Chemical Company and Its Owner Sentenced for Rebate Scheme, False Statements to U.S. Customs

This is not your typical trade compliance case.  Obviously, trade compliance issues are usually easy to address on the front end.  But this worst case scenario event is instructive. In reviewing this case, the sad part is that most of what was accomplished illegally could have been done legally with proper planning.   

Department of Justice

U.S. Attorney’s Office
Southern District of Ohio

FOR IMMEDIATE RELEASE
Thursday, March 2, 2017

COLUMBUS, Ohio – Alden Leeds, Inc., a New Jersey swimming pool and spa chemicals company, and its president, Mark Epstein, were sentenced in U.S. District Court for convictions related to customs and import violations. The case was unsealed today. Epstein was sentenced to serve eight months in prison and four months of home confinement for his role in an elaborate rebate scheme which involved false statements to U.S. Customs, followed by inflated payments for imported chemicals and then rebates paid back to Alden Leeds, Inc. The company was also sentenced, receiving three years of probation and ordered to pay restitution to Customs in the amount of $2.25 million.

Benjamin C. Glassman, United States Attorney for the Southern District of Ohio, the Environmental and Natural Resources Division of the Department of Justice, Steve Francis, Acting Special Agent in Charge, U.S. Department of Homeland Security Investigations (HSI), Troy N. Stemen, Acting Special Agent in Charge, Internal Revenue Service (IRS) Criminal Investigation, Angela L. Byers, Special Agent in Charge, Federal Bureau of Investigation (FBI) and John K. Gauthier, Acting Special Agent in Charge, U.S. Environmental Protection Agency (EPA) criminal enforcement program announced the sentences handed down on February 1 by Senior U.S. District Judge James L. Graham.

Epstein and Alden Leeds, Inc. had an agreement with a middleman to establish two prices for the imported chlorine – an “actual price” that the company was paying and a higher “invoice price” that would be used for documentation at U.S. Customs to avoid suspicions of dumping.

 

Dumping occurs when foreign merchandise is sold in the United States for less than fair market value, which prevents fair competition between United States companies and foreign industry.

According to court documents, from 1998 through at least June 2012, various businesses in Columbus, Ohio served as the American representative for domestic companies seeking to import swimming pool sanitizing agents from China.

As the middleman, Caiwei Sheng operated the Columbus businesses and engaged in a scheme that involved using a shell corporation in Vietnam to make it appear that the chlorine was manufactured there instead of China. This was done to avoid a 286 percent anti-dumping duty or tax that was ordered by the Department of Commerce beginning in 2005. No such anti-dumping duty existed for Vietnam as it did China.

As part of the rebate scheme, the price of the chlorine was deliberately overstated at Customs. the time the chlorine was imported. Sheng would receive payment for the inflated, invoice price and he would then wire the lesser actual price for the chlorine to the originating companies in Vietnam and China before wiring a rebate to Alden Leeds, Inc.

At the request of Alden Leeds, Inc., the rebate was labeled a “consulting fee” and sent to one of the company’s sister corporations in another state.

“The Alden Leeds company and its president, Mark Epstein, conspired with others to make false statements to Customs about the price of the chlorine they were buying from China and Vietnam, in order to avoid potentially higher duties aimed at ensuring fair competition between United States companies and foreign industry,” U.S. Attorney Glassman said. “Now, not only do they have to pay Customs $2.5 million and fines and forfeiture of $500,000, but Epstein must serve time in federal prison and Alden Leeds will spend three years on probation. Those who import goods from overseas must tell the truth to Customs and play fair with American companies.”

Epstein pleaded guilty on February 1 to one count of conspiracy to make false statements and violate United States’ customs and importation laws and one count of entry of goods by means of false statement. As part of the plea agreements, Epstein is paying $500,000 in restitution and forfeiture and Alden Leeds, Inc. is paying $2.25 million in restitution. Alden Leeds, Inc. also agreed to donate 2,765 gallons of hospital grade disinfectant to the Ministry of Public Health and Population of Haiti.

Sheng pleaded guilty to violating Customs laws as well as USEPA laws requiring truthful statements concerning the importation of chemicals into the United States, and on August 21, 2015, was sentenced to a prison term of 12 months and one day in prison and ordered to pay restitution of $100,000.

U.S. Attorney Glassman commended the investigation of this case by HSI, IRS Criminal Investigation, FBI and U.S.EPA, as well as Assistant United States Attorneys J. Michael Marous and Jessica W. Knight and Department of Justice Senior Trial Attorney Christopher J. Costantini who are representing the United States in this case.

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