ODS smuggling criminal enforcement


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  • Goldmine of informationA pleasure to work with
  • Sequel to Operation Cool Breeze in the mid-nineties, which focused on CFC-12.
  • The virtually universal acceptance of the need for controlling Ozone Depleting Substances is a substantial factor in securing support for enforcement activities.
  • BUT note it does not reflect trades (deal with claims of CBI).Full Phase-Out schedule is in 40 CFR Part 82, Subpart A, Appendix H and Class II ODS Phase-Out is in 40 CFR 82.16Developed countries’ phase-out schedule:2004: 35%2010: 75%2015: 90%2020: 99.5%2030: BAN!
  • The separation line between dark and light gray are where the incentive to smuggle grows.
  • As the program and phase-out progress, the smuggling becomes exponentially more economically beneficial for the crook! A financial incentive for fraud.
  • Legitimate industry groups have huge incentives to rid themselves of the violators: cheap and/or sub-quality products undercut their business, reputation, and profit.
  • Manufacturer/representative and end users are very hard to prosecute. We intend to get everyone else!
  • This importer is an actual Barber Shop!***Take a shot and hope for a “clueless” inspectorCreated a “WALL” hiding HCFC-22 behind other permissible merchandise in the containerDeclare as 134a, have first few rows legitimate product, rest is 22 in made up boxes, go so far as to paint boxesShipping the merchandise claiming it to be “US Goods Returned” that are otherwise unrestricted and avoid duties (3.7%), less scrutiny
  • Five (5) entries declared as R-134 & paying 3.7% duty rate. Between 11-2007 & 09-2008If declared value is $166,630.00 3.7% equals $6,165.31 in duties. $6165.31 x 5 = $30,825.00 Our concern was we had intelligence R-22 was in these prior shipments but we wanted to inspect a shipment being importedAll cylinders were placed back into the containers and Two containers were released pending a controlled delivery!During the Surveillance we also witnessed Distributor(s) arriving within the hour to pick up what we believed was the refrigerant just imported. This led to a controlled delivery of previously seized R-22 to the Distributor (Marcone). Required a lot of cooperation/information sharing among several agencies!
  • View with a long-lens of CFC shipment being unloaded within target business.
  • 545/Import Contrary to LawFirst ClauseProhibition against fraudulently or knowingly importing or bringing into the United States, any merchandise contrary to lawSecond ClauseSimilar prohibition against receiving, concealing, buying, selling, or in any manner facilitating the transportation, concealment, or sale of such merchandise after importation, knowing the same to have been imported or brought into the United States contrary to law
  • Tell story about sentencing hearing and hearing before
  • Give HAImporting virgin product claiming it to be used or reclaimed
  • A tremendous amount of effort, research, aggressive advocacy and creativity has gone into the operation, but with good results.That represents approximately .01% of the entire nation’s production and consumption out of a single port and a limited number of cases. - 2010: US has approximately 50,000 MT (=50,000,000 kg) (1MT=1,000kg) - Capturing 1 hundredth of the of the nation’s total legitimate amount out of 1 port might not seem significant, but…
  • Re 3 – Program versus OECA letter to initiate formal seizureRe 4 – Where? Who pays?Re 5 – Auction (Who warrants? Who keeps the money?) Destruction (Who pays?)
  • Grand Jury issues, even with MLAT
  • Big issue with the international manufacture/supply chain. Article 5 countries get Clean Development Mechanism credits (CDMs) and then have a perverse incentive to create large quantities of HCFC-22, often sub-quality, with the black market being a willing buyer (little regard for quality). Projects aimed at promoting sustainable development and increasing the spread of clean technologies are issued with credits. These credits (known as ‘Certified Emissions Reductions’ or ‘CERs’) can then bought and sold, providing the system with a financial incentive. The creation of carbon credits from the destruction of the potent greenhouse gas (GHG) trifluoromethane (HFC23) has been one of the most controversial issues during the early life of the Kyoto Protocol’s CDM. A by-product of the manufacture of the refrigerant HCFC22, many view HFC23 destruction projects as a cheap money-maker for a small number of industrial sites in a handful of developing countries that provided little discernible sustainable development benefit to those countries.The controversy centres around the inclusion of refrigerant-producing factories that generate the powerful greenhouse gas HFC 23 as a by-product. Many of these factories are in China, where investors can get CDM credits for destroying HFC 23, a relatively cheap process."HFC 23 emitters can earn almost twice as much from the CDM credits as they can from selling refrigerant gases - by any measure a major distortion of the market," writes Michael Wara of Stanford University, US, in the journal Nature.
  • ODS smuggling criminal enforcement

    1. 1. ODS Smuggling<br />Criminal Enforcement<br />
    2. 2. EPA Criminal Investigation Division<br />Sworn Federal Law Enforcement Officers<br />47 Field Offices in 38 States<br />Nationally over 180 Special Agents working over 750 cases<br />
    3. 3. Track all allowances, trades, petitions and transactions<br />First line of defense (and attack) in ensuring compliance with the CAA<br />EPA Office of Stratospheric Protection Division<br />
    4. 4. Immigration and Customs Enforcement, Commercial Fraud Groups<br />Customs and Border Protection<br />Department of Homeland Security<br />
    5. 5. Environmental Harm<br />Economic Harm<br />Inherent dangers involved in imports<br />Deterence<br />Promote respect for the law<br />Why build a criminal case? Why Share?<br />
    6. 6. Operation Catch-22<br />
    7. 7. Vienna Convention for the Protection of the Ozone Layer was signed on September 16, 1987<br />The Montreal Protocol on Substances That Deplete the Ozone Layer <br />All 196 UN recognized nations have signed the Montreal Protocol<br />International Agreement<br />
    8. 8. Montreal Protocol is implemented by Title VI (42 USC 7671-7671q) of the CAA and its regulations (40 CFR Part 82)<br />The CAA provisions have required the United States to meet or exceed the Protocol deadlines for ending reliance on the most damaging ozone depleting substances<br />The Clean Air Act<br />
    9. 9. Common Names:<br />Chlorodifluoromethane<br />HCFC-22<br />R-22<br />Packaging<br />30 lb. Green Cylinder<br />Common Uses<br />Residential heat pump<br /> & air conditioning systems<br />Class II Ozone-Depleting Substance Is The Current Enforcement Focus<br />
    10. 10. First major milestone was the reduction of US consumption of ODSs by 35% below the baseline cap by January 1, 2004<br />To meet that commitment, EPA issued baseline allowances for the production and importation of HCFC-22. 100% of the consumption and production allowances went to specific companies<br />Effective January 21, 2003, the import of bulk quantities of HCFC-22 was limited to those holding unexpended consumption allowances<br />Allowance holders listed at 40 CFR 82.19<br />United States Phase-Out<br />
    11. 11. EPA granted allowances for domestic production and import of all bulk HCFCs for 2010-2014<br />For 2010, the allocation for HCFC-22 was 20% less than actual domestic market demand<br />Doctrine of unintended consequences:<br />Intended to promote recovery and reuse<br />But also increased smuggling and cheating<br />Not a new lesson – CFC-12 Tax Fiasco<br />And So The Black Market Grows…<br />
    12. 12. Total Projected R-22 Servicing Demand and EPA’s 2010-2014 Allocations of HCFC-22<br />
    13. 13. 2010: No production or import of HCFC-142b and 22 in equipment, except for items manufactured before January 1, 2010<br />And no further manufacture, sale, or distribution of new equipment with HCFC-22<br />2015:No production or import of any HCFCs, except for use as refrigerants in equipment manufactured before January 1, 2010<br />2020:No production or import of HCFC-142b and HCFC-22<br />2030:No production or import of any HCFCs<br />Additional Details of U.S. Phase-Out<br />
    14. 14. EPA SPD<br />Internal databases<br />ICE Entry Inspections<br />ICE Review of Suspicious Entry Paperwork<br />Industry Groups<br />Intelligence Data<br />Anonymous Tips (competitors, former employees, freight forwarders)<br />International Information Sharing<br />Information Sharing isEssential to Success<br />
    15. 15. Operation Catch-22<br />Importers<br />Manufacturers In China<br />Freight Forwarders/Brokers/Facilitators<br />(Amador Hernandez)<br />Distributors<br />Individual Buyers/<br />End Users<br />
    16. 16. Operation Catch-22Goodfellas Branch<br />
    17. 17.
    18. 18. R-22 declared as R-134, was hidden behind R-134 cylinders & placed within R-134 boxes. <br />CBP forms and invoicing all said R-134.<br />A “Wall” had been created to conceal the prohibited R-22<br />First time R-22 cylinders discovered placed within R-134 boxes. <br />Goodfellas<br />
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    22. 22. Modus Operandi was to divert shipments through “less” suspicious transit lanes and source countries<br />ie, China – Caribbean - United States<br />Inspectors knew to crawl thru the container to the back because of Goodfellas experience<br />There was R-22 from about the fifth row to the nose of the 6 meter container<br />Operation Catch-22Kroy Corporation Branch<br />
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    27. 27. Possible Charges:<br />18 USC 545 (smuggling)<br />18 USC 542 (falsified entry paperwork)<br />42 USC 7413 (CAA)<br />18 USC 371 (conspiracy)<br />18 USC 1001 (false statements)<br />18 USC 1341/1343 (Mail/wire fraud)<br />Money Laundering<br />RICO and Criminal Enterprise<br />Charging Decisions<br />
    28. 28. United States v. Kroy Corporation & James Garrido<br />09-20913-CR-Seitz (plea11/20/09; sent 2/11/10)<br /> Charged with 3 counts 18 USC 545 <br /> 418,654 kg/FMV $3,930,541<br />Garrido<br />30 months imprisonment<br />$40,000 criminal fine joint & several with Kroy Corporation<br />$1,356,160.00 criminal forfeiture of “proceeds” joint & several with Kroy Corporation<br />Kroy Corporation<br />5 years probation<br />$40,000 criminal fine joint & several with Garrido<br />$1,356,160.00 criminal forfeiture of “proceeds” joint & several with Garrido<br />Criminal Case Results<br />
    29. 29. United States v. Amador Hernandez<br />10-20065-CR-Cooke (plea 2/5/10; sent 4/21/10)<br />1 count 18 USC 542 <br /> (82,852 KG or 5,116 Cylinders)<br />Have agreement for joint recommendation for a split sentence of a five month term of imprisonment followed by five month home detention<br />Judge, SUA SPONTE, varied!<br />$15,000 criminal fine<br />Three years probation with special condition of six months home detention<br />Criminal Case Results Con’t<br />
    30. 30. United States v. Mar-Cone Appliance Parts Co.<br />10-20081-CR-GOLD (plea & sent 3/19/10)<br /> Charged with 1 count 18 USC 545 <br /> 100,898 kg/FMV $843,291.70<br />Sentence<br />$500,000 criminal fine<br />$190,534.70 criminal forfeiture of “proceeds”<br />$400,000 community service***<br />ECP<br />Criminal Case Results Con’t.<br />
    31. 31. United States v. John Correa, Abdiel Falcon, Charles Nova and BlasdimirUrena<br /> 2010-20719-CR-Altonaga (plea 10/20/10)<br />John Correa: 5 years probation with a special condition of 5 months home detention; $3,000 criminal fine, requirement that he reimburse CBP $2,240.65 for storage and handling and $1,950.00 for destruction of contaminated product; and 100 hours of community service. <br />Abdiel Falcon: 1 year probation with a special condition of 3 months home detention; $2,000 criminal fine; and 100 hours of community service.<br />Charles Nova: 1 year probation with a special condition of 3 months home detention; $2,000 criminal fine, requirement that he reimburse CBP $2,240.65 for storage and handling and $1,950.00 for destruction of contaminated product; and 100 hours of community service.<br />BlasdimirUrena: 5 years probation with a special condition of 7 months home detention; $3,000 criminal fine, requirement that he reimburse CBP $2,240.65 for storage and handling and $1,950.00 for destruction of contaminated product; and 100 hours of community service.<br />Criminal Case Results Con't<br />
    32. 32. The Duck Theory!<br />It just doesn’t make sense for a <br /> company in another country to pay<br /> to reclaim and ship across the world, <br /> or to ship used product to pay to reclaim <br /> in the US.<br />Under the current regulations, is this the perfect crime?<br />Badges of Fraud<br />
    33. 33. 40 CFR 82.152<br />“reclaim” refrigerant means to reprocess refrigerant to all of the specifications in appendix A to 40 CFR part 82, subpart F (based on ARI Standard 700-1995, Specification for Fluorocarbons and Other Refrigerants) that are applicable to that refrigerant meets these specifications using the analytical methodology prescribed in section 5 of appendix A of 40 CFR part 82, subpart F.<br />The Regs…<br />
    34. 34. Import of used/reclaimed refrigerant through the petition system<br />“Functionally virgin” product being imported without allowances<br />Current status of restrictions in the EU and possible incentives for producers to import “used” product without scrutiny<br />Use “wrong” classification to avoid suspicion and scrutiny<br />Used???<br />
    35. 35. United States v. HARP USA, Inc., February 11, 2011<br />Pled guilty to making false statements in Petition to allow entry of “reclaimed” R-22<br />Fact Pattern<br />Forfeiture of $206,140 in proceeds and payment of equal fine; 5 years probation; $25,000 community service payment ; implement an ECP; pay costs and fees<br />Recent Case Result<br />
    36. 36. Freight Forwarders<br />Shell companies of importers set up in other countries to do import but run in US<br />Sales representatives of manufacturers (China) – conspiracy<br />Looking into schemes to buy US mfg R-22 that is exported and immediately re-imported (with allowances) but as US Goods Return to avoid duties and other charges<br />Other Targets and Future Possibilities<br />
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    38. 38. We have successfully prosecuted importers, individuals completing the entry paperwork (freight forwarders and shipping coordinators), and a large scale domestic distributor.<br />We have taken off the market approximately 542,631 kg of illegally imported merchandise<br />Another approximate 500,000 kg under investigation excluding used and pre-charged amounts.<br />Thus far…<br />
    39. 39. 1. Arrival in U.S. Port<br />2. Administrative 30-day hold<br />3. Formal detention<br />4. Storage<br />5. Final disposition<br />Process Upon [Attempted] Entry<br />
    40. 40. UNEP<br />Ozone Secretariat<br />Regional Office for Latin America & Caribbean (ROLAC)<br />Several countries want to work together either informally or through the use of MLATs to combat this smuggling problem.<br />International Coordination<br />
    41. 41. There is a perverse incentive for mass production of HCFC-22 simply to generate its by-product, HFC-23<br />Extremely valuable carbon credits can be secured through the Clean Development Mechanism (CDM) system<br />The inclusion of refrigerant producing factories gives investors CDM credits for the destruction of the HCF-23 (an inexpensive process) effectively providing “permission” to pollute<br />The U.S. press is relentless in assessing our work as it relates to THIS issue<br />Relationship to Kyoto Protocoland Global Warming<br />
    42. 42. http://ozone.unep.org/Data_Reporting/Data_Access<br />ODS Production Rates<br />
    43. 43. February 28, 2011<br />EPA approves HFO-1234yf as alternative to CFC-134a in autos and light trucks<br />99.7% lower global warming potential and substantially reduced Ozone Depleting Potential<br />Technology As A Solution<br />
    44. 44. How can we help <br />your programs?<br />