Government fails to reveal that there is nothing illegal about automotive export

The Government has concealed from the courts the fact that there is ABSOLUTELY NOTHING illegal about exporting a NEW or USED Vehicle, and choosing to treat the various car dealerships as “victims” when they in fact are soliciting Automotive Brokers for assistance in moving their inventory.

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Don’t Ask – Don’t Tell

 

But why did the defendants need to go through this elaborate process just to export some luxury cars and make some money. The answer lies with auto manufacturers. Mercedes, Porsche, Lexus and others want to protect pricing in foreign markets.

Because supply, demand, and competition from other manufacturers vary by jurisdiction, they stand to make significantly more money per auto sold in these foreign jurisdiction and the export of less expensive identical models into these countries undercuts their profits. To protect their foreign pricing policies, many luxury car manufacturers prohibit U.S. dealers from selling new cars to buyers who intend to ship the cars overseas for resale. See Mercedes Benz’ Export Agreement Policy. But car dealers employ salespeople. And salespeople are in the business of selling cars.

So in many cases, as long as a buyer is not obvious about his intentions and as long as the dealer has plausible deniability about the possibility of export, a dealer will gladly sell a car to a buyer. But, if that buyer comes back to the same dealer ten times in one year and purchases ten identical black Mercedes Benz sedans, a dealership or its salesperson may have a difficult time maintaining plausible deniability with the manufacturer who may refuse to sell and/or “blacklist” the buyer.

Enter the straw buyers. Straw buyers are typically individuals who purchase new cars from dealers at the request of an exporter, like Ku. They are agents hired and paid by the exporter to purchase cars from dealers. They typically purchase one or two vehicles from a specific dealer with certified funds provided to them by the exporter (who either receives the money from a foreign purchaser or self-finances the acquisition). Most professional exporters inform buyers that they should not lie or make any factual misrepresentations to the dealer about their intention. Rather, the process generally works on a “don’t ask don’t tell basis” where neither dealer nor buyer discuss the purchaser’s ultimate plans. The dealer and salesperson are happy to make the sale and the buyer is happy to make the purchase. The automobile is titled in the straw buyer’s name who then drives it off the lot and to a destination. Once there, the car is transported to a port, cleared through customs for export, and shipped overseas via ocean carrier. The straw buyer receives a fee for their time and services.

Notably, there is nothing inherently illegal or unlawful about purchasing a car throughan agent. In most cases, the cars are purchased with clean funds, all sales taxes and stateregistration fees are paid, and the vehicles are titled and insured in full conformity with applicable state laws and regulations. The problem arises in allegedly false statements. In the New Hampshire case, the Government alleges that straw buyers were falsely registered as New Hampshire residents which enabled them to obtain New Hampshire driver’s licenses. These driver’s licenses probably helped the dealers maintain plausible deniability since a New Hampshire buyer purchasing a car from a New Hampshire dealerships raises fewer export suspicions than say a California buyer trying to purchase a car from New Hampshire. More importantly, however, the use of New Hampshire as a purchase jurisdiction probably lowered the exporter’s acquisition costs since the vehicles did not require mandatory car insurance for the short period between purchase and export and since New Hampshire residents who purchase New Hampshire cars do not have to pay sales tax. Therefore, the Government’s theory is the straw buyers were not real New Hampshirites and that the use of the U.S. postal system to establish allegedly false residency is mail fraud. Similarly, the declaration that a vehicle is “used” when they were supposedly “new” is also a misrepresentation which, according to the Government, violates the law.

Don’t Let The New Hampshire Export Case Throw A Wrench In Your Business

Don’t Let The New Hampshire Export Case Throw A Wrench In Your Business

Luxury automobile manufacturers like Mercedes, Porsche, and Lexus have dealerships throughout the world. However, that doesn’t mean that a new luxury automobile is sold for the same price in a Cherry Hill, New Jersey dealership as it would be in a dealership in Moscow, Russia. The price in Moscow and other foreign jurisdictions, for the same vehicle, may be tens of thousands of dollars higher. Some of that price difference is most likely related to legitimate additional costs that come with export and sale of automobiles in a foreign jurisdiction. However, a good portion of the difference is driven purely by profit. Manufacturers charge more because that is what the market will bear. Is that unfair? Most people would say no. If a luxury car maker can sell the same car in Russia or China for $20,000.00 more, why shouldn’t he? By the same token, a car buyer looking for a new luxury car in Russia or China knows that the same car is available for sale in the United States for $20,000.00 less. So instead of buying a new luxury car at a local dealership in Moscow or Beijing, a foreign car buyer seeks to purchase the same car in the United States and save himself a good deal of money. Is that unfair? According to a recent federal criminal prosecution in New Hampshire, the answer is “yes.”
The New Hampshire Prosecution
On April 16, 2013, the United States District Court for the District of New Hampshire unsealed an “Information” filed by the New Hampshire U.S. Attorney’s office against Frank Ku and Danny Hsu, who reside in California. According to the Information, the defendants and their company CFLA, Ltd. purchased luxury automobiles from dealerships in New Hampshire, titled them in New Hampshire in the names of straw buyers and then exported these vehicles to Chinese purchasers who had pre-ordered and pre-paid for the vehicles. The Government alleged that Ku broke the law in two ways. First, the Information alleges that he committed mail fraud in violation of 18 U.S.C. §1341 by using the U.S. Postal Service in furtherance of his “illegal scheme.” Second, the Information alleges that Ku filed false export declarations which stated the automobiles were “used” when, according to the Government, they were “new” under U.S. Customs regulations (19 C.F.R. Part 192).
While the filed Information is sparse on facts, the mail fraud count apparently arises from allegations that Ku caused straw buyers not only to purchase luxury cars for re-sale abroad but also had them register themselves as New Hampshire residents who then obtained New Hampshire driver’s licenses under false pretenses. The fraudulent export declaration count arises, in part, from Ku’s representation on a shipper’s expert declaration that the exported automobile was “used” as opposed to “new”. But this begs the question: why is this representation false? Isn’t it common sense that a car becomes used the second it is driven off the dealer’s lot? It may be common sense but the export regulations appear to say otherwise.

The Export Regulations
The export of any and all merchandise from the United States must comply with all United States statutes and regulations related to exportation. The relevant regulations applicable to the export of automobiles are found at 19 C.F.R. §§192.0-192.4. Notably, these regulations do not prohibit the export of new cars. Instead, they establish rules for exporting used cars. According to these rules, a person attempting to export a used car must present to Customs certain enumerated documents that clearly identify the vehicle and the Vehicle Identification Number. 19 C.F.R. §192.2(a). The enumerated documents may be Certificates of Title or a Manufacturer’s Statement of Origin (an “MSO”). See 19 C.F.R. §192.2. The regulations define the term “used” as “any selfpropelled vehicle the equitable or legal title of which has been transferred by a manufacturer, distributor or dealer to an ultimate purchaser.” See 19 C.F.R. §192.1. The term “ultimate purchaser” is defined as the “first person, other than a dealer purchasing in his capacity as a dealer, who in good faith purchases a self-propelled vehicle for purposes other than resale.” See id. Thus, using the Government’s logic, because Ku and Chin’s straw buyers had intended to re-sell the automobiles all along, they were not “ultimate purchasers” within the definition of the export regulations. Therefore, since a car only becomes used when sold to a proper “ultimate purchaser”, legally they were new, not used. And, since Ku and Chin listed these vehicles as “used” on his Shippers Export Declaration, they allegedly committed a crime.