U.S. v. Yip

• Decision Date: 04 April 1991
• Docket Number: No. 489,D,489
• Citation: 930 F.2d 142
• Parties: UNITED STATES of America, Appellee, v. Matthew YIP, Defendant-Appellant. ocket 89-1223.
• Court: U.S. Court of Appeals — Second Circuit

Page 142

930 F.2d 142

UNITED STATES of America, Appellee, v. Matthew YIP, Defendant-Appellant.

No. 489, Docket 89-1223.

United States Court of Appeals Second Circuit.

Argued Oct. 2, 1990.

Decided April 4, 1991.

Mary Boresz Pike, New York City (Somerstein & Pike, New York City, of counsel), for appellant.

Debra D. Newman, Asst. U.S. Atty., Garden City, N.Y. (Andrew J. Maloney, U.S. Atty., Matthew E. Fishbein, Asst. U.S. Atty., E.D. New York, Brooklyn, N.Y., of counsel), for appellee.

Before CARDAMONE and MINER, Circuit Judges and POLLACK, District Judge. ^*

CARDAMONE, Circuit Judge:

Matthew Yip appeals from a judgment entered on May 5, 1989 in the United States District Court for the Eastern District of New York (Costantino, J.), convicting him, after a jury trial, of 14 counts of mail fraud in violation of 18 U.S.C. Sec. 1341 (1988), and 59 counts of depriving the United States of lawful duty payments in violation of 18 U.S.C. Sec. 542 (1988). On appeal he contends, inter alia, there was insufficient evidence to support the Sec. 1341 mail fraud convictions, and that the importation of goods using non-fraudulent invoices, followed by the failure to pay customs duties owed on those goods, is not a criminal act within the meaning of Sec. 542. As the principal owner of a customs brokerage house (Airway Shipping), Yip admits he made personal use of funds his clients turned over to him to satisfy their customs obligations to the government. He claims those practices of diverting funds to other businesses and to his own personal use--practices which eventually helped to drive his business into bankruptcy--may have been those of an irresponsible businessman, but did not constitute criminal conduct.

The government responds that under the statute all acts that may deprive the Customs agency of duties are made criminal. Our principal task on this appeal is to determine whether the statute is so all-encompassing. We affirm the mail fraud convictions, but reverse the convictions under the customs counts and remand those counts for a new trial.

BACKGROUND

A brief explanation of the services brokers provide and the relationship of appellant to his customers is helpful to an understanding of this appeal. Brokers act as agents for importers in the import/export business. A broker collects money from an importer that he uses to pay charges incurred in the importation of goods into the United States, including ocean freight, brokerage fees, customs duties, and incidental costs. The broker aids the importer in paying duties through the following two-step process. When the goods arrive in the United States and are stopped at the border by the Customs Service, the broker generally files a form 3641 listing the goods being imported. See 19 C.F.R. Sec. 142-3(a)(1) (1990). If there is no suspicion of fraud or other irregularity with the paperwork and the importer has posted a bond to cover the cost of the customs duties owed on the goods, they are released to the broker. See 19 C.F.R. Sec. 142.4 (1990). The broker then has 10 days to In this case, Airway followed a slightly modified version of this procedure, that is, the form 3461 was filed pursuant to a special permit for "immediate delivery" provided under 19 C.F.R. Sec. 142.21 "setting forth an adequate description of the merchandise and the quantities, together with the values or approximate values [of the goods]." 19 C.F.R. Sec. 142.22 (1990). This method helps speed release of the goods from customs. Airway then had the standard 10 days to file the form 7501 with a check attached to pay duties on the goods. 19 C.F.R. Sec. 142.23 (1990).

complete the second step by filing a form 7501, detailing the duty owed on the goods contained in the shipment and enclosing a check to cover the amount owed. See 19 C.F.R. Sec. 142.11 (1990).

Although importing companies routinely rely on customs brokers to act as their agents, secure safe passage through the maze of customs regulations, and pay the duties owed on their goods in the two-step process just described, the brokers are only the agents of the importers; an importer remains liable to the United States for duties regardless of what payment arrangements it may have made with a broker/agent. See 19 C.F.R. Sec. 111.29(b) (1990). Thus, if the broker does not submit the form 7501 and payment within 10 days, then the importer, as principal, is subject to a penalty assessed by Customs. These penalties can include a demand for immediate payment on the bond furnished by the importer, 19 C.F.R. Secs. 142.15, 142.27, a refusal by customs to allow future release of the importer's goods without payment at the time of release, 19 C.F.R. Sec. 142.13, and withdrawal of immediate delivery privileges, if any exist. 19 C.F.R. Sec. 142.25(a)(1) (1990).

Customs regulations allow wide latitude in the arrangements brokers may make with their importer clients regarding payment terms. For example, brokers are not required to segregate client funds and earmark them for duties, and importers may simply forward funds to the broker to cover the duty owed with the understanding that the broker will in turn pay the government. Alternatively, an importer may give checks to its broker already made out to the order of U.S. Customs, thereby avoiding any potential problems such as embezzlement.

Customs regulations in force at the relevant times in this case required brokers to place a notice on their invoices of the importer's right to pay U.S. Customs Service directly, 19 C.F.R. Sec. 111.29(b) (1986). The parties agree that Airway fully complied with the above regulations. The difficult question before us is whether Yip committed a criminal act against the United States when he obtained a client's funds by promising to pay its duties to Customs, and instead kept the money for his own use.

FACTS

With that background of the relationship between a broker and its client and the governing regulations, we describe the circumstances that led to this appeal. Samsung Electronics America, Inc. and Samsung International, Inc., two affiliated corporations (collectively Samsung), import electronic goods for sale in the United States. In 1985 Samsung engaged Airway to act as its customs broker for imports into New York. Beginning in August 1985 it retained Airway to take charge of imports into Los Angeles as well. Airway hired a local California customs brokerage house, RS International, for assistance in handling Samsung's Los Angeles operations. Samsung agreed to pay Airway which, in turn, undertook to forward money to RS International. The latter company agreed to pay customs duties on Samsung's behalf. Unfortunately, matters did not go as planned.

In May 1986 RS International received Airway's duty payments late. Upon inquiry, it was told by Airway that Samsung had been slow in paying Airway and that this accounted for the delay. Airway's late payments to RS International continued, and further inquiries were met by more untruthful excuses. By July 1986, when Samsung heard of the problem, it told RS International to look to Airway because Samsung had made all its duty payments On August 8, 1986 RS International formally terminated the handling of Samsung's account with Airway. When Airway went out of business--forced by its creditors into involuntary bankruptcy in early November 1986--the two affiliated Samsung companies had an obligation to pay the government $2.6 million in duties Airway had never paid to Customs.

promptly. Samsung was not then aware that over $1 million of its customs duties had not been paid for its California imports.

At the time Airway went bankrupt it had filed all the necessary 3461 forms for release of Samsung's imported merchandise, but had not filed all the 7501 forms with the required duty checks. The $2.6 million in unpaid duties was paid by Samsung. In settling its account with the two Samsung entities, the government agreed to waive the penalties for late payment of duties.

THE TRIAL

The government selected 59 invoices--accounting for $1.8 million out of the $2.6 million in duties--that formed the basis for the 59 counts charged against Yip under 18 U.S.C. Sec. 542. At trial the evidence showed that from May to October 1986, while Yip accepted funds from Samsung supposedly for payment of its customs duties, he was using the funds to make mortgage payments on his Long Island home and to purchase a $25,000 Mercedes Benz automobile. Yip also frequently transferred money received from Samsung to support his other businesses, and in September, 1986, Yip used some of the money to purchase a certificate of deposit in his own name.

Yip's business partner in Airway, Charles Hartill, who was a licensed customs broker himself, testified that Yip took advantage of the "float" provided by the constant influx of Samsung's funds, deferring payment of customs duties, and using the money for his own purposes. Hartill also testified that in mid-October 1986--as Airway was self-destructing financially--Yip asked him to start a new company under a new name in which Yip would be a silent partner. Under this scheme, Hartill allegedly would take over the accounts held by Airway--without the customers being aware that Yip was still involved in their business. According to this witness, Yip offered to give him a $50,000 loan if he would cooperate, but Hartill declined the offer and left Airway's employ at the end of October. On cross-examination, Hartill's credibility was attacked and he refused, on Fifth Amendment grounds, to answer six questions regarding an alleged kick-back/extortion scheme he was involved in while he was an Airway employee.

On November 15, 1986--just prior to the bankruptcy trustee's assuming control of Airway's assets--Yip ordered an accountant to alter the company's books. The alterations reclassified several loans Airway had made to Yip as "compensation," and greatly reduced the amounts shown as accounts receivable owed...