The secret owner of a Federal Way smoke shop was sentenced to prison on Jan. 11 for leading a tobacco tax fraud scheme, resulting in the state’s loss of $10 million, according to the U.S. Department of Justice.

Hyung Il Kwon, 48, was the owner of TK Mac, a company which owned and operated two smoke shops in Federal Way and Lynnwood. Kwon, from Nevada, was sentenced to 26 months in prison.

The Department of Justice says Kwon conspired with others to cheat the state out of tobacco excise taxes and evaded over $850,000 in federal income taxes. He also has a prior state conviction for a similar tobacco fraud scheme, the news release states.

“For years, Mr. Kwon repeatedly laundered cash and created false invoices to avoid paying tobacco excise taxes. This didn’t just hurt the state coffers, it gave his business a competitive advantage over other small stores,” said U.S. Attorney Nick Brown. “Now Mr. Kwon has a substantial restitution obligation, which will follow him even after he serves his prison term.”

Between 2009 to 2017, Kwon led schemes involving two tribal smoke shops on the Puyallup reservation. The smoke shops sold large quantities of tobacco products to TK Mac, which is non-tribal distribution. A majority of the sales were in cash and TK Mac did not report the purchases to the state, allowing him to avoid millions of dollars in excise taxes, according to the DOJ.

In 2013, TK Mac began a money-laundering scheme where the two tribal smoke shops wrote checks to TK Mac as if the tribal smoke shops had purchased tobacco products from the non-tribal store. However, TK Mac provided the smoke shops with cash of the same amount of the checks without exchanging tobacco products. This allowed TK Mac to received an excise tax credit.

This scheme resulted in more than $10 million in losses for Washington state.

Anthony Edwin Paul, president of the company that owns the tribal smoke shops, was sentenced in Dec. 2021 to 14 months in prison. He must also pay a $5,000 fine and $1,764,818 in restitution. Theodore Kai Silva, who operated the scheme on behalf of the tribal smoke shops, was sentenced on Jan. 11 to four years of probation with six months of home confinement, plus $25,000 in restitution.

“Taxes, whether state or federal, are levied for the benefit of the public. When individuals like Mr. Silva, Mr. Kwon, Mr. Paul, and Mr. Kim scheme in a flagrant attempt to evade taxes, they are hurting the communities they purport to serve with their businesses,” said Bret Kressin, IRS Criminal Investigation special agent in charge of the Seattle Field Office. “Today’s sentence is a reminder that those who willfully dodge their duty to pay federal and state taxes will be held accountable for their actions. IRS:CI is committed to investigating those who choose their own greed over paying their fair share of taxes for the good of the public.”

Kwon must also pay a $10,000 fine and $5,098,249 in restitution to the Washington State Department of Revenue, plus restitution to the IRS.