IRS Probing Alleged Money Laundering Abroad by Far-Flung Pornography Ring

WASHINGTON — In a signal that the Internal Revenue Service is increasingly targeting pornographers for tax evasion prosecutions, federal investigators have uncovered a far-flung pornography business that allegedly laundered hundreds of thousands of dollars through foreign banks.

The investigation has centered in Cleveland as the home base of Reuben Sturman, the alleged head of the operation. But the inquiry has extended to the business affairs of two associates of Sturman in the Los Angeles area and to banks in London, Amsterdam and Zurich.

Richard C. Wassenaar, chief of the IRS criminal division in Washington, said the money laundering case illustrates how the business of pornography resembles drug trafficking, generating “staggering” profits on an international scale but with minimal tax reporting.

Profits Concealed

Some prosecutors believe that tens of millions of dollars in pornography profits annually may be escaping U.S. taxation, largely through the sophisticated use of international banking channels to conceal profits.

Documents filed before a Cleveland grand jury suggest that the IRS has been tracking Sturman and his associates almost from the day that the wealthy Cleveland man was acquitted in federal court seven years ago on charges that he had engaged in interstate transportation of obscene materials.

Although the court records contain no total figures for Sturman’s business, sources familiar with the investigation said that his gross revenues run into “many millions of dollars” annually and that his business is similar to other operations that are just now being investigated.

Other court documents related to the case allege that hundreds of thousands of dollars have been laundered through foreign bank accounts.

Admits Tax Evasion

One of Sturman’s Los Angeles associates, Allan I. Goelman, 66, of Canoga Park, pleaded guilty in November to income tax evasion in connection with grand jury charges that he concealed personal earnings of more than $270,000 over a four-year period as head of U.S. “retail operations” for Sturman.

The other Los Angeles associate, Ronald A. Braverman, 37, of Encino, a Sturman financial assistant, was indicted last March on seven counts of perjury. In one instance, Braverman had testified that he sold a chain of adult book stores in Amsterdam for Sturman for $600,000 and deposited the proceeds in Swiss bank accounts. But the government charged that Braverman had lied, suggesting that he handled the money in other, unspecified ways.

Through his attorney, John H. Weston of Los Angeles, Braverman is contesting his indictment mainly on grounds that prosecutors asked him “inexact and ambiguous questions” that left him confused and unable to give clear and precise answers.

Accused of Perjury

In a third indictment last December, the grand jury accused Edward Seltzer, a business consultant to Sturman, of perjury when he denied that he had laundered money for Sturman.

Prosecutors said in court papers that Seltzer had managed to use the pseudonym “Morton Weiss” to transfer by wire $198,000 from the United California Bank of London into an account at Merchants & Shipowners Bank Ltd. in New York in hopes of diverting federal investigators from the trail of Sturman’s overseas profits.

Seltzer has pleaded not guilty to the charge.

According to court papers filed recently by Sturman’s own lawyers, more indictments are expected, including one charging Sturman with tax evasion and failure to file reports of foreign bank account transactions.

More Prosecutions Seen

Wassenaar of the IRS said he was prohibited by law from discussing the Sturman case beyond the information available from public court documents in Cleveland. But the case, he said, “is not an isolated incident,” and more prosecutions of pornographers on tax charges will come to light in the months ahead.

“With the unsettled nature of laws defining obscenity,” Wassenaar said, “oftentimes the government is forced to deal with people of this type through the tax laws. And, in a business this lucrative, if there’s a viable tax interest, we’re going after them.”

According to court records, Sturman, Goelman and Braverman have found pornography profitable enough to enjoy luxury automobiles, expensive homes and frequent trips to Europe and the Orient.

Sturman, 60, whom some law enforcement officials describe as the largest distributor of hard-core pornography in the world, operates under the umbrella organization of Sovereign News Inc. It is based in a sprawling Cleveland warehouse, which is cynically referred to by some lawmen as the Ft. Knox of pornography. Thick steel doors and a costly electronic surveillance system protect the property.

Expanded Dramatically

Investigators say Sturman’s multimillion-dollar network, which deals in X-rated magazines, movies and video cassettes, has expanded dramatically in recent years.

The government charged that, as part of the scheme, from 1974 through 1981 the Sturman empire benefited from “skim money” from a London-based corporation called Stonerealm. “Skim money” refers to proceeds from gambling activities or coin-operated devices, such as “peep shows,” that are excluded from a company’s books to avoid taxation.

It was learned that the IRS, to trace the alleged hidden profits of the Sturman group, sent special agents to Europe to obtain confidential records from the Algemene Bank of Holland and three Swiss-based banks--Swiss Credit Bank, Swiss Bank Corp. and Union Bank of Switzerland. These records were obtained through mutual assistance treaties with those governments, which allow banking confidentiality to be breached in certain cases in which there is evidence of fraud.

Braverman told prosecutors, according to a partial transcript of his grand jury testimony, that he accompanied Sturman to Hong Kong in October, 1981, and bought some low-cost blank video tapes to ship to an associate of Sturman’s in Holland to test their quality.

Enormous Profits

Sources familiar with the investigation said enormous profits can be made on pornographic films and video cassettes, which often can be produced at lower costs in Europe and Asia because of cheaper labor and materials. Actors and actresses often can be found to perform in pornographic films for lower wages abroad than in the United States, investigative sources said.

Braverman testified that Sturman once sent his adult son, David, to live with Braverman in Europe “and work with me to understand the European front (of the business).”

Braverman heads Health Devices Inc. of Los Angeles, a Sturman business that distributes sexually oriented items through a national chain of retail outlets known as Doc Johnson’s Marital Aids, according to court records. Braverman’s attorneys said in their legal papers that their client bought a $400,000 home in Encino last year.

In exchange for his testimony about the Sturman empire, prosecutors promised Braverman that they would not use any of his testimony against him. But the immunity did not extend to perjury charges.

In one of the seven counts of perjury, the government contends that Braverman lied about his knowledge of a bank account in Amsterdam, code-named the “Fabricora Establishment account,” which Sturman executives allegedly used along with accounts in England and Switzerland to launder or conceal profits.

Payment on New Home

Braverman also perjured himself, according to his indictment, in denying that he and David Sturman “were officers in several corporations with business activities in Switzerland” and in denying “personal knowledge of the transfer of approximately $40,000” from a Dutch bank account to the United States to be used as a down payment on a new home for David Sturman.

According to sources familiar with the case, many more details about the senior Sturman’s empire are likely to be disclosed if, as his attorneys expect, he is indicted in the next few weeks.

As IRS agents press tax investigations into profiteering pornographers, a bipartisan group of 26 senators led by Sen. William V. Roth Jr. (R-Del.) is writing to Danish and Dutch officials to enlist their aid in stemming the flow of salacious materials to this country, particularly child pornography.

Roth, as chairman of the Senate permanent investigations subcommittee, said diplomatic initiatives by the State Department are also needed because so much pornography is exported from Europe and Asia, some of it by U.S. entrepreneurs.