Everybody knows that you can go to jail for exporting a tank to China. But did you know that you can go to jail for exporting a luxury car, classified as EAR99, to China?
Well, it appears that you can. According to an article in the Milwaukee Journal-Sentinel, Mao Peng, a resident of Kenosha, Wisconsin, and his wife were arrested in Los Angeles for exporting luxury vehicles to China and sent back to Wisconsin for trial. Only the terminated criminal proceedings in Los Angeles are in PACER at the moment. The transferred case in Wisconsin has not shown up yet in PACER, so details of the charges are somewhat hard to discern.
But it appears from a number of news sources, like this article in the New York Times, that federal prosecutors have been targeting individuals who purchase luxury vehicles in the United States and then export them to China for resale. Apparently, there is a substantial price differential between the price of luxury vehicles in the U.S. and China creating an attractive arbitrage opportunity for ambitious entrepreneurs. And the auto manufacturers have some how enlisted the DOJ to help them preserve their high margins in China.
At the behest of luxury car manufacturers, the U.S. Government has been seizing cars and bank accounts, but at least one federal judge has called foul. The opinion in that case gives some clue as to the prosecutors’ theories in the luxury car export cases. In that case, the Secret Service seized bank accounts alleged to contain funds derived from an auto broker’s export business. Because luxury auto dealers are prohibited by their manufacturers from selling cars for export, dealers require purchasers to sign, in the purchase documentation, a representation that the cars are for their own use and not for export. The export brokers pay straw purchasers to buy the vehicles for them. The government’s theory is that the brokers are conspiring with the straw purchasers to commit wire fraud in connection with the personal use representations by the straw purchasers. The district court held, relying on the “convergence” requirement, that the misrepresentation was at most a contractual violation rather than a criminal matter because the auto dealers to whom the misrepresentation were made were not injured by the misrepresentation; only the manufacturers were.
Peng’s case, which appears to be the first criminal prosecution for exporting cars to China, may be somewhat different because it appears that his straw purchasers were Native Americans and that sales taxes were therefore not paid on vehicles delivered to reservations on which they lived. It also appears that the government is alleging that Peng was continuing to use the names of the straw purchasers for more purchases than they had agreed to and that this was some kind of identity theft. But, according to the Journal-Sentinel article, it also appears that the government’s case is primarily based on the non-export representations made by the straw purchasers to the auto dealers.