In a small office just off Solano Avenue in Albany, Mark Kesel smokes light cigarettes one after the other in the European manner, covering the bottom of his face with the palm of his hand while taking long, deep drags. Kesel has only recently returned to the nasty habit. He was born in Ukraine and came to the United States in 1978, where he’s since become a successful East Bay entrepreneur. After he got married and had a child, he took on a healthier lifestyle. But in December 2000, the federal government indicted Kesel and several others, claiming the businessman and his Hayward company, All Discount Laboratory Supplies, knowingly sold freon to shady customers — customers who later used the refrigerant as a solvent for making gargantuan amounts of methamphetamine. Out came the smokes.
In all, the government believes Mark Kesel pocketed nearly $13 million in illegal freon sales in just three and a half years. The astonishing payoff makes him either the greatest individual freon salesman in the history of the state or, by the government’s estimation, an illegitimate schemer of Tony Soprano-like proportions. At the height of his success, one Drug Enforcement Administration agent claims Kesel was selling so much of the refrigerant that if you snorted a line of speed anywhere in California between 1997 and 2000 — and if its manufacturer used freon in the process — there’s a “90 percent chance” Kesel’s product was involved.
If you snorted a line of speed in California between 1997 and 2000, one DEA agent claims, and the manufacturer used freon, there’s a 90 percent chance Kesel’s product was involved. Credits: Chris Duffey That the owners of ADLS are of Russian origin has become convenient for federal and state authorities, Kesel says. With one shot, they believe they deal a blow to a drug ring and the Russian mafia. Credits: Chris Duffey
On a rainy morning that has suddenly turned into a hot afternoon, Kesel looks more like the yuppified East Bay father he is, dressed down in jeans, a buttoned stretch shirt, black loafers, and a stylish green raincoat. He continues to run his company and work on new business prospects while awaiting trial. His office is cluttered with stacks of manila files, large operating manuals, and unframed canvas paintings — many of which he commissioned from local artists — ranging from pedestrian still-lifes to wild abstracts.
Buried in the corner there’s a “Socialist’s Pledge,” a souvenir poster removed from an office wall in his homeland. Sliding out from behind his desk, Kesel playfully shows it off. “Me and my Russian friends like to read this and get a good laugh,” he says, running his fingers along the lines of Cyrillic figures. “It says, ‘I pledge to make the culture,’ how would you say … ‘cleaner’? ‘And more,’ more … ‘beautiful’? ‘Cleaner and more beautiful.'” He offers a big smile. “‘I pledge to make the culture cleaner and more beautiful.'”
Returning the poster to its corner, Kesel recalls with disdain how he was forced as a boy to recite allegiances aloud to the Soviet regime, and lived in fear of the consequences if he disobeyed. Once in America, he felt relieved, freed of such burdens. Since his arrest, though, his perspective has changed. He no longer has faith in the United States government. Despite the six volumes of files at the Oakland federal courthouse arguing for his guilt, Kesel adamantly denies the numerous and detailed allegations. If he’s guilty of anything, he says, it’s of becoming a damn good businessman who raked in big profits when the market was hot — and since when has that kind of behavior been illegal in America?
The only reason he’s speaking out now, he says, is to try and clear his name and take a stand against what he considers an ethnically motivated persecution. In Kesel’s view, his nationality works against him, like some invisible piece of evidence, comparable to the silent way it worked against suspected Los Alamos spy Wen Ho Lee. Kesel’s Russian roots have somehow made him, instantly, a suspect in a greater evil. “I believe that the fact that the owners of ADLS are of Russian origin has become convenient for federal and state authorities,” he says. “With one shot, they believe they deal a blow to a drug ring and Russian mafia.”
Kesel, who has hired counterculture celebrity attorney Tony Serra to defend him, quickly dismisses any notion that he’s a member of a Russian mob. In fact, he questions whether one exists at all. Too many Russian families were broken up during the regime, and it frayed loyalties, he says; Russians couldn’t support an organized hierarchy. “Any adult who looks at the facts of this case will be outraged,” the businessman declares. “They will be ashamed of what this government is doing.”
Kesel says he got into wholesale chemicals on a lark in 1995, when an old friend asked him to invest in her new business. Before then, he’d worked a variety of jobs, including stints as a painting contractor, an electronic engineer, and a stockbroker. By the time his friend called, he was already busy owning and managing a Berkeley apartment building and developing a new technology start-up in Santa Clara. He wasn’t interested in chemicals, but just for politeness’ sake, he asked his friend for a detailed business plan. And then, Kesel says, he saw the profit potential — and he couldn’t refuse.
It turned out to be a great time to sell Freon. In 1996, the federal government banned DuPont’s trademarked chemical, citing its ozone-depleting effects. The crackdown created an immediate shortage, which manufacturers of generic refrigerants rushed to fill with modified versions of the original. But even these were in short supply, and the price of freon — lowercase “f” — skyrocketed from $5 to $130 per gallon. For crank producers who’d long enjoyed the solvent on the cheap, the outrageous expense was still worth it: The liquid efficiently separated methamphetamine oil from the chemicals used to make it, and it was barely flammable — a key consideration, lab fires being the primary occupational hazard.
One of the first things Kesel learned about his new venture was that it was regulated closely by a slew of government agencies including the DEA, the US Environmental Protection Agency, and California’s Bureau of Narcotic Enforcement. In the early ’90s, as meth production flourished throughout the state, authorities grew frustrated raiding clandestine laboratories, arriving only in time to clean up the mess. Instead, they retrained their efforts on potential sources of the speedy drug’s ingredients: wholesale chemical companies such as All Discount Laboratory Supplies.
The state Bureau of Narcotic Enforcement created the Precursor Compliance Program to keep a close eye on Kesel’s industry. The program required vendors to meticulously invoice sales of particular chemicals and collect personal information on the buyers. Clients were asked to fill out forms citing their intended use for the product, and provide a photo ID and vehicle license plate numbers. Any sale of more than $100 was reviewed by DEA auditors, and any “suspicious sales” — combination purchases that suggested illegal intentions — had to be reported via a special DEA hotline and called off immediately at the register.
Red phosphorus and other chemicals popular with drug makers could only be sold in small quantities, and then only once per month per customer. Others, like freon, weren’t limited in quantity, but buyers now had to produce a special EPA certificate vouching for the buyer’s legitimacy. If all that wasn’t enough, an auditor from the narcotics bureau and a DEA agent visited Kesel’s company weekly to peruse the books and discuss new drug laws. By the letter of the law, Kesel and his employees were forbidden to sell listed chemicals “knowing, intending, or having reasonable cause to believe” that they’d be used to manufacture a controlled substance.
The state’s new program immediately bore fruit. In 1997 two Oakland companies, Chemicals for Research & Industry and Custom Lab, were shut down after failing to comply with the reporting rules. Their customers promptly turned south, to Kesel’s Hayward warehouse, for their supplies. The same year, state narcs notified Kesel that red phosphorus containers with ADLS markings had turned up at a raided megalab in San Bernadino County. In response, Kesel says he immediately set up new rules in his shop: He stopped selling red phosphorus altogether; began requiring two forms of identification from customers, not just one; created his own “Do Not Sell To” list of suspicious customers; and let DEA agents know when their clumsy surveillance efforts outside the building drew attention from his clientele. The businessman argues that his diligence went far beyond the government’s requests.
Regardless of the strict measures, Kesel’s business didn’t suffer. In 1997, according to court documents, ADLS sold 63,856 pounds of freon — nearly $1 million worth.
That’s a large quantity. How large? Michael La Barge, an employee at Trane Company, a national refrigerant wholesaler, told DEA investigators that the entire San Francisco Bay Area requires about fifteen thousand pounds to satisfy its annual needs. In a single year, Kesel’s company had sold more than four times that amount.
According to DEA and state narcotics reports, here’s who was buying so much freon, and why Kesel and his employees should have known better: In January 1999, a customer named Arnulfo Navarro started a bunk West Oakland company called Refrescos Air Conditioning and Refrigeration. Arnulfo’s accomplice, Margarita Escobar, obtained an EPA certificate to buy freon using Navarro’s company as her backer. EPA certificates are easy enough to get, requiring only a short test and an $85 processing fee.
Equipped with the proper documents, Navarro and Escobar became ADLS’ most valued customers. The duo returned several times a week, buying up tens of thousands of pounds of freon, and always paying in cash. When they couldn’t make it to ADLS themselves, Margarita sent an underling with a note approving the purchase on her EPA certificate number. For some purchases, she or one of her associates counted out as much as $26,000 in cash onto the counter.
Before long, DEA agents began tailing Navarro and Escobar out of the ADLS parking lot. Most likely, the two auditors who read through the company’s books every week had noted the pair’s unusual thirst for freon and forwarded the information to undercover surveillance crews. Several times, the car driven by Navarro and Escobar met up with eager clients within a few miles. Other times, the carriers headed toward Fresno, employing what the agents deemed countersurveillance techniques — pulling off the freeway and parking in turnouts along the way. Agents documented the path of the gray freon drums to a variety of destinations: a bridal shop in Menlo Park; an Applebee’s parking lot in Hayward; a ranch in Dixon; a suburban home in San Jose.
Within a year of Navarro and Escobar’s first visit, the Bureau of Narcotic Enforcement wrote Kesel, alerting him that his containers had now turned up in a dozen meth labs across the state. California had rapidly become the nation’s most prolific methamphetamine supplier, with thousands of clandestine labs tucked into the rural landscape, particularly down south. Kesel responded to the BNE’s findings with a brief letter, thanking the agency and offering to assist with any future investigative efforts.
Still, Navarro and Escobar (who have also since been indicted) were snapping up supplies at such an incredible rate that it allegedly even concerned ADLS management. In November 2000, the company’s day-to-day general manager Vladimir Kotlyarenko wrote the narcotics agency vouching for Navarro’s patronage and assuring them that his frequent customer had the proper documents. But if it turned out Navarro was under investigation, Kotlyarenko added, he’d gladly put his customer on the “Do Not Sell To” list. The manager concluded with an offer: “Any information that DEA provides will be taken into serious consideration and NO sales will be made to the named individual.”
But according to a state narcotics agent who worked closely on the case, Kotlyarenko’s letter was considered suspicious. It smelled like a strategy to determine whether the DEA was investigating Navarro and, more importantly, ADLS. The DEA didn’t respond, so ADLS continued its business relationship with its most prized customer.
From Kesel’s perspective, however, the letter stands as a prime example of how the government has chosen to view his company’s good-faith efforts only with mistrust. He claims many of his attempts to assist agents have been flipped around, somehow made to appear as sinister. In another instance, according to court documents, ADLS employees dutifully made dozens of calls to the DEA’s “suspicious sales” hotline, just as required by law. But, to Kesel’s purported amazement, agents dismissed the call-ins because they came only after the sales had been completed and the customers were long gone. In the government’s view, the half-hearted effort by ADLS employees was yet another way the company attempted to appear on the side of the law even as it pandered to illegitimate customers.
The company, meanwhile, also attracted the attention of the IRS when its bank began reporting daily cash deposits ranging from ten thousand to fifty thousand dollars. The cash, bank employees said, was sometimes “damp and musty,” suggesting that it had been buried underground or stored in coffee cans. Again, Kesel says the government has attached dramatic details to bald-faced facts: ADLS refuses checks, as many businesses do, and most customers simply prefer to pay in cash. And, since his out-of-state freon suppliers required COD payments, he needed plenty of currency in the till. As further evidence of his innocence, Kesel notes that he faithfully reported transactions of more than $10,000, just as the federal government requires.
In fact, the businessman and his attorneys argue, ADLS employees were repeatedly assured by the two visiting auditors that the company’s reporting habits were on the up-and-up. In court documents, Kesel’s attorneys cite a fall 2000 visit in which a company accounting employee asked narcotic bureau auditor T.J. Hirstein (who was wearing a wire as part of the investigation) if the books looked clean. Hirstein responded: “Well, you guys are careful about your cash.” During the same visit, federal agent Deborah Bell told another inquisitive employee, “Well, just keep doin’ what you’re doin’,” which was taken by the employee as a positive acknowledgment to keep up the good work. These sorts of comments, which ADLS attorneys say occurred on a weekly basis for three years, led Kesel and his co-workers to believe the government was pleased with their efforts.
Clearly, it wasn’t.
By the time ADLS was temporarily shut down in December 2000, the company under Kesel’s watch had grossed nearly $13 million selling 600,000-plus pounds of freon. It was enough to cool all of the Bay Area’s department stores, automobiles, and refrigerators for the next forty years, according to La Barge’s estimates — and the Navarro-Escobar partnership had purchased about 45 percent of it.
To Kesel, he’d sold a lot of freon because his closest competitors had been shut down, and he’d reaped in the extra business.
To the authorities, the Russian had knowingly sold enough freon to help produce more than 88 tons of crank.
“That it would turn into [speed] did not even enter my head,” Kesel says.
Early one morning that same December, Kesel’s home in Kensington was raided by federal agents who rousted him out of bed and arrested him. That was just the first indignity he suffered. The man who once headed his neighborhood association and was well-known for his generous donations to charities and arts programs now drew awkward stares from people who used to wave to him on the street. “I lost many acquaintances, business associates, customers, and vendors. My family undergoes horrendous strain,” he says. “I still have not told my mother what has happened. She is old and frail; the news would kill her.”
The case against Kesel, which used agencies from every level of law enforcement over the course of three years, includes 100 video surveillance tapes, 150 cassettes from wiretaps, and 10,000 pages of documents — a huge, expensive undertaking by any standard. The length and scope of the query suggests that while authorities were more than pleased to follow freon buckets off the ADLS lot and directly into meth labs, they were also hoping to worm their way into a larger target: the Russian mob.
In recent years the so-called Russian mafia has become an obsession for law enforcement authorities, and no more so than in Northern California. According to the FBI, the Russian mafia is considered “the most feared crime organization in the world,” and according to its reports, as many as three hundred “known Russian criminals” currently reside in the San Francisco Bay Area.
During the Soviet Union’s collapse, an estimated 200,000 émigrés fled to the United States, and some of those who had criminal connections in their homeland set up syndicates here, authorities say. Crimes include everything from prostitution rings and trafficking in stolen goods to Medicare fraud and stock manipulation. State Attorney General Bill Lockyer announced in 2000 that prosecuting Russian and Eurasian organized criminals was one of his priorities.
But while several Russians have been convicted for crimes locally, the big catches that would unveil a criminal conspiracy have proved elusive. To change that, the US Attorney’s office in San Francisco named Martha Boersch as chief of the Organized Crime Strike Force last September, marking a serious pump-up in the government’s attempt to corral Russian crime. Boersch, who is fluent in Russian and once worked at the American Embassy in Moscow studying Russian syndicates, has prosecuted a string of Russians in San Francisco, mostly in isolated racketeering cases. But Boersch’s team has yet to invoke RICO statutes to sweep up Russian mob bosses in the way federal agents on the East Coast have used this anti-organized-crime legislation to take down Italian crime families.
In all of the documents on Kesel, there’s not one mention of any link between the businessman and the Russian mafia, nor would there be even if he were connected; those records would be sealed and locked away. Agents and prosecutors who worked on the case wouldn’t go on record to either confirm or deny whether the scope of the Hayward investigation included mob activities.
Yet Kesel still claims the government is playing the ethnicity card to anchor its case. He cites, for instance, a dubious reference to his company in a Channel 5 series on the Russian mafia that aired last year. Following a segment about a Russian-flagged boat caught trafficking cocaine into the San Francisco Bay, a voice-over mentions the ADLS raid, and a man identified as DEA agent Robert Silano says on screen, “It was a business owned by … Russians.” The agent’s pregnant pause suggests that something more menacing was afoot.
Kesel keeps a videotape of the report, which he offers to bolster his argument that American fears of a Russian mob have led to erroneous conclusions. He has Russian friends who dare to be entrepreneurs, and have been investigated as a result. “And what do they get for running a business?” he asks. “A bunch of trouble.”
ADLS is still in operation, but it’s struggling without its most popular chemical moving off the shelves as it did in the past. Freon is now all but nonexistent in the meth-making scene, says Ron Gravitt, special agent in charge of the state’s Precursor Compliance Program. But it’s not because ADLS got busted, he says. Instead, the chemical’s high cost finally outpaced the manufacturers’ willingness to buy. Meth chemists have turned to standard Coleman-brand camping fuel, a far cheaper — and more flammable — solution. “No doubt about it,” Gravitt says. “We have witnessed an increase in the number of lab fires breaking out, and it’s largely because they’ve moved away from using freon as their solvent of choice.”
Kesel pays no attention to such trends. He spends most of his waking hours considering his fate with the courts. In a pretrial hearing February 24 in Oakland federal district court, Tony Serra’s posse plans to argue that the federal auditors who visited ADLS weekly and allegedly gave company employees the thumbs-up were actually guilty of entrapment.
To succeed on an entrapment defense, Serra “must show that an authorized government official told the defendant that certain conduct was legal and the defendant believed the official.” Kesel believes the agents’ remarks meet these criteria, but will a judge? Or a jury?
If Kesel’s lawyers aren’t convincing, he faces the prospect of life in prison. He’ll never take a guilty plea, he says.
Coincidentally, according to Kesel, the first time he heard of his alleged mafia connection came while he was sitting in an Oakland jail following the raid on his house. Other prisoners deferred to him respectfully. One brought him coffee. Another brought sugar. “I thought all of this was a heartwarming gesture,” he says, recalling his loneliness at that moment. “But then one of them says to me, ‘We heard you were a Russian hitman.'” Kesel drags on his cigarette, then blows out laughter along with the smoke.
“Mafia?” he says. “If I’m mafia, the people of this community should sleep in peace.”
