How business, doctors and journalists prey on your food anxieties I

Using phony invoices, importers are laundering dirty
money, cheating the taxpayer <strong>and</strong>, incidentally,
making the U .S . trade baiance look worse than it is .
Salad oil, $720
By Damon Darlin
LAST rF AR's S 166 billion merch<strong>and</strong>ise
trade deficit could ha~e been inflated
by more than S100 billion . That's
becausecrookedimport/exportfirms
cheated the U .S . Treasurv out of
more than S40 billion in tax resenues .
This startling claim comes from John
S. Zdani <strong>and</strong> Simon J . Pak, finznce
professors at Florida International
I ;nit-ersittin Miami .
The amounts ineolved mas be
much less than the nvo researchers
claim, bttt the practice thev uncotered
is distnrbing all the same . Four
years ago the pair began using potrertul
computer sofuvare the%, designed
to examine the prices of
23,000 different products imported
from <strong>and</strong> exported to 235 countries
ba the U
.SThe profs originalle setout to ntea-
Hmmm . . .
Examples of abnormally low U .S. export prices
Product
Radial tires
Snow plows
Spark plugs
Instant-print cameras
Upright pianos
Missile <strong>and</strong> rocket launchers
Exported to
Colombia
Jamaiea
Taiwan
France
France
Egypt
Examples of abnormally high U .S. importprices
Product
S<strong>and</strong>
New truck tires
Toilet paper
Brassieres
Spark plugs
Instant-print cameras
o0erreSAmor Pas ano /nM Zda~rwvi¢
N
Imported from
Japan
SNeden
Japan
Italy
Canada
Japan
sure the et ficiencv of the global market
in pricing goodsThee stumbled
ou ecidence that crooks are using
international trade as cover tior massi%
-c monet• launderin_e .
Take razor blades imported rrom
israe' <strong>and</strong> priced at 3 cents, «hile
identical blades from Panama tere
invoiced at S29 .35-each . The price
of a simple telephone imported front
Hong Kong ranged bemeen 53 .18
<strong>and</strong> S2,400 . The profs found S720
bottles ofimported salad dressing <strong>and</strong>
S653 smoke detectors, while a helicopter
exported to Kaea was invoiced
for onlr S 15,609 .
G .tn R. KcBt-ide, an accounting
professor at California Srate C'nirersin',
Hay~aard, uui an es-adNiser to the
Internal Revenue Senice, esplains :
"Bad guys are learning that banks are
Price per unit
$3 .03
267 .70
0 .01
3 .05
38 .00
38 .20
Price
$6,025/ton
2,266/unit
6/roll
1 .5761dozen
70/unit
2,538/unit
Fraudulently over-invoicing imports <strong>and</strong> under-invoicing
exports cost taxpayers $40 billion last year .
Sources of lost
U .S, taxes due to abnormal
trade pricing (Smllllons)
Total : $39,540
9ingapore=g
Germany 2;59I
Mezico
Canada
Taiwan
Fmnce
2;448
2,355
1,609
1,493
China 1,345
Flong Kong 1,278
All other 15,434
countries
a hard place to launder monl so
thev're turning to the export/import
<strong>business</strong> ." FF'hY did that guy pac vou
S 100,000? Because I sold him 200
razor blades .
The feds ita\ 'e alreada tracked a tew
cases of suspected invoicing fraud .
Sunrider International is a 5300 million
direct-sales retailer ofherbal cosmetics
<strong>and</strong> health foods based in Torrance,
Calif. It is ou-ned bv Palos
Verdes Estates, Calif. residents Tei-
Fu Chen <strong>and</strong> his ~eife, Oi-Lin Chen .
Federal custotms agents claim Sunrider
imported raw materials from
Taiwan, Japan <strong>and</strong> South America
<strong>and</strong> inflated the imports' values on
invoices bv as much as 900'Ye . Suruider
paid a little extra in customs duty,
Nchich generallv runs under 10% of
inroiced value, but sa% ed much more
in taxes . HoNv4 Simple . It had shipped
most of the profits to Hong Kong
disguisedastiieco_stofimports . A20-
count indictment filed in March by'
U .S . attornevs in Los Angeles against
Sunrider <strong>and</strong> the Chens asserts rhev
evaded paving almost S40 million in
ta_ es bern'een 1986 <strong>and</strong> 1990 .
Through an attornev the Chens denanp wrongdoing <strong>and</strong> insist the matter
is a civil tax dispute . Originall ' ~ to have
begun this fall, their trial has been
postponed .
In a similar case eark this vear,
federal prosecutors in Virginia %ron
convictions of four Pakistanis who
used a Springfield, Va .-based medical
supplies importer, Falcon Instruments,
to funnel $1 .4 million to Pakisran
. In one insrance cited br the
prosecutors during the trial, Falcon
imported equipment that probabt}cost it about $ 19,000 but itnoiced it
at $42,000, sending the tull amount
to Pakistan . The scheme had a second
benetlc One of the men used the
invoice scam to avoid paying his personal
LCS- income taxes .
Floricia International L'nicersin''s
Zdanowicz <strong>and</strong> Pak claim softmare
the\- hm e deN roloped could, «ith additional
information mailable to the
goaernmenr, put the cops on the trail
oEinternational monec launderers oy
tlagging suspicious imporr invoices .
II,S . Treasw, Department officials
have visited the professors for a dem-
Ollstra[lon <strong>and</strong> expressed interest iil
the sofm are but have no current plans
to buv !t. 111111111
i6
~ ~ ~ ~ ~ ~ , s~ Forbes . Atrgust L4, 1995
~
http://legacy.library.ucsf.edu/tid/agf97d00/pdf