CALIF. EYES POSSIBLE TAX FRAUD BY DENIM APPAREL CONTRACTORS
Byline: Kristi Ellis
LOS ANGELES — A probe into denim apparel contractors here suspected of employment tax fraud was turned over to the state Employment Development Department for further investigation.
According to Jose Millan, state acting labor commissioner, the case involves registered and unregistered apparel businesses, all possibly operating in the same facility at 1639 East 27th St. in the downtown area and exchanging employees to avoid paying payroll taxes.
The Employment Development Department will conduct an audit and work in conjunction with the Department of Industrial Relations — Millan’s agency — to determine whether or not the unregistered businesses were active or inactive, said Millan. He said Wednesday he expected that certain aspects of the case could be settled in a few weeks.
In late November, state labor officials executed search warrants against two registered contractors and one unregistered one here after an initial inspection on Oct. 18 turned up cash pay, minimum wage and overtime violations, Millan said. In November, labor officials turned up paperwork and labels indicating two unregistered manufacturers and possibly a third were doing business in the same factory.
The two registered contractors — Western Jeans and C&B Fashion — did the majority of the production, Millan claimed, for another contractor, Azteca Productions/Aztec Finishing, which does production for CK Calvin Klein Jeanswear.
When queried about the situation after the November search, Daniel Gladstone, president of Calvin Klein Jeanswear, said he had not heard of Azteca but knew of Western Jeans, although he had no further information. He has not returned several follow-up phone calls. Phone queries to Azteca were not returned.
In addition to jeans bearing the CK label, the inspectors found other denim products with the labels Safety Clothing, Girl’s Skateboard Co. and American Clothing Grass Raggs. They also found invoices such as one for Shi Shi jeans that was marked for Nordstrom. Other invoices showed business with Abercrombie & Fitch, Pepe Jeans USA and BCBG.
“To the extent that the two licensed companies were cooperating with unregistered businesses [in the same facility], we will take steps to revoke all of the registrations,” Millan claimed.
Jesse Atilano, an independent consultant representing Western Jeans and C&B, denied all the allegations of pay violations and denied unregistered businesses were operating at the location.
A Nordstrom spokeswomansaid the firm has no orders pending with Shi Shi and hadn’t done business with Shi Shi for two years. She said Nordstrom “…will not hesitate to cancel outstanding orders with vendors found to be in noncompliance.” Stacey Boyle, vice president and general counsel of Pepe Jeans, said the firm has not done business with Western or C&B for at least the past six months. She had no prior information.
Max Azria, owner of BCBG, acknowledged that he had done business with Western Jeans for two months but added that he was unaware of labor violations. A spokesman for The Limited, parent of Abercrombie & Fitch, did not return a request for comment.
State investigators initially issued fines to Western Jeans for $10,000 for paying workers in cash, in addition to overtime and minimum wage violations. Millan said that the fines may increase significantly once the investigation is completed.
Millan acknowledged that the case is “murky,” but he added, “It gives me concern. If you have legitimate businesses that set up underground operations that then operate under an umbrella of legitimacy, it makes our enforcement that much more difficult.”