Torrance health food company and its owners indicted in massive tax and customs fraud scheme.

TORRANCE, Calif.--(BUSINESS WIRE)--March 2, 1995--United States Attorney Nora M. Manella Thursday announced that a Torrance health food company and its owners have been charged with orchestrating a massive tax and customs fraud scheme to evade tens of millions of dollars in U.S. taxes.

Manella announced that Tei-Fu Chen, 45, of Palos Verdes Estates, his wife, Oi-Lin Chen, 44, of Palos Verdes Estates, both naturalized U.S. citizens, and their corporation, SUNRIDER CORPORATION ("SUNRIDER") were indicted by a federal grand jury in a 20-count indictment charging them with conspiracy, tax evasion, filing of false corporate tax returns and smuggling.

According to Assistant U.S. Attorneys George B. Newhouse Jr. and Clare S. Phillips, who are handling the prosecution, the investigation was triggered in 1992 after the Chens filed a "Prior Disclosure" with U.S. Customs in Los Angeles, in which SUNRIDER claimed that is raw materials, herbs, cosmetics and health food products, imported by SUNRIDER into the United States between 1986 and 1990 had been systematically undervalued by hundreds of millions of dollars. SUNRIDER then tendered a total of $2.3 million in additional duties it claimed it owed on those imported products to U.S. Customs. The indictment charges that this disclosure was fraudulent, that SUNRIDER and the Chens did not in fact owe Customs any money at all, and that this payment was made in order to avoid paying far greater amounts in federal taxes to the IRS.

According to Assistant U.S. Attorneys Newhouse and Phillips, the indictment charges that the "Prior Disclosure" filed by the Chens with U.S. Customs was a subterfuge to mask a "double invoicing" scheme in which the Chens used phony invoices from two shell companies located in Hong Kong to inflate the cost of SUNRIDER's imported merchandise by factors ranging from 50 percent to 900 percent. The indictment alleges that SUNRIDER's true cost of goods sold was represented by amounts paid directly by the corporation to vendors largely located in Taiwan. Amounts invoiced from the phony Hong Kong companies for goods shipped from Taiwan, Japan and South America were not paid by SUNRIDER, but were used to create fraudulent deductions for the cost of goods sold. This scheme permitted the Chens and their wholly owned corporation, SUNRIDER, to avoid paying personal and corporate income tax on over $126 million of taxable income between 1987 and 1990.

The indictment charges that this scheme to defraud the IRS and Customs resulted in the Chens and their corporation evading approximately $38,105,000 in income taxes owing to the United States Treasury, one of the largest individual tax evasion cases ever filed.

Assistant U.S. Attorneys Newhouse and Phillips explained that the indictment charges the Chens with secretly laundering almost $90 million in SUNRIDER profits to several Hong Kong bank accounts which they controlled, assisted by Mrs. Chen's brother, employed with Sunrider International Hong Kong. The Chens then remitted their assets to the United States in the form of real estate purchases, extremely valuable Chinese antiques and artifacts and funds used for construction purposes by SUNRIDER. For example, the indictment charges that the Chens wire transferred back to the United States approximately $21.7 million which they used to purchase eight pieces of real estate located in California and Hawaii. The Chens also used some of their illicit profits to purchase over $17 million in Chinese artifacts, antiques and jewelry in Hong Kong, which they smuggled into the United States or grossly undervalued to U.S. Customs at the time of entry.

The Chens allegedly also recycled approximately $15.7 million in funds wire transferred from these Hong Kong bank accounts for purposes of construction of SUNRIDER's new corporate headquarters in Torrance, Calif.

The indictment specifically charges Mr. Chen with ten counts of smuggling 59 separate items of rare Chinese artifacts, jewelry and antiques, worth in excess of $12 million, into the United States by grossly undervaluing these items at U.S. Customs. One such item, charged in Count Eleven of the Indictment, was an extremely rare Guanyao Brushwasher, Southern Song Dynasty, which Chen purchased for approximately $2,800,000 at an auction held at Sotheby's Hong Kong on May 17, 1989. Chen hand-carried this item when he returned to the United States on June 7, 1989, when he falsely declared its value as under $10,000.

According to Assistant U.S. Attorneys Newhouse and Phillips, the Brushwasher has been seized as evidence by U.S. Customs, and the indictment filed Thursday seeks its forfeiture to the United States, along with forfeiture of approximately $10 million worth of other smuggled artifacts.

United States Attorney Nora M. Manella stated: "The legal duty to fully and fairly account for all income received is an important obligation of all American citizens, rich and poor, corporate and individual. This case represents an egregious abuse of our income tax system at a cost to law-abiding taxpayers of millions of dollars. Those who manipulate and abuse our system of voluntary reporting, through sophisticated means of international chicanery, can expect to be investigated, caught and prosecuted. We will not tolerate tax cheats."

If convicted on all the charges filed against him Thursday, Tei Fu Chen faces a possible sentence of 87 years in prison, plus a maximum fine of $5 million. Oi Lin Chen faces a maximum sentence of 37 years in prison and a fine of $2.25 million. SUNRIDER CORPORATION faces a total fine, if convicted of $1 million. These criminal penalties are in addition to civil remedies which are being sought in a related, parallel civil tax case in which the IRS seeks payment of back taxes, interest and penalties in excess of $100 million.

Tei Fu Chen and Oi Lin Chen are expected to surrender on Friday, March 3, 1995 before United States Magistrate Judge Charles Eick, who will arraign them on the indictment and set bond.

U.S. Attorney Manella noted that this case was the result of an intensive three-year joint investigation by the Internal Revenue Service, Criminal Investigation Division, and the U.S. Customs Service. These U.S. Treasury law enforcement agencies, working in concert with their foreign counterparts in Hong Kong, have identified for recovery by the United States Government tens of millions of dollars in revenues due to the United States Government.

NOTE TO EDITORS: An indictment is merely a formal charge that a defendant has committed a violation of federal criminal law and every defendant is presumed innocent, until and unless proven guilty.

CONTACT: Assistant U.S. Attorney

George B. Newhouse, Jr., 213/894-2391

or

Assistant U.S. Attorney

Clare S. Phillips, 213/894-3547