Federal Suit Filed Against Garment Importer, Wholesaler Over Duty Evasion Allegations

Federal prosecutors filed a civil complaint against a garment importer, its executive and a clothing wholesaler for an alleged customs duty evasion scheme, the U.S. Attorney's Office for the Southern District of New York said in a Sept. 23 news release (here). The importer, Yingshun Garments, "avoided paying millions of dollars in customs duties" by undervaluing garments on false invoices, the USAO said in the complaint (here). The complaint was the result of an investigation by CBP and ICE's Homeland Security Investigations, ICE said (here).

Yingshun and two successor companies, Import Global and Olgrem, allegedly created fraudulent commercial invoices for merchandise purchased by an women's apparel wholesaler, named Notations, the USAO said. The invoices, which were provided to CBP, undervalued the goods by 75 percent or more, it said. As a result, Yingshun avoided significant customs duties and Notations, which was aware of the scheme, benefited through lower-priced garments from Yingshun, the prosecutors said. The alleged scheme occurred between 2009 and 2014.

Almost all the garments involved were made in China and sold through Yingshun on a Landed Duty Paid (LDP) or Delivered Duty Paid (DDP) basis, "meaning that the seller is responsible for all costs associated with importing the garments and the buyer pays one all-in price for the merchandise that incorporates those costs," the USAO said. "Because most of the garments imported by Yingshun were subject to a 32% duty rate, a large majority of the import costs were attributable to customs duties owed to CBP." Under the scheme, the fraudulent invoice shown to CBP, through Yingshun's customs broker, was "virtually identical to the commercial invoice provided to Yingshun’s customer, except that the invoice shown to CBP listed a price for the garments that was grossly undervalued." The company "falsely represented to the customs brokers that the invoices were true and accurate."

Prosecutors also name Yingshun's former managing director Marie Rogers in the complaint. Hired in 2009, Rogers allegedly oversaw much of the undervaluation scheme. "For example," according to the complaint, "Rogers routinely provided commercial invoices to Notations, but when brokers asked for the same invoices to present to CBP, Rogers refused to provide them, instead directing the brokers" to Yingshun's Chinese parent company, Wuxi Yifeng Garments. Additionally, at one point in 2011, "CBP informed Rogers that the value of certain garments imported by Yingshun had been grossly under-reported on the required documentation," but she didn't stop the practice for future transactions, the USAO said. Rogers eventually changed Yingshun's name to Import Global and Olgrem after the USAO issued an investigative subpoena, the prosecutors said.

Notations was an active participant in the scheme, the USAO said in its filing. "The scope of the conspiracy between Notations and Yingshun did not end with the double-invoice scheme," the government said. "Specifically, Notations falsely represented to one of its retail customers, which was conducting an audit of Yingshun, that Notations examined all documentation that Yingshun submitted to CBP to ensure its accuracy; in fact, the opposite was true. Notations also directed Wuxi Yifeng to use the manufacturer ID number for another factory on the care labels attached to its garments, in order to deceive one of Notations’ retail customers that was requiring Wuxi Yifeng to undergo a factory inspection. Notations explained that even if Wuxi Yifeng failed the factory inspection, using another factory’s ID number would allow Wuxi Yifeng to continue to manufacture the garments that Notations would later sell to the retail client."

The USAO filed the lawsuit under the qui tam provisions of the False Claims Act, which allows for whistleblowers to receive a portion of any recovered funds for tips provided relating to schemes to defraud the government. The whistleblower in this case was Xing Wei, a resident of Australia and the mother of a former sales representative at Yingshun, the complaint said. The named parties in the suit didn't comment.