AG Becerra, State Leaders Unveil New Legislation to Combat Underground Economy

AG Becerra, State Leaders Unveil New Legislation to Combat Underground Economy

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good morning Xavier Becerra attorney
general for the great state of California I’m joined by a number of
important people that I’d like to introduce to you before we begin we will
have presentations by our senator Kathleen Galgiani who is the supporter
of the legislation we’re about to discuss I’ll ask her to say some remarks
after I conclude my remarks and then we’re joined by our State Controller
Betty Yee who has been active in this matter as well and the two of them will
make some remarks but I do want to make sure I introduce some of the folks who
are here from the Department of Justice as well John you should be standing
right next to chief over here John John Marsh who’s coming over right now who is
the director of the Bureau of Investigations
Kevin Gardner who is the chief of the division of law enforcement and who is
the the director of all of the division of law enforcement whether its
investigations forensic you name it chief Gardner is the is the boss when it
comes to those matters within the Department of Justice I introduced
already senator Galgiani who’s with us we have our controller who I introduced
as well and let me introduce you to some of the folks who actually do the work
that we’re going to talk about today a special agent in charge Jim bisca Luce
Jim is right over here to my far right special agent supervisor Susan Gorsuch
who was here with us Susan rehto here and special agent supervisor Sean
Collins who was with me to my right Susan does the work in Sacramento and
Shawn does the work that we’re going to talk about in Los Angeles and I think
it’s important to point that out because we have programs in place a task force
in place in Sacramento and Los Angeles doing the work of essentially seizing
the stuff you see behind me and so that’s what we’re going to talk about
today the probably the most important way to start to solve is by saying we’re
here United around a very basic and very simple principle if you work hard and
play by the rules you should be able to get ahead that’s
the motto of America and certainly the motto
the sixth largest economy in the world the state of California
every worker who powered this economy and this engine deserves brights at the
workplace every upstanding business owner deserves a fair market every
taxpayer deserves to see his or her hard-earned money and taxes that he or
she pays used to provide vital services that’s why in our state we have been
leading on combating the underground economy a massive problem estimated to
account for some sixty to one hundred and forty billion dollars annually
costing us in uncollected taxes each year some eight and a half billion
dollars that’s eight and a half billion dollars that could be used to fund
children’s schools eight and a half billion dollars that could be used to
fix our roads and bridges eight and a half billion dollars to keep our
families safe in our neighborhoods in 2014
state agencies joined forces to address this problem we established the tax
recovery and criminal enforcement task force or trace our core partners with
the Department of Justice include the department of tax and fee Administration
formerly known as the Board of Equalization the Franchise Tax Board and
the Employment Development Department for the state of California together we
leverage expertise that we have and the pool then we pull together our
investigative resources to do the work of bringing down the bad guys who don’t
want to do things by the rules we go after those who commit felony level
crimes in the underground economy throughout the state of California we
started with a task force unit in Sacramento and then we expanded to Los
Angeles in just a few short years our teams identified 210 million dollars in
unreported gross receipts and 46 million dollars in Associated tax loss to the
state of California really to the people of the state of
California we’ve recovered millions of those dollars to date from lost revenues
last June our trace team helped us bring charges against a gentleman John Kim the
owner and operator of 50 clothing retail stores throughout Southern California
including fashion cube thanks to trace the trace teams efforts and hard work we
were able to secure guilty pleas in that case and seven point six million dollars
in restitution and last December our teams collectively and collaboratively
worked together to lead to the seizure of illegal pharmaceuticals and you see
some right over here right next to the illegal cigarettes these are things
these are products that are not approved by the Food and Drug Administration they
were for sale in the Sacramento area and we arrested the individuals in charge of
that ring and the operators of that scheme but we’re just getting started
I’m pleased to sponsor SB 1272 a bill that would permanently establish the
trace task force within the Department of Justice and for that we thank Senator
Galgiani for taking the lead the bill would give the task force’s board it
needs to investigate these crimes and recover the tax revenue we need to keep
our state strong we would use the legislative excuse me we would use the
legislation’s funds to create permanent infrastructure within the Department of
Justice to carry on this important work within this bill we would strengthen the
teams that we already have in Sacramento and Los Angeles but more importantly we
would build new teams in San Diego in the Bay Area and in Fresno this would
allow the Tres task force to more effectively and efficiently fight
underground economy crimes throughout the entire state and now we could really
say that with real fervor that we would be throughout the entire state working
on tackling the underground economy this would go a long way in helping our
state fund vital programs and protect the rights of hard-working Californians
employees and business owners alike who play by the rules I want to thank again
senator Kathleen Galgiani Assemblymember arambula from the Fresno area and
Senator Pro Tem Tony Atkins for their leadership in the legislature for being
part of this effort to move SB 1272 forward I want to thank our controller
Betty Yee for being part of the task force team at trace to make it all
possible to have it happen and for joining us today as well we’re looking
forward to continue this collaboration on these issues that are important to
everyone all families in California and I urge the legislators in the State
Capitol to help us protect all Californians with that let me now ask
senator Galgiani to offer some remarks thank you and I wanted to thank the
Attorney General and Controller Betty Yee for their participation with us in
this I also want to thank the agents who have been involved over the last four
years for their great work and going after those who commit these crimes
and I want to thank the California Building Trades for bringing you to my
attention the great work that’s been done with existing resources the
legislature started a pilot program about four years ago but it’s all of the
agencies that have been involved the BOE the the Department of tax and fee
collection the Franchise Tax Board the Department of Justice the Department of
Homeland Security EDD and others who have used existing
resources to bring this all about and as the attorney general explained
the underground economy accounts for about a hundred and forty – some even
believe two hundred billion in activity each year and that means that the state
loses out in about eight point five billion dollars in tax revenue that
could be used for other services and to put that into perspective that’s about
the equivalent of the state’s rainy day fund and worse yet the
is a problem that continues to grow each year from 1972 to the year 2000 the
underground economy activity about doubled so if we’re not doing everything
that we can to curb the activity that loss to the state will continue to grow
I’m proud to actually author SB 1272 along with Senate Pro Tem Tony Atkins
with sponsorship from the Attorney General and Betty ER controller to
expand the existing program from Sacramento and LA into the Bay Area San
Diego and to the Central Valley it will do a great deal to curb the activity and
level the playing field for the businesses that are playing by the rules
not only does the underground act underground economy hurt our businesses
it hurts workers because those who are engaged in illegal activity and not
reporting income taxes are also those who are cheating their workers whether
it’s with regard to wage theft or not reporting and not paying into
unemployment insurance and not paying into workers comp so I want to thank
everybody who’s here today again I want to thank all the agents for their
wonderful work and I’m happy to answer any questions thank you and I’d also
like to introduce our controller Betty E and thank her for being here and for
participating with us good morning thank you senator Galgiani for your
sponsorship of the for your authorship of the legislation and to the Attorney
General for being willing to establish the permanent home for the the trace
program you know through fraud and tax evasion the underground economy has
you’ve heard is taking away billions of dollars from hardworking taxpayers and
business owners and from the state of California we find that fraud and tax
evasion often occur in cash driven businesses and counterfeit products and
so I’m here in my role as the chair of the Franchise Tax Board and also an
at-large member of the Board of Equalization which was really where this
program first started as a pilot and so you know some of the types of businesses
that we really gave an extra I to in my role
when we first established this we’re castrum businesses like bars and
restaurants used car dealerships and clothes designer purchase as purchases
and movies are all things that are subject to being counterfeited and so
really to combat this the idea of having a multi-prong multi-agency task force
was really the right approach and as you can imagine as new as new ways of
passing on counterfeit products are established we just see this problem
growing and growing you heard from the Attorney General who our partners are of
this program in the past and I just wanted to share some success stories
because it’ll give you a flavor of just how broad reaching the trace program is
it is not only looking at those at the the construction site or those in cash
based businesses but we’re looking at different types of business activity as
well in 2018 you heard the the Attorney General speak about the fraud scheme
that would involve 50 clothing stores in Southern California failing to report 29
million dollars in taxable sales to the state in terms of sales tax and 39
million of taxable income to the Franchise Tax Board that resulted in
seven million dollars paid in restitution in 2017 fake tax payment
checks led to the arrest and conviction of bogus home loan business operators
the trace task force investigation led to the prosecution and conviction of the
Santa Clarita business owner in 2015 10 people were arrested in San Jose
California for thousands of counterfeit CD and pirated movie videos and the
arrests and seizures were a product of an investigation conducted by trace in
2015 an owner of a brewery was the subject of a trace investigation and
following that investigations sufficient evidence to arrest the business owner
from multiple felonies ensued which included a lot of good dealer payroll
tax evasion and then in 2014 an investigation by trace resulted in the
arrest of a Los Angeles man on five felony counts of counterfeiting designer
watches and sunglasses so aside from just
protecting hard working Californians protecting the state coffers this
program is also very important in terms of consumer protection some of the
products that you see behind us I will say to the extent that they’re
counterfeit bring up questions of whether they are even safe products to
be consumed and so a consumer protection is definitely a key part of this focus
as well again I want to thank the Attorney General for sponsoring this
legislation senator Galgiani for authoring it we need a permanent home
and a really a permanent program for this as we see more of this activity
become rampant throughout the state and adding additional sites in the state and
a permanent infrastructure will allow the state to be able to stay on top of
all that is going on relative to the underground economy but a lot of this
work is because of the you know really in the minds and the hands and and kind
of the the smarts of the agents that we see behind us who are working in
collaboration with other agencies but also almost I’m a sixth sense about you
know where there are problems and so we definitely want to continue to support
the work that they do and be happy to answer questions as well thank you truly
thank you very much senator Galgiani thank you thanks all very much

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