California Apparel News

A Los Angeles businessman found guilty of smuggling Chinese-made clothing into the United States is scheduled to be sentenced on Sept. 9 in federal court.

Sunil Jiwat Mirwani was convicted of defrauding the U.S. government of millions of dollars in customs duties owed on more than $30 million in Chinese-made blue jeans, skirts, shorts and other clothing. He was tried in U.S. District Court in San Diego, where a verdict was handed down June 7 by a jury that deliberated for less than one day.

Also named in the case was Gerardo Chavez, president of the San Diego Customs Brokers Association, as well as his companies, Tecate Logistics and International Trade Consultants. Chavez opted to avoid trial by pleading guilty. Chavez was sentenced on July 1 to 37 months in federal prison. He was ordered to forfeit his property in Tecate, Calif., to help pay owed duties and to appear at a future restitution hearing. In addition, he lost his customs broker’s license, which means his career as a customs broker is over.

The six other defendants in the case either pleaded guilty or are fugitives from the law, said Assistant U.S. Attorney Timothy C. Perry, a spokesman for the U.S. Attorney’s office in San Diego.

Mirwani, and his company, M Trading Inc., claimed that apparel being imported from China through the Port of Long Beach was destined for Mexico. Scores of apparel shipments were cleared through the port and stored in an “in-bond” warehouse, which is like a foreign-trade zone where goods are held until they are picked up and delivered by truck to Mexico.

According to the federal complaint filed last summer, Mirwani hired truck drivers to haul the apparel shipments to San Diego.

Court documents show that false paperwork and database entries were filed with Customs and Border Protection officers alleging the goods were transported into Mexico. But instead of going to Mexico, the goods made a U-turn and were diverted to warehouses in El Monte, Calif., and areas in the downtown Los Angeles Fashion District.

Border officials became suspicious when they noticed that the perforation marks left on paperwork for exiting merchandise didn’t match the real perforation marks. They also questioned why someone would be bringing Chinese goods into Mexico, which has a 200 percent duty on imported apparel from China. “The investigation started when Customs and Border Protection officers noticed a commonality on the transport and entry manifests filed at the border,” Perry said.

After the goods didn’t make it over the border, Mirwani sold the merchandise in the Los Angeles and Southern California area at prices that were much lower than his competitors’ prices, court papers said.

Evidence gathered in the case, which included wire-tapped telephone conversations between several co-conspirators, showed Mirwani also conspired to launder money, transmitting nearly $10 million from M Trading’s bank account to Hong Kong–based Mirvana International, owned by Mirwani and his twin brother. In addition, federal prosecutors said, Mirwani transferred funds to mainland China to fund future apparel shipments.

Mirwani was found guilty of one count of conspiring to defraud the United States, two counts of importing goods by means of false statements and one count of conspiring to launder money. He could receive up to 20 years in prison, according to the U.S. Attorney’s office. Currently, he is out on a $150,000 real-property bond.

The scheme of importing Chinese-made apparel and saying it is destined for Mexico was quite common several years ago, when Chinese clothing was subject to strict import quotas that expired at the end of 2008. However, Chinese apparel and textiles imported into the United States are still subject to duties.

“The trans-shipping in this case is pretty rare now. It does happen from time to time because people are trying to be more price competitive,” said Susan Kohn Ross, an international trade and customs attorney at Mitchell Silberberg & Knupp in Los Angeles.

These days it is more common for importers to attempt to underestimate the actual value of their imported apparel and textiles to reduce duties. Duties vary but can be as high as nearly 33 percent. Apparel duties accounted for about 40 percent of the $31.2 billion in duties U.S. customs officials collected last year.

“Typically, you see less actual smuggling and more under declaration of the value of the goods,” said Juli Schwartz, a customs attorney with Stein Shostak Shostak Pollack & O’Hara in downtown Los Angeles.

Ross agreed. “Whether it is fabric or garments, they try to undervalue the quantity and the value,” she said. “Instead of saying fabric costs $3 a yard, you might declare it as $1.50 a yard.”

Two years ago, nine people were indicted in Los Angeles for using a foreign-trade zone to allegedly avoid paying millions of dollars in import duties on approximately 200 shipments of mostly denim jeans. The government estimated that the importers, who said the jeans were not going to be sold in the United States, avoided paying $2 million to $4 million in duties.