IRS undercover operation leads to tax fraud charges against Carlos Rafael of Carlos Seafoods

Prominent Massachusetts fisherman Carlos Rafael, the owner of New Bedford-based Carlos Seafood, one of the largest commercial fishing businesses in the northeast United States, was arrested Friday, 26 February and charged with conspiracy and submitting falsified records to the government to evade federal fishing quotas.

Rafael, 64, is accused of lying to federal authorities about the quantity and species of fish caught by the 40 vessels in his fleet. The charges stem from a nine-month undercover operation launched by the Internal Revenue Service in coordination with the National Oceanic and Atmospheric Administration, the Department of Homeland Security, the Coast Guard, the Federal Bureau of Investigation and U.S. Attorney Carmen M. Ortiz. As a result of the investigation, Debra Messier, Carlos Seafoods’ bookkeeper, was also charged with submitting falsified records and conspiracy.

In face-to-face meetings in his office and in Massachusetts restaurants, Rafael told undercover federal agents posing as Russian organized crime figures about a longstanding off-the-books operation he ran selling fish to a New York City businessman in exchange for bags of cash, according to a U.S. Department of Justice press release and IRS Special Agent Ronald Mullet, who filed an 18-page sworn affidavit detailing his involvement in the investigation. The affidavit said Rafael claimed the fraud had been taking place for more than 30 years.

According to the affidavit, the undercover officers visited Carlos Seafoods in January 2016 posing as potential buyers of the company and were told in detail about the process used by Rafael and Messier to falsify the company’s record-keeping and federal reporting mandates."Rafael said that every Friday or Saturday, he works with an employee, later identified as Debra Messier, who is responsible for preparing the reports. If Rafael’s boats catch fish in excess of legal quotas, he tells Messier to change the description on the report to that of another species for which he had remaining quota, or to one for which there were no limitations at all,” Mullet said in his statement.

Rafael allegedly offered to sell his entire business – 40 fishing vessels and Carlos Seafood – for $175 million to the undercover agents. He claimed it was worth that amount as a result of the illegal operations, even though a 2014 financial statement showed his business to have combined assets of about $21 million, with $3 million to $4 million in adjusted gross income annually between 2011 and 2014, according to the affidavit.

The affidavit outlined regulatory weaknesses that allowed the fraud to take place. Since Rafael owned both fishing vessels and a fish-dealing business, he was able to manipulate federally mandated trip and dealer reports to hide actual catch amounts and types, the affadavit claimed.

“To perpetrate an ongoing fraud regarding the weight or species of a given catch, the vessel operator and the dealer must collude. This is easier when the vessel and the dealer are owned by the same person,” Mullet said.

While claiming his boats caught only pollock, Rafael’s fleet allegedly took in dabs, gray sole and other species well beyond legal catch limits. Rafael said it was possible to misreport his catch and rename fish when dockside inspectors were not present.

“When the guy [the dockside inspector] disappears, that’s when we got a chance to make that fish disappear and that fish disappears under a different name. Becomes one of the names where we have a lot of quota, that doesn’t make a difference. I can call them haddock. This year I’ll have 15 million pounds [of quota] of haddock … I could never catch 15 million. It’s impossible,” Rafael allegedly told the undercover agents at one meeting.

Rafael said the captains of his ships were aware of the scheme to skirt quota limits. “I pay them as haddock, but it’s not haddock,” Rafael allegedly said to the agents.

Rafael’s business contact in New York was identified in court documents as Michael Perretti, who is listed as the owner of South Street Seafood Corp., located in The Bronx, N.Y. Perretti has not yet been charged with any crimes as a result of the investigation. The undercover agents met with Perretti in January 2016 and confirmed he paid Rafael cash up-front and off-the-books in exchange for deliveries of fish.

Phone calls to Rafael’s number at Carlos Seafood and to Perretti’s number at South Street Seafood Corp. were not returned Monday.

In a meeting between the undercover agents and Rafael in June 2015, Rafael said while his business officially recorded a loss of $445,000 from January to June of 2015, he had earned $668,000 through the illegal sales of fish to Perretti in New York. Rafael made allegations that he smuggled some of the cash into Portugal through Boston Logan International Airport, with the help of a local law enforcement officer, who helped him circumvent airport security by moving the cash through restricted areas, and then returning it to Rafael after he had passed through airport security.

“Law enforcement here assisted in the investigation and will continue to be part of that, and airport officials remain confident in the security systems that are in place,” said Matt Brellis, a spokesperson for Massport, which operates Boston Logan Airport. Brellis referred additional questions to the U.S. Attorney’s office in Boston, which did not immediately answer SeafoodSource inquiries made Monday.

Rafael told the undercover agents that he had spent hundreds of thousands of U.S. dollars in Portugal on renovations to homes owned by himself and his parents, as well as on the purchase of a warehouse and a pleasure boat. A search conducted at Logan Airport on 10 November 2015 by Transportation Security Administration agents of Rafael’s bags before he flew to Portugal found him to be carrying $26,407 in cash, which he subsequently declared to customs officials.

Both Rafael and Perretti previously faced criminal charges related to their business practices. Rafael was convicted of tax evasion in the 1980s and of making false statements on landing slips for commercial fishing vessels in 2000. He was acquitted of price-fixing in 1994. According to a USA Today article, Perretti pleaded guilty in 1999 in a case involving the sale of untagged wild striped bass.

Rafael is being held without bail pending a hearing on Wednesday, 2 March and Messier was released on $10,000 unsecured bond, according to the Boston Globe. If convicted, Rafael and Messier each face sentences of up to 25 years in prison, including three years of supervised release and fines of up to USD 500,000 (EUR 459,500) fine, though actual sentences for federal crimes are typically less than the maximum penalties.