You are here

Justice News

Department of Justice
U.S. Attorney’s Office
Central District of California

FOR IMMEDIATE RELEASE
Tuesday, May 8, 2018

Korean National Sentenced to Nearly 4 Years in Prison for Role in Scheme that Avoided Paying Excise Taxes on Millions of Cigarettes

          LOS ANGELES – A Korean national who was living in the United States as an illegal alien has been sentenced to 46 months in federal prison for participating in a scheme to defraud the United States by evading millions of dollars in federal excise taxes due on 143 million cigarettes.

          Un Hag Baeg, 58, of Marina del Rey, was sentenced Monday for his role in a conspiracy that sold cigarettes domestically, but did not pay excise taxes after falsely claiming the cigarettes were leaving the United States on cargo ships sailing out of the ports of Los Angeles and Long Beach. At the time of the offense, Baeg operated Far East Marine Ship Supply Company, a ship chandler that provided supplies to cargo vessels.

          United States District Judge S. James Otero imposed the prison sentence and additionally ordered Baeg to pay $7.26 million in restitution to the U.S. Alcohol and Tobacco Tax and Trade Bureau.

          Baeg was sentenced after pleading guilty in October to conspiracy to defraud the Unites States.

          Cigarettes sold in the United States are subject to a federal excise tax of $50.33 per one thousand cigarettes. This tax is generally paid by the manufacturer, but it may be avoided if the cigarettes are properly transferred to a bonded warehouse to be exported or consumed outside of the United States. Untaxed cigarettes sold for this purpose are known as “export-only” cigarettes. When export-only cigarettes are diverted and sold in the United States, federal and state taxing authorities suffer lost excise taxes.

          According to court documents, between 2012 and 2015, Baeg and others conspired to divert approximately 143 million export-only cigarettes from an export warehouse near the Port of Los Angeles. Baeg purchased the cigarettes under the pretext that the cigarettes would be provided to various ships sailing out of the United States. In fact, the cigarettes were sold in the United States, which resulted in millions of dollars in lost federal and state excise taxes.

          Baeg and his co-conspirators subsequently hid their fraud by preparing false paperwork indicating that the cigarettes had been delivered to the various ships. To make these bogus documents appear to be legitimate, the conspirators stamped the paperwork with fabricated rubber stamps bearing the names of cargo vessels.

          Baeg’s “criminal conduct was neither passive nor passing,” according to a sentencing memorandum filed by prosecutors. “Rather, he played an active and crucial role in a long-operating criminal enterprise.”

          The conspiracy resulted in the evasion of $7,260,203 in federal excise taxes and $5,986,458 in California excise taxes.

          A man who assisted Baeg by picking up the duty-free cigarettes Baeg ordered several times a week, paying for them with money provided by Baeg, and transporting the cigarettes to distribution points has also pleaded guilty to a charge of conspiracy to defraud the United States. Isaac Rojas, 45, of El Monte, pleaded guilty last year to conspiring with Baeg and is scheduled to be sentenced by Judge Otero on May 29, at which time Rojas will face a statutory maximum sentence of five years in federal prison.

          This case was investigated by the U.S. Alcohol and Tobacco Tax and Trade Bureau; IRS Criminal Investigation; U.S. Immigration and Customs Enforcement’s Homeland Security Investigations; and the Bureau of Alcohol, Tobacco, Firearms and Explosives.

          The case was prosecuted by Assistant United States Attorney James Hughes of the Tax Division and Trial Attorney Christopher Strauss of the Justice Department’s Tax Division.

Contact: 
Thom Mrozek Spokesperson/Public Affairs Officer United States Attorney’s Office Central District of California (Los Angeles) 213-894-6947
Press Release Number: 
18-075
Updated May 8, 2018