The CEO of a children’s apparel company headquartered in Manhattan faces criminal and civil charges over a million-dollar customs fraud.
Joseph Bailey has been charged with participating in a years-long scheme to defraud US Customs and Border Protection (CBP) by submitting invoices that falsely understated the true value of the goods imported into the United States by his companies Stargate Apparel and Rivstar Apparel.
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The scheme resulted in the loss of over $1m in duty revenue to the United States it is alleged.
According to the allegations in the government’s indictment and civil complaint, between 2007 and 2015, Stargate purchased much of its merchandise from a manufacturer located in China. Bailey and others at Stargate engaged in a double-invoicing scheme by which Stargate would receive two sets of invoices from the manufacturer for the same shipment of goods.
One invoice, referred to as the “pay by” invoice, was significantly higher and reflected the actual price paid by Stargate for the goods. The second invoice reflected a significantly lower price for the goods and was presented to CBP. This allowed Stargate to pay a fraudulently lower amount of customs duties.
In around 2010, Bailey and other employees of Stargate began a new variation of the customs fraud scheme, involving invoices for “sample” goods, by which the manufacturer would send two separate sets of invoices for a given shipment that together reflected the true price Stargate actually paid for a particular shipment of clothing.
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By GlobalDataThe first invoice, typically entitled the “commercial invoice,” described the goods purchased and was submitted to CBP. The second invoice purportedly reflected amounts paid by Stargate for “sample” goods and was not submitted to CBP. Sample goods are not subject to customs duties.
The “samples” invoice was not, in fact, for samples actually purchased by Stargate. Rather, it was a means to make an additional payment to the manufacturer for actual goods purchased by Stargate without disclosing that payment to CBP.
Typically, the “samples” invoices reflected a unit price for sample goods that was significantly greater than the unit price for the non-sample goods reflected on the invoice submitted to CBP (for example, $70-$90 per unit on the “samples” invoice versus a $4 per unit price on the “commercial invoice”).
In addition, the “samples” invoice reflected the purchase of unusually large quantities of sample goods. For example, the “samples” invoice reflected quantities as large as 24 or 48 pieces of a single colour in a single style.
In addition, the government’s civil fraud complaint also alleges that Bailey, Stargate, and Rivstar engaged in similar schemes involving additional manufacturers.
These involved a second invoice, which purported to be for “samples,” “accessories,” “commissions,” or “testing costs,” but in reality reflected an additional payment made by the defendants for the same goods described in first invoice, but that was not submitted to CBP.
Through these schemes the defendants undervalued the goods that entered into the United States by tens of millions of dollars.
