Honey laundering: “Illegally claiming a false origin for honey in order to avoid taxes.
Example: Falsely claiming Chinese honey was produced in Malaysia.”
This is a piece about someone in the USA who was caught selling tainted honey. This was not his first brush with the law. The same gentleman, Douglas Murphy, was an executive at American Rice, Inc. when the feds found him guilty of authorizing over half a million dollars in bribes to Haitian officials in connection with the sale of his company’s rice to the poorest country in the hemisphere. Part of the criminal activity, according to the court documents, included paying bribes for permits that were granted to charities that were allowed to import duty-free. American Rice Inc. was not a charity. Here’s the rice re-cap from the SEC’s website:
On October 6, a federal jury in Houston, Texas, found defendants Douglas Murphy and David Kay, former officers of American Rice, Inc., a Houston based rice company, guilty of authorizing over $500,000 in bribes to Haitian customs officials during 1998 and 1999 to reduce American Rice’s import taxes illegally in violation of the Foreign Corrupt Practices Act. The jury also found defendant Murphy guilty of obstruction of justice in connection with a parallel civil investigation of the bribery payments by the Securities and Exchange Commission. Murphy, a resident of Texas, was American Rice’s president at the time of the violations. Kay, also a resident of Texas, was an American Rice vice president of operations and reported to Murphy. The defendants are to be sentenced on January 6. This criminal action, brought by the Department of Justice, arose out of a joint investigation with the Securities and Exchange Commission.
On January 6, 2004, rice-defendants Murphy and Kay were sentenced – you can read how the judge handled that here. But all that was over ten years ago – long enough to pay one’s debt to the world’s poor and maybe become a humanitarian doctor or an aid volunteer or something. But last year, Murphy was back in the news.
The Houston Chronicle ran this headline: “Honey smuggler busted”. The honey smuggler is not Douglas Murphy who spent half of his five year sentence in prison on the rice bribery conviction, but a wealthy Chinese-American who was fraudulently importing honey which the American government claims came from China but was misrepresented as Malaysian. (There are millions of dollars involved in these crimes.) U.S. Customs and Border Protection found Jun Yang guilty of honey smuggling and sent him to prison for three years. This came about because a government secret agent worked at a company called Honey Solutions Inc., where Douglas Murphy was a director.
A government undercover officer became friendly with Yang by posing as a “bad guy”, according to the feds. Thomson-Reuters World Trade Executive put it this way: “…Honeygate was so successful in part because an undercover ICE agent was placed in Honey Solutions – a real operating company that had its own customs fraud violations, which placed it well to uncover other bad actors. This style of approach takes a page from narcotics and organized crime investigations, but given the success of Honeygate, it could be used more frequently in food and customs fraud cases.”
The short of it is that Yang’s transshipment scheme unraveled and Honey Solutions (which was not accused of importing circumvented honey) paid a $1,000,000 fine, agreed to cooperate in the investigation (they allowed the undercover agent in) and said it “accepts and acknowledges responsibility for its conduct and that of its employees and agents.”
And Honey Solutions director Douglas Murphy was sentenced to six months in prison. This was for distributing honey from Poland adulterated with an antibiotic. According to court records, the honey was delivered to Houston for 65 cents/pound. Such honey might have cost twice as much if not contaminated. In his admission of guilt, Murphy acknowledged he knew the honey was adulterated with Chloramphenicol: “MURPHY, while in the course of the discharge of his duties, caused Honey Holding to issue purchase order 461 and in doing so, agreed to purchase from ALW Food Group the adulterated container of honey from ALW Food Group’s purchase order 995 at a discounted price of 65 cents per pound, with the price reflecting duties paid and delivery to Texas, and did so knowing that the honey was adulterated with Chloramphenicol.” Interestingly, because of his previous rice-bribing, the Global Anti-Corruption Task Force observes: “This appears to be the first time in U.S. history in which the government has brought new charges against a previously convicted FCPA [Foreign Corrupt Practices Act] defendant.”
Meanwhile, Honey Solutions Inc. has fought for its good name as a wholesome provider of quality honey (including Non-GMO and USDA Organic) by demanding retractions of false statements about its dealings. The American Honey Producers (AHPA), for example, had to retract statements it made about Honey Solutions Inc. on their website. According to PRNewswire which ran a piece (citing Honey Solutions as its sole source), the AHPA corrected their story and acknowledged “the government did not claim Honey Solutions purchased or sold ‘tainted’ or impure Chinese honey” and “the government did not charge Honey Solutions with tax evasion.”
They paid a million dollar fine.
So, let’s be clear about this. Honey Solutions’ director was sentenced to prison, this time for distributing honey adulterated with an antibiotic and the feds nailed Jun Yang for transshipment – but Honey Solutions Inc. is as sweet as the honey it sells. They paid a million dollar fine, a director went to prison, but, I repeat, “the government did not claim Honey Solutions purchased or sold ‘tainted’ or impure Chinese honey” and “the government did not charge Honey Solutions with tax evasion.” This sounds like a wholesome company, caught up in unfortunate circumstances, doesn’t it? Remember, the government did not claim that Honey Solutions Inc sold tainted Chinese honey nor has it charged Honey Solutions with tax evasion.
It’s a confusing story, so I’m quoting this, from the Houston Chronicle:
Yang and his company, National Honey Inc., deployed at least four companies to manage imports of Chinese honey – imports that would be unfeasible under antidumping duties as high as 221 percent of the honey’s value.
The transshipment scheme unraveled only after a government plant in the Baytown company Honey Solutions won Yang’s trust.
“Because of the complexity of the case, the underlying facts and the proving up of these very complicated schemes, it required us to essentially put in an undercover agent who pretended to be a bad guy,” said assistant U.S. attorney Andrew S. Boutros in Illinois’ Northern District, the lead prosecutor in the government’s string of successful honey cases.
According to court documents, the government plant began working at Honey Solutions as director of procurement in June 2011, shortly after Douglas Murphy, the company’s director of sales, was released from prison. Murphy had served about half of a five-year sentence for bribing Haitian officials in connection with his rice export business.
In a deferred prosecution agreement in 2013, Honey Solutions agreed to pay a $1 million fine.
Last week, Honey Solutions issued a news release noting the expiration of the deferred prosecution agreement with the government. But the company said it continues to assist an investigation into the honey industry.
The release asserted that neither the company nor its owner, officers or employees had been indicted or criminally charged with illegally transshipping, smuggling or importing Chinese honey into the U.S. The release did not mention company agents.
Above, I highlighted the phrase deferred prosecution agreement. That’s when a prosecutor agrees to grant amnesty in exchange for the defendant agreeing to fulfill certain requirements. You might like to read this piece from Corporate Crime Reporter: Why Were Honey Companies Given Deferred Prosecution Agreements? In part, the piece tells us:
A second company, Honey Holding, doing business as Honey Solutions of Baytown, Texas, admitted to charges that it purchased, processed, and sold the Polish-origin honey that was adulterated with the antibiotic.
Despite these admissions, the U.S. Attorney’s office in Chicago allowed Groeb and Honey Holdings to enter into deferred prosecution agreements.
And one more time, for clarity: the government did not claim Honey Solutions Inc. purchased or sold tainted Chinese honey nor did it charge Honey Solutions with tax evasion. And I’m not claiming any of this either. I’m just repeating court records and depositions. You may draw your own conclusions over whether a “deferred prosecution agreement” was justified – apparently the prosecutor thought so.
All of this might seem esoteric. So, a little bad honey was sold to an unsuspecting public. And some honey, produced in China, was fraudulently imported (by Yang’s companies) to the USA. Who gets hurt?
We all get hurt: Honest honey packers (and there are many) have to compete against this crooked crap where prices are undercut by tainted honey and by honey without import duties properly paid. In May, 2016, Homeland Securities estimated it lost over one hundred eighty million dollars in revenue from illegal honey imports alone. Meanwhile, beekeepers get hurt as they have to sell cheaply to be competitive with dirty imports. Consumers may be literally, physically hurt by adulterated honey. Finally, honey gets a bad name and sales drop. It’s a dirty business, done for greed, just so criminals can have a bigger house, a fancier car, a grander vacation – at the expense of ordinary working people.
Although a few people were caught, some guilty pleas were entered, and a wee bit of jail time was awarded (Doug Murphy got 6 months – the law allowed for up to 25 years), millions of dollars in potential profit from honey laundering and associated malpractices is still a huge incentive when the punishment is not much more than a tap on the knuckles.