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Customs Probing Fraud Allegations

October 23, 1991

NEW YORK (AP) _ Customs agents are investigating allegations that 23 textile and garment firms owned by the Chinese government have skipped hundreds of millions of dollars in tariffs, authorities say.

Federal prosecutors in Manhattan are preparing for the possibility of scores of indictments accusing the businesses and their owners of failing to pay tariffs on textiles, clothes and shoes imported from China, said U.S. Customs agents who spoke on condition of anonymity.

A prosecutor with the U.S. Attorney’s Office wouldn’t comment on any aspect of the investigation.

One Customs agent who has been closely involved with the case estimates that over three years Chinese-owned firms have bilked the U.S. government out of between $300 million and $500 million in duties.

Steven Becker, an attorney with the New York firm Coudert Bros., which represents six of the Chinese companies, said he has been contacted by prosecutors and expects they will meet with him this week to present their evidence.

″So far we haven’t seen any evidence that our clients have done anything wrong,″ he said in a telephone interview.

A two-year investigation involving more than 200 agents culminated Sept. 5 and 6 when U.S. Customs officials raided 23 Chinese firms in New York and Los Angeles, said Customs spokeswoman Joan Barran.

She said they seized cartloads of documents, many in Chinese. A bank account with $500,000 and two residential properties valued at $1.5 million each also were confiscated.

Agents also found documents indicating that large sums of money had been transferred by the companies to offshore bank accounts in the Cayman Islands, Customs officials said.

According to Customs agents, the case revolves around two types of Customs’ fraud - transshipment and undervaluation.

Chinese firms allegedly evaded American textile quotas by transshipping goods through other countries where representatives mislabeled them to make it appear that the goods were manufactured in places like Taiwan, Macao, Hong Kong or Latin America, agents said.

Undervaluation occurs when Chinese firms underreport the value of goods they bring into the United States and thus have to pay less duty. The tariffs in question often reach well over 20 percent of the garment’s value.

The firms are all owned by the Communist Chinese state, which owns most of the property and businesses in China. Some are owned directly by the Ministry of Foreign Trade, headquartered in Beijing. Others are owned by provincial or county governments.

The investigation, described as one of the biggest probes of alleged Customs’ fraud ever, is the latest battle in the nascent trade war between the United States and China.

On Oct. 10, the Bush administration announced it was launching a so-called Special 301 trade investigation and threatened 100 percent import duties on selected goods if China doesn’t open its markets to American products within one year.

China’s trade surplus with the United States stands at $1.3 billion, second only to Japan.

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