Friday, August 17, 2012

Another Way Cigars Are Bad for You

If for some reason or other you were thinking that perhaps the next time you were in Dunhill’s in Paris or London you might just slip a few Cubans into your briefcase and bring them back to the U.S., think again, particularly if you’re a lawyer and want to stay that way. The Illinois Attorney Registration and Disciplinary Committee just recommended the disbarment of an Illinois attorney because, among other things, he was convicted of violating the Trading with the Enemy Act in connection with boxes of Cuban cigars that he brought with him into the United States.
Now, admittedly, Richard S. Connors, the attorney in question, did just a teensy bit more than stuff a few Cohibas in his blazer jacket and try to slip them past Customs. According to the Seventh Circuit Court of Appeals, which upheld his criminal conviction, Connors was caught with 46 boxes of cigars in four suitcases in his automobile’s trunk while crossing the Canadian border and apparently more were carried back when returning from approximately 30 other trips to Cuba. Connors was also convicted of filing a false passport when, after Customs yanked his passport in connection with the cigar smuggling, he applied for a new one, stating only that his previous passport was missing. The Illinois Committee also noted that Connors had been previously suspended for misappropriation of client funds and had still not reimbursed those funds.

But the story gets better (or worse, I suppose, if you are Mr. Connors). The feds were tipped off to his Cuban cigar shenanigans by his wife during a messy divorce proceeding. In fact, according to Connors in his unsuccessful appeal, she “reconciled” with him only to get into his house to get information to turn over to federal investigators, something Connors claimed, without success, violated his Fourth Amendment rights. Oh, and about that house, the feds seized it because he kept the cigars there and used the proceeds from the sales of his cigars to pay his mortgage.

One other interesting tidbit: the Communist regime in Cuba was not toppled upon the end of Mr. Connor’s cigar business. Fidel and Raúl are doing fine; Mr. Connors, not so much.

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[Authored by Attorney Clif Burns, publisher of Export Law Blog. See our BlogRoll on the right column.]

Monday, August 6, 2012

Customs Broker Arrested for $100 Million Fraud

Peter Quinter, Esq.
In a Criminal Complaint unsealed on July 25, 2012, the U.S. Attorney's Office for the Southern District of California in San Diego announced that it had charged 8 people and 3 companies with conspiracy and customs fraud. Among those arrested was Gerardo Chavez, the President of the San Diego Customs Brokers Association, and owner of a customs brokerage company, Tecate Logistics, LLC.

According to the press release by the U.S. Department of Justice, the customs broker and his employees conspired with various individuals and companies to enter merchandise into the United States "in bond" to avoid paying customs duties, then forged official U.S. Customs and Border Protection (CBP) stamps to attempt to establish that the shipments were transported into Mexico. In reality, the shipments never left the United States, but were distributed to various customers throughout California.  The imported merchandise was worth over $100 million, and the unpaid duties on the imported cigarettes, apparel, and food products was about $10 million.


Criminal Complaint Case No. 3:12-mj-02756-KSC alleged violations of 18 U.S.C. 371 (conspiracy to defraud the United States), which provides for a maximum penalty of 5 years in prison and a $250,000 fine; 18 U.S.C. 542 (entry of goods by means of false statements to CBP) which provides for a maximum penalty of 2 years in prison and a $250,000 fine; and 18 U.S.C. 1519 (obstruction of justice) which provides for a maximum penalty of 20 years in prison and a $250,000 fine per count.  The case was investigated by CBP, U.S. Immigration and Customs Enforcement (ICE), and the Office of Criminal Investigations of the U.S. Food and Drug Administration (FDA).

Procedurally, the Criminal Complaint was filed, under seal, on July 23, 2012.  Arrest warrants were issued that day.  Mr. Chavez and others were arrested on July 26, 2012, and have made their initial appearance before Magistrate Judge Crawford.  Some of the individuals charged with crimes remain at large as fugitives.

This shocking case is of great interest to those of us in the logistics business, any owner of a customs broker business, any employee of a customs broker, and anyone who handles in-bond merchandise.  I will continue to report regularly on developments in this case.  I also remind readers that a Criminal Complaint is merely an allegation.

Peter Quinter, Chair
Customs and International Trade Law Group
GrayRobinson law firm.
peter.quinter@gray-robinson.com
(954) 270-1864

Thursday, August 2, 2012

Trade-Based Money Laundering - Affecting HSBC, ING, and now YOUR business too.....


The British bank HSBC is making headlines, thanks in part to a U.S. Senate hearing held this past month, during which executives from the bank were grilled for failing to stop Mexican drug cartels, subsidiaries linked to al Qaeda, and nations on the U.S. sanctions lists like Syria and Iran, from making illegal purchases and moving money into the United States. HSBC executives admitted that a large portion of some $7 billion transferred by their Mexican subsidiaries into the bank's U.S. operation likely belonged to drug cartels.

Likewise, a Settlement Agreement was released in June 2012 by the United States Department of the Treasury regarding the voluntary self-disclosure to the Office of Foreign Assets Control (OFAC) by ING Bank. ING admitted to violating numerous sanctions programs imposed by the United States against Cuba, Burma, the Sudan, Libya and Iran. These violations were deemed by the Americans as “egregious” and the total settlement by ING Bank to resolve this matter with the U.S. government is $619,000,000.00, an amount equivalent to 8.5 percent of ING Bank’s net profits in fiscal 2011.

As succinctly stated by Malcolm Beith from The Daily Beast, "the reality is that international institutions—and the U.S. financial sector—have long been vulnerable to money launderers, who are often several steps ahead of the authorities in their bid to exploit loopholes and weak links in institutions hellbent on capitalizing and expanding." While catching banks like HSBC and ING involved in this kind of money laundering may take the Federal government years of investigation, advances in technology as well as Homeland Security's recent partnering with foreign nations to exchange trade data, have allowed for an explosion of seizures of by the Drug Enforcement Administration (DEA) and the U.S. Immigration and Customs Enforcement (ICE) or Homeland Security Investigations (HSI) for alleged trade-based money laundering (TBML) for companies involved in importing and exporting goods to and from the United States.

TBML is a money laundering method through which transnational criminal organizations (TCOs) earn, move, and store illicit proceeds by disguising them as legitimate trade. TCOs often exploit global trade networks to move value around the world, using the complex and sometimes confusing documentation that is frequently associated with legitimate trade transactions. A notable example - Colombian drug cartels use TBML extensively to repatriate drug proceeds in a scheme commonly referred to as the Black Market Peso Exchange.

Just as major banks like HSBC and ING have learned the hard way of the consequences of not keeping a watchful eye for signs that money is being laundered, it is important for U.S. importers and exporters to be aware of the realities and consequences of not being fully aware of who they are doing business with and where money is coming from. Red flag indicators of trade-based money laundering include: 
  • Payments to vendor made in cash by unrelated third parties
  • Payments to vendor made via wire transfers from unrelated third parties
  • Payments to vendor made via checks, bank drafts or postal money orders from unrelated third parties
  • False reporting: such as commodity misclassification, commodity over-valuation or under-valuation
  • Carousel transactions: the repeated importation and exportation of the same high-value commodity
  • Commodities being traded do not match the business involved
  • Unusual shipping routes or transshipment points
  • Packaging inconsistent with commodity or shipping method
  • Double-invoicing
It is critical for all importers and exporters to understand these factors and implement systems to recognize when any one of these "red flags" comes into play. The explosion of bank account seizures this year as well as the "taking down" of major financial institutions is ample proof that the federal government is watching the money coming in and out and it is critical to take this new reality seriously.

In the event your bank account is seized, it is important to know that bank account holders absolutely have the right to challenge the taking of their money by the DEA or ICE.  If your money has been seized, you have a right to know the legal basis for the seizure, and should, through your attorney, contact the DEA or ICE Agent, or the Assistant U.S. Attorney.  In civil forfeiture cases, there is an administrative process to follow once a Notice of Seizure is issued to the bank account holder by the Fines, Penalties, and Forfeitures Office of U.S. Customs and Border Protection (CBP) or a Notice of Seizure by the DEA.  If the Notice of Seizure is from CBP, file a Petition, and if the Notice of Seizure is issued by the DEA, file a Sworn Claim with the Asset Forfeiture Section located in Quantico, Virginia.  The procedures of both agencies are very specific, and must be followed carefully, otherwise, your right to challenge the seizure will be lost forever.

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Comments or questions, please post below or feel free to contact me directly.

For any questions or comments regarding these topics, please contact:

Peter Quinter, Shareholder and Chair
Customs and International Trade Law Group
GrayRobinson, P.A.
1221 Brickell Avenue
Suite 1600
Miami, Florida 33131
Office: (305) 416-6960
Mobile: (954) 270-1864
Peter.Quinter@Gray-Robinson.com