Jesus Jose Mendez and Jamie Zambrano kept two sets of books and got rich – for a while anyway. On October 9, the pair, owners of a drywall firm in Woonsocket, R.I., were indicted in U.S. District Court for the District of Rhode Island on 28 counts related to fraud, tax evasion and structuring. The scam netted them millions of dollars. The case has all the hallmarks of “double-breasting,” a common practice in non-Right to Work states in which an employer under union contract sets up a parallel nonunion company for the purpose of avoiding compliance. While this setup isn’t necessarily illegal, it usually is. The identity of the union has been withheld for now. The indictment follows a joint probe by the IRS, the U.S. Labor Department’s Office of Labor-Management Standards and Office of Inspector General, and Rhode Island State Police.
Jesus Jose Mendez, now 43, and Jamie Zambrano, now 35, respectively, were president and vice president of a Massachusetts-based drywall subcontracting company known as J&J Drywall Inc. They also were president and vice president of a separate Massachusetts-based subcontracting company, Empire Inc., which listed multiple business addresses in Massachusetts and Rhode Island. It was more than a coincidence that J&J Drywall and Empire operated out of the same location, a garage at the residence of a relative of Mendez in Woonsocket. Under the terms of a union collective bargaining contract in force, the two firms had to hire employees (rather than contractors), and pay them with checks reflecting requisite wages and deductions. The pair, however, only rarely did this.
For several years, starting as early as June 2013 and lasting until about May 2018, reads the indictment, Mendez and Zambrano “did knowingly and willfully conspire and agree together and with each other, and with other individuals known and unknown to the grand jury, to defraud the United States for the purpose of impeding, obstructing, and defeating the lawful Government functions of the Internal Revenue Service of the Treasury Department in the ascertainment, computation, assessment, and collection of the revenue, to wit, federal employment taxes.” They did these things through an elaborate scam.
The indictment alleges that the pair would deliver pay to worksites in backpacks, usually in the form of cash rather than checks. The pair used their check-cashing side businesses to cash more than 600 business receipt checks totaling about $19 million, depositing more than $4 million of that into drywall business bank accounts. Many workers, especially those residing illegally in the U.S., were paid substantially less than what the contract called for. As they were paid in cash, they were unaware they were being shortchanged. Defendants Mendez and Zambrano allegedly made more than 120 cash deposits of between $9,000 and $10,000, often times on consecutive days. Many of the deposits were for $9,900. That was a red flag for investigators that illegal structuring was at work. Under the Bank Secrecy Act of 1970, financial depository institutions must report all transactions in amounts of at least $10,000 to the IRS. Mendez and Zambrano appear to have deliberately flown “under the radar.”
In the end, Mendez and Zambrano were charged with 17 counts of failure to collect and pay employment taxes, eight counts of structuring financial transactions, and one count each of wire fraud, tax evasion and conspiracy to defraud the federal government. Prosecutors might consider adding immigration fraud to that list. Mendez was arraigned in Providence federal court and released on unsecured bond; Zambrano is at large and faces an arrest warrant. Both defendants have a lot to talk about.