MAY 06 (LOS ANGELES) –A Diamond Bar woman who, along with her husband, owns a Los Angeles-area toy wholesaler, was ordered today to serve a total of 14 months in custody for participating in an elaborate scheme known as a Black Market Peso Exchange, which is an underground money-transfer system that enables international drug trafficking organizations to launder narcotics proceeds.
Dan “Daisy” Xin Li, 44, co-owner of the Industry-based Woody Toys, Inc., was sentenced today to eight months in prison, to be followed by six months of home detention. At the conclusion of today’s hearing, Li was remanded into custody.
Li was sentenced by United States District Judge R. Gary Klausner, who this morning delayed the sentencing for Li’s husband – Jia “Gary” Hui Zhou, 44 – until January 6, 2014.
As part of their agreements with federal prosecutors, the couple forfeited to the federal government $2 million in proceeds that were derived from their money laundering scheme. Some of that money was previously seized by investigators, but most of the money to satisfy a forfeiture order – $1,982,641 – was paid last Wednesday.
Zhou and Li pleaded guilty in September to conspiring to structure currency transactions with a U.S. financial institution to avoid the filing of a Currency Transaction Report.
The scheme used “structured” cash deposits in the United States to launder illicit proceeds generated by drug trafficking organizations based in Mexico and Colombia. Structured deposits are cash deposits of $10,000 or less that are designed to avoid laws requiring all cash transactions over $10,000 to be reported to federal authorities. From 2005 through 2011, approximately $3 million in structured, out-of-state cash was deposited into Woody Toys’ bank accounts, according to court documents. During that same time, Woody Toys took in approximately $3 million in cash without filing the required federal documents.
As part of the Black Market Peso Exchange scheme alleged in this case, foreign toy retailers with Colombian and Mexican pesos would contact currency brokers to buy discounted U.S. dollars, which they used to purchase merchandise from Woody Toys. The dollars being “sold” were allegedly proceeds from illegal drug sales that had been deposited in the toy company’s accounts or delivered to the business. The Colombian or Mexican pesos the currency broker received from the foreign toy retailer were remitted to the drug trafficking organizations.
In a sentencing memo to the court, prosecutors described Woody Toys as “the last ‘spoke in the wheel,’ that cleaned illicit proceeds and enabled drug trafficking organizations to convert their dirty dollars into clean pesos.”
The case involving Woody Toys is the result of an investigation conducted by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI), IRS-Criminal Investigation, and the multi-agency Southern California Drug Task Force, which is spearheaded by the Drug Enforcement Administration.
Previously in this case, Woody Toys, Inc. was sentenced in November to five years of probation after pleading guilty to money laundering conspiracy charges involving drug proceeds. The sentence prohibits the company from receiving payments of more than $2,000 in cash and the business may not receive cash from anyone who is not a customer. The company must also report the identity and contact information of all its customers. Finally, the business will be subject to unannounced examinations of its books and records.
The probe targeting Woody Toys began in November 2010 based on evidence uncovered during a similar investigation targeting another Los Angeles-area toy wholesaler called Angel Toys, whose owners also went to prison (see: http://www.justice.gov/usao/cac/Pressroom/2012/021.html). Several former employees of Angel Toys subsequently went to work for Woody Toys.
Investigators say schemes of this kind benefit criminal organizations by giving them a means to launder illicit proceeds using international trade. The system also gives foreign retailers access to discounted U.S. currency, which enables the foreign retailers to avoid steep exchange rates and other fees. Finally, for the U.S.-based company, the scheme is a way to substantially increase sales volume and cash flow.