A federal judge sentenced the owners of Barrier Wear to three years of probation and 120 hours of community service to resolve a $30 million criminal fraud investigation.
U.S. District Court Judge James A. Soto sentenced Paul Grillo and Raymond Lawson on Monday after the pair pleaded guilty to one count of obstructing a government auditor, a Class D felony, and forfeited $2.1 million.
The charge stemmed from a scheme in which Barrier Wear made clothes for the U.S. military in Mexico and switched the tags at its Rio Rico facility to indicate the items were made in the United States.
The subterfuge gave the appearance of complying with the Berry Amendment, a federal requirement that U.S. military garments be produced domestically.
Defense attorney Michael Piccarreta, one of three attorneys representing Grillo and Lawson at Monday’s hearing, cast the scheme as a response to a labor shortage at the Rio Rico facility.
The company made cold-weather clothes for the military on behalf of the primary contractor, Virginia-based Atlantic Diving Supply, Picarreta said. However, Barrier Wear received purchase orders, rather than contracts, and laid off workers for months at a time when the purchase orders dried up.
The Broomfield, Colorado-based company also made fire-retardant clothes for private-sector clients at facilities in Hermosillo, Sonora, and nearby Baviacora.
Lawson told the judge that when the company received purchase orders, but did not have enough Arizona workers, the orders were filled by the Mexican facilities.
Grillo told the judge he was “real sorry about everything that happened,” and Lawson said he felt “deep remorse.”
The parties agreed the garments delivered to the military were of sufficient quality and quantity. However, the Berry Amendment is meant to support U.S. industries, and the government’s sentencing memorandum said the case “certainly merited a felony resolution with a substantial forfeiture to provide just punishment for the offense.”
Piccarreta characterized the plea and forfeiture deal as a “very harsh agreement” for two entrepreneurs who had a 30-year business history without any previous criminal violations.
In contrast, Assistant U.S. Attorney David Zipps said the plea deal was “commensurate with their conduct.”
Barrier Wear made a “concerted effort to defeat the provisions of the Berry Amendment” by deceiving federal auditors and removing information about the label-switching from documents sent to Atlantic Diving Supply, Zipps said.
The defense argued that similar cases were resolved in civil court rather than with criminal charges, but Zipps said his office ruled out a civil case due to evidence of mail fraud, false statements to federal authorities and obstructing a government auditor.
The government relies on people “to engage in honest conduct,” Zipps said, noting the only reason the scheme was uncovered was an officer at a Nogales port of entry checked the labels on the garments.
In 2009, a Nogales customs officer saw crates of camouflage garments coming into the United States, an unusual sight at the port, Brian McNulty, Homeland Security Investigation’s agent for the Barrier Wear case, told the Star in an interview.
One of the country-of-origin tags on the garments was so poorly attached “it fell off in his hand,” he said.
His agency has seen trade violations at the Nogales ports of entry, but “nothing of this magnitude.”
Agents followed the shipment to the Rio Rico facility and then to Atlantic Diving Supply, he said. Soon after, Barrier Wear employees contacted them, saying “something’s not right.”
The Department of Defense then put more federal agents on the case, which “showed that it was a big deal,” McNulty said.
On Monday, Zipps said unsupervised probation, rather than prison, was appropriate for Grillo and Lawson.
Judge Soto accepted the plea deal, despite being “troubled” by the negotiated forfeiture of $2.1 million.
All told, the company shipped about $48 million in clothes from 2008 to 2013. The parties agreed about $30 million worth of those garments were made in whole or in part in Mexico and Barrier Wear saved about 10 percent on costs for the Mexican-made garments, court records show.
Soto said he was concerned the $2.1 million did not match the amount Barrier Wear saved by outsourcing to Mexico, but the court filings showed uncertainty about those costs and whether the government might have received less at trial.
Soto noted the company could have used a labor shortage exemption in the Berry Amendment and Lawson replied that “we should have looked at that.”
Going forward, the federal government is seeking to prohibit Barrier Wear from receiving military contracts for three years, Zipps said.
Barrier Wear also faces a possible multimillion-dollar civil claim by U.S. Customs and Border Protection for import violations, the government said in its sentencing memorandum.
In Mexico, the company faces a lawsuit for closing its factories in 2013 while owing 6 million pesos, or about $375,000, to workers who made about $12 per eight-hour shift, according to Hector Robles, director of the Sonoran chapter of the Workers Federation of Mexico.
In addition, the union presented authorities with evidence of unsafe and unsanitary working conditions at the Barrier Wear facilities, he said.
Contact reporter Curt Prendergast at 573-4224 or firstname.lastname@example.org