LOS ANGELES
The owner of a Fashion District import-export business plead guilty Friday to federal charges stemming from an investigation into “Black Market Peso Exchange” schemes that are used by international drug cartels to launder and send narcotics profits out of the United States, officials said.
Xilin Chen, the owner of businesses known as Yili Underwear and Gayima Underwear, plead guilty in U.S. District Court, officials said.
In a plea agreement, Chen will forfeit hundreds of thousands of dollars in assets and will result in the loss of his U.S. citizenship.
Chen, 55, of Temple City, pleaded guilty to three felony counts – knowingly passing false documents through a customhouse in U.S., conspiracy to launder money, and unlawful procurement of citizenship, according to authorities.
Officials allege that Chen also admitted that he received bulk cash at his business that he had good reason to believe was from illegal activity, specifically drug trafficking. He also deliberately avoided finding out about the cash that was being delivered to his businesses.
The investigation into Chen’s companies was part of a larger investigation into Black Market Peso Exchange or BMPE schemes in the Fashion District.
Here is how the BMPE scheme worked:
- BMPE scheme, operatives for a drug trafficking organization use drug money to buygoods, typically using large sums of cash.
- The goods are shipped to another country, where they are sold, and the funds are delivered to the drug trafficking organization.
These BMPE schemes – which is a type of trade-based money laundering – are often used by Mexico-based drug trafficking organizations to collect proceeds from their drug sales in the United States without having to take the risk of smuggling large amounts of U.S. currency across the Mexican border and without having to wire the funds through financial institutions, both of which carry the threat of authorities detecting the illegal source of the money.
- Xilin Chen pleaded guilty to a customs offense related to a form he filed with U.S. Customs and Border Protection in which he claimed merchandise imported from China was worth $86,635, even though the true value of the clothing was $175,535.
- Xilin Chen admitted that the purpose of undervaluing the merchandise was to defraud the United States. Because the clothing was then sold for prices lower than if the true and correct duty had been paid, the proceeds of the sales were illegal and depositing the proceeds into U.S. banks and then wire transferring some of the funds to China to pay for additional merchandise constituted money laundering.
- Xilin Chen further said that on three occasions he accepted bulk cash as payment for clothing from an undercover agent posing as someone using the proceeds of narcotics trafficking to purchase merchandise.
- Xilin admitted the he was aware, or should have been aware, of the high probability that he was accepting money derived from narcotics trafficking, but he “deliberately avoided asking questions or confirming the truth.”
Xilin Chen also pleaded guilty to illegally getting a U.S. citizenship in 2012 when he declared he was not involved in criminal activity, even though he was involved in customs fraud and money laundering.
Xilin Chen’s son – Chuang Feng Chen, aka “Tom”, 25, also of Temple City – also pleaded guilty Friday to conspiracy to pass false documents through a customhouse of the United States.
U.S. District Court Judge Percy Anderson will sentence the Chens in Auguse.
As part of this case, the Chens have agreed to forfeit to the U.S. proceeds from the sales of the building that houses the underwear company, two residences in Temple City and more than $435,000 that was seized during the execution of search warrants and seizure warrants last fall.
As part of the agreement with the Chens, prosecutors have asked Judge Anderson to dismiss charges against Aixia Chen, who is Xilin Chen’s daughter.
The case involving the Chens was investigated by the Drug Enforcement Administration and IRS – Criminal Investigation under the auspices of the Southwest Border Initiative.