China Zhongwang Holdings (01333.HK) shares slumped as much as 14 percent on Aug 1 after news that its billionaire founder Liu Zhongtian was charged by US regulators in connection with suspected evasion of nearly US$2 billion in import tariffs.
Together with other indictments like money laundering, Liu could get a very lengthy jail term if convicted.
However, the 55-year-old tycoon is believed to be in China right now. And China has no extradition agreement with US. As long as Liu does not travel to the US, or regions that have an extradition pact with US (like Hong Kong or Canada), it would be difficult for the US government to catch him.
Zhongwang’s alleged misdeed came to light a few years ago. Short-seller Muddy Waters wrote in a 2015 report that Zhongwang smuggled massive amounts of aluminum into US and evaded tariff.
In a report published in September 2016, the Wall Street Journal wrote about a series of tax evasion activities by Zhongwang, citing a large number of insider documents. The US Department of Justice is believed to have started its investigation based on that media report.
According to the charges, Liu first shipped the company’s aluminum output to Mexico and then would sell it to the US market under the disguise as Made in Mexico products.
The amount involved was so massive that the Mexico warehouse, located deep in the desert, was reported to have held as much as 6 percent of global aluminum stockpile at the peak.
Also, Liu set up a company in US, which cumulatively purchased 2.2 million aluminum “trays” from China. Final aluminum products are not subject to tariff. But part of these was in fact semi-finished products. It is believed they were sold as materials, again dodging the tax.
A substantial portion of these trays were just kept in a South California warehouse, suggesting the company may have also inflated the revenue and profit through such arrangement.
US prosecutors also suspect that Liu was involved in a massive money-laundering scheme.
It has been a common practice in international trade to ship products to a third nation to avoid tariff.
However, few can match Liu in terms of the scale of his tax evasion operation.
Particularly when the US is in serious trade dispute with China at the moment, Liu became an obvious target.
Liu resigned as the chairman and executive director of Zhongwang in November 2017 for “personal health reasons”. But he still controls 74 percent of the listed firm as the largest shareholder.
This article appeared in the Hong Kong Economic Journal on Aug 2
Translation by Julie Zhu
[Chinese version 中文版]
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