Month: February 2023

Source: United States Department of Justice News

Damian Williams, the United States Attorney for the Southern District of New York, Ivan J. Arvelo, the Special Agent-in-Charge of the New York Field Office of Homeland Security Investigations (“HSI”), AnnMarie R. Highsmith, Executive Assistant Commissioner for U.S. Customs and Border Protection’s (“CBP”) Office of Trade, and Francis Russo, Director of CBP Field Operations New York, announced that the United States has entered into a settlement agreement to resolve a civil fraud lawsuit against HIGH LIFE LLC (“HIGH LIFE”), an apparel design and import company headquartered in Manhattan, for underreporting to CBP the value of apparel imported into the United States.  The settlement resolves claims that HIGH LIFE underreported the value of 67 apparel shipments in order to avoid paying the full customs duties owed.  Under the settlement agreement approved by U.S. District Judge Victor Marrero, HIGH LIFE has agreed to pay $1.3 million to the United States and has made admissions regarding certain conduct alleged in the Government’s Complaint. 

U.S. Attorney Damian Williams said: “Rather than comply with the law, High Life chose to underreport the value of apparel imported into this country to avoid paying legally mandated customs duties.  This Office will continue to hold companies accountable when they make misrepresentations to CBP to enhance their own bottom line.”

HSI Special Agent-in-Charge Ivan J. Arvelo said: “This settlement should serve as a warning to companies that attempt to bolster their bottom line by cheating and defrauding the United States.  Individuals or organizations that knowingly and willfully use tactics such as undervaluing or misclassifying goods to avoid paying lawful customs charges are violating the laws of international commerce and HSI will not stand by idly.  Our special agents will work diligently with our law enforcement partners to protect legitimate businesses by apprehending those that exploit our trade systems and rob our government of vital revenues.”

CBP Executive Assistant Commissioner AnnMarie R. Highsmith said: “Importers need to know that manipulating the values they report to CBP can come with serious consequences.  This case is a great example of the collaborative trade enforcement efforts between teams at CBP, who identified the original pattern of misconduct, and the U.S. Attorney’s Office.” 

CBP Director of Field Operations Francis Russo said: “U.S. Customs and Border Protection has a cadre of dedicated professionals – import specialists and regulatory auditors – with expertise in the financial details surrounding imports, including terms of sale and their effect on the dutiable value of goods when they arrive in the United States.  Our trade experts found anomalies in High Life’s value calculations based on the terms of sale to its foreign suppliers and paved the way for the Justice Department and Homeland Security Investigations to move this case forward and bring it to a successful conclusion.  Their knowledge and collaboration with our law enforcement partners stopped High Life’s efforts to defraud the United States of hundreds of thousands of dollars in revenue.”           

As alleged in the Complaint filed in Manhattan federal court:

HIGH LIFE purchases apparel from foreign vendors (the “Vendors”), who in turn contract with overseas factories to manufacture the apparel.  In December 2015, after CBP had detained numerous HIGH LIFE shipments due to concerns that the declared values were fraudulent, HIGH LIFE decided to transition its business model.  Instead of purchasing the apparel on Landed Duty Paid (“LDP”) terms — meaning that HIGH LIFE paid the Vendors a price inclusive of all costs associated with importing the merchandise — HIGH LIFE began purchasing the merchandise on Free on Board (“FOB”) terms.  Under the new FOB model, HIGH LIFE assumed importation responsibilities, including the responsibility to declare the value of the imported goods and pay the associated customs duties. 

As the importer of record, HIGH LIFE was permitted, if certain criteria were met, to declare the value of the imported goods based on the price the Vendors paid the factories (“First Sale Price”), instead of the price HIGH LIFE paid the Vendors.  However, HIGH LIFE could only declare the First Sale Price as the value of the orders if the goods were the subject of a bona fide sale between the Vendors and the factories, the goods were clearly destined for export to the United States, and the factories and the Vendors dealt with each other at arm’s length, in the absence of any non-market influences that affected the legitimacy of the sales price.

From January 21, 2016, through June 1, 2016 (the “Relevant Time Period”), HIGH LIFE materially underreported the value of previously ordered apparel in 67 imported shipments.  In transitioning from LDP to FOB terms, HIGH LIFE developed a formula that worked backwards from a previously negotiated LDP price to calculate what HIGH LIFE wanted the FOB price and First Sale Price to be and then used that First Sale Price to declare the values of 67 shipments.  The prices used by HIGH LIFE for customs reporting purposes were determined after the orders for the apparel had been placed, after the pricing structure had been negotiated, and after the apparel was in production.  It was improper to declare the imported merchandise using these values because the prices were not based on a bona fide sale between the Vendors and the overseas factories and were not the result of arm’s length negotiations between those Vendors and the factories in the absence of any non-market influences.  Indeed, HIGH LIFE instructed the Vendors on how to calculate and report the prices that HIGH LIFE ultimately used to declare the values to CBP. 

As part of the settlement, HIGH LIFE admits, acknowledges, and accepts responsibility for the following conduct:

• Once HIGH LIFE transitioned to an FOB model, it assumed importation responsibilities for the shipments.  As the importer of record, HIGH LIFE could then, if certain criteria were met, declare the value of the imported goods based on the price the Vendors paid the factories, instead of the price HIGH LIFE paid the Vendors.  However, HIGH LIFE could only declare the First Sale Price as the value of the orders if the goods were the subject of a bona fide sale between the Vendors and the factories, clearly destined for export to the United States, and the factories and the Vendors dealt with each other at arm’s length, in the absence of any non-market influences that affected the legitimacy of the sales price.
• In transitioning from LDP to FOB terms, HIGH LIFE developed a formula that worked backwards from a previously negotiated LDP price to calculate what HIGH LIFE wanted the FOB price and First Sale Price to be and then used that First Sale Price to declare the values of 67 shipments made during the Relevant Time Period (the “Subject Orders”).  HIGH LIFE requested the Vendors to delay shipping merchandise while the First Sale Prices for the Subject Orders were finalized.  Indeed, on December 24, 2015, HIGH LIFE’s Production Manager asked the Vendors to “hold as many shipments as possible until we finalize the First Sale.”
• Beginning in late December 2015 and continuing through January 2016, HIGH LIFE instructed the Vendors to apply HIGH LIFE’s formula to calculate the First Sale Price that HIGH LIFE would report to CBP for purposes of calculating the duties owed by HIGH LIFE.
• After the Vendors emailed spreadsheets to HIGH LIFE that purported to reflect the First Sale Prices for the Subject Orders, a member of HIGH LIFE’s production team sent an email to the Vendors directing them to “rework your FOB and [First Sale Price] based on the Highlife Estimate freight.”  Following their receipt of these emails, the Vendors replied to HIGH LIFE within 24 hours with revised First Sale Prices for the merchandise included in the Subject Orders.
• When importing the Subject Orders, HIGH LIFE ultimately declared to CBP that the duties owed should be calculated based on the First Sale Prices the Vendors reported to HIGH LIFE.
• If HIGH LIFE had paid duties to CBP based on the prices HIGH LIFE itself paid for the merchandise included in the Subject Orders, instead of calculating the duties based on the purported First Sale Prices reported by the Vendors pursuant to HIGH LIFE’s instructions, HIGH LIFE would have paid significantly higher customs duties for the Subject Orders.

*                *                *

Mr. Williams praised the outstanding investigative work of the Department of Homeland Security, HSI, and CBP.

This case is being handled by the Office’s Civil Frauds Unit.  Assistant U.S. Attorneys Jessica Jean Hu and Anthony J. Sun are in charge of the case.

Source: United States Department of Justice News

ALPINE, Texas – A Valentine, Texas man was sentenced in federal court in Alpine last week to 20 years in prison and 15 years of supervised release for distributing child sexual abuse material.

According to court documents, Albert Douglas Ackley, 60, uploaded and shared ten files containing child sexual abuse material over a mobile messaging app.  The files were flagged by the app and sent to the Internet Crimes Against Children database for law enforcement investigation.  Agents executed a search warrant at Ackley’s residence, where they found multiple devices containing prepubescent child sexual abuse material.  At the time of the investigation, Ackley had been teaching math to grades seven through 12 at a local public school.

Ackley was arrested March 15, 2022 and has remained in federal custody.  He pleaded guilty on Aug. 12, 2022 to one count of distribution of child pornography.

“We will continue to vigorously prosecute those who distribute or create an illegal market for child pornography as they violate the sanctity and innocence of our children,” said U.S. Attorney Jaime Esparza of the Western District of Texas.  “We are grateful for our law enforcement partners, and to the National Center for Missing and Exploited Children, as we work together to protect our kids and hold these offenders accountable for the harm they cause in society.”

“This sentence shows that HSI special agents are laser focused on doing our part to bring to justice those who victimize children,” said Special Agent in Charge Francisco B. Burrola of the Homeland Security Investigations El Paso Division.  “HSI is most appreciative of the collaborative partnership with the Texas Department of Public Safety that is a force multiplier to combat this horrific crime of child exploitation.”

HSI and the Texas Department of Public Safety investigated the case.

Assistant U.S. Attorney Matthew Ellis prosecuted the case.

This case was brought as part of Project Safe Childhood, a nationwide initiative to combat the growing epidemic of child sexual exploitation and abuse launched in May 2006 by the Department of Justice. Led by U.S. Attorneys’ Offices and CEOS, Project Safe Childhood marshals federal, state and local resources to better locate, apprehend and prosecute individuals who exploit children via the Internet, as well as to identify and rescue victims. For more information about Project Safe Childhood, please visit www.justice.gov/psc.

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Source: United States Department of Justice News

A former Jacksonville company CEO was sentenced yesterday to 32 months in prison for willfully attempting to evade the assessment of his federal income taxes.

According to court documents and statements made in court, in 2015 and 2016, Jason Cory, 49, of Jacksonville, was a manager at a New York-based IT services company and from 2017 through 2019, he was the CEO of a different IT services company based in Jacksonville. From 2015 through 2018, Cory used his positions to cause more than $1.5 million to be deposited into the bank accounts of Gambit Matrix LLC, a shell company he controlled. As CEO, Cory caused transfers to Gambit Matrix under the false pretense that they were payments for consulting services that had never been provided.

Cory did not report the income he earned through transfers to Gambit Matrix on his tax return for 2015 and did not file tax returns for the years 2016 through 2018 as required by law. To conceal the fraud scheme from the second company and evade taxes on his income for those years, Cory invented fictitious owners of Gambit Matrix, made false representations to his employer, and falsified emails and IRS Forms W-9 (Request for Taxpayer Identification Number). Cory used the money directed to Gambit Matrix to pay for personal expenses such as credit card bills, rent, and club memberships. In total, Cory evaded more than $600,000 in taxes through his actions.

In addition to the term of imprisonment, U.S. District Court Judge Marcia Morales Howard ordered Cory to serve 36 years of supervised release and to pay approximately $606,195 in restitution to the United States.

Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and U.S. Attorney Roger B. Handberg for the Middle District of Florida made the announcement.

IRS-Criminal Investigation and the FBI investigated the case.

Trial Attorney Richard J. Hagerman of the Tax Division and Assistant U.S. Attorney David B. Mesrobian for the Middle District of Florida prosecuted the case.

Source: United States Department of Justice News

Davenport, IA – Jacob John Preuschl, age 28, of North Liberty, was sentenced on January 25, 2023, to 300 months in prison for production of child pornography and transfer of obscene material to minors. Preuschol was also ordered to pay a $10,000 special assessment under the Justice for Victims of Trafficking Act and a $3,000 special assessment under the Amy, Vicky, and Andy Child Pornography Victim Assistance Act. Following his prison term, Preuschl was ordered to serve seven years of supervised release.

Law enforcement identified Preuschl after the parent of a minor victim called the National Center for Missing and Exploited Children’s (NCMEC) tipline after finding sexually explicit content between her daughter and an adult male on her cell phone. NCMEC referred the case to law enforcement in Nashville who identified Preuschl and referred the case to Iowa law enforcement. Preuschl met the victim on Snapchat and communicated with the victim for approximately four months and requested nude images and videos. Preuschl also sent the victim images of his genitals. After seizing his cell phone, law enforcement discovered that Preuschl had communicated with several other minor females on Snapchat and had acquired child pornography via the Telegram application.

United States Attorney Richard D. Westphal of the Southern District of Iowa made the announcement. The Joint Forensic Analysis Cyber Team and the Nashville, Tennessee Police Department investigated the case.

This case was prosecuted by the United States Attorney’s Office for the Southern District of Iowa as part of the U.S. Department of Justice’s “Project Safe Childhood” initiative, which was started in 2006 as a nationwide effort to combine law enforcement investigations and prosecutions, community action, and public awareness in order to reduce the incidence of sexual exploitation of children. Any persons having knowledge of a child being sexually abused are encouraged to call the Iowa Sexual Abuse Hotline at 1-800-284-7821.

Source: United States Department of Justice News

NEWARK, N.J. – A New York man today admitted distribution and possession with the intent to distribute fentanyl, U.S. Attorney Philip R. Sellinger announced.

Jose Migel Cleto, 64, of Manhattan, New York, pleaded guilty before U.S. District Judge Madeline Cox Arleo in Newark federal court to an information charging him with one count of distribution and possession with the intent to distribute a mixture and substance containing a detectable amount of fentanyl.

According to documents filed in this case and statements made in court:

In April 2022, Cleto distributed, and possessed with the intent to distribute, 400 grams or more of a mixture and substance containing a detectable amount of fentanyl to a man in a commercial parking lot in Fort Lee, New Jersey.  

Cleto faces a maximum punishment of 20 years in prison and a maximum fine of up to $1 million. Sentencing is scheduled for June 21, 2023.

U.S. Attorney Sellinger credited special agents of the Department of Homeland Security, Homeland Security Investigations, under the direction of Special Agent in Charge Ricky J. Patel, with the investigation leading to today’s guilty plea.

The government is represented by Assistant U.S. Attorney Vincent D. Romano of the U.S. Attorney’s Office General Crimes Unit in Newark.