The operator of a Los Angeles-area foreign trade zone and eight others have been indicted on federal smuggling, money laundering and wire fraud violations for illegally importing nearly 200 shipments of Chinese-made apparel into the U.S. to avoid millions of dollars in import duties.

This story first appeared in the July 28, 2011 issue of WWD. Subscribe Today.

Authorities say the elaborate scheme, detailed in two separate indictments, involved more than $12 million worth of imported clothing, mostly denim. U.S. Immigration & Customs Enforcement’s Homeland Security Investigations agents, who headed the two-year probe, estimate the defendants’ actions cost the federal government $2 million to $4 million in lost tax revenues.

“Commercial smuggling schemes like this not only rob the government of vital revenues, they also penalize businesses that follow the rules and undermine our economy,” said Claude Arnold, special agent in charge of ICE HSI in Los Angeles.

The defendants allegedly avoided paying some or all of the duty on clothing shipments dating back to August 2009 by filing fraudulent paperwork with Customs & Border Protection that grossly undervalued the purchase price of the imported apparel, misclassified merchandise, and by falsely claiming the goods were going to be reexported and not subject to tariffs.

According to the indictments, one of the key figures in the scheme was Wei “Julia” Lai, 39, owner of a customs bonded and licensed foreign trade zone based in the City of Industry, Calif., known as the Industry Free Trade Zone. It is alleged that Lai charged importers, several of whom are named in the indictment, from $5,000 to $10,000 a shipment to divert merchandise through the Industry Free Trade Zone. Lai’s fee depended on how much she saved the importers in duties. The indictment claims Lai used a series of “straw” bank accounts to launder proceeds from the illegal activities.

The remaining eight defendants are described as a loose-knit group of importers who attempted to use shell import companies to shield themselves from law enforcement detection during the scheme. All the defendants were originally charged by criminal complaint and seven of them, including Lai, have been arraigned and are free on bond pending further court proceedings. Two defendants, Jianying “Jonathan” Huang and Yuling Wang, remain at large and are being sought.

The indictment also charges the defendants with conspiracy, entry of goods by means of false statements, re-landing of goods, making false statements and aiding and abetting. The penalties for those violations range from a maximum term of two years in prison for the counts involving the entry of goods by false statements to up to 20 years in prison for each of the smuggling allegations.

ICE HSI officials emphasize the investigation into the commercial smuggling scheme is ongoing.

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