five-member Executive Council, an elected body that serves as a kind of watchdog over the executive branch, made the allegations public last month.

After being tipped off by a whistleblower, Volinsky says, he recently witnessed two people arriving in a vehicle with New York license plates and spending approximately $24,000 on Hennessy products. At the register, they allegedly divided the sale into three transactions and paid using "a very large wad of cash." He suspects people are buying up large quantities of New Hampshire's tax-free booze to sell elsewhere.

The IRS requires businesses to document when someone spends more than $10,000 in cash on a single purchase. By allowing customers to break up the transactions, the Liquor Commission may be evading that reporting requirement, Volinsky contends. He is also concerned that the Liquor Commission isn't doing enough to police customers who may stop at multiple stores in a single day to avoid triggering the $10,000 reporting requirement.

These practices "may be illegal and unquestionably facilitate money laundering," writes Volinsky in a letter to the governor and state attorney general.

Liquor Commission denies allegations

The New Hampshire Liquor Commission is a cash cow, generating more than $150 million in profits last year that went directly into the state's general fund. These government-run liquor stores are strategically located near the state's borders, including at highway rest stops, where motorists can enjoy tax-free shopping and better prices than in nearby Vermont and Massachusetts.

According to publicly available online inventories, those border stores stock huge quantities of Hennessy products. Meanwhile, just a handful of bottles may be on the shelves at stores located far from the border.

It isn't clear why Hennessy appears to be the brand of choice for bootleggers, but the price difference between New Hampshire's bottles and the highly taxed New York bottles is likely one draw. Also, government officials have offered anecdotal evidence that some of the spirits are headed for Chinese restaurants, as well as gentlemen's clubs in the greater New York City region.

"I started hearing anecdotes of people coming in with wads of cash stuffed in their socks," Volinsky tells New Hampshire Public Radio. "Wads of cash that smell of perfume because on Wednesdays, apparently the strip club owners in New York come over to buy their liquor in bulk, and the office of the liquor store smells from the perfume."

For its part, the Liquor Commission flatly denies Volinsky's allegations.

"There's nothing illegal or unscrupulous about making large sales to out-of-state customers as long as our employees follow the policies in place set forth by the state and federal government," writes the commission in a statement. It has provided employees with a step-by-step guide to ensure that financial disclosure laws are appropriately followed.

The commission, along with top Republicans in the state including Gov. Chris Sununu, have gone on the attack, criticizing Volinsky for his "sting operation," and are calling for the attorney general to investigate him.

Previous investigation

While a partisan tit-for-tat was perhaps inevitable, many of the concerns raised by Volinsky are not new to New Hampshire officials or to law enforcement in neighboring states.

In fact, in 2012, it was a top GOP lawmaker who called for a special House committee to investigate potential wrongdoing within the Liquor Commission, including how it handles large cash purchases.

That committee's final report included two anecdotes of out-of-state residents arrested in Massachusetts with large hauls of New Hampshire-purchased booze. One of those arrests included 1,676 bottles of Hennessy, bought at multiple locations. The driver was charged with possessing untaxed liquor and unlawfully transporting liquor.

More recently, liquor enforcement officials in Vermont have made two arrests, one involving an estimated $40,000 worth of New Hampshire-purchased liquor in the back of an SUV, the other with an estimated $28,000 worth. Both suspects were charged with crossing state lines in possession of more than 9 liters of alcohol, Vermont's current legal limit.

"The product that was the most prominent in both of these cases was Hennessy cognac," says Patrick Delaney, Vermont's commissioner of liquor control, who backs increasing the financial penalties for those caught illegally importing large quantities of liquor. He adds that "by using cash, there is obviously no paper trail, if an authority were to investigate it. The activity itself is basically tax evasion."

An IRS spokesperson says the agency is "aware of this and similar schemes" but wouldn't confirm any active investigation into all-cash bulk transactions in New Hampshire.

Potential repercussions

Politicians are not the only ones asking questions. Some employees of New Hampshire liquor stores are raising concerns about their role in processing these transactions.

"They are starting to feel like a drug dealer," says Richard Gulla, president of the State Employees Association, the union that represents rank-and-file liquor store employees.

To handle the huge stacks of cash and speed up transactions, the Liquor Commission has installed 20 bill-counting machines at stores around the state and says it plans to roll out more units.

Volinsky sees these steps and others taken by the Liquor Commission as "alarming."

The state attorney general's office says it is reviewing the documents submitted by Volinsky and isn't yet able to comment on their content.

NHPR's Casey McDermott contributed to this report.

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