"It's an arbitrage opportunity," says Robert Ray. "The notion that the dealerships are being victimized or are not aware of what's going on is hard to believe."
Ray, a New York–based attorney, is representing Unicorn Tire of Memphis, Tennessee, which had 47 luxury SUVs and trucks seized by the federal government. The vehicles were new, packed two to a shipping container, and on their way to China. Some were seized at the Port of New York; others were turned around while at sea. None were stolen, and all were purchased at dealerships across the United States. The government also seized $3.7 million in cash from several of Unicorn's bank accounts. Beyond that, says Ray, a $9 million line of credit to Unicorn Tire was effectively canceled.
Arbitrage—buying something where it's cheap and selling it where it's expensive—is pure capitalism. Usually, it's legal. Right now, in America, a BMW X5 starts at $53,725. In China, the same vehicle goes for more than $150,000. Even after paying taxes, tariffs, shipping, and handling, there's a substantial profit to be made by buying the vehicle here and selling it over there.
The Unicorn case is one of about a dozen involving what the federal government claims is the fraudulent export of high-end vehicles to China and other markets. "The government is not contending that the exporting of vehicles themselves is unlawful," says Ray. The legal theory behind these civil-forfeiture actions (they are not yet criminal cases) is that, because a buyer signs an agreement when buying a vehicle that it won't be exported, those who do export them are purchasing those machines fraudulently.
The government alleges that exporters recruit "straw buyers" online to purchase the vehicles from dealers. These recruitments, along with misrepresentations of intent to the dealerships, constitute fraud, says the government. While dealerships that sell vehicles to exporters can be penalized by the manufacturers, the greatest potential disruption is to car companies whose pricing strategies involve selling nearly identical products at widely divergent prices around the world.
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These aren't small-time operations. The U.S. alleges, for example, that Erxin Zhou and Yifan Kong, who control Unicorn Tire, exported more than 2000 vehicles to China during 2012 and were planning to ship at least 3000 during 2013. If all were X5s, that would be more than $270 million worth of BMWs. If the forfeiture actions are successful, the seized vehicles and funds will become property of the United States. The vehicles will likely be auctioned off, with the proceeds going to the United States Treasury.
Americans usually assume that once they buy something, it's theirs to do with as they please. Burn it, sink it, or turn it into a planter; if you paid for a new car, it's yours. So at what point is it okay to ship it to China? After a year? Two? Once the odometer has spun up a few thousand miles? Never? It's not clear right now. And how is it that these export transactions are attracting government attention?
Assistant U.S. attorney Evan Weitz, who is prosecuting one of the cases, answers, "It would be a bad idea to let the bad guys know how we found them."
Technically against property, these fraudulent-export suits have names such as "U.S.A. v. Twenty Sport Utility Vehicles." Beats "U.S.A. v. Nineteen BMW X5s and One Porsche Cayenne." A few base prices here versus ballpark prices in China:
Mercedes-Benz GL63 $119,485/$327,000 | BMW X5 $53,725/$154,000 | Porsche Cayenne $50,595/$152,000 |
from Car and Driver Blog http://ift.tt/nSHy27
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