china zhongwang case study

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Six Southern California Companies Ordered to Pay $1.83 Billion in Restitution for Scheming to Avoid Payment of Aluminum Duties

          LOS ANGELES – Six Southern California companies today were ordered to pay $1.83 billion in restitution for participating in a conspiracy to defraud the United States through a scheme in which huge amounts of aluminum – disguised as “pallets” to avoid $1.8 billion in customs duties – were exported to the United States and were “sold” to fraudulently inflate a China-based company’s revenues and deceive investors worldwide.

          United States District Judge R. Gary Klausner sentenced two aluminum businesses and four warehousing companies – all of which were related to one another – to five years of probation, which is the maximum penalty permitted by law, and ordered them to pay $1.83 billion in restitution. The defendants are:

• Perfectus Aluminium Inc., an Ontario-based business;
• Perfectus Aluminium Acquisitions LLC, a subsidiary of Perfectus Aluminium formed in 2014 to oversee several companies that received aluminum pallets shipped to the United States after duties were imposed on Chinese aluminum in 2011;
• Scuderia Development LLC, which owns a warehouse in Riverside;
• 1001 Doubleday LLC, which owns a warehouse in Ontario;
• Von Karman – Main Street LLC, which owns a warehouse in Irvine; and
• 10681 Production Avenue LLC, which owns a warehouse in Fontana.

          At the conclusion of a nine-day trial in August 2021, a federal jury found all six corporate entities guilty of one count of conspiracy, nine counts of wire fraud and seven counts of passing false and fraudulent papers through a customhouse. The Perfectus Aluminium defendants also were found guilty of seven counts of international promotional money laundering.

          “The Perfectus and Warehouse defendants were integral participants in this conspiracy,” prosecutors wrote in a sentencing memorandum. “Indeed, they existed only to perpetrate it.”

          The corporate defendants sentenced today – along with indicted defendants China Zhongwang Holdings Ltd., Asia’s largest manufacturer of aluminum extrusions; Zhongtian Liu, the company’s former president and chairman; and several other individuals – 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 was simply aluminum extrusions that were spot-welded together to make them appear to be functional pallets. In fact, 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 vast majority of the pallets were 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 China Zhongwang’s value. Liu was the majority owner 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, China Zhongwang’s annual reports falsely claimed that there was a robust demand for the aluminum pallets in the United States. Although the annual reports asserted that the aluminum pallets were being sold to independent third parties – and the defendants used these reported “sales” to inflate China Zhongwang’s reported sales volume and purported volume of exports to the United States – in fact the aluminum was being stockpiled by Liu-controlled entities in more than 2 million square feet of warehouse space owned by the warehouse defendants in Southern California, as well as at Liu’s New Jersey facility.

          Since there was no actual demand for the pallets, Liu and China Zhongwang arranged for aluminum melting facilities to be built and acquired, which were to be used to reconfigure the aluminum imported as pallets into a form with commercial value.

          The defendants facilitated their schemes by laundering 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.

          On March 24, Judge Klausner ordered the forfeiture to the United States the seized aluminum, currently estimated to be worth approximately $70 million.

          The remaining four defendants charged in a 2019 federal grand jury indictment in this case have yet to appear in court in the United States to face the criminal charges in this matter:

• Zhongtian Liu, 58, a billionaire Chinese citizen who is a former Tustin resident, and who is the former president and former chairman of the board of China Zhongwang Holdings Ltd.;
• China Zhongwang Holdings Ltd., a publicly traded aluminum company based in Liaoyang City that at the time of the indictment was the largest aluminum extrusion manufacturer in Asia and the second largest in the world, and which has accrued approximately $3.6 million in contempt sanctions for its failure to appear in this case;
• Zhaohua Chen, 62, a Chinese national who allegedly was a close friend of Liu and a key player in the scheme; and
• Xiang Chun Shao, a.k.a. “Johnson Shao,”60, most recently of Irvine, who allegedly managed a collection of Southern California businesses that pretended to be independent third parties importing the Chinese aluminum, including the Perfectus defendants.

          In 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 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.

          Homeland Security Investigations and IRS Criminal Investigation investigated this matter.

          Assistant United States Attorneys Roger A. Hsieh and Gregory D. Bernstein of the Major Frauds Section prosecuted this case. Assistant United States Attorney Jonathan S. Galatzan, Chief of the Asset Forfeiture Section, is handling the asset forfeiture-related portion of this case.

Ciaran McEvoy Public Information Officer [email protected] (213) 894-4465

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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'

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 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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Chinese Billionaire-Linked Companies Convicted of U.S. Fraud (1)

By Joe Schneider

Six companies tied to Chinese billionaire Liu Zhongtian were convicted in the U.S. of disguising aluminum shipments to avoid paying $1.8 billion in customs duties and to boost the value of China Zhongwang Holdings Ltd.

Two California-based companies, which were controlled by Liu, bought aluminum extrusions that were spot-welded to make them appear as pallets, which weren’t subject to anti-dumping duties, and stored them in warehouses, also controlled by Liu, according to the U.S. Justice Department.

Liu orchestrated bogus sales of the aluminum to inflate China Zhongwang’s value, the Justice Department said Monday in a release. Since there was no ...

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Chinese Billionaire Indicted in Alleged Scheme to Avoid $1.8 Billion in Anti-Dumping Duties

On Tuesday, a federal grand jury indictment was unsealed alleging a complex financial fraud scheme involving a Chinese company who exports large amounts of aluminum into the United States.

In a 53-page indictment, China Zhongwang Holdings Limited, the largest aluminum extrusion company, billionaire Zhongtian Liu, the companies former president and chairman, and several individuals lied in a U.S. Customs and Border Protection to avoid paying the United States $1.8 billion in anti-dumping duties that were imposed in 2011.

Liu and his codefendant orchestrated the fraudulent sales of aluminum to Liu’s controlled companies in southern California and falsely inflated the value of the company, according to the U.S. Attorney’s Office. After the anti-dumping duties were imposed 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 indictment further alleges that a massive money laundering scheme 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,” U.S. Attorney Nick Hanna stated. “The rampant criminality described in this case also posed a threat to American industry, livelihoods and investments.”

The indictment, announced earlier this week, charges all defendants with conspiracy, submitting false documents to U.S. customs, seven counts of international money laundering. If convicted Liu faces up to 425 years in federal prison.

If you have been charged or are under investigation for a federal crime, then contact the Law Offices of John D. Rogers to speak with an experienced Newport Beach federal crimes attorney .

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