5. Money Laundering and Tax Violations

Part: 
Four
Chapter: 
4

The nature of the pornography business provides inviting opportunities for skimming on[1202] every level. There is often dishonesty among producers, wholesalers, distributors, retailers and others who attempt to cheat each other.[1203] The often "cash only" business creates immense opportunities to launder money received from other organized crime activity.

Bookstores which primarily sell sexually explicit material have a consistent sales format throughout the United States.[1204] Generally there are two separate operations for accounting purposes, loosely identified as "front room" and "back room" operations.[1205] The front room operation generally consists of a sales area for paperback books, magazines, rubber goods, lotions, stimulants and other materials.[1206] The front room operations profits are generally used to pay for rent, utilities, materials, and employee wages.[1207] The back room operations consist of peep machines which are coin operated and produce substantial income that is usually not reported as taxable income.[1208] A local police officer noted, "The back room operation usually takes in twice the amount as the frontroom operation."[1209] A bookstore operator and associate of known organized crime family members, reported to this Commission that such "skimming" commonly occurs with video cassette rentals and magazines as well as the peep machine coin boxes.[1210]

Organized crime associate Martin Hodas, who was convicted in federal court, Buffalo, New York, in 1985 for obscenity violations has been heavily involved in peep machines.[1211]

Michael Thevis, once a major distributor of pornography in the South, told a meeting of organized crime family members and associates that he owned ninety percent of the movie viewmatic machines in the United States. Michael was interrupted by Robert DiBernardo, a person alleged to be a member of the Gambino (and/or DeCalvalcante)[1212] organized crime family, who reminded him that though he might have "proprietary rights" the machines were owned by "the family."[1213]

The idea of converting run down theatres in the Midwest into pornographic adult movie houses to launder cash from other illegal rackets was the brain child of Chicago organized crime figure Patsy Riccardi who was murdered in July, 1985.[1214]

Myron and Michael Wisotsky were convicted in the United States District Court for the Southern District of Florida in late 1985, for tax evasion which arose from skimming activities at their sexually oriented bookstores.[1215]

A bookstore operator told the Commission:

  • Subject: 80 percent of the skimming goes on in coin boxes.

     

  • Interviewer: Right, how does that happen?

     

  • Subject: Because who can tell how many customers come in today, and drop how many quarters, in how many machines. Alright?
  • Subject: I had a machine. I'm running a hundred stores. I'm doing $1,200 to $1,600 a day in quarters (per store). I'm doing maybe three hundred to five hundred dollars a day in cassette rentals, club memberships ... if you pay $69.95 per year membership then you also charge $3.95 a day for the rental of each film, right, okay, I'm doing maybe $350 a day in magazines and pocketbook sales. And at the time maybe five or ten rolls or film a day comes to maybe one hundred of five hundred dollars. So we're talking three thousand dollars a day roughly. Okay. Your magazines and your films and pocketbooks and your straightline pocketbooks.... It pays your rent, electric, gas, pays your overhead. If I don't something's happening wrong. Plus, now with the videos coming in, the video rentals go in your pocket too. It's another thing that gets bringing up. It's coming up all the time.
  • Subject: Alright, the guy who collects the machine is either a manager, or owner, or owner/ manager or just somebody like I was in (city) in total control. They know I wouldn't steal they knew I didn't steal.
  • Subject: The only way you can catch me stealing, is if I got partners, and I'm going to keep those records till the 30th of the month, to the last day of each month. Because of the last day of each month I have been figuring on the coin boxes and the end figure on the coin boxes.[1216]

     

Notes

  1. Skimming is the practice of fraudulently reporting income so as to avoid tax liability.
  2. New York Hearing, Vol. I, Bookstore Operator, pp. 146-51.
  3. See, The discussion of production and distribution of sexually explicit materials for a further explanation.
  4. New York Hearing, Vol. I, Bookstore Operator, pp. 146-51; New York Hearing, Vol. II, William Johnson, pp. 7374.
  5. New York Hearing, Vol. II, William Johnson, pp. 73-74.
  6. Id.
  7. Id.
  8. Id., p. 73. See also, The discussion of the production and distribution of sexually explicit materials for more detailed description of bookstores.
  9. New York Hearing, Vol. I, Bookstore Operator, pp. 124-25.
  10. New York Hearing, Vol. I, Christopher J. Mega, p. 167.
  11. Several law enforcement agencies for years have identified Mr. Di Bernardo as an associate of the de Cavalcante family of New Jersey. However, during the trial of Di Bernardo and Rothstein in the Miporn case in June of 1981, a New
  12. "Now, is it possible to be involved with both families?" "I don't know, but that's what the information is, that he is involved with both. It could be right and it might not be right. I don't know." New York Hearing, Vol. I, William P. Kelly, pp. 77-78.

  13. New York Hearing, Vol. I, Homer Young, p. 34.
  14. New York Hearing, Vol. I, Thomas Bohling, p. 182.
  15. New York Hearing, Vol. II, Marcella Cohen, p. 32; United States v. Wisotsky, 83-741-Cr EBD (S.D.Fla.).
  16. New York Hearing, Vol. I, Bookstore Operator, pp. 144-45.