A federal grand jury indictment alleges that China Zhongwang Holdings Ltd., its former president and Chinese billionaire Zhongtian Liu and several co-defendants, including affiliate company Perfectus Aluminum, lied to U.S. Customs and Border Protection to avoid paying $1.8 billion in anti-dumping and countervailing duties (AD/CVD) to the U.S.
The AD/CVD orders were imposed by the U.S. in 2011 on certain types of extruded aluminum imported into the country from China. The jury alleges that China Zhongwang exported vast quantities of aluminum disguised as pallets to avoid customs duties of up to 400 percent, and then sold the pallets to related entities to fraudulently inflate the company’s revenues and deceive investors worldwide, according to the indictment.
The defendants allegedly created a falsely inflated sales volume by exporting the pallets to the U.S. and then engaging in transactions with affiliate companies under Lui’s control.
The jury alleges that the aluminum extrusions were spot-welded together to appear as if they were functional pallets, or finished goods, that are not subject to the duties. However, no pallets were ever sold between 2011 and 2014. Instead, the 2.2 million pallets were stockpiled in warehouses in Southern California, according to the indictment.
In the 24-count indictment, the jury also claims that the defendants were involved in a massive money laundering scheme in which they funneled hundreds of millions of dollars through shell companies to the Liu’s U.S.-based aluminum companies.
All of the defendants are charged with conspiracy, nine counts of wire fraud and seven counts of passing false and fraudulent papers through customs. All defendants except the warehouse entities also face seven counts of international promotional money laundering. The charges face a 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 convicted.
“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 in a statement from the U.S. Department of Justice (DOJ). “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,” added Joseph Macias, special agent in charge for Homeland Security Investigations (HSI) Los Angeles in the statement. “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.”
A statement released by China Zhongwang Holdings Ltd. says, “The company would like to clarify that the group 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.”
This indictment follows years of investigation and allegations brought forth from the Aluminum Extruders Council (AEC). The AEC called for an investigation into China Zhongwang’s aluminum exports to the U.S. in 2015 and filed a circumvention case against the company later that year. The U.S. Department of Commerce (DOC) announced that it was conducting an investigation into China Zhongwang in March 2016.
In early December 2016, the DOC declared that Zhongwang’s pallets are aluminum extrusions made of 1xxx alloy, cut-to-length and welded together in the form of a pallet and subject to the existing antidumping and countervailing duty orders on aluminum extrusions from China. In March 2017, the AEC asked the DOC to expand its finding to include 6xxx-series aluminum alloy pallets. The DOC issued a decision in June 2017, stating that 6xxx-series pallets also are covered by U.S. AD/CVD orders.
In September 2017, the U.S. Department of Justice filed a complaint against Perfectus Aluminum, alleging that it avoided paying $1.5 billion in tariffs by passing off illegally imported aluminum extrusions as finished products. It claimed that Zhongtian Liu was effectively the owner of the California-based company.
“Between 2011 and at least 2014, Liu used Perfectus to illegally import more than 2.1 million aluminum ‘pallets’ from China into the United States…The ‘pallets’ were manufactured by China Zhongwang and/or its affiliates and ‘sold’ to Perfectus by several intermediary entities…Many of these intermediary entities are or were owned and operated during the relevant period by members of Liu’s family or his close associates,” reads the complaint.
In January 2018, the AEC filed a new circumvention petition, alleging that China Zhongwang Holdings and its network of affiliates transported its aluminum extrusion products through Vietnam before being exported to the U.S. in order to avoid AD/CVD orders.
In May 2019, the DOC issued a preliminary determination that Chinese aluminum exported from Vietnam circumvents the orders.