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Chinese billionaire used LA as base for audacious aluminum scam that cost US $1.8B, feds say

DHS and TSA work with Amtrak and law enforcement partners. (Barry Bahler/Department of Homeland Security)

A Chinese billionaire and his company had a problem, federal prosecutors allege: They wanted to import massive amounts of aluminum into the United States without paying tariffs.

So they came up with an audacious plan.

Zhongtian Liu, 55, and China Zhongwang Holdings Ltd. imported extruded aluminum from China into the ports of Los Angeles and Long Beach, avoiding the tariffs because the material appeared to have been manufactured into finished pallets, authorities said.

They then stored the metal in warehouses around Southern California, engineering bogus sales of the aluminum to entities they secretly owned to inflate the company’s revenues and deceive investors, according to an indictment unsealed Tuesday.

Companies controlled by Liu imported at least 2.2 million “pallets” between 2011 and 2014, federal prosecutors said, but in fact, none of them was sold.

Liu and China Zhongwang Holdings Ltd., Asia’s largest aluminum extrusion company, were charged in Los Angeles federal court May 7 with carrying out the elaborate scheme to avoid paying $1.8 billion in tariffs intended to stop the dumping of raw materials into the U.S. market.

Agents seized the aluminum at locations across the region in a series of civil forfeiture actions that began in 2017. The charges became public this week.

Investigators believe the plan was to eventually melt the pallets and sell the raw aluminum, which was extremely high-grade and could have been used to manufacture medical devices, military equipment or aircraft, said Jeremy Scott, assistant special agent in charge for Homeland Security Investigations in Los Angeles.

About 260,000 of the pallets are now sitting in a seizure warehouse owned by the federal government.

The alleged scheme is an example of a battle federal authorities have long fought against Chinese firms accused of evading tariffs to dump steel and aluminum into the U.S., hurting domestic suppliers. President Trump has vowed to crack down on what he considers these and other Chinese trade abuses at the center of the current trade war.

“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,” Joseph Macias, special agent in charge for Homeland Security Investigations in Los Angeles, said in a statement.

Liu resigned as president of China Zhongwang Holdings Ltd. in 2016 and as board chairman in 2017. He could not be reached for comment. The company said in a statement that it “has always strictly abided by in its business operation the laws and regulations of the People’s Republic of China and destination countries of its exported products, and has developed overseas markets under the principle of fair and orderly competition.”

The aluminum was “spot-welded together” to resemble pallets because finished goods are exempt from the anti-dumping duties, which in this case would have amounted to about 400% of the value of the raw materials, the indictment states.

Prosecutors said the material was imported through the ports of Los Angeles and Long Beach and sold to a string of companies that appeared to be independent but were actually controlled by Liu. It was then stockpiled at warehouses in Southern California that were owned by companies Liu controlled, according to the indictment.

China Zhongwang Holdings Ltd. drew on the “bogus sales” in its annual reports to mislead investors by creating “a false narrative that there was a robust demand for aluminum pallets in the United States,” according to a news release issued by federal prosecutors.

To conceal the activity, the indictment alleges, Liu and his associates funneled hundreds of millions of dollars through shell companies to the U.S.-based aluminum companies controlled by Liu and then transferred it to China Zhongwang Holdings Ltd.

Investigators believe Liu had intended to either build a smelting plant in Barstow or buy one in Delair, N.J., so he could melt down the aluminum and resell it on the U.S. market at “a significantly reduced price,” Scott said. He appears to have been thwarted by environmental processing or licensing issues, he said.

Instead, Scott said, Liu exported some of the aluminum to Vietnam and had planned to melt it down there and possibly reintroduce it back into the U.S. as non-Chinese aluminum before the alleged scheme was discovered.

“It was very complicated,” Scott said. “I’d say it was pretty ambitious. But had they been able to maybe get the smelting plant online sooner, I think this plan could have actually worked.”

The Aluminum Assn., a trade group, said in a statement that it “has long expressed concern about duty evasion, misclassification and transshipment distorting the global and domestic market for aluminum.”

“The charges against China Zhongwang Holdings Inc. place these issues in stark relief,” the group said. “In addition to enforcing existing trade law, it is critically important that the U.S. implement an aluminum import monitoring system to help minimize threats to a fair and level playing field for the entire industry value chain.”

U.S. Atty. Nick Hanna said in a statement that “the rampant criminality described in this case also posed a threat to American industry, livelihoods and investments.”

In addition to Liu and China Zhongwang Holdings Ltd., the 24-count indictment names Zhaohua Chen, 60, whom authorities described as a close friend of Liu and “a key player in the scheme”; Xiang Chun Shao, 58, who managed a string of companies that imported the aluminum; one of those companies, Perfectus Aluminum Inc.; and a subsidiary, Perfectus Aluminum Acquisitions. They all face charges of conspiracy, wire fraud, passing fraudulent documents through a customhouse, money laundering and related offenses. Also indicted were the four LLCs that owned the warehouses, which face the same charges, absent the money laundering counts.

Most of the defendants are believed to be outside the U.S., and some, including Liu, are in China, Scott said. The U.S. has no extradition treaty with China, so federal investigators are working with overseas partners in an attempt to bring the men into custody, he said.

If convicted, Liu, Chen and Shao each face up to five years in prison for the conspiracy charge and up to 20 years for each of the remaining 23 counts, while the companies face “substantial monetary penalties,” prosecutors said.

A fourth man, Po-Chi Eric Shen, 41, whom investigators described as a “business agent” of Liu, was charged with tax offenses in a separate case filed late Tuesday. He has agreed to plead guilty and cooperate with the investigation, which authorities said remains ongoing.


© 2019 the Los Angeles Times