Feds seek forfeiture of nearly 300 million cigarettes in smuggling scheme

Authorities on Monday filed a civil forfeiture petition in McAllen federal court over an alleged scheme involving nearly 300 million contraband cigarettes destined for Mexico worth approximately $26 million.

The petition follows an investigation by the Department of Homeland Security, Homeland Security Investigations and Customs and Border Protection into the large-scale smuggling of contraband cigarettes, alcohol and other goods.

“The investigation has uncovered complex fraud and trade diversion schemes that seek to avoid government permitting, taxation, and customs oversight in the United States and Mexico,” the petition stated. “The schemes also involve complex international financial arrangements designed to hide the source of the funds used in the schemes, disguise the ultimate recipients of funds paid in the schemes, as well as to transact funds used to promote the fraud and trade diversion operations.”

The petition states that Rio Grande Valley Duty Free LLC “is the focal point of unlawful activity.”

The alleged scheme involves what’s called the “In-Bond System,” which allows for merchandise to be shipped through the U.S. for re-export, “thus never legally entering U.S. commerce” without customs inspections or the payment of duties and taxes.

The merchandise, however, is declared at a port of entry, but once in the “In-Bond System” it is required to be maintained in a sealed container or a secure in-bond warehouse.

“In essence, merchandise in the In-Bond System remains in CBP custody,” the petition stated.

When properly exported through this system, the parties are exempt from certain inspection requirements, as well as duties, taxes and fees. If the property is removed from the system, it is subject to those requirements.

The cigarettes in question are not legal for sale in the U.S. or Mexico, according to the petition. The government said that the smuggling scheme removes this merchandise illegally from the “In-Bond System.” Once this happens, they become contraband cigarettes.

“Trafficking in contraband cigarettes, in that when the cigarettes are unlawfully removed from the In-Bond System, they lack the necessary permits, proof of taxes paid, and do not carry the necessary signage or stamps for tobacco products to enter U.S. commerce,” the petition states.

This activity includes wire fraud.

“The above smuggling and fraud schemes implicate significant money laundering operations as well,” the petition stated. “First, smuggling groups receive significant payments from sources outside the United States to purchase and transport … smuggled cigarettes.”

These funds are in the tens of thousands of dollars for each transaction. These transactions are also conducted in a way to disguise the source of the funds.

“In certain instances, wire transfers are made from entities in Mexico to accounts in the United States,” the petition stated. “Investigators have determined that many of the entities in Mexico appear to have no legitimate presence of operations and appear to be shell companies.”

In other instances, couriers are recruited to bring bulk cash into the United States from Mexico.

The smuggling operation actually began in 2013 under a customs bonded warehouse operating under the name Victor M. Guerra Duty Free LLC, which was shut down in 2020 and prosecuted.

In 2021, “the smuggling operation continued using” Rio Grande Duty Free LLC.

The petition details surveillance of the business’ lot and details two seizures of illegal cigarettes hidden in truck loads destined for Mexico. The document also explains that the cigarettes were counterfeit, produced in Vietnam and not prohibited in Mexico.

“Based on the seizures made of smuggled goods linked to RGV, the discrepancies between RGV’s claimed sales practices and stated financial profitability, RGV’s regular and routine smuggling large quantities of cigarettes out of the U.S., and RGV’s submission of incomplete and false customs records, RGV habitually violated customs laws and regulations and smuggled cigarettes from the U.S. into Mexico,” the petition stated.

An initial conference on the matter is scheduled for early August.

It’s not immediately clear whether anyone associated with Rio Grande Duty Free LLC has been arrested or charged.

The post Feds seek forfeiture of nearly 300 million cigarettes in smuggling scheme appeared first on MyRGV.com.