Wiretaps—They Aren’t Just for Insider Trading Cases Anymore: San Diego Businessman Sentenced for Criminal Customs Violations

As I follow the press releases of the U.S. Attorneys’ Offices around the country every week in my relentless effort to find interesting white-collar cases, sometimes a case jumps out at me because it is a little bit different. I see a lot of health care fraud cases and a lot of insider trading cases these days. But there have not been many reports of criminal customs violations.  Let’s take a look at a recent case.

The former president of a San Diego trade group for import-export companies, Gerardo Chavez, was sentenced to 37 months in prison for evading import taxes on $100 million in goods made overseas. Mr. Chavez was the president of the San Diego Customs Brokers Association. He also headed a company named International Trade Consultants LLC.  Chavez was apparently the target of a “four-month long wiretap investigation led by special agents with Immigration and Customs Enforcement’s Homeland Security Investigations and assisted by specialized international trade experts and officers from United States Customs and Border protection.” These agencies were assisted by the IRS, the FDA and the Alcohol and Tobacco Tax and Trade Bureau.  And don’t forget DOJ.

That’s a lot of agencies. What did they find after listening to the wiretaps?

Companies that import foreign-made goods must, of course, pay import taxes on those goods.  However, if goods come to the United States only briefly before being sent to another country, then such “in bond transshipping” does not result in a tax obligation. Mr. Chavez figured out a way around the pesky problem of paying customs duties on goods being imported by several other companies.

According to court documents, Mr. Chavez designed a scheme where wholesalers would purchase large amounts of foreign-made goods and have them shipped to the port in Long Beach, California.  Before the goods came into the United States, though, he would have his co-conspirators prepare paperwork and database entries that the goods were not entering the United Sates but instead being transshipped to places like Mexico.

Mr. Chavez would then have the goods sent by truck throughout California and sold. As the U.S. Attorney’s Office press release puts it, Mr. Chavez

had now effectively imported the goods tax-free, they could in turn sell more merchandise at cheaper prices—and reap greater profits—than their law-abiding competitors, including domestic American manufacturers of the same goods.

According to the government, Mr. Chavez was able to help his customers avoid paying the customs duties to the tune of $18 million on more than $100 million in goods. And he was personally involved by advising his co-conspirators on how to evade federal agents, letting them use his customs license for the scheme and even offering to “erase evidence from conspirators’ computers.” He also wired money to Hong Kong.

Mr. Chavez pleaded guilty to conspiracy, bringing in goods by means of false statements (18 U.S.C. § 542) and money laundering.  One of Mr. Chavez’s co-conspirators was found guilty by a jury after he was accused of using Mr. Chavez to import approximately $30 million in foreign-made textiles without paying customs duties.

This may not be the end of such prosecutions. The special agent in charge of Homeland Security Investigations (HSI) said that

HSI will continue to prioritize investigations involving suspected Customs fraud in an effort to maintain the highest degree of integrity in cross border trade.

It’s hard to know if HSI will make good on its promise. There have not been a lot of press releases covering other indictments or prosecutions in the customs area. That said, given the size of cross border trade, it is not hard to imagine that these agencies—using broad subpoenas and even wiretaps—will find many more potential white-collar criminal cases to prosecute.

This entry was posted in Conspiracy, International Trade Violations, Money Laundering, Plea Agreement, Wiretaps. Bookmark the permalink.

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