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    Senior Member JohnDoe2's Avatar
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    Chinese Billionaire Indicted in U.S. For Evading Nearly $2 Billion in Tariffs

    Chinese Billionaire Indicted in U.S. For Evading Nearly $2 Billion in Tariffs

    Accusations that aluminum mogul Liu Zhongtian committed fraud and money laundering come during tense trade talks between the two countries



    China Zhongwang founder Liu Zhongtian, at a company plant in 2009, is accused of conspiring to smuggle aluminum into the U.S. PHOTO: IMAGINECHINA/ASSOCIATED PRESS

    By Dan Frosch and
    Scott Patterson
    Updated July 31, 2019 12:53 pm ET

    A powerful Chinese billionaire has been indicted by a federal grand jury on charges that he evaded nearly $2 billion in tariffs as part of a conspiracy to smuggle massive quantities of aluminum into the U.S.

    The indictment, which was reached in May but not unsealed until this week, accuses Liu Zhongtian, founder of Chinese aluminum giant China Zhongwang Holdings Inc., of conspiring to defraud the U.S. through a sprawling scheme spanning the company’s headquarters in Liaoning, China, ports in Los Angeles and a remote desert in Mexico. It alleges that the scheme began in 2008 and has continued to the present day.


    Prosecutors said they believe it is one of the largest tariff-related cases ever brought by the Justice Department. The indictment comes as negotiations between the Trump administration and China over their ongoing trade dispute resumed this week after weeks of recriminations.


    An arrest warrant has been drawn up for Mr. Liu, one of the world’s wealthiest aluminum magnates, an official with knowledge of the investigation said. The 55-year-old, known as “Uncle Liu” and “Big Boss,” according to the indictment, is believed to be in China. He faces fraud and international money-laundering charges that carry a maximum prison term of 465 years if he is convicted, according to prosecutors.

    “America is not a playground for corrupt businessmen,” said Nicola Hanna, U.S. attorney for the Central District of California.


    A spokeswoman for China Zhongwang, which was also indicted, didn’t immediately respond to an email seeking comment and to speak with Mr. Liu. A call placed to a China Zhongwang representative in Hong Kong was not answered.

    The Journal couldn’t determine if Mr. Liu has a U.S.-based attorney. An attorney who has represented Mr. Liu in the past didn’t immediately respond to an email seeking comment.


    The company is accused of using the aluminum shipments to inflate its revenue for years, creating the false impression that U.S. demand for its products was strong. China Zhongwang is publicly listed on the Hong Kong Stock Exchange.


    Aluminum stockpiled in 2016 at Mexico’s Aluminicaste Fundición, a company owned at one time by s son, Liu Zuopeng. PHOTO: JANET JARMAN FOR THE WALL STREET JOURNAL

    Mr. Liu previously denied a connection to any illegal shipping schemes. China Zhongwang has long denied any connection as well.


    Jeremy Scott, assistant special agent in charge for Homeland Security Investigations in Los Angeles, which led the investigation, said efforts to bring Mr. Liu to the U.S. to face charges will likely have to be worked out through the State Department. The U.S. does not have an extradition treaty with China.


    The foreign ministry in Beijing and the Chinese embassy in Washington, D.C., didn’t immediately respond to requests for comment.


    The indictment accuses Mr. Liu and his associates of funneling cash to shell companies effectively owned by Mr. Liu to purchase aluminum from China Zhongwang and then market it to American buyers, masking the origins of the metal and skirting U.S. tariffs in the process.


    U.S. and Chinese trade negotiators are meeting this week in Shanghai, with the U.S. side pressing for expanded intellectual-property protections and cuts in state subsidies to business, while China is calling on the U.S. to drop all tariffs.

    The Trump administration has alleged that billions of dollars of China-made goods dodge tariffs by entering the U.S. via other countries in Asia, especially Vietnam. Mr. Trump this week warned that if he is re-elected, he will impose a tougher trade agreement on China than is currently being discussed. A primary target of the administration’s tariffs has been steel and aluminum imports.

    A spokesman for the U.S. attorney in Los Angeles said the trade negotiations had no impact on the investigation into Mr. Liu.


    The Wall Street Journal previously reported that Mr. Liu controlled a string of companies that avoided tariffs by shipping billions of dollars worth of China Zhongwang’s aluminum to the U.S. The ongoing Justice Department investigation began after the Journal—citing company records, trade documents and legal filings and interviews with people who have done business with Mr. Liu—published an article about the alleged scheme in 2016, prosecutors said.


    Mr. Liu denied involvement at the time. “These things have nothing to do with me,” he said in an interview with the Journal in 2016.

    The punitive U.S. tariffs on certain aluminum imports from several Chinese companies, including China Zhongwang, were imposed in 2011 after a Commerce Department investigation concluded that the companies were selling the metal at artificially low prices in the U.S. while receiving subsidies back home.


    A wall across the street from Aluminicaste Fundición hid more aluminum. PHOTO: JANET JARMAN FOR THE WALL STREET

    Mr. Liu allegedly skirted the tariffs by shipping aluminum to the U.S. in the form of pallets, a finished product not on the list of penalized items. But most of the pallets weren’t actually finished products, according to the indictment, and were allegedly a way to smuggle aluminum into the U.S. without paying the appropriate tariffs, investigators said. Between 2011 and around 2014, companies controlled by Mr. Liu imported 2.2 million of the fake pallets into the U.S., according to the indictment, evading about $1.8 billion in import duties.


    In 2016, much of the Chinese-made aluminum that had been shipped to Mexico and the U.S. began making its way to Vietnam as Mr. Liu allegedly sought to elude U.S. authorities investigating the scheme, according to the indictment.


    The Journal previously reported that Mr. Liu was aided in stockpiling aluminum in Mexico by Po-Chi “Eric” Shen, a native of Taiwan and a U.S. citizen, according to court documents and interviews with Mr. Shen.


    Mr. Shen has agreed to plead guilty to a charge of evading federal income tax and to cooperate with the investigation, Justice Department officials said. A lawyer for Mr. Shen declined to comment.


    Write to Dan Frosch at dan.frosch@wsj.com and Scott Patterson at scott.patterson@wsj.com

    Corrections & Amplifications

    Po-Chi “Eric” Shen is a native of Taiwan and a U.S. citizen. An earlier version of this article incorrectly stated that Mr. Shen is a native of Singapore. (July 31, 2019)

    https://www.wsj.com/articles/chinese...me-11564586470

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    Senior Member JohnDoe2's Avatar
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    I.C.E. News Releases

    NATIONAL SECURITY

    07/31/2019



    ICE HSI investigation leads to federal indictment alleging scheme to avoid payment of $1.8 billion in anti-dumping duties on Chinese aluminum imported as 'pallets'


    Chinese billionaire also accused of defrauding investors by inflating value of publicly traded company through sham sales of aluminum stockpiled in US

    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 case is the result of a massive probe conducted over several years by U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) Los Angeles.


    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 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 aluminum sold to U.S.-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. 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 U.S. The defendants allegedly inflated China Zhongwang’s sales volume and its volume of exports to the U.S. 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.


    The defendants named in the 24-count indictment returned under seal on May 7 are:


    • Zhongtian Liu, 55, a billionaire Chinese citizen, who for a time maintained a residence in Tustin, and who is the former president and former chairman of the board of China Zhongwang;
    • China Zhongwang Holdings Limited, the publicly traded aluminum company based in Liaoyang City that was the largest aluminum extrusion manufacturer in Asia and the second-largest in the world;
    • Zhaohua Chen, 60, a Chinese national and close friend of Liu, who allegedly was a key player in the scheme;
    • Xiang Chun Shao, also known as Johnson Shao, 58, most recently of Irvine, who managed a collection of Southern California businesses that pretended to be independent third parties importing the Chinese aluminum;
    • the Ontario-based Perfectus Aluminium Inc., which was controlled by Liu and managed by Shao;
    • Perfectus Aluminum Acquisitions, LLC, a subsidiary of Perfectus Aluminium formed in late 2014 to take over a string of companies that had received aluminum pallets shipped to the U.S. after the duties were imposed on Chinese aluminum in 2011; and
    • four LLCs controlled by Liu that were established to purchase warehouses in Riverside, Ontario, Irvine and Fontana where the aluminum pallets were stockpiled.


    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 Sept. 2017, the U.S. Attorney’s Office filed civil forfeiture actions against the four Southern California warehouses used by Perfectus to store the pallets. In Feb. 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.


    Today’s indictment 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.


    “This indictment outlines the unscrupulous and anti-competitive practices of a corrupt businessman who defrauded the U.S. out of $1.8 billion in tariffs due on Chinese imports,” said Nick Hanna, U.S. Attorney for the Central District of California. “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.”


    In a separate case, also investigated by HSI, an associate of Liu, Po-Chi Eric Shen, 41, of Los Angeles, was charged with failing to report to the IRS 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.


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