The Cornerstone Report

Safeguarding America Through Financial Investigations

Volume VI: No. 1 • January 2009

El Dorado Task Force Investigation

In March 2006, ICE agents from the Office of the Special Agent in Charge in New York assigned to the El Dorado Task Force initiated an investigation into possible IPR violations. In September 2007, this investigation resulted in 29 defendants being charged in three separate complaints with conspiracy to smuggle more than 950 shipments of merchandise, including counterfeit merchandise, into the United States, principally from China.

The charges were the result of a 19-month coordinated partnership by ICE agents and CBP officers. These shipments were smuggled through ports of entry at Newark, N.J., Houston, Texas, Long Beach, Calif., the New York Container Terminal in Staten Island, N.Y., and John F. Kennedy International Airport.

Many of the suspects were also charged with conspiracy to traffic counterfeit goods. Additionally, four of the defendants were charged with money laundering. During the investigation, multiple Bank Secrecy Act (BSA) reports helped identify numerous bank accounts and business locations, greatly enhancing the investigation.

The investigative techniques employed by ICE and CBP included the use of cooperating witnesses, undercover agents, and video and audio surveillance. During the course of their investigation, ICE agents and CBP officers seized counterfeit merchandise which, had it been authentic, ICE and CBP estimate would have been valued at approximately $700 million.

 

Importation of Merchandise into the United States

 

Images of counterfeit merchandise seized during one of the search warrants that was executed as a result of this investigation.

Shipments of merchandise arriving at United States ports must be cleared, or granted entry, by CBP prior to enteringthe commerce of the United States. The importer obtains clearance through the use of a customs broker, an individual or company licensed by CBP to file entry documents for commercial shipments. The importer presents the customs broker with documents describing the shipment, including bills of lading, invoices and packing lists. Based on this information, CBP may clear a particular shipment, after assessing a duty, without inspecting it. After a shipment is cleared, it may be removed from the port and delivered to the importer or its customer. Counterfeit merchandise will be denied clearance and is subject to seizure.

Shipments of merchandise may also enter the United States temporarily, and without payment of duty, if they are to be delivered to another country. Such shipments require that only CBP-bonded trucks pick up the merchandise at the port and that the shipment be temporarily stored only at a CBP-bonded warehouse.

Schemes Used by the Criminal Organization

Scheme One: Permits to Transfer

Permits to Transfer (PTT) allow shipments to be moved from the port of entry to a CBP-bonded facility, where they must be held until CBP grants entry of the merchandise. In an effort to conceal counterfeit imported merchandise, or to avoid paying full duty for authentic merchandise, this investigation revealed that:

            1)         CBP-bonded warehouse owners and a CBP-bonded warehouse manager fraudulently obtained PTT to smuggle counterfeit and authentic merchandise into the United States. The defendants failed to deliver the merchandise to the bonded facilities and actually transported it to their own warehouses or the customers’ warehouses; and

            2)         Managers of a CBP exam site—a CBP-bonded facility where CBP conducts commercial and enforcement examinations of containers—moved shipments of merchandise from ports of entry, prior to examination by CBP, to warehouses with non-counterfeit goods or authentic goods with a lower duty.

 

Scheme 2: Diversion Scheme

The in-bond system allows merchandise not intended for entry into U.S. commerce to transit the United States. In-bond movements allowed under U.S. law are valuable to the trade community because they help alleviate port congestion and facilitate trade by making it possible for importers to move cargo more efficiently. This merchandise transits through the United States without duties or taxes being paid, because it is moving under a bond that provides for liquidated damages if the conditions of the bond are not met.

In this scheme, merchandise distributors smuggled seven 40-foot containers with counterfeit goods valued, if authentic, at more than $9 million through the Port of Los Angeles/Long Beach without paying customs duties. Suspects accomplished this by paying ICE agents, acting in undercover capacities, to file paperwork falsely indicating that the containers were merely in-bond, passing through the United States and destined for Mexico. The containers were actually delivered to several warehouses in the United States controlled by the suspects.

 

Scheme 3: Pass-Through Scheme

A “pass-through scheme” was also used by the conspirators. Suspects involved in this type of scheme attempt to pass goods through the port of entry without being targeted for inspection. In this case, suspects smuggled approximately 22 containers with more than $25 million of counterfeit merchandise into the United States. Suspects accomplished this by providing false information to CBP regarding the contents, value and consignees of the containers, as well as by paying undercover ICE agents to facilitate the release of the merchandise.

Money Laundering Activity

Evidence collected from one of the importer’s bank accounts revealed payments for smuggled counterfeit merchandise and the transfer of illicit proceeds to China in order to facilitate the smuggling scheme. One of the accounts revealed outgoing wire transfers of more than $60 million to various entities, including the shippers and manufacturers of the smuggled counterfeit merchandise.

Images of the five real properties, which include two single family homes, one condo and one duplex. These properties have a combined value of approximately $4 million.

The defendants were charged with smuggling, trafficking in counterfeit goods, money laundering and wire fraud. Approximately 500 cartons of counterfeit goods were seized bearing the brand names of Louis Vuitton, Fendi, Gucci, Christian Dior, Fubu and Lacoste. A total of $749,250 in bulk cash and money orders was seized during the course of the arrest and search warrants. Additionally, as a result of an investigation by the SAC New York Asset Identification and Removal Group (AIRG), $1,000,472 was seized from 12 bank accounts attributed to the charged defendants. Five real properties worth approximately $4 million dollars were also seized.

 

Red Flag Indicators

• Frequent transactions or purchase of negotiable instruments $10,000 or less in order to avoid filing a Currency Transaction Report (CTR).
• Customer making cash deposits $10,000 or less at multiple locations, or cash deposits made to one account at the same location by multiple individuals.
• Splitting large currency deposits among several accounts during a single transaction.
• Using multiple accounts to collect funds that are then transferred to the same foreign beneficiaries.
• Issuing sequentially numbered checks, money orders, or other financial instruments to the same person or business, or to a person or business with a similar name.

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