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Chinese aluminum maker defiant despite $1.8bn US fraud verdict

Six companies said to be controlled by Zhongwang founder convicted of conspiracy

Liu Zhongtian, then chairman and president of China Zhongwang Holdings, at a company factory soon after its 2009 IPO in Hong Kong.    © AP

HONG KONG -- A leading Chinese aluminum products maker and its founder are remaining defiant in the face of a U.S. court verdict over an alleged conspiracy to evade $1.8 billion in customs duties and inflate sales.

A U.S. federal court in Los Angeles found six California companies guilty this week of 17 counts of conspiracy and fraud, with two also convicted on seven counts of international money laundering.

China Zhongwang Holdings, Asia's largest producer of extrusions, which are shaped aluminum forms used to make other products, was originally indicted in the case in 2019, along with controlling shareholder Liu Zhongtian, 57. U.S. prosecutors have not been able to bring them to court to face trial, but offered evidence that Liu controlled the six California companies.

Zhongwang, however, said in a late night filing to the Stock Exchange of Hong Kong on Tuesday, that Liu "has again confirmed to the company that he does not control and is not a beneficial owner of the Californian companies... [and] that he has not been served with any legal instrument or notice in relation to the allegation."

Although Zhongwang's shares had tumbled more than 20% when the charges were filed two years ago, they barely moved on Tuesday following the U.S. Department of Justice's announcement of the verdict. The shares rose 3.1% on Wednesday to close at HK$1.68.

The company is due to report half-year results on Friday.

The six California companies, which include four warehouse operators and two importers, are to be sentenced in December, the U.S. Department of Justice said.

According to the Justice Department, the California importers received extrusions from Zhongwang that had been spot-welded together to appear to be shipping pallets. By not declaring the 2.2 million such "pallets" imported between 2011 and 2014 as extrusions, the companies avoided $1.8 billion in tariffs and anti-dumping duties.

While Zhongwang claimed revenue gains in its annual reports from U.S. demand for aluminum pallets, prosecutors alleged the products were merely warehoused in California and New Jersey, absent any real sales. They claimed hundreds of millions of dollars were laundered through shell companies to support the transactions.

In its statement Tuesday evening, Liaoning Province-based Zhongwang did not directly comment on the trial findings or prosecutors' allegations, instead referencing earlier statements.

"Based on its best knowledge, the company also confirms that it has not been served with any legal instrument or notice in relation to the alleged proceeding" and had not made any financial provision for potential penalties, it said in its 2020 annual report, published in April. "The company takes seriously any allegations that it may have violated any law."

Asked about the U.S. court's findings of a conspiracy to inflate Zhongwang's revenues, the Hong Kong exchange and the city's securities regulator each said they do not comment on individual cases.

Analysts and short sellers began raising questions about the authenticity of Zhongwang's sales as far as back as 2009, when it listed in Hong Kong.

The company has sought to turn its focus elsewhere in the face of continuing measures by U.S. policymakers to dampen imports of its low-cost aluminum products.

In 2017, it bought German extrusions producer Aluminiumwerk Unna for 583.63 million yuan ($89.98 million) and Australian luxury boat builder Silver Yachts for 622.12 million yuan. The same year, its $2.33 billion purchase of U.S. rolled aluminum producer Aleris was blocked by Washington on national security grounds.

The U.S. remained Zhongwang's second-biggest foreign market last year, accounting for 208.03 million yuan in revenues, according to the company's annual report. It does not list any U.S. subsidiaries there.

Additional reporting by Narayanan Somasundaram

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