Less than half the transaction value of the imports was declared to Customs.
A California apparel importer and its top executives have reached a proposed settlement with the U.S. government regarding assets they will forfeit following their convictions on multiple customs fraud and import-duty evasion charges, court filings show.
In October 2024, following a six-week trial, a federal jury found C’est Toi Jeans, Inc. of Los Angeles and two of its top executives guilty of a scheme to defraud U.S. Customs and Border Protection (CBP) by undervaluing imported clothing to avoid paying millions of dollars in customs duties.
Undervaluing Apparel Imports
According to evidence presented at trial, the defendants deliberately evaded customs duties and tariffs by purchasing garments from overseas manufacturers, primarily in China, and then submitting false customs entry paperwork significantly understating the imports’ value. This fraudulently reduced the amounts paid in import duties.
Federal prosecutors presented evidence that the defendants sent hundreds of wire transfers totaling more than $100 million to pay overseas suppliers for garments but deliberately undervalued those goods on customs entry documentation, including Form 7501 customs entry summaries and commercial invoices.
The jury found all three defendants guilty of multiple counts related to the scheme, including entering falsely classified goods, entering by means of false statements, and passing false and fraudulent papers through customs.
Unpaid Tariffs of Over $8.4 Million Dollars
The scale of the fraud was remarkable. According to court documents, the imports were undervalued by more than $51 million, resulting in approximately $8.4 million in unpaid tariffs and duties owed to CBP.
The case stemmed from Operation Fashion Police, in which, in 2014, law enforcement authorities executed dozens of search warrants to investigate money laundering and other crimes at Los Angeles Fashion District businesses. Prosecutors said the undervaluation scheme continued even after authorities executed search warrants at the company’s facilities.
The government had been fighting to recoup the unpaid import duties against the defendants through asset forfeiture. Prosecutors recently informed the court that they had reached a proposed settlement of their asset forfeiture claims. Nevertheless, the convicted C’est Toi Jeans executives also face potential federal prison sentences.
Customs Undervaluation, Whistleblowers, and the False Claims Act
While the U.S. prosecuted the C’est Toi Jeans case criminally, customs fraud is also actionable under the False Claims Act (FCA). The FCA allows private individuals with knowledge of fraud against the government to file lawsuits on the government’s behalf, thereby becoming whistleblowers—also known as qui tam “relators.”
Whistleblowers who bring successful FCA cases are entitled to share in the government’s recovery, typically receiving between 15% and 30% of what the defendants pay. Those recoveries can be substantial because damages are “trebled” (tripled) under the FCA, and the government is also entitled to recover penalties against the violator. For example, if recouped, the $8.4 million in unpaid duties in the C’est Toi Jeans case would potentially have translated to over $25 million in damages under the FCA, with a reward for the whistleblower of up to $7.5 million.
Customs fraud costs the U.S. government billions of dollars annually in lost revenue. It also results in an unfair playing field, making it harder for honest businesses to compete. Customs fraud whistleblower cases have resulted in significant rewards for the whistleblower. The FCA also has strong anti-retaliation provisions protecting whistleblowers.
What Makes a Good Customs Fraud Whistleblower?
As a whistleblower law firm focusing on trade-related cases, we have found that the most effective customs fraud whistleblowers:
- Have firsthand and inside knowledge of the scheme from working in logistics, finance, accounting, compliance, or sales of the importer.
- Can identify the undervalued, misclassified, or otherwise misdeclared shipments.
- Have access to documentation showing the fraud, including emails, internal communications, or other documents showing intent to defraud.
Nevertheless, competitors, consultants, industry analysts, or others not working for the importer cheating on its duties can also file customs fraud whistleblower lawsuits, relying on their specialized knowledge, channel checks, supplier bids, and open-source data. Customs fraud whistleblower attorney Mark A. Strauss is highly experienced in handling those investigations and assembling compelling cases.
If you have information about customs fraud and want to discuss your potential rights as a whistleblower under the False Claims Act, don’t hesitate to call customs fraud whistleblower attorney Mark A. Strauss. The attorney-client privilege protects all communications with Mr. Strauss, and you pay no legal fees unless we recover a whistleblower reward.
