A Chinese company fraudulently exported huge amounts of aluminum to Southern California and then orchestrated bogus sales to deceive investors, according to a federal grand jury indictment unsealed this week.
Federal prosecutors said the company, China Zhongwang Holdings Limited, designed the scheme to avoid paying $1.8 billion in tariffs that were imposed on certain types of aluminum imports in 2011. The company’s former president and chairman, the Chinese billionaire Liu Zhongtian, is among the people accused of lying to Customs and Border Protection. He and his co-defendants face charges including conspiracy, wire fraud and money laundering.
The indictment, which was reported by The Wall Street Journal, alleges that the company disguised its shipments as “pallets,” which would be classified as finished goods and not subject to the duties. They were imported through the ports of Los Angeles and Long Beach, stored nearby and purportedly sold to United States-based companies controlled by Mr. Liu.
But prosecutors said the sales were a sham intended to inflate the value of the company, which is publicly traded on the Hong Kong Stock Exchange. Mr. Liu, 55, remains a major shareholder, prosecutors said.
The company’s website states that it is the largest aluminum extrusion product developer in Asia and that its products are used in construction, transportation and other sectors. Its headquarters are in Liaoyang City. The company did not immediately respond to a request for comment on Wednesday.
Prosecutors said that the company’s annual reports “created a false narrative that there was a robust demand for the aluminum pallets in the United States.” The reports claimed that the pallets were being sold to independent third parties. But the metal, which had been spot-welded to look like pallets, was actually being stockpiled by California-based companies that Mr. Liu controlled, the indictment states.
The defendants are also accused of carrying out a large-scale money-laundering operation that funneled millions of dollars through shell companies to the United States-based aluminum companies controlled by Mr. Liu, and then back to China Zhongwang Holdings.
The majority of the activity referred to in the indictment took place between 2011 and 2014, and deprived the United States of $1.8 billion in tariffs, prosecutors said.
“This indictment outlines the unscrupulous and anti-competitive practices of a corrupt businessman who defrauded the United States,” Nick Hanna, the United States attorney for the Central District of California, said in a statement.
“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,” Mr. Hanna said.
In addition to Mr. Liu, two other men were named in the indictment: Chen Zhaohua, 60, a Chinese national described as a close friend of Mr. Liu and a key player in the fraud; and Shao Xiang Chun, also known as Johnson Shao, 58, most recently of Irvine, Calif. Prosecutors said Mr. Shao managed several Southern California businesses that purported to be independent aluminum importers.
None of the three men were believed to be in the United States, and information on defense lawyers was not immediately available. Prosecutors had previously filed civil forfeiture claims against some of the seized aluminum and the four warehouses used to store it.
A spokesman for Mr. Hanna said the case was not related to the ongoing tensions over trade between the United States and China.
Negotiators for the two countries were meeting this week in Shanghai, for the first time since negotiations fell apart almost three months ago. The White House press secretary called the talks “constructive” and said that negotiations were expected to continue in Washington in September.