Federal prosecutors have filed charges against a Los Angeles Fashion District clothing importer and the company’s owner for plotting to undervalue imported garments and avoid paying millions of dollars in duties to the United States.
The cases also allege a tax fraud scheme in which the company’s owner failed to report on tax returns millions of dollars derived from cash transactions.
In conjunction with the criminal charges, prosecutors also filed plea agreements in which Ambiance Apparel and company owner Sang Bum “Ed” Noh agreed to plead guilty to felony offences and pay a total of nearly $118m – which includes almost $36m in cash seized from Ambiance and Noh in 2014.
Noh agreed to plead guilty to one count of conspiracy and one count of subscribing to a false tax return, charges that carry a statutory maximum penalty of eight years in federal prison.
Ambiance Apparel – the operating name for two corporations, Ambiance USA Inc and Apparel Line USA Inc – agreed to plead guilty to eight counts, including conspiracy, money laundering, and customs offences.
Court documents outline separate schemes involving Ambiance and Noh, which came to an end in September 2014 when law enforcement authorities executed dozens of search warrants as part of an investigation into money laundering and other crimes at Fashion District businesses.
In the customs fraud scheme, Ambiance imported clothing from Asian countries and submitted fraudulent invoices to US Customs and Border Protection (CBP) that undervalued the shipments and allowed Ambiance to avoid paying the full amount of tariffs owed on the imports, according to court documents.
At Noh’s direction, the Asian manufacturers prepared two invoices for the clothing ordered by Ambiance – one that usually reflected 60-70% of the actual price and was paid by letter of credit, and one that reflected the balance of the actual price and was paid by wire transfer.
The first invoice, which fraudulently reduced the value of the shipment, was submitted to CBP and was used to calculate the tariffs due on the imports. As a result of this scheme, over the course of just over 4½ years, Ambiance undervalued imports by about $82.6m and failed to pay more than $17.1m in tariffs.
In their plea agreement, Ambiance and Noh have agreed to pay US Customs and Border Protection a total of $18.42m, which includes the unpaid tariffs and interest accrued through 2014.
In the second scheme, Ambiance admitted it failed to file reports with the Secretary of the Treasury that documented cash transactions of more than $10,000. Ambiance employees received approximately 364 payments of more than $10,000 over a two-year period – which totalled more than $11.1m – and the company failed to file a single Form 8300 to alert federal authorities to the cash transactions.
In conjunction with these cash transactions, Ambiance used two sets of books to record sales, one of which documented only cash transactions and was not reported to Ambiance’s outside accountants.
Noh also directed some of the second set of transactions to be underreported to the accountants. The lower sales figures were reported on 2011 and 2012 tax returns filed by Noh.
Noh admitted that he failed to report income for those two years and now owes the Internal Revenue Service a total more than $16.8m, which includes unpaid taxes, penalties and interest.