Black Market Motor Fuel AB 2573 (Bowler)

SUMMARY:

AB 2573 will enable the Air Resources Board (ARB) and law enforcement agencies to locate and prosecute motor vehicle fuel "bootleggers" who mix non-fuel products with finished motor vehicle fuels.

BACKGROUND:

Recent diesel fuel samples obtained by the ARB at service stations indicate the mixing of non-motor fuel petroleum products such as kerosene, jet fuel, atmospheric gas oil, light cycle oil and hazardous materials with legal diesel. During the past decade, elements of California's motor vehicle fuel industry have been invaded by various organized crime operations which seek to take advantage of legitimate fuel businesses as well as the motoring public by extending motor vehicle fuel with inexpensive, tax free, non-motor vehicle petroleum products. These non-motor vehicle petroleum components can be purchased from the refineries and then mixed with motor vehicle fuel and sold as motor vehicle fuel. The incentive for financial gain is high in that (1) the components are relatively inexpensive compared to motor vehicle fuel, (2) highway use taxes are not paid on these products, and (3) sales taxes collected at the pump are not paid.

PROBLEM:

The use of non-motor vehicle components as motor vehicle fuel harms ARB's clean fuel program and causes further air quality degradation. In addition, both short and long-term negative effects of lower quality motor vehicle fuels on all vehicle engine types demands greater consumer protection.

Although the exact magnitude of the problem cannot be determined, the illegal activities of organized crime, i.e. bootlegging, tax evasion, and cocktailing (blending motor vehicle fuel with other components of motor vehicle fuel), and the subsequent investigations by the FBI and other law enforcement agencies have been chronicled in numerous articles in Oil Express, an oil industry marketing newsletter. In addition, in July 1995, more than 30 people representing two separate criminal organizations were arrested in Los Angeles after an FBI sting operation for illegal fuel activities including tax fraud and cocktailing of motor vehicle fuel. The most recent example occurred in September 1995. After documenting a sulfur content of diesel violation at a service station in Fresno, follow-up investigation led to a blending operation in which non-motor vehicle fuel components were being used.

In the past the ARB has tried to solve this problem by using traditional methods, i.e. civil actions and penalties. The ARB has been successful in obtaining default judgements but has failed all attempts at collecting the penalties. The "criminal elements" simply disappear or change their names. The distributing operation resurfaces and operates with the same individuals using a different business name. Exercising federal authority over tax issues to solve California's motor vehicle fuel problems has proven inadequate to deter the growth of criminal activity. Local district attorneys have not aggressively pursued environmental crimes that involve only civil actions.

AB 2573 will deal with the blending of non-motor vehicle fuel components and the criminal element that goes along with it. Anyone who blends fuel and components will have to be registered with ARB, conduct sampling and testing, and retain records of the test results and final blend. The proposed felony penalty provision will give local district attorneys a tool to prosecute serious offenders.

ANALYSIS:

AB 2573 will add new enforcement tools to prevent the mixing of non-fuel products with finished motor vehicle fuels. The principal features of the proposal are:

General Prohibition: This bill will enact a general prohibition on adding any component to legal fuel that does not also meet the specifications of the legal fuel. An exception is provided for certain legal additives such as detergents and oxygenates.

Registration: Fuel blenders will be required to register with the ARB and indicate their intention to produce fuel, including the location of their facilities and the types of fuel to be produced.

Paper Trail: Fuel blenders would be required to test samples of their blending components and to maintain the test records for two years.

Penalties: Persons guilty of blending illegal components would be guilty of a felony and subject to a fine of not less than $35,000, or imprisonment of up to one year in county jail, or 18, 24 or 36 months in state prison, or both fine and imprisonment. In addition, a penalty of up to $2.00 per gallon of non-complying fuel could be assessed.

AB 2573 will:

Allow more effective enforcement of fuel composition standards and ensure fuel related-emission reductions are achieved.

Prevent the illegal pocketing of taxes collected from purchasers but not paid to support roads and highways.

Assure motorists get the quality fuel they pay for.

Respond to an unfair business practice that negatively affects law-abiding businesses.

CONTACT:

Chris Reynolds, Legislative Director, (916) 322-2896, Robert P. Oglesby, Legislative Representative, Air Resources Board, (916) 322-2897 (voice), (916) 736-5476 (pager)