LOS ANGELES (CNS) - A Fashion District clothing company and its owner have agreed to plead guilty and pay back more than $100 million for a scheme to undervalue imported garments and avoid paying millions of dollars in duties to the United States, federal prosecutors announced today.
The U.S. Attorney's Office also alleged a tandem tax fraud scheme in which company owner Sang Bum “Ed'' Noh failed to report millions of dollars derived from cash transactions.
In conjunction with the criminal charges filed late Tuesday, prosecutors filed plea agreements in which Ambiance Apparel and Noh agreed to plead guilty to felony offenses and pay a total of nearly $118 million, which includes nearly $36 million in cash seized from Ambiance and Noh in 2014, federal prosecutors said.
Noh, 66, of Bel Air, agreed to plead guilty to one count each of conspiracy and filing a false tax return, which carry a total penalty of up to eight years in federal prison, prosecutors said.
Ambiance Apparel -- the operating name for two corporations, Ambiance U.S.A. Inc. and Apparel Line U.S.A. Inc. -- agreed to plead guilty to eight counts, including conspiracy, money laundering, and customs offenses.
Noh and Ambiance are scheduled to be arraigned Sept. 14 in Los Angeles federal court.
Court documents outline separate schemes involving Ambiance and Noh, which ended in September 2014 when law enforcement authorities executed dozens of search warrants as part of an investigation into money laundering and other crimes at Fashion District businesses.
In the customs fraud scheme, Ambiance imported clothing from Asian countries and submitted fraudulent invoices to U.S. Customs and Border Protection that undervalued the shipments and allowed Ambiance to avoid paying the full amount of tariffs owed on the imports, according to court documents.
At Noh's direction, the Asian manufacturers prepared two invoices for the clothing ordered by Ambiance -- one that usually reflected 60 to 70% of the actual price and was paid by letter of credit, and one that reflected the balance of the actual price and was paid by wire transfer. The first invoice, which fraudulently reduced the value of the shipment, was submitted to CBP and was used to calculate the tariffs due on the imports.
As a result of the scheme, over the course of 4 1/2 years, Ambiance undervalued imports by about $82.6 million and failed to pay more than $17.1 million in tariffs, according to the government. In the plea agreement, Ambiance and Noh have agreed to pay U.S. Customs and Border Protection a total of $18.42 million, which includes the unpaid tariffs and interest accrued through 2014.
In the second scheme outlined in a statement of facts filed Tuesday, Ambiance admitted it failed to file reports with the Secretary of the Treasury that documented cash transactions of more than $10,000. Ambiance employees received 364 payments of more than $10,000 over a two-year period – which totaled more than $11.1 million -- and the company failed to file a single Form 8300 to alert federal authorities to the cash transactions.
In conjunction with those cash transactions, Ambiance used two sets of books to record sales, one of which documented only cash transactions and was not reported to Ambiance's outside accountants. Noh also directed some of the second set of transactions to be underreported to the accountants.
The lower sales figures were reported on 2011 and 2012 tax returns filed by Noh. He admitted that he failed to report income for those two years and now owes the Internal Revenue Service a total more than $16.8 million, which includes unpaid taxes, penalties and interest, according to the U.S. Attorney's Office.
Once the guilty pleas are entered on behalf of Ambiance, the company is expected to be placed on probation for five years, during which time it will implement an effective anti-money laundering compliance and ethics program with an outside compliance monitor.