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Financial Crimes
11/15/2012

Head of San Diego Customs Brokers Association pleads guilty to running $100 million customs fraud scheme

SAN DIEGO — The president of the San Diego Customs Brokers Association pleaded guilty Thursday to charges stemming from a probe by U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI) that revealed he orchestrated a wide-ranging conspiracy involving the fraudulent importation of more than $100 million of Chinese and other foreign-made goods into the United States without paying customs duties.

Gerardo Chavez, 42, of San Diego, admitted in his plea agreement that he ran the elaborate multi-million dollar importation scheme, which resulted in revenue losses for federal, state and other taxing authorities of more than $18 million. Chavez further admitted he aided co-conspirators by wiring money out of the United States to a business account in Hong Kong.

As part of the scheme, Chavez and other co-defendants procured foreign goods, such as Chinese-made apparel and cigarettes manufactured in India, that were transported via ship to the Port of Long Beach. Before the goods entered the United States, Chavez directed other members of the conspiracy to prepare fraudulent paperwork and make erroneous entries into a government database so it appeared the goods were being transshipped to Mexico and not subject to customs duties. However, instead of transshipping the goods to Mexico, the merchandise was delivered to warehouses in Southern California and eventually sold in the U.S. for less than similar items offered by their law-abiding competitors.

As part of his plea agreement, Chavez agreed to cancel his individual, local and national customs licenses that entitled him to broker imports and exports. He also agreed to forfeit real and personal property, including land in Tecate, where he operated his import/export business. Chavez will also be required to pay restitution, which could be up to $18 million or more.

"In addition to harming businesses that play by the rules, this type of massive customs fraud harms all taxpayers – individuals and businesses alike – who pay their fair share of taxes to the United States Treasury," said United States Attorney Laura Duffy.

"As illustrated by this probe, HSI and our law enforcement partners are cracking down on customs fraud, which often involves a substantial loss of revenue for law abiding companies and the government," said Derek Benner, special agent in charge for HSI San Diego. "Our focus on trade violations and related criminal activities is crucial to maintaining the integrity of a vital commercial trade center on the San Diego-Tijuana border."

"U.S. Customs and Border Protection (CBP) officers working with ICE HSI, uncovered a complicated commercial fraud operation on the U.S./Mexico border that put law-abiding businesses at a disadvantage," said Pete Flores, director of CBP field operations in San Diego. "I commend the work of our officers and import specialists who work diligently to protect the revenue and economic vitality of our nation."

A co-defendant in the case, Carlos Medina, 34, of Chula Vista, also pleaded guilty Thursday and admitted he helped coordinate the delivery of the foreign-made goods that Chavez fraudulently imported. As part of Medina's plea agreement, he will also be required to pay restitution. In addition, Chavez's corporation, International Trade Consultants, LLC, entered a plea of guilty and will be required to pay restitution and may be subject to a fine. All of the guilty pleas are subject to final acceptance by U.S. District Court Judge Michael M. Annello.

Defendants Chavez, Medina and International Trade Consultants, LLC are expected to appear in court Jan. 14, 2013, for sentencing.