In July 2012, the United States Department of Justice (DOJ) filed criminal charges in a California federal court accusing several individuals and business entities of evading customs duties on goods imported into the United States.1 On October 22, 2013, Gerardo Chavez, the main defendant in United States v. Chavez, et al., was sentenced to 37 months in prison after pleading guilty for his involvement in the scheme to evade the payment of custom duties. In addition, Mr. Chavez was order to pay more than $3.5 million in restitution to the government.
Co-defendant Sunil Jiwat Mirwani, who was convicted after a trial, was sentenced to 27 months in jail for his role related to purchasing the illegally imported goods. Mr. Mirwani was also ordered to pay more than $65,000 in restitution and forfeit an additional $30,000 in cash, a Hong Kong bank account and an inventory of more than 220,000 pairs of blue jeans valued at more than $1 million.
The two defendants were involved in what is commonly referred to as an import “diversion scheme.” The defendants imported Chinese-made textiles, foreign-made cigarettes and Mexican food products without paying appropriate customs duties, based upon their false claims that the goods were not entering the United States for sale within the United States.
The scheme to defraud the government of the custom duties included falsely reporting to US Customs and Border Protection (Customs) that the foreign goods would only transit US territory to enter Mexico for ultimate sale, or be temporarily held in bonded warehouses, i.e., “duty-free” locations pending re-exportation to other countries. For customs purposes, goods are considered “in-bond” under these circumstances and not subject to the collection of custom duties. However, the foreign products involved were actually delivered throughout the United States for sale.
Both defendants were charged with and found guilty of multiple counts including: (i) conspiracy to defraud the United States and commit offenses against the United States (18 U.S.C. § 371); (ii) entry of goods by means of false statements (18 U.S.C. § 542); and (iii) conspiracy to launder monetary instruments (criminal forfeiture) (18 U.S.C. § 1956 et al.). The charging and ultimate sentences involved both trade-specific criminal violations, as well as broader fraud offenses. The distinction is important as it demonstrates the US government’s increasing efforts surrounding the criminalization of customs violations. Such customs violations should not be taken lightly by importers, consignees and their related parties. To avoid severe criminal punishment, including imprisonment and financial penalties, the import community should carefully review their import compliance procedures to ensure full compliance with US customs laws and international trade law.