The U.S. Department of Justice (DOJ) filed a complaint against a California company, alleging that it avoided paying $1.5 billion in tariffs by passing off illegally imported aluminum extrusions as finished products.

The complaint, filed September 14, alleges that Zhongtian Liu, the founder and chairperson of China Zhongwang Holdings Lmt., is effectively the owner of Ontario, Calif.-based Perfectus Aluminum Inc., which was formed by the combination of at least seven predecessor entities in 2014.

The complaint reads, “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.”

According to the complaint, Perfectus’ predecessor entities imported aluminum extrusions until approximately 2011 when the U.S. Department of Commerce issued two antidumping and countervailing duties (AD/CVD) orders.

“The conspirators ultimately decided to continue importing aluminum extrusions into the U.S. And evade the AD/CVD by disguising the extrusions as aluminum pallets. These “pallets were largely tack-welded, heavy, and made of expensive aluminum, making them impractical for real-world use and too expensive to be sold for use as pallets,” says the complaint.

Perfectus is accused of knowingly submitting false customs forms between the issuance of the AD/CVD orders in 2011 and at least 2014, during which time Perfectus imported 2,190,000 bogus aluminum pallets.

The complaint alleges that Perfectus stored the pallets at four separate warehouses with the intent to melt the pallets into aluminum billet for sale in the U.S.

“Perfectus has admitted that none of its aluminum ‘pallets’ were ever sold or leased in the United States,” says the complaint.

According to the complaint, the plan to melt the pallets into billet was frustrated when Dupré Analytics published a report in 2015 alleging that Liu, China Zhongwang and others were engaged in market fraud both in China and the U.S.

The ensuing publicity caused Liu to abandon his plan, according to the complaint, and create a new plan involving melting down the pallets in Vietnam and reintroducing the aluminum into the U.S. as a Vietnamese product. The Vietnamese aluminum would not be subject to the AD/CVD orders.

Agents conducted surveillance of the warehouse where Perfectus allegedly stored its illegally imported aluminum extrusions.

According to the complaint, Perfectus hired trucks to move shipping containers from its warehouse to a port for export. On September 19, 2016. U.S. Customs and Border Protection (CBP) officers seized pallets suspected to be imported illegally.

A CBP laboratory conducted a chemical composition test on one of the pallets. The lab results showed that the pallets were made of Series 6 aluminum, an aluminum extrusion included in the AD/CVD orders.

On January 9, 2017, the government formally seized 549 of Perfectus’ shipping containers containing approximately 130,000 pallets.

The DOJ is seeking to enforce the forfeiture of the defendant’s property to the U.S.  through its filed complaint.

A spokeswoman for Zhongwang told Reuters that Liu “does not control and is not the beneficial owner of Perfectus, and therefore he is not in a position to comment on issues relating to Perfectus.”

She said that the company denies the allegations listed in the complaint.

Zhongwang USA Merger

Zhongwang USA LLC, a separate entity from China Zhongwang, but also run by Liu, entered into a definitive agreement to acquire Aleris Corp. for $2.33 billion. Aleris announced the acquisition on August 29, 2016.

Reuters reports that the two companies have decided to extend their merger agreement through September 29. The previous deadline was Friday, September 15.

The Zhongwang spokeswoman told Reuters the extension was a “totally” separate issue from the DOJ complaint.

The AEC Responds

On September 15, the Aluminum Extruders Council (AEC) responded to the DOJ complaint against Perfectus in a statement.

“We want to applaud the Department of Justice’s decision to begin civil proceedings against Zhongwang’s affiliate Perfects [sic].  Today’s filing is the culmination of a concerted effort by the AEC and its members in conjunction with Customs and the Department of Commerce to investigate Zhongwang’s alleged attempts to avoid paying duties since the orders went into effect,” said Jeff Henderson, AEC president. “Furthermore, this should be a clear signal to those that seek to evade, circumvent, or in any way violate our orders that such activities will be uncovered and prosecuted.”