Owners of Sunrider Corp., a Torrance Health Food Company, Admit
Cheating on Taxes in One of the Largest Tax Cases Ever Prosecuted
U.S. Department of Justice Press Release
September 4, 1994
A Torrance health food company and its two owners pleaded guilty today to tax fraud and customs fraud in connection with one of the largest tax evasion cases ever prosecuted, United States Attorney Nora M. Manella announced.
Tei-Fu Chen, 49; his wife, Oi-Lin Chen, 46; and their wholly owned herbal product company, Sunrider Corporation, pleaded guilty late this afternoon in United States District Court in Los Angeles.
Mr. Chen, of Palos Verdes Estates, pleaded guilty to tax evasion and making false statements to the United States Customs Service. Pursuant to a plea agreement with the government, United States District Judge George H. King sentenced Mr. Chen to two years in federal prison, to be followed by two years of supervised release, including another six months of home detention.
Mr. Chen also agreed to pay the Customs Service $4 million to avoid forfeiting a number of artifacts he brought into the country without paying appropriate duties.
Mrs. Chen, also of Palos Verdes Estates, pleaded guilty to a charge of aiding in the filing a false corporate tax return. In accordance with the plea agreement, Judge King sentenced Mrs. Chen to two years probation, including six months of home detention.
Sunrider Corporation pleaded guilty to filing a false corporate tax return for the year 1989. The corporation will pay a fine of $500,000.
In a related civil tax action, the Chens previously paid $93 million in back taxes, interest and penalties to the Internal Revenue Service.
The investigation into the Chens and Sunrider was triggered in 1992 when the Chens filed a “Prior Disclosure” with the United States Customs Service, according to Assistant U.S. Attorneys George B.
Newhouse Jr. and Mavis K. Lee. In the “Prior Disclosure,” Sunrider claimed that raw materials, herbs, cosmetics and health food products imported into the United States between 1986 and 1990 had been systematically undervalued by hundreds of millions of dollars. Sunrider then paid the Customs Service $2.3 million in additional duties it claimed to owe on those imported products.
A federal grand jury indicted the Chens and Sunrider, alleging that this disclosure was fraudulent, and that Sunrider did not owe any additional duties. The indictment alleged that Sunrider made the $2.3 million payment to avoid paying far greater amounts in federal income taxes.
According to the prosecutors, the “Prior Disclosure” was designed as 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 50 percent to as much as 900 percent. These inflated costs allowed Sunrider to create fraudulent tax deductions for the cost of good sold, thereby understating profits and evading federal taxes.
This scheme permitted the Chens and Sunrider to avoid paying personal and corporate income tax on more than $126 million of taxable income between 1987 and 1990, according to Newhouse and Lee. The indictment charged that the scheme to defraud the IRS and Customs resulted in the Chens and Sunrider Corporation evading approximately $39 million in income taxes, making this one of the largest individual tax evasion cases ever filed.
The indictment also charged the Chens with laundering nearly $90 million dollars in Sunrider profits through several Hong Kong bank accounts. The Chens then returned their assets to the United States in the form of real estate, extremely valuable Chinese antiques and artifacts, and funds used for the construction of Sunrider facilities.
The indictment charged that the Chens arranged for approximately $21.7 million to be wire transferred to the United States. These funds were used to purchase eight pieces of real estate in California and Hawaii.
The Chens also used some of their illicit profits to purchase more than $17 million in Chinese artifacts, antiques and jewelry in Hong Kong. These goods were smuggled into the United States or grossly undervalued to U.S. Customs at the time of entry. Approximately $15.7 million that was transferred from the Hong Kong bank accounts was used to finance the construction of Sunrider’s new corporate headquarters in Torrance.
Mr. Chen was also accused of grossly undervaluing $12 million worth of rare Chinese artifacts, jewelry and antiques that were brought into the United States. One such item was an extremely rare Guanyao Brushwasher, Southern Song Dynasty, which Chen purchased for $2.8 million at an auction held at Sotheby’s in Hong Kong in 1989. Mr. Chen hand-carried this item when he returned to the United states and falsely declared its value to be less than $10,000. The Brushwasher was seized by the Customs Service. In conjunction with the settlement of the criminal case, Mr. Chen agreed to pay the Customs Service $4 million to regain these artifacts.
“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,” United States Attorney Nora Manella stated. “This case represents an egregious abuse of our income tax system that cost law-abiding taxpayers millions of dollars. Those who attempt to manipulate the system through sophisticated means of international chicanery can expect to be investigated, apprehended and prosecuted.”
This case was the result of an intensive five-year investigation by the Internal Revenue Service’s Criminal Investigation Division and the U.S. Customs Service. The diligent work of the law enforcement agents with the United States Treasury has resulted in the recovery of tens of millions of dollars in revenues due the United States government.
U.S. Attorney for the Central District of California
Nora M. Manella,
United States Attorney
312 North Spring Street, 12th Floor
Los Angeles, California 90012
Main Office Number: 213-894-2434
Public Affairs Office:
213-894-6947; fax: 213-894-5377
Thorn Mrozek: Public Information Officer [email protected]
This page was revised on June 24, 2009.
