Apparel Importer Sentenced to 6 Months in Prison, Faces Whistleblower Suit for Double Invoicing

The owner and CEO of a New York-based apparel company will spend six months in prison for submitting false invoices to CBP as part of a scheme to underpay duties, the Justice Department said in a Dec. 22 news release. Joseph Bailey of Brooklyn, New York, was sentenced by a judge in Southern New York U.S. District Court after having pleaded guilty in January 2020 to wire fraud and entry of falsely valued goods.

The prison time comes on top of a False Claims Act whistleblower lawsuit, also filed in the Southern New York District, that makes similar allegations to the criminal case, as well as others related to a second company owned by Bailey. While the identity of Bailey’s company is redacted in documents related to the criminal case, the civil False Claims Act suit identifies Bailey as owner and CEO of two apparel importers, Stargate Apparel and Rivstar Apparel.

The U.S. joined the whistleblower suit in June 2019. The civil lawsuit is stayed pending resolution of the criminal case. The whistleblower is not identified in the government’s complaint, and is referred to as “John Doe” in unsealed documents associated with the civil suit.

The criminal case against Bailey centers around two undervaluation schemes that relied on false invoices. In one, from about 2007 to 2015, Bailey directed his employees to engage in a double invoicing scheme, wherein his unidentified company’s suppliers would provide one invoice with the full cost of the imported apparel, and a second that understated the cost for submission to CBP.

The other scheme involved fake invoices for sample goods. Starting in about 2010, the exporter would break up the cost of the apparel into a “commercial invoice” that covered most of the goods purchased by Bailey and his company, but understated the actual price. A second invoice covered a much smaller portion of the shipment but at a much higher cost per unit that made up for the lower prices In the commercial invoice. Bailey’s employees would only submit the commercial invoice to CBP, again undervaluing the goods and causing underpayment of duties. The two schemes resulted in the loss of over $1 million in revenue by the U.S. government, Justice said.

The government’s complaint in the civil suit alleges that Stargate Apparel participated in both of these schemes, obtaining false invoices from its suppliers Taizhou Jiali and Tax-Prime International. It also says the second company owned by Bailey, Rivstar, engaged in a similar double invoicing scheme wherein it fraudulently broke out some of the overall cost of a shipment into a separate invoice for “testing costs,” which should still have been declared to CBP but were not. Exporters that engaged in the scheme with Rivstar were Pacific Potential and Dongguan Bestsign, both in China, as well as the Brooklyn-based JP Sportswear.

As part of his criminal sentence, Bailey was also ordered to forfeit $1.66 million in proceeds from the undervaluation schemes. Bailey was also sentenced to three years of supervised release following his prison term.

Email ITTNews@warren-news.com for a copy of the civil complaint.