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Financial Crimes
10/23/2012

Companies, CEOs indicted in school supply scam

ATLANTA – The chief financial officer of a Georgia-based paper supply company was arraigned today by United States Magistrate Judge Linda T. Walker on charges of conspiracy to import paper products from China with fraudulent invoices and bills of lading, and to avoid customs duties on such products. The indictment is a result of an investigation by U.S. Immigration and Customs Enforcement's (ICE) Homeland Security Investigations (HSI).

Jennifer Chen, 44, was indicted Oct. 17 by a federal grand jury charging her, her ex-husband Chi Cheng "Curtis" Gung, 45, and their Georgia-based paper company, Apego, Ltd. (Apego), with the conspiracy and 12 counts of importing notebooks and filler paper from China using false documents. Curtis Gung, chief executive officer (CEO), reported through counsel that he went to Taiwan last week for medical treatment and wished to surrender voluntarily next month.

Three leading Chinese paper manufacturers, a Taiwanese company, and their respective CEOs were also charged with the conspiracy and 12 fraudulent importation counts. Forth Wu, 69, a citizen of Taiwan and resident of Tainan, was indicted along with Fromus Psyche International, Inc. (Fromus), a Taiwanese company he owns and operates. Zuoru He, 66, a citizen and resident of the People's Republic of China (China), was indicted along with three companies he controls and partly owns, Watanabe Paper Product (Shanghai) Co., Ltd., Watanabe Paper Product (Linqing) Co., Ltd. and Hotrock Stationery (Shenzen) Co. (collectively the Watanabe Group).

United States Attorney Sally Quillian Yates said, "Three large Chinese paper manufacturers are charged with conspiring with companies in Taiwan and Gwinnett County to avoid duties imposed by the Commerce Department to protect competition in the U.S. and global paper market. They are accused of avoiding over 20 million dollars in 'anti-dumping' duties by shipping stationery made in China through Taiwan, bribing Taiwanese customs officials, and exporting the goods from there into the United States, falsely relabeled 'Made in Taiwan.' Now the defendant companies and their leaders face conspiracy and fraudulent importation charges for their bribery and transshipment scheme."

"HSI's investigation showed these individuals and the companies they worked for allegedly conspired to avoid paying proper duties on imported paper," said Brock D. Nicholson, special agent in charge of HSI Atlanta. "Their efforts to illegally increase profits not only cheated the U.S. government out of tens of millions of dollars, they also gained an unfair advantage over other companies that play by the rules. Thanks to the hard work of HSI special agents, U.S. Customs and Border Protection and the U.S. Attorney's Office for the Northern District of Georgia, this scheme has come to an end."

According to information presented in court: In 2005, the U.S. Department of Commerce began to investigate whether Chinese paper manufacturers of notebooks, filler paper and certain other lined paper products were dumping their goods in the U.S. market. Dumping is a prohibited and unfair trade practice in which foreign manufacturers sell goods at an artificially low price, for example, below cost. The goal is to charge such prices long enough to put out of business competitors lacking the capacity to absorb the costs of matching the artificially low price for any length of time. By eliminating competition, the foreign firm is then free to raise prices to anti-competitive levels and recover the temporary cost of the dumping scheme.

In 2006, after several months of investigation, the Department of Commerce and U.S. International Trade Commission (ITC) found that paper manufacturers in China and some other countries had been dumping certain lined paper products in the United States. Among these products were composition notebooks, spiral notebooks, filler paper, and other popular office and school stationery. To offset their artificially low prices in the American market, Chinese manufacturers were ordered to pay import tariffs known as anti-dumping duties of between 76.70 and 258.21 percent. Among the companies investigated by the ITC were the three companies comprising the Watanabe Group, a closely related conglomerate of paper manufacturers located in China and controlled by defendant Zuoru He. The Watanabe Group allowed ITC investigators into their factories and was usually charged the lowest rate by U.S. Customs officials, 76.70 percent, as a result of its supposed cooperation.

Apego is a Texas corporation with sales offices in China and Taiwan. Apego was based in Lilburn, Ga., until approximately October 2006, when it moved to Lawrenceville, Ga. In 2007, Apego became Aclor, Inc. and relocated to the Texas-Mexico border. Apego's CEO, Curtis Gung, of Snellville, Ga., is a naturalized U.S. citizen from the Republic of China. Apego's Chief Financial Officer, Jennifer Chen, also of Snellville, was married to Gung until 2006. Apego was founded by Forth Wu, who also owned and controlled Fromus, a Taiwanese company formerly based in Tainan, Taiwan.

After the Commerce Department and ITC announced their unfair-trade investigation, Apego, Fromus and the Watanabe Group launched a scheme to avoid anti-dumping duties by transshipping large shipments of paper from China through Taiwan to office supply chains and other large retailers in the United States. At the beginning of the scheme, Apego and Fromus mainly hired temporary workers in Taiwan to put "Made in Taiwan" labels on container-loads of paper made in China for a nationwide U.S. retailer. In 2007, as Apego found more such customers and large, lucrative back-to-school orders soared, the conspirators increased their reliance on bribery at Taiwanese ports. By paying bribes, they were able to have the Watanabe Group put more "Made in Taiwan" labels on the containers, boxes and notebooks at their factories in China. This illegal practice saved time and money. The Taiwan transshipment scheme began to unravel in the summer of 2007 after U.S. container security officers based in a Taiwanese port noticed shipments of U.S.-bound stationery with suspicious documentation and alerted other customs officials in both the United States and Taiwan. The full extent of the conspiracy was discovered after Apego fired Gung's paramour and executive assistant, who then delivered a copy of the hard drive from her company laptop to the Department of Homeland Security. The amount of customs duties avoided has been estimated at over $20 million.

The maximum penalty for the conspiracy charge is five years in prison, a $1 million fine for a corporation, a $250,000 fine for an individual, and three years of supervised release. The maximum penalty for the fraudulent importation charges is two years in prison, a $1 million fine for a corporation, a $250,000 fine for an individual, and one year of supervised release for each count. In determining the actual sentence, the court will consider the United States Sentencing Guidelines, which are not binding, but provide appropriate sentencing ranges for most offenders.