STAFF REPORTS

Diamond Bar – A Diamond Bar man was sentenced today to 24 months confinement 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.

Jia “Gary” Hui Zhou, 44, was ordered to serve 18 months in federal prison, followed by six months in a residential re-entry facility. He was also ordered to pay a $10,000 fine. In May 2013, Zhou’s wife, Dan “Daisy” Xin Li, 44, was ordered to serve a total of 14 months in custody and she is currently serving her sentence of six months home confinement.

The couple were owners of the Industry-based Woody Toys, Inc., a Los Angeles-area toy wholesale.
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, according to a U.S. Attorney’s Office news release. Zhou and Li pleaded guilty in September 2012 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, according to the report. 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, according to the news release.

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 news release stated. 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 to five years of probation in November after pleading guilty to money laundering conspiracy charges involving drug proceeds. The sentence prohibited the company from receiving payments of more than $2,000 in cash and the business was not allowed to received cash from anyone who was not a customer. The company had to report the identity and contact information of all its customers, and had to comply with unannounced examinations of its books and records.

The probe targeting Woody Toys began in November 2010 after evidence was uncovered in a similar investigation targeting another Los Angeles-area toy wholesaler called Angel Toys, whose owners also went to prison. Several former employees of Angel Toys supposedly 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. According to the U.S. Attorney’s office, 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.