9th Circuit Affirms Jury Conviction Against Chinese Cos. in $1.8B Customs Fraud Suit

The U.S. Court of Appeals for the 9th Circuit last week affirmed the convictions of six companies for conspiracy to commit wire fraud, customs fraud and promotional money laundering. However, the court said the trial court failed to resolve the parties' dispute on the value of the companies' warehouses before finding that they "lacked the ability to pay" the over $1.8 billion judgment and "ordering a nominal payment schedule."

Ninth Circuit Judges Richard Paez and Gabriel Sanchez, along with Judge Barbara Lynn of the Northern District of Texas sitting by designation, said the government provided "ample evidence" of the companies' "intent to engage in customs fraud" when they sought to avoid the antidumping and countervailing duties on aluminum extrusions from China.

The six companies -- Scuderia Development, 1001 Doubleday, Von-Karman-Main Street, 10681 Production Avenue, Perfectus Aluminum and Perfectus Aluminum Acquisitions -- were convicted following a jury trial on the duty avoidance scheme. The U.S. alleged that the companies sought to avoid the AD/CVD on aluminum extrusions by manipulating the orders' "finished merchandise" exclusion.

The government said the companies disguised the extrusions as aluminum "pallets" and submitted false information to CBP, declaring that the pallets were finished merchandise. Instead, none of the pallets was bought or sold but instead warehoused to be melted back into raw aluminum. The U.S. said the companies imported 2.2 million pallets and evaded over $1.83 billion in customs duties.

A jury convicted the companies of "conspiracy, wire fraud, smuggling goods through customs, and money laundering." Reviewing the conviction on multiple grounds, the 9th Circuit initially said the trial court didn't err in denying the companies' motion to dismiss. The indictment "adequately alleged the elements of customs fraud" by claiming that the companies intended to avoid the AD/CVD by "knowingly submitting false documentation" to CBP claiming that the pallets were finished merchandise.

The appellate court added that the government offered sufficient evidence for the convictions, and that the U.S. didn't impermissibly vary its case from indictment to trial. The indictment alleged the companies conspired to falsely represent that its pallets were finished goods beyond the scope of the orders, and this same theory was presented at trial, the court said. The court also held that the trial court wasn't required to ask jurors about anti-Asian and anti-Chinese bias.

Where the court sent back the case was on the issue of restitution. As a result of the case, the companies were found jointly and severally liable for over $1.83 billion in duties to be paid to CBP under the Mandatory Victims Restitution Act. The appellate court said the trial court erred in ordering a payment schedule without settling a dispute on the value of the "Warehouse Defendants' assets."