LOS ANGELES – Un Hag Baeg, 58, of Marina del Rey, a Korean national currently living in the United States, pleaded guilty yesterday afternoon to conspiring to defraud the United States government by evading federal excise taxes due on 143 million cigarettes sold domestically but which the co-conspirators claimed were destined for cargo vessels sailing out of the ports of Los Angeles and Long Beach.

In the United States, cigarettes are subject to a federal excise tax of $50.33 per one thousand cigarettes. This tax is generally paid by the manufacturer, but may be avoided if the cigarettes are properly transferred to a bonded warehouse in order 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 from their proper destination, and instead 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 from the ports. In fact, the cigarettes were sold in the United States resulting 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. In order to give this paperwork the appearance of legitimacy, the conspirators would stamp the paperwork with false rubber stamps bearing the names of the subject cargo vessels.

The conspiracy resulted in the evasion of federal excise taxes totaling $7,260,203.16 and California state excise taxes totaling $5,986,458.00.

United States District Judge S. James Otero set Baeg's sentencing for January 29, 2018.

The case was investigated by the Alcohol and Tobacco Tax and Trade Bureau, Internal Revenue Service Criminal Investigation Division, Department of Homeland Security – Immigration and Customs Enforcement – Homeland Security Investigations, and the Bureau of Alcohol, Tobacco, Firearms, and Explosives. The case is being prosecuted by Assistant United States Attorney James Hughes and Department of Justice – Tax Division Trial Attorney Christopher Strauss.

Component(s): USAO – California, Central

Contact: Thom Mrozek Spokesperson/Public Affairs Officer United States Attorney's Office Central District of California (Los Angeles) 213-894-6947

Press Release Number: 17-178 Updated October 4, 2017

Central District of California DOJ / 17-178 / October 4, 2017