Indictment: Scheme to avoid taxes on paper imports

[October 23, 2012]  ATLANTA, Ga. (AP) -- A company in suburban Atlanta schemed to avoid paying millions of dollars in import taxes on cheap notebooks and loose-leaf paper from China by falsifying records and bribing customs officials in Taiwan, federal prosecutors said in an indictment.

Jennifer Chen, chief financial officer of Apego, Inc., entered a not guilty plea on Monday in federal court in Atlanta. The indictment handed down by a grand jury last week also charges her ex-husband, company CEO Chi Cheng "Curtis" Gung, and Apego with conspiracy and 12 counts of importing notebooks and filler paper from China using false documents.

A judge granted Chen $25,000 cash bond on the condition that she surrender her passport and agree to electronic monitoring. A lawyer for Gung told prosecutors that his client traveled to Taiwan last week to be treated for a grave medical condition and plans to surrender voluntarily next month.

Three Chinese paper manufacturers, a Taiwanese company, and their CEOs are also named in the indictment and face conspiracy and fraudulent importation charges. They are: Forth Wu, 69, a Taiwanese citizen who owns and operates Fromus Psyche International, Inc.; and Zuoru He, 66, a Chinese citizen who controls and partly owns three companies that make up The Watanabe Group.

Wu and He are believed to be in Taiwan and China, respectively, prosecutors said. The U.S. does not have extradition treaties with either nation.

"They are accused of avoiding over 20 million dollars in `anti-dumping' duties by shipping stationery made in China through Taiwan, bribing Taiwanese customs officials, and exporting the goods from there into the United States, falsely relabeled `Made in Taiwan,'" U.S. Attorney Sally Quillian Yates said.

In 2005, the U.S. Department of Commerce began investigating whether Chinese companies that make notebooks, loose-leaf paper and other lined paper products were selling their goods at an artificially low price, sometimes even below cost. Foreign companies sometimes engage in the practice, known as dumping, with the aim of doing so long enough to put competitors out of business. Once the competition is eliminated, a foreign firm can then raise prices to recover the temporary cost of the scheme. Dumping is a prohibited and unfair trade practice under U.S. law.

The Department of Commerce and U.S. International Trade Commission determined in 2006 that Chinese manufacturers had been dumping certain lined paper products in the U.S. To offset the artificially low prices in the U.S. market, Chinese paper manufacturers were ordered to pay anti-dumping import tariffs of between 76 and 258 percent. There are no such duties on lined paper from Taiwan.

To skirt the anti-dumping tariffs, Apego, Fromus and the companies in The Watanabe Group came up with a scheme to move large shipments of paper from China through Taiwan, prosecutors say. Authorities allege that they hired temporary workers in Taiwan to put "Made in Taiwan" labels on loads of Chinese paper destined for an American national retailer that wasn't named in court papers. As Apego gained more customers and large orders, company officials began paying bribes to Taiwanese customs officials to look the other way when containers full of paper from China came into ports already labeled "Made in Taiwan," according to the indictment.

Prosecutors say the scheme began to fall apart in the summer of 2007 when U.S. container security officers based at a Taiwanese port noticed suspicious documentation on shipments of paper bound for the U.S. and alerted other customs officials in the U.S. and Taiwan. The full extent of the conspiracy was discovered when Apego fired Gung's executive assistant, who gave a copy of the hard drive from her company laptop to the Department of Homeland Security, authorities say.

Apego was incorporated under the laws of Texas and was based in the Georgia community of Lilburn until October 2006, when it moved its headquarters to Lawrenceville. Officials say that in 2007, the company began operating as Aclor, Inc., and relocated to the Texas-Mexico border.

The maximum penalty for a conviction on the conspiracy charge is 5 years in prison, a $1 million fine for a corporation, a $250,000 fine for an individual, and three years of supervised release. The maximum penalty for the fraudulent importation charges is 2 years in prison, a $1 million fine for a corporation, a $250,000 fine for an individual, and one year of supervised release for each count.

[Associated Press; By KATE BRUMBACK]

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