Criminal or civil actions have been filed in US states, but some contend it’s just a commercial dispute
New York Times 13 February 2014
US federal prosecutors are cracking down on the growing luxury car re-export business, which is estimated by some to be responsible for sending as many as 35,000 new luxury cars a year to China.
Federal prosecutors in half a dozen states - New Hampshire, New Jersey, Ohio, New York, Texas and South Carolina - have filed criminal or civil actions seeking to put a halt to the resale of luxury cars to China.
Prosecutors have frozen bank accounts containing the proceeds from auto sales and seized hundreds of cars, some waiting to be shipped from cargo ports in Newark, New Jersey; Staten Island in New York; and Long Beach, California.
The authorities have even ordered cars already on ships headed to China to be returned to port. The seizures are continuing, with federal agents in the last week taking possession of a number of luxury cars in Maryland destined for sale in China, according to people briefed on the investigations.
“What we have found is a scam and people looking to make a fast buck,” said US Attorney John P Kacavas of New Hampshire, whose office brought the first federal prosecution.
The aggressive crackdown, however, has raised questions about the role of law enforcement in what some contend is a commercial dispute that should be resolved through private litigation.
Michael Downs, a businessman in Fort Lauderdale, Florida, says he is simply looking to profit from the growing demand in China for cars from the likes of Mercedes, BMW and Range Rover.
His three-year-old business recruits people in a dozen or so states to buy new cars from dealerships in the US. He then sells those vehicles to other companies, which ship them to China. Once in China, the cars, which typically retail for US$55,000 to US$75,000 in the US, can be resold for as much as three times those prices. “We’re taking advantage of a legitimate arbitrage situation,” he said.
But to the federal government, businesses like Mr Downs’ are potentially violating customs laws and deceiving auto manufacturers like Mercedes-Benz and BMW, which try to keep tight control over sales to domestic dealers and to foreign countries.
The domestic divisions of Mercedes-Benz and BMW say the clampdown by federal authorities is a legitimate attempt to regulate trade and to ensure that US consumers who want to own a car for personal use are not deprived of a chance to buy one.
“The BMW Group has been working closely with federal authorities for almost two years to stop illegal exports of our vehicles from the US,” said Kenn Sparks, a spokesman for BMW of North America. “Illegal exports deny legitimate customers here in the US the popular vehicles, which are in high demand.”
Most car manufacturers require dealerships to verify that customers are not buying cars to quickly export them to overseas markets. Dealers can be penalised if a new car sold in the US is traced to a subsequent buyer overseas.
In many cases brought by federal authorities, the buyers do not say that they intend to ship the newly purchased cars overseas.
Federal authorities are moving forward with illegal export cases at a time when luxury auto manufacturers are pressing to take advantage of the demand for high-end cars in China. Last week, Daimler, the parent company of Mercedes, said it had sold 24,199 cars in China in January, an increase of 44 per cent from a year ago.
So far, most of the actions brought have been civil in nature, as the New Hampshire action is the only one in which anyone pleaded guilty to a crime.
But that may change as New York Attorney-General Eric T Schneiderman has opened a criminal investigation into activity involving luxury car dealerships in New York and New Jersey, people briefed on the matter said.
Lawyers, including former prosecutors, are divided on whether the federal government’s efforts are best spent going after activity in which the primary victim is a foreign automaker.
“If you can prove some kind of deception, that usually is enough to let you bring the case as a legal matter,” said Aitan D Goelman, a defence lawyer and former federal prosecutor. “But the more interesting question is, should you, considering scarce prosecutorial resources.” In most instances, the companies that prosecutors are targeting employ so-called straw buyers, who are paid a few hundred dollars to show up at a dealership with a certified bank cheque to buy a car and then quickly turn over the vehicle.
Mr Schneiderman’s office is conducting an undercover investigation focusing on the activities of sales managers working at a number of luxury auto dealerships in New York and New Jersey, said the people briefed on the matter.
The investigation, which could lead to the filing of criminal charges, is examining whether some sales managers took kickbacks to sell luxury cars to people who they knew intended to resell them overseas.
The authorities say that using straw buyers to buy cars is deceptive. The buyers typically indicate that they are buying the cars for themselves.
In most cases, prosecutors also say that the companies shipping the cars overseas have created misleading export documents to disguise the fact that the cars were recently purchased. Auto insurance policies taken out for the buyers are quickly cancelled once the cars are shipped.
In the New Hampshire case, two Californian men who not only used straw buyers to buy cars destined for China but also fraudulently obtained drivers’ licences in New Hampshire as part of their scheme pleaded guilty and were sentenced to three years of probation.
But in Florida, Mr Downs is fighting back. He has filed a lawsuit in federal court in West Palm Beach, Florida, seeking a declaratory judgment that his business is lawful.
Mr Downs filed the lawsuit before New York prosecutors froze his company’s bank account, but after Secret Service agents seized a Mercedes- Benz GL350 and a Land Rover Range Rover that two people working for him had bought in North Carolina.
“I am creating jobs and income for people,” said Mr Downs, who said he was not aware of the investigation by authorities in New York when he filed his lawsuit. “We would like this to come to a decision, because there is no specific law that says what we do is illegal. We want the acceptance or a judge to reject our business model.” A decision is still pending in Mr Downs’ case in Florida.
Court filings show that Mr Downs is on Mercedes’ prohibited auto exporter purchasing list. He says his company complies with all state and federal laws.
A training video for prospective car buyers on the website for Mr Downs’ company reminds recruits to be careful what they say to salespeople at dealerships.
An introduction to one of the videos states: “The main thing to remember is that you do not want to raise any flags alerting them to the fact that you may be part of an exporting company.”
Mr Downs’ company became further ensnared in the federal crackdown in November, when prosecutors in New York sought to freeze US$2.38 million in a bank account listed in his company’s name. His lawyer said the company account actually held much less money.
The New York action also seized bank accounts and 47 vehicles suspected of being linked to Efans Trading of Memphis, Tennessee, which had bought cars from Mr Downs’ company.
Ely Goldin, a lawyer with Fox Rothschild who represents Efans, said the government was doing the bidding of the automobile manufacturers. Disputes, he said, should be resolved through private litigation and not the threat of asset seizures or criminal prosecution.
“It is an open question who are the so-called victims and whether the purchase and sale of cars should be considered a fraudulent scheme,” Mr Goldin said. - NYT
2 comments:
US cracks down on luxury car re-exports to China
Criminal or civil actions have been filed in US states, but some contend it’s just a commercial dispute
New York Times
13 February 2014
US federal prosecutors are cracking down on the growing luxury car re-export business, which is estimated by some to be responsible for sending as many as 35,000 new luxury cars a year to China.
Federal prosecutors in half a dozen states - New Hampshire, New Jersey, Ohio, New York, Texas and South Carolina - have filed criminal or civil actions seeking to put a halt to the resale of luxury cars to China.
Prosecutors have frozen bank accounts containing the proceeds from auto sales and seized hundreds of cars, some waiting to be shipped from cargo ports in Newark, New Jersey; Staten Island in New York; and Long Beach, California.
The authorities have even ordered cars already on ships headed to China to be returned to port. The seizures are continuing, with federal agents in the last week taking possession of a number of luxury cars in Maryland destined for sale in China, according to people briefed on the investigations.
“What we have found is a scam and people looking to make a fast buck,” said US Attorney John P Kacavas of New Hampshire, whose office brought the first federal prosecution.
The aggressive crackdown, however, has raised questions about the role of law enforcement in what some contend is a commercial dispute that should be resolved through private litigation.
Michael Downs, a businessman in Fort Lauderdale, Florida, says he is simply looking to profit from the growing demand in China for cars from the likes of Mercedes, BMW and Range Rover.
His three-year-old business recruits people in a dozen or so states to buy new cars from dealerships in the US. He then sells those vehicles to other companies, which ship them to China. Once in China, the cars, which typically retail for US$55,000 to US$75,000 in the US, can be resold for as much as three times those prices. “We’re taking advantage of a legitimate arbitrage situation,” he said.
But to the federal government, businesses like Mr Downs’ are potentially violating customs laws and deceiving auto manufacturers like Mercedes-Benz and BMW, which try to keep tight control over sales to domestic dealers and to foreign countries.
The domestic divisions of Mercedes-Benz and BMW say the clampdown by federal authorities is a legitimate attempt to regulate trade and to ensure that US consumers who want to own a car for personal use are not deprived of a chance to buy one.
“The BMW Group has been working closely with federal authorities for almost two years to stop illegal exports of our vehicles from the US,” said Kenn Sparks, a spokesman for BMW of North America. “Illegal exports deny legitimate customers here in the US the popular vehicles, which are in high demand.”
Most car manufacturers require dealerships to verify that customers are not buying cars to quickly export them to overseas markets. Dealers can be penalised if a new car sold in the US is traced to a subsequent buyer overseas.
In many cases brought by federal authorities, the buyers do not say that they intend to ship the newly purchased cars overseas.
Federal authorities are moving forward with illegal export cases at a time when luxury auto manufacturers are pressing to take advantage of the demand for high-end cars in China. Last week, Daimler, the parent company of Mercedes, said it had sold 24,199 cars in China in January, an increase of 44 per cent from a year ago.
So far, most of the actions brought have been civil in nature, as the New Hampshire action is the only one in which anyone pleaded guilty to a crime.
But that may change as New York Attorney-General Eric T Schneiderman has opened a criminal investigation into activity involving luxury car dealerships in New York and New Jersey, people briefed on the matter said.
Lawyers, including former prosecutors, are divided on whether the federal government’s efforts are best spent going after activity in which the primary victim is a foreign automaker.
“If you can prove some kind of deception, that usually is enough to let you bring the case as a legal matter,” said Aitan D Goelman, a defence lawyer and former federal prosecutor. “But the more interesting question is, should you, considering scarce prosecutorial resources.” In most instances, the companies that prosecutors are targeting employ so-called straw buyers, who are paid a few hundred dollars to show up at a dealership with a certified bank cheque to buy a car and then quickly turn over the vehicle.
Mr Schneiderman’s office is conducting an undercover investigation focusing on the activities of sales managers working at a number of luxury auto dealerships in New York and New Jersey, said the people briefed on the matter.
The investigation, which could lead to the filing of criminal charges, is examining whether some sales managers took kickbacks to sell luxury cars to people who they knew intended to resell them overseas.
The authorities say that using straw buyers to buy cars is deceptive. The buyers typically indicate that they are buying the cars for themselves.
In most cases, prosecutors also say that the companies shipping the cars overseas have created misleading export documents to disguise the fact that the cars were recently purchased. Auto insurance policies taken out for the buyers are quickly cancelled once the cars are shipped.
In the New Hampshire case, two Californian men who not only used straw buyers to buy cars destined for China but also fraudulently obtained drivers’ licences in New Hampshire as part of their scheme pleaded guilty and were sentenced to three years of probation.
But in Florida, Mr Downs is fighting back. He has filed a lawsuit in federal court in West Palm Beach, Florida, seeking a declaratory judgment that his business is lawful.
Mr Downs filed the lawsuit before New York prosecutors froze his company’s bank account, but after Secret Service agents seized a Mercedes- Benz GL350 and a Land Rover Range Rover that two people working for him had bought in North Carolina.
“I am creating jobs and income for people,” said Mr Downs, who said he was not aware of the investigation by authorities in New York when he filed his lawsuit. “We would like this to come to a decision, because there is no specific law that says what we do is illegal. We want the acceptance or a judge to reject our business model.” A decision is still pending in Mr Downs’ case in Florida.
Court filings show that Mr Downs is on Mercedes’ prohibited auto exporter purchasing list. He says his company complies with all state and federal laws.
A training video for prospective car buyers on the website for Mr Downs’ company reminds recruits to be careful what they say to salespeople at dealerships.
An introduction to one of the videos states: “The main thing to remember is that you do not want to raise any flags alerting them to the fact that you may be part of an exporting company.”
Mr Downs’ company became further ensnared in the federal crackdown in November, when prosecutors in New York sought to freeze US$2.38 million in a bank account listed in his company’s name. His lawyer said the company account actually held much less money.
The New York action also seized bank accounts and 47 vehicles suspected of being linked to Efans Trading of Memphis, Tennessee, which had bought cars from Mr Downs’ company.
Ely Goldin, a lawyer with Fox Rothschild who represents Efans, said the government was doing the bidding of the automobile manufacturers. Disputes, he said, should be resolved through private litigation and not the threat of asset seizures or criminal prosecution.
“It is an open question who are the so-called victims and whether the purchase and sale of cars should be considered a fraudulent scheme,” Mr Goldin said. - NYT
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