This document summarizes information from an EPA investigation into the smuggling of ozone depleting substances. It discusses EPA's criminal investigation division and efforts to enforce regulations on ODS under the Clean Air Act and Montreal Protocol. The document outlines a case called Operation Catch-22 that targeted an international criminal network involved in smuggling the ODS HCFC-22. It provides details on the criminal cases brought against importers, distributors, and others involved in the smuggling operation.

1. ODS Smuggling Criminal Enforcement

2. EPA Criminal Investigation Division Sworn Federal Law Enforcement Officers 47 Field Offices in 38 States Nationally over 180 Special Agents working over 750 cases

3. Track all allowances, trades, petitions and transactions First line of defense (and attack) in ensuring compliance with the CAA EPA Office of Stratospheric Protection Division

4. Immigration and Customs Enforcement, Commercial Fraud Groups Customs and Border Protection Department of Homeland Security

5. Environmental Harm Economic Harm Inherent dangers involved in imports Deterence Promote respect for the law Why build a criminal case? Why Share?

6. Operation Catch-22

7. Vienna Convention for the Protection of the Ozone Layer was signed on September 16, 1987 The Montreal Protocol on Substances That Deplete the Ozone Layer All 196 UN recognized nations have signed the Montreal Protocol International Agreement

8. Montreal Protocol is implemented by Title VI (42 USC 7671-7671q) of the CAA and its regulations (40 CFR Part 82) The CAA provisions have required the United States to meet or exceed the Protocol deadlines for ending reliance on the most damaging ozone depleting substances The Clean Air Act

9. Common Names: Chlorodifluoromethane HCFC-22 R-22 Packaging 30 lb. Green Cylinder Common Uses Residential heat pump & air conditioning systems Class II Ozone-Depleting Substance Is The Current Enforcement Focus

10. First major milestone was the reduction of US consumption of ODSs by 35% below the baseline cap by January 1, 2004 To meet that commitment, EPA issued baseline allowances for the production and importation of HCFC-22. 100% of the consumption and production allowances went to specific companies Effective January 21, 2003, the import of bulk quantities of HCFC-22 was limited to those holding unexpended consumption allowances Allowance holders listed at 40 CFR 82.19 United States Phase-Out

11. EPA granted allowances for domestic production and import of all bulk HCFCs for 2010-2014 For 2010, the allocation for HCFC-22 was 20% less than actual domestic market demand Doctrine of unintended consequences: Intended to promote recovery and reuse But also increased smuggling and cheating Not a new lesson – CFC-12 Tax Fiasco And So The Black Market Grows…

12. Total Projected R-22 Servicing Demand and EPA’s 2010-2014 Allocations of HCFC-22

13. 2010: No production or import of HCFC-142b and 22 in equipment, except for items manufactured before January 1, 2010 And no further manufacture, sale, or distribution of new equipment with HCFC-22 2015:No production or import of any HCFCs, except for use as refrigerants in equipment manufactured before January 1, 2010 2020:No production or import of HCFC-142b and HCFC-22 2030:No production or import of any HCFCs Additional Details of U.S. Phase-Out

14. EPA SPD Internal databases ICE Entry Inspections ICE Review of Suspicious Entry Paperwork Industry Groups Intelligence Data Anonymous Tips (competitors, former employees, freight forwarders) International Information Sharing Information Sharing isEssential to Success

15. Operation Catch-22 Importers Manufacturers In China Freight Forwarders/Brokers/Facilitators (Amador Hernandez) Distributors Individual Buyers/ End Users

16. Operation Catch-22Goodfellas Branch

18. R-22 declared as R-134, was hidden behind R-134 cylinders & placed within R-134 boxes. CBP forms and invoicing all said R-134. A “Wall” had been created to conceal the prohibited R-22 First time R-22 cylinders discovered placed within R-134 boxes. Goodfellas

22. Modus Operandi was to divert shipments through “less” suspicious transit lanes and source countries ie, China – Caribbean - United States Inspectors knew to crawl thru the container to the back because of Goodfellas experience There was R-22 from about the fifth row to the nose of the 6 meter container Operation Catch-22Kroy Corporation Branch

27. Possible Charges: 18 USC 545 (smuggling) 18 USC 542 (falsified entry paperwork) 42 USC 7413 (CAA) 18 USC 371 (conspiracy) 18 USC 1001 (false statements) 18 USC 1341/1343 (Mail/wire fraud) Money Laundering RICO and Criminal Enterprise Charging Decisions

28. United States v. Kroy Corporation & James Garrido 09-20913-CR-Seitz (plea11/20/09; sent 2/11/10) Charged with 3 counts 18 USC 545 418,654 kg/FMV $3,930,541 Garrido 30 months imprisonment $40,000 criminal fine joint & several with Kroy Corporation $1,356,160.00 criminal forfeiture of “proceeds” joint & several with Kroy Corporation Kroy Corporation 5 years probation $40,000 criminal fine joint & several with Garrido $1,356,160.00 criminal forfeiture of “proceeds” joint & several with Garrido Criminal Case Results

29. United States v. Amador Hernandez 10-20065-CR-Cooke (plea 2/5/10; sent 4/21/10) 1 count 18 USC 542 (82,852 KG or 5,116 Cylinders) Have agreement for joint recommendation for a split sentence of a five month term of imprisonment followed by five month home detention Judge, SUA SPONTE, varied! $15,000 criminal fine Three years probation with special condition of six months home detention Criminal Case Results Con’t

30. United States v. Mar-Cone Appliance Parts Co. 10-20081-CR-GOLD (plea & sent 3/19/10) Charged with 1 count 18 USC 545 100,898 kg/FMV $843,291.70 Sentence $500,000 criminal fine $190,534.70 criminal forfeiture of “proceeds” $400,000 community service*** ECP Criminal Case Results Con’t.

31. United States v. John Correa, Abdiel Falcon, Charles Nova and BlasdimirUrena 2010-20719-CR-Altonaga (plea 10/20/10) John Correa: 5 years probation with a special condition of 5 months home detention; $3,000 criminal fine, requirement that he reimburse CBP $2,240.65 for storage and handling and $1,950.00 for destruction of contaminated product; and 100 hours of community service. Abdiel Falcon: 1 year probation with a special condition of 3 months home detention; $2,000 criminal fine; and 100 hours of community service. Charles Nova: 1 year probation with a special condition of 3 months home detention; $2,000 criminal fine, requirement that he reimburse CBP $2,240.65 for storage and handling and $1,950.00 for destruction of contaminated product; and 100 hours of community service. BlasdimirUrena: 5 years probation with a special condition of 7 months home detention; $3,000 criminal fine, requirement that he reimburse CBP $2,240.65 for storage and handling and $1,950.00 for destruction of contaminated product; and 100 hours of community service. Criminal Case Results Con't

32. The Duck Theory! It just doesn’t make sense for a company in another country to pay to reclaim and ship across the world, or to ship used product to pay to reclaim in the US. Under the current regulations, is this the perfect crime? Badges of Fraud

33. 40 CFR 82.152 “reclaim” refrigerant means to reprocess refrigerant to all of the specifications in appendix A to 40 CFR part 82, subpart F (based on ARI Standard 700-1995, Specification for Fluorocarbons and Other Refrigerants) that are applicable to that refrigerant meets these specifications using the analytical methodology prescribed in section 5 of appendix A of 40 CFR part 82, subpart F. The Regs…

34. Import of used/reclaimed refrigerant through the petition system “Functionally virgin” product being imported without allowances Current status of restrictions in the EU and possible incentives for producers to import “used” product without scrutiny Use “wrong” classification to avoid suspicion and scrutiny Used???

35. United States v. HARP USA, Inc., February 11, 2011 Pled guilty to making false statements in Petition to allow entry of “reclaimed” R-22 Fact Pattern Forfeiture of $206,140 in proceeds and payment of equal fine; 5 years probation; $25,000 community service payment ; implement an ECP; pay costs and fees Recent Case Result

36. Freight Forwarders Shell companies of importers set up in other countries to do import but run in US Sales representatives of manufacturers (China) – conspiracy Looking into schemes to buy US mfg R-22 that is exported and immediately re-imported (with allowances) but as US Goods Return to avoid duties and other charges Other Targets and Future Possibilities

38. We have successfully prosecuted importers, individuals completing the entry paperwork (freight forwarders and shipping coordinators), and a large scale domestic distributor. We have taken off the market approximately 542,631 kg of illegally imported merchandise Another approximate 500,000 kg under investigation excluding used and pre-charged amounts. Thus far…

39. 1. Arrival in U.S. Port 2. Administrative 30-day hold 3. Formal detention 4. Storage 5. Final disposition Process Upon [Attempted] Entry

40. UNEP Ozone Secretariat Regional Office for Latin America & Caribbean (ROLAC) Several countries want to work together either informally or through the use of MLATs to combat this smuggling problem. International Coordination

41. There is a perverse incentive for mass production of HCFC-22 simply to generate its by-product, HFC-23 Extremely valuable carbon credits can be secured through the Clean Development Mechanism (CDM) system The inclusion of refrigerant producing factories gives investors CDM credits for the destruction of the HCF-23 (an inexpensive process) effectively providing “permission” to pollute The U.S. press is relentless in assessing our work as it relates to THIS issue Relationship to Kyoto Protocoland Global Warming

42. http://ozone.unep.org/Data_Reporting/Data_Access ODS Production Rates

43. February 28, 2011 EPA approves HFO-1234yf as alternative to CFC-134a in autos and light trucks 99.7% lower global warming potential and substantially reduced Ozone Depleting Potential Technology As A Solution

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