LOS ANGELES (CN) — A group of Southern California businesses controlled by a Chinese aluminum conglomerate was ordered to pay $1.84 billion in restitution for dodging U.S. tariffs by disguising aluminum imports as finished products.
U.S. District Judge R. Gary Klausner on Monday held Perfectus Aluminum Inc., an affiliate and four LLCs that own warehouses jointly and severally liable for the restitution to the U.S. Customs and Border Protection.
The six corporate entities were convicted at trial last year of conspiring with China Zhongwang Holdings Ltd., Asia’s largest manufacturer of aluminum extrusions, to import the extrusions welted together as pallets, for which there was no commercial market, to avoid U.S. antidumping tariffs.
The import fraud was part of a scheme by China Zhongwang and its billionaire former chairman and president, Zhongtian Liu, to deceive investors in the Hong Kong-listed company by inflating revenue, according to the U.S. Justice Department.
The Southern California businesses were the puppets of Liu, Assistant U.S. Attorney Roger Hsieh said at Monday's sentencing hearing.
Perfectus and the other corporate entities in California were integral to the fraud scheme and were set up to perpetrate it, according to the government. They bought aluminum from China Zhongwang at Liu's direction and paid for it with funds provided by China Zhongwang.
When the U.S. imposed antidumping and countervailing duties of up to 400% on China Zhongwang's aluminum extrusions in 2011, the company switched to welding the extrusions together as pallets, which as finished products weren't subject to the additional tariffs. Between 2011 and 2014, Perfectus imported 2.2 million aluminum pallets, which were stored at four warehouses specifically acquired for that purpose at direction of Liu.
Liu and China Zhongwang lied to the company's investors by claiming there was enormous demand in the U.S. for the pallets, according to the government. But since there was no actual demand for the pallets, Liu and China Zhongwang arranged for aluminum melting facilities to be built and acquired to reconfigure the pallets into a form with commercial value.
When fraud allegations started to surface 2015, Liu ordered the pallets still sitting in the Southern California warehouses to be shipped to Vietnam where he had another aluminum factory, according to the government. In January 2017, the U.S. seized the 280,000 pallets that still remained in the warehouses.
Robert Ruyak, an attorney for Perfectus, unsuccessfully argued at the hearing that restitution was inappropriate because the countervailing tariffs on the aluminum extrusions were a remedial measure, and since none of the pallets were sold in the U.S., there hadn't been any harm or losses to domestic aluminum producers.
Ruyak also argued that Perfectus has ceased operations and doesn't have any assets beyond the pallets the government seized in 2017.
Hilary Potashner, an attorney for the four warehouse LLCs, argued, also unsuccessfully, that her clients shouldn't be held jointly liable for the fraud because they had nothing to do with the imports or the lies to Customs and Border Protection and were only storing the pallets.
According to a valuation report filed in court by the government, the four warehouses are worth about $1 billion.
Liu and China Zhongwang were also charged by the U.S. in the fraud scheme, but they haven't made a court appearance so far.
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