“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,” said U.S. Attorney Nicola T. Hanna in Los Angeles.
The scheme began as a bid to dupe investors when China Zhongwang started selling stock to the public in 2009, the indictment says, and later expanded into an attempt to cheat the U.S. government out of import duties.
Liu’s purported aim was to inflate the company’s market value by making it appear to investors as though there were a robust U.S. demand for aluminum products from China Zhongwang. The company, headquartered in Liaoyang, in China’s industrial northeast, raised nearly $1.3 billion in its 2009 initial stock offering in Hong Kong, prosecutors said.
Liu, who was one of China Zhongwang’s largest stockholders, arranged for aluminum shipments to a number of California companies that were ostensibly independent but actually under his control, the 53-page indictment alleges.
Xiangchun Shao, a California resident who managed those businesses under the name Perfectus, also was indicted.
Liu owned or controlled aluminum companies in China, Vietnam, Mexico and New Jersey, along with several warehouses in Southern California, the indictment says.
The defendants funneled hundreds of millions of dollars through shell companies to the California-based entities that Liu controlled, prosecutors say. The money, which Perfectus booked as “loans,” was secretly returned to China Zhongwang as payment for the aluminum shipments, the indictment says.
Liu and the other defendants are accused of lying to the U.S. International Trade Commission and the Internal Revenue Service about the financial arrangements behind the shipments, according to the indictment, which details an elaborate conspiracy involving 2.2 million pallets.
“Because there were no customers for these aluminum pallets, defendants LIU and CHINA ZHONGWANG would sometimes cause emails to be sent to defendant SHAO to enable him to create fake purchase orders,” the indictment alleges.
The indictment’s unsealing comes as Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert E. Lighthizer returned to Washington following the latest round of trade talks with China.
Negotiators reported little progress after two days and have agreed to meet in Washington in September.
In 2011, after concluding that China subsidized the production of aluminum extrusions and dumped them into the United States at below-market prices, the Commerce Department authorized duties of up to 374 percent on future Chinese shipments of products such as aluminum pipes, tubes, bars and rods.
The Zhongwang Group was among the companies named in that action.
But the duties did not apply to finished products. So Liu and his co-defendants arranged for the aluminum to be spot-welded to appear to be in pallet form before shipping it to the United States, the indictment says.
Liu then ordered the construction of facilities in the United States designed to melt the pallets into a form that could be sold more easily, the indictment says.
His case is unrelated to the 25 percent tariffs that President Trump imposed last year on imports of Chinese steel and aluminum.
Liu also is accused of falsely claiming in China Zhongwang’s annual reports that the shipments to the United States represented sales to American customers; in fact, the industrial metal was being stockpiled in warehouses he controlled, the indictment alleges.
In mid-2015, when a short-seller — an investor betting that a company’s stock price will fall — first raised fraud allegations, Liu denied any wrongdoing but exported the aluminum stored at the California warehouses to Vietnam, the indictment says.
The Justice Department earlier filed civil-forfeiture claims against four Perfectus warehouses and more than 279,000 aluminum pallets seized by customs officials. Those cases have been stayed while the criminal prosecution proceeds.
Liu and the other individual defendants face up to 465 years in prison if convicted on all 24 counts of conspiracy, wire fraud, money laundering, and passing false and fraudulent papers through a customhouse.
Prosecutors said none of the individual defendants is believed to be in the United States. The United States has no extradition treaty with China.
China Zhongwang, Perfectus Aluminum and a subsidiary, and four limited-liability corporations controlled by Liu all face substantial monetary penalties if found guilty.