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