After an investigation led by U.S. Immigration and Customs Enforcement, Homeland Security Investigations New York, and U.S. Customs and Border Protection, Notations Inc., a garment wholesaler based in Warminster, Pennsylvania, with a showroom in New York, has settled civil fraud claims brought under the False Claims Act.
As alleged in the complaint, Notations repeatedly ignored warning signs that its business partner, which imported garments from China, was engaged in a scheme to underpay customs duties owed on the imported garments it sold to Notations.
As part of the settlement, Notations admits and accepts responsibility for failing to act in response to indications of fraudulent conduct, agrees to pay $1 million in damages and agrees to implement measures designed to prevent future fraud by Notations or its business partners.
“Evading the payment of customs duties to increase profit is not a victimless crime,” said Angel M. Melendez, special agent in charge of HSI New York. “It has a negative effect on the U.S. economy and law-abiding importers. HSI special agents will continue to work diligently with the officers of CBP to locate these offenders and put an end to their fraudulent business practices.”
As alleged in the complaint filed last year, Yingshun Garments Inc., an importer of women’s apparel manufactured in China, and Import Global Designs Inc. and Olgrem, LLC, successor entities to Yingshun, and Marie Rogers, an owner and/or officer of each entity, engaged in a double-invoice scheme whereby Yingshun, and later Import Global and Olgrem, presented false and fraudulent invoices to CBP showing prices for imported garments that were discounted by 75 percent or more for the purpose of avoiding customs duties on the garments.
Notations, which was Yingshun’s biggest customer, aided the fraudulent scheme by ignoring warning signs that Yingshun’s irregular business practices were highly suggestive of fraud.
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“As global supply chains grow more complex, it is important for American businesses to know their suppliers and be confident of their integrity,” said Leon Hayward, CBP acting director. “The outcome of this case is a testament to the dedication of our partners in the United States Attorney’s Office, Homeland Security Investigations, and the men and women of CBP in enforcing our nation’s trade laws and holding accountable those perpetrating this type of fraud.”
[Read more about industry fraud: Op-Ed: The 6 Keys to Fraud Mitigation in Global Manufacturing]
The manufacturing sector is highly vulnerable to fraud. According to the recent Kroll Global Fraud and Risk Report survey, 91 percent of respondents had experienced fraud in the last 12 months.
Also as part of the settlement, Notations has agreed to implement a written compliance policy that will include measures to educate its employees on identifying red flags for fraud in import transactions, to monitor the conduct of its business partners who act as importers of overseas goods and to report all potentially fraudulent conduct to CBP.
Claims against Yingshun, Import Global, Olgrem and Marie Rogers remain pending. The government’s case is being prosecuted by the U.S. Attorney for the Southern District of New York Office’s Civil Frauds Unit.