A federal jury in Los Angeles on Aug. 23 convicted six southern California companies for taking part in a large-scale conspiracy to avoid paying $1.8 billion in customs duties by disguising aluminum imports as pallets.
The conspirators then sold the pallets to entities disguised to look like real customers with the intent of fraudulently inflating the value of China Zhongwang, the largest manufacturer of aluminum extrusions in Asia.
The six California companies, two aluminum firms, and four warehousing businesses were all related to each other. The jury found all six guilty of “one count of conspiracy, nine counts of wire fraud, and seven counts of passing false and fraudulent papers through a customhouse,” according to a press release from the Department of Justice.
“The aluminum sold to United States-based companies controlled by [Zhongtian] Liu was simply aluminum extrusions that were spot-welded together to make them appear to be functional pallets,” the DOJ said. “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.”
Instead, two of the defendants in the case, China Zhongwang Holdings Ltd. and Liu, the company’s former president, stockpiled the pallets on nearly two million square feet of space owned by the defendant’s warehouse businesses: Scuderia Development LLC in Riverside; 1001 Doubleday LLC in Ontario; Von Karman—Main Street LLC in Irvine, and 10681 Production Avenue LLC in Fontana.
Since there was no demand for the pallets, Liu and China Zhongwang began to build and acquire facilities that could melt down the aluminum and turn it into a marketable commodity.
“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 DOJ said in the press release. “The funds were then transferred to China Zhongwang and the other shell companies as payments for the aluminum.”
China Zhongwang raised $1.26 billion in an initial public offering (IPO) in 2009 on the Hong Kong stock exchange. Liu was the majority owner of China Zhongwang at the time of the IPO.