A check received by Anchorage Mayor Ethan Berkowitz Thursday looked similar to ones lottery winners hold while collecting their prize money. A $1.1 million was made out to the Municipality of Anchorage — about half of what is owed by a group of business owners who schemed to defraud the municipality.


In 2011, the treasury department of the city noticed a strange pattern in cigarette purchases. Large quantities of cigarettes were being purchased tax-free for sale in the Kenai Peninsula. But the cigarettes were actually being sold in Anchorage, where a $2.20 tax should be collected on each pack.


“We started looking at the size of the stores — the square footage — and we saw how small they were,” said city treasurer Daniel Moore. “We related that to the volume of cigarettes that they were purchasing without the tax, and we said, ‘something’s not adding up’.”


The Anchorage Police Department investigated the case alongside the Internal Revenue Service, the Bureau of Alcohol, Tobacco and Firearms, and the Department of Justice. Eventually, seven people owning five different smoke shops were convicted of scheming to defraud the municipality. The ringleaders, Michael Butler and Sun Sims, ran the operation from Up In Smoke, their smoke shop in Eagle River. From there, Butler delivered cigarettes to the remaining five smoke shops around the city.


“They would split some of the profits from not paying the tax,” said Moore.


An estimated 12 million cigarettes were distributed illegally. The Department of Justice said customers would not have noticed a difference in price.


“Instead of cheating the [municipality] and passing the savings on to the customer, they were cheating the [municipality] and passing the savings on to their own pocket,” said Assistant U.S. Attorney Stephan Collins.


Moore said the result of the case sends a powerful message to people considering tax evasion.


“There are consequences when people try to defraud not just the government, but other tax payers,” said Moore. “We want to make it a fair system for everybody.”


The money received by the municipality Thursday was largely collected by a raid on the business owners’ homes and businesses in 2012, when authorities seized about $1 million in cash, according to Moore. He said the money received Thursday will be placed into the account where tobacco tax revenues are currently held.


The business owners still owe roughly $1 million to the city. Moore said it could be a few years before it is all collected.