CEO Of Clothing Company Sentenced To Prison For Million-Dollar Customs Fraud

Audrey Strauss, the Acting United States Attorney for the Southern District of New York, announced that JOSEPH BAILEY, the CEO of a children’s apparel company (“Company-1”), was sentenced to six months in prison for participating in a years-long scheme to defraud U.S. Customs and Border Protection (“CBP”) by submitting invoices to CBP that falsely understated the true value of the goods Company-1 imported into the United States – fraudulently avoiding over $1.5 million in customs duties owed to CBP.  BAILEY pled guilty on January 15, 2020, before United States District Judge William H. Pauley III, who also imposed today’s sentence.

Acting U.S. Attorney Audrey Strauss said:  “Joseph Bailey defrauded the United States by misrepresenting the value of imported goods to avoid payment of customs duties.  Now he has been sentenced to prison for his crime.”

According to the Indictment and other court documents filed in Manhattan federal court:

From in or about 2007 to in or about 2015, BAILEY and other employees of Company-1 engaged in a scheme to fraudulently understate the value of goods imported into the United States.  During the charged time period, Company-1 purchased much of its merchandise from a manufacturer located in China (“Manufacturer-1”).  Starting shortly after Company-1 began doing business with Manufacturer-1 in 2007, through approximately 2010, BAILEY and others at Company-1 engaged in a double-invoicing scheme by which Company-1 would receive two sets of invoices from Manufacturer-1 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 Company-1 for the goods.  The second invoice reflected a significantly lower price for the goods and was presented to CBP.  This allowed Company-1 to pay a fraudulently lower amount of customs duties.

In approximately 2010, BAILEY and other employees of Company-1 began a new variation of the customs fraud scheme, involving invoices for “sample” goods, by which Manufacturer-1 would send two separate sets of invoices for a given shipment that together reflected the true price Company-1 actually paid to Manufacturer-1 for a particular shipment of clothing.  The first invoice, typically entitled the “commercial invoice,” described the goods purchased, and was submitted to CBP.  The second invoice purportedly reflected amounts paid by Company-1 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 Company-1. Rather, it was a means to make an additional payment to Manufacturer-1 for actual goods purchased by Company-1 without disclosing it 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 amounts of sample goods, for example the “samples” invoice reflected quantities as large as 24 or 48 pieces of a single color in a single style.

This multi-year fraud scheme resulted in the loss of over $1 million in duty revenue to the United States.

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In addition to his prison sentence, BAILEY, 58, of Brooklyn, New York, was sentenced to three years of supervised release, ordered to pay forfeiture in the amount of $1,661,617.   

Ms. Strauss thanked CBP and Homeland Security Investigations for their efforts and ongoing support and assistance with the case.

This case is being handled by the Office’s Complex Frauds and Cybercrime Unit, and Assistant U.S. Attorneys Dina McLeod and Dominika Tarczynska are in charge of the prosecution.