Tire distributor faces federal fraud suit
Editor's note: This story has been corrected to reflect the name of the customs broker doing business with CTW as Phoenix International, not Phoenix International Business Logistics Inc., which is not involved with CTW.
LONG BEACH, Calif. (March 11, 2015) — A California tire distributor could face penalties of more than $17 million in a fraud action brought by the federal government.
The complaint was filed March 9 in the U.S. Court of International Trade by the U.S. Justice Department on behalf of U.S. Customs and Border Patrol (CBP) against China Tire Warehouse Inc. (CTW) of San Dimas, Calif.
In March 2005, according to the complaint, CTW started importing Chinese bus and truck tires, both radial and non-radial, into the U.S. These tires came under the dutiable provisions of the Harmonized Tariff Schedule of the United States (HTSUS), the complaint said.
Until September 2005, CTW used Ultimate Customs Brokers to file its tire shipments with CBP, according to the complaint.
In that month, however, China Tire asked Ultimate to reclassify its shipments under a duty-free provision.
Ultimate Customs refused, saying its entries for China Tire's merchandise were correct under the law. CTW then terminated Ultimate and hired a new customs broker, Phoenix International.
Between September 2005 and March 2007, according to the complaint, Phoenix filed 151 entries with the CBP on CTW's behalf, describing the shipments as used pneumatic tires — which are duty-free under U.S. tariff schedules.
However, when CBP asked CTW for information about the entries, China Tire told the agency they were new pneumatic tires for passenger cars. Such tires are subject to a 4-percent tariff, the complaint said.
Then, from March 2007 to January 2008, China Tire had Phoenix file 107 entries, saying the imported tires were new tires for agricultural and forestry vehicles, and as such also exempt from tariffs. At least 103 of those entries, however, contained no tires of that description, the complaint said.
In July 2011, CBP issued a pre-penalty notice against China Tire and its executives John Cheng and Licheng Wang. In that notice, the complaint said, Messrs. Wang and Cheng were held jointly and severally liable for 253 false entries, with a proposed penalty of nearly $8.1 million.
China Tire's fraudulent entries cost CBP more than $404,000 in revenue, of which more than $242,000 is still unpaid, according to the complaint.
The current complaint proposes three alternative counts against CTW, based on charges of fraud, gross negligence or negligence.
If found guilty of fraud, China Tire would face a penalty of nearly $16.9 million, plus the unpaid tariff balance. If found guilty of gross negligence, it would face a penalty of just over $1.6 million, plus the unpaid tariffs. If found guilty of negligence, it would face a penalty of $808,000, plus the unpaid tariffs.
A website for China Tire Warehouse Inc. shows a brochure for tires of all types and sizes sold under the SailWell and SinoTrac brand names. Calls by Tire Business to the phone number listed on the website, however, yielded messages saying the number was no longer in service.
To reach this reporter: [email protected]
Do you have an opinion about this story? Do you have some thoughts you'd like to share with our readers? Tire Business would love to hear from you. Email your letter to Editor Don Detore at [email protected].