Attorney General Becerra and Assemblymember Lorena Gonzalez Announce New Law to Combat California’s Growing Illicit Underground Economy

SACRAMENTO – California Attorney General Xavier Becerra today applauded Governor Gavin Newsom for signing into law Assembly Bill 1296. The legislation, sponsored by Attorney General Becerra and authored by Assemblymember Lorena Gonzalez, will combat the illicit underground economy by permanently establishing the Tax Recovery in the Underground Economy program (TRUE) Task Force with multiagency investigative teams throughout California.   

“Here in California, no worker deserves to live in fear of exploitation, no business owner should face unfair competition, and no consumer or taxpayer should shoulder the price for criminal activity in the black market,” said Attorney General Becerra. “This new law provides crucial support to enforce the law, protect our workers and legitimate businesses, and take on the illicit underground economy. ‘Play by the Rules’ is more than just a motto in California.” 

“The underground economy hurts everyone: workers who are left without protection, consumers who are sold dangerous or fake products, and the state as we lose tax money,” said Assemblywoman Gonzalez. “This task force is a unique, collaborative approach for law enforcement to breakdown its usual silos and execute wider solutions for targeting the underground economy.”

AB 1296 ensures that there will be multi-agency collaboration among key governmental entities, including the Department of Justice, the Department of Tax and Fee Administration, the Franchise Tax Board, and the Employment Development Department to investigate and prosecute black market crimes. Together these agencies combat wage theft, human trafficking, tax evasion, counterfeiting and other crimes in the underground economy.

According to a University of California at Los Angeles Labor Center report, the state’s underground economy generates between $60 to $140 billion in unreported revenue annually, depriving the state of $8.5 billion in corporate, personal, and sales and use taxes each year. TRUE’s pilot program, established in 2014, allowed agencies in Sacramento and Los Angeles to work together to investigate and prosecute the most outrageous felony-level multijurisdictional underground economic crimes in California. For example, in September 2018, Attorney General Becerra announced the results of a year-long investigation that led to charges against a Bay Area adult residential and child care company for labor exploitation and human trafficking. In October 2018, Attorney General Becerra also announced that the State of California regained lost state revenues from an underground prescription drug business, from an illegal pharmaceutical scheme, and from operators who possessed counterfeit merchandise intended for sale. Since the beginning of the modest pilot program, investigative teams have identified $482 million in unreported gross receipts and $60 million in associated tax loss to the state. Additionally, through its criminal enforcement actions, the pilot program has recovered over $25 million in lost tax revenue, victim restitution, and investigation costs.