Chinese Billionaire also Accused of Defrauding Investors by Inflating Value of Publicly Traded Company Through Sham Sales of Aluminum Stockpiled in U.S.
LOS ANGELES – A federal grand jury indictment unsealed late Tuesday alleges a complex financial fraud scheme in which a Chinese company exported to the United States huge amounts of aluminum – disguised as “pallets” to avoid customs duties of up to 400 percent – and “sold” the purported pallets to related entities to fraudulently inflate the company’s revenues and deceive investors around the world.
The 53-page indictment alleges that China Zhongwang Holdings Limited, Asia’s largest aluminum extrusion company; Zhongtian Liu, the company’s former president and chairman; and several individual and corporate co-defendants lied to U.S. Customs and Border Protection to avoid paying the United States $1.8 billion in anti-dumping and countervailing duties (AD/CVD) that were imposed in 2011 on certain types of extruded aluminum imported into the United States from China.
The aluminum sold to United States-based companies controlled by Liu were simply aluminum extrusions that were spot-welded together to make them appear to be functional pallets, which would be finished goods not subject to the duties, according to the indictment. In reality, there were no customers for the 2.2 million pallets imported by the Liu-controlled companies between 2011 and 2014, and no pallets were ever sold.
The aluminum was imported through the Ports of Los Angeles and Long Beach and then stockpiled at four large warehouses in Southern California, all of which were purchased at Liu’s direction.
Liu and his co-defendants orchestrated the bogus sales of aluminum to Liu-controlled companies in Southern California to falsely inflate the value of China Zhongwang, according to the indictment. Liu is a major shareholder of China Zhongwang, which has been listed on the Stock Exchange of Hong Kong since a 2009 initial public offering that raised $1.26 billion.
After the AD/CVD duties were put in place in 2011, the company’s annual reports created a false narrative that there was a robust demand for the aluminum pallets in the United States, according to the indictment. The defendants allegedly inflated China Zhongwang’s sales volume and its volume of exports to the United States by engaging in transactions with entities controlled by Liu, and then falsely claimed in China Zhongwang’s annual reports that the aluminum was being sold to independent third parties, when it was actually being stockpiled by Liu-controlled entities in Southern California. Because there was no such demand for the pallets, the indictment alleges that “defendants Liu and China Zhongwang would direct that aluminum melting facilities be built and acquired to be used to reconfigure the aluminum imported as pallets into a form with commercial value.”
The indictment also alleges a massive money laundering scheme that was used by the defendants to funnel hundreds of millions of dollars through shell companies to the U.S.-based aluminum companies controlled by Liu. The funds were then transferred to China Zhongwang and the other shell companies as payments for the aluminum.
“This indictment outlines the unscrupulous and anti-competitive practices of a corrupt businessman who defrauded the United States out of $1.8 billion in tariffs due on Chinese imports,” said United States Attorney Nick Hanna. “Moreover, the bogus sales of hundreds of millions of dollars of aluminum artificially inflated the value of a publicly traded company, putting at risk investors around the world. The rampant criminality described in this case also posed a threat to American industry, livelihoods and investments.”
“The charges filed against these defendants are extremely serious,” said Joseph Macias, Special Agent in Charge for Homeland Security Investigations (HSI) Los Angeles. “Organized assistance and subsidies by foreign nations such as China have a detrimental effect on U.S. production and employment. Of greater concern, our national security is jeopardized when domestic industry loses its ability to develop and supply products for U.S. defense and critical infrastructure applications, forcing us to become dependent on unreliable imports from other countries. HSI will continue to work closely with our law enforcement partners in the U.S. and overseas to aggressively target threats to our national interest.”
The defendants named in the 24-count indictment returned under seal on May 7 are:
At this time, none of the individual defendants named in the indictment – Liu, Chen or Shao – are believed to be in the United States.
In a separate case filed late Tuesday, an associate of Liu, Po-Chi Eric Shen, 41, of Los Angeles, was charged with failing to report to the Internal Revenue Service more than $9 million in taxable income he received in 2015. Shen has agreed to plead guilty and cooperate with the government’s ongoing investigation in this matter.
“Tariffs are a tax on imports. Importers are expected to check the tariffs and other taxes and duties due on the goods they bring in, calculate what they owe, and pay it,” stated IRS Criminal Investigation Special Agent in Charge Ryan L. Korner. “Today’s announcement reinforces our commitment to every American taxpayer to identify and prosecute those who evade taxes, including by devising illegal schemes to dodge tariffs and create an unfair trade advantage for profit.”
In September 2017, the United States Attorney’s Office filed civil forfeiture actions against the four Southern California warehouses used by Perfectus to store the pallets. In February 2018, the government filed a fifth civil forfeiture complaint against “approximately 279,808 Aluminum Structures in the Shape of Pallets,” about half of which were seized in early 2017 at the Ports of Los Angeles and Long Beach, and the other half were seized from three other warehouses Perfectus was using to store the pallets. Those civil asset forfeiture cases have been stayed pending the completion of the criminal prosecution, in which the government is seeking the criminal forfeiture of the warehouses and seized aluminum.
The indictment announced today charges all of the defendants with conspiracy, nine counts of wire fraud and seven counts of passing false and fraudulent papers through a customhouse. All of the defendants, except the warehouse entities, also face seven counts of international promotional money laundering. If they were to be convicted, the individual defendants would face a statutory maximum penalty of five years in federal prison for the conspiracy charge and up to 20 years for each of the remaining 23 counts. If the companies were to be convicted, they would face substantial monetary penalties.
An indictment contains allegations that a defendant has committed a crime. Every defendant is presumed to be innocent until and unless proven guilty in court.
This matter is being investigated by U.S. Immigration and Customs Enforcement’s Homeland Security Investigations and IRS Criminal Investigation.
The criminal cases are being prosecuted by Assistant United States Attorneys Eddie A. Jauregui, Poonam G. Kumar and Julian L. André of the Major Frauds Section. The asset forfeiture cases are being handled by Assistant United States Attorney Steven R. Welk, Chief of the Asset Forfeiture Section.