RICO, Embezzlement Lawsuit Against Customs Fraud Whistleblower Goes to Trial July 24
Counsel for a South Korean activewear producer that pled guilty to federal customs fraud last month hopes the civil settlement in the government’s case will grease the wheels of a multi-count RICO lawsuit it filed back in 2018.
Seoul-headquartered Anyclo International, which lists Forever 21 and Fila as top customers, sued former employee and now government whistleblower Yang-Sup Cha and other parties in 2018 on 12 counts including breach of contract, embezzlement, fraud and racketeering.
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The complaint filed in a New Jersey district court claimed Cha and his conspirators defrauded the workout-gear maker of “hundreds of thousands of dollars” in a botched scheme originally intended to establish Anclyo USA in New York City as a corporation that Anyclo International “wholly owned.”
Instead, according to the Asian garment manufacturer, Cha et al. misappropriated funds intended to lease office space and otherwise get the new business up and running. They also allegedly refused to remit to Anyclo International merchandise payments received from client Jacques Moret—which owns and licenses brands including Disney, Nautica and Jockey. Then they stopped communicating altogether before Anyclo International president Dong Geun Song flew in from Seoul and eventually, “under extreme pressure and undue influence,” got the defendants to pay $250,000 of what they owed, though they never produced the outstanding $297,472.08.
That case is set to go before a jury on July 24.
It’s unclear if or how Anyclo International admitting to evading U.S. customs duties in violation of the False Claims Act last month could affect the lawsuit.
U.S. district judge Esther Salas in a Newark, N.J. federal court accepted Anyclo International’s guilty plea on June 12. The company was ordered to pay $2.05 million in civil and $250,000 in criminal fees, according to U.S. Attorney for New Jersey Philip R. Sellinger, for “knowingly and intentionally” dodging customs duties from October 2012 through August 2019.
It did so by telling U.S. Customs and Border Protection that its imports were valued at less than the price it actually charged customers, according to a government statement. Anyclo employed a tactic common in the imports fraud game: creating two different invoices for the same shipment. The accurate version is supplied to buyers while the other, the Free of Board (FOB) document, priced the merchandise below its true value so Anyclo would pay a lower duty bill.
The company also forwarded the FOB invoices to its CBP broker, who would then use the artificial values to fill out necessary entry documents.
The double-invoice scheme is all too familiar to CBP.
In July 2021, New York-based apparel companies Stargate and Rivstar settled civil fraud claims for $6 million after falsely understating the true value of the clothing they imported into the United States for 11 years to avoid paying what amounted to millions in customs duties. In July 2016, China-based clothing company Motives agreed to pay roughly $13.38 million to the United States under the False Claims Act for engaging in a double-invoice scheme for four years. And last year a California company was found guilty of swerving roughly $6.4 million in customs duties while in February a Garment District importer linked to Macy’s and Kohl’s agreed to a $1.3 million settlement after it was caught undervaluing its shipments for six months.
The Anyclo International customs fraud case came to light when Cha filed a whistleblower lawsuit in 2018, which entitles him to 18 percent of the civil settlement.
Gregory Cannon of Sobel Han & Cannon, which is representing Anyclo International in the suit against Cha et al., would rather see the defendants “pay all the money back” instead of going to trial later this month.
The whistleblower windfall, he continued, would go a long way toward settling the amount the South Korean clothing company wants to collect. “That would about cover it,” Cannon said of the approximately $369,000 going to Cha.
