ICE alleges broker fraud in San Diego
The president of the San Diego Customs Brokers Association, three international trade companies and seven other individuals, are facing federal charges following a probe targeting a multimillion-dollar customs fraud scheme in Southern California.
A 56-count criminal complaint filed in U.S. District Court for the Southern District of California in late July accused the 11 defendants in Southern California and Tijuana, Mexico, of orchestrating a lucrative customs fraud scheme that resulted in more than $10 million in lost customs duties, taxes and other revenue.
The criminal charges include conspiracy to defraud the United States, falsely bringing in foods and obstruction of justice. These charges carry a maximum sentence of up to 20 years in federal prison.
U.S. Immigration and Customs Enforcement (ICE) said to date the investigation has identified more than 90 commercial shipments from several countries. The estimated value of these shipments is more than $100 million.
According to court documents, the defendants devised an elaborate scheme to exploit the in-bond import process, a routine feature of international trade that provides for duty-free importations of goods that do not formally enter into U.S. commerce.
Those charged in the court papers include Gerard Chavez, 42, the San Diego Customs Brokers Association’s president, one of several persons taken into custody by Homeland Security Investigations (HSI) special agents on July 25, along with two companies he owns — International Trade Consultants and Tecate Logistics, both based in Tecate, Calif.
Susan Kohn Ross, international trade counsel at the law firm of Mitchell Silberberg & Knupp, suggested the ICE press release and charges be read with caution.
She said “the basic claim of fraud was escalated to a 56-count criminal complaint in an apparent attempt to sensationalize the incident at the expense of the reputation of customs brokers everywhere. ICE certainly should have been able to make its point differently, but then perhaps sensationalism is what the agency was after.”
Writing on her firm’s Website, Ross said “CBP San Diego has a history of antagonizing the brokerage community, although generally when they do, they lose.”
She points to a recent case against Lizarraga Customs Broker where she said “CBP had no tangible evidence but pursued the case anyway. In the end, they lost at every stage, paying the plaintiff’s attorney’s fee and costs, and sending the wrong message to the brokerage community.
“Now, we have a sensational phrase about Chavez’s position as the association president featured in a press release which again sends the wrong message. Such a statement may pander to the law enforcement community, long suspicious of the industry’s professionalism. It may also help attract publicity for ICE/CBP.
“However, if the real goal is to work with the industry to raise its standards, this was precisely the wrong approach and may well undermine the positive steps CBP is taking in rewriting the brokerage regulations,” she added.
Ross explained while “Chavez was arrested and his association connection heralded in the ICE release, there is little directly implicating him. While law enforcement agents don’t include everything they know in these probable cause statements, they do typically put forth their strongest evidence of complicity.”
The 22-page complaint filed in court includes wiretap excerpts, but Ross said “since the probable cause statement does not provide a full transcript of what was said, it is difficult to reach any clear conclusions about the meaning of any of these excerpts. The suggestion of guilty knowledge may be there, but you have to wonder what was really said and the context of the comments.”
The government said as part of the fraud the companies procured foreign goods, such as apparel made in China and cigarettes made in India, that were shipped to Long Beach, Calif.
They are accused of falsely generating paperwork and electronic entries in a government database to make it appear the shipments would be transshipped to Mexico, therefore not entering into U.S. commerce.
Instead of transshipping the goods, the government claims the defendants allegedly hired drivers to deliver them to warehouses in Southern California, where they were eventually sold in the United States.
Chavez and others allegedly forged U.S. Customs certifications to make it appear the shipments went to Mexico.
ICE said during the investigations, law enforcement uncovered shipments of produce linked to the defendants that were infected with salmonella. It said in at least one of those shipments, several defendants acted to evade future inspection by the Food and Drug Administration of prickly pear cactus they were importing. They also allegedly conspired to mislabel Mexican snack foods that contained a prohibited dye.
Investigators said in addition to depriving the United States of the customs duties owed on the diverted shipments, the defendants were able to undercut American manufacturers and hinder the U.S. economy.
When contacted by American Shipper, the San Diego Customs Brokers Association said Chavez had no comment.
“Brokers are licensed by the federal government and entrusted with a unique responsibility to facilitate legitimate trade,” said Alan Klestadt, customs counsel for the National Customs Brokers and Forwarders Association of America, in a statement regarding the case.
He noted individuals and businesses engaged in the profession are dedicated, hard-working and law-abiding citizens.
“Unfortunately, accusations of wrongdoing leveled against an individual, whether true or not, impugn the reputation and accomplishments of the entire industry,” Klestadt said.
In addition to Chavez and his two companies , those charged by ICE include Sunil Mirwani, and his Los Angeles-based import company M Trade; Joel Varela Gonzalez and Juan Porter of Tijuana, Mexico; Carlos Medina of Chula Visa, Calif.; Enrique Perez Soltero, address unknown; and Rene Trahin and Elizabeth Sandoval of San Diego. — Chris Dupin