By Scott Patterson

U.S. customs officials have seized $25 million worth of aluminum linked to a Chinese billionaire accused of stockpiling the metal across the world, according to people familiar with the matter.

The move is the most potent action yet by federal authorities probing whether U.S. companies connected to Chinese aluminum magnate Liu Zhongtian illegally avoided punitive tariffs by routing their metal through other countries.

The Wall Street Journal in October reported that Homeland Security and the Justice Department are investigating whether the companies committed criminal or civil violations that could include smuggling, conspiracy and wire fraud. Homeland Security agents have questioned former employees of companies associated with Mr. Liu, according to people familiar with the investigation.

The aluminum has become a new flashpoint in American-Chinese trade relations, with U.S. executives complaining that they are being undercut by cheap Chinese metal being sold into the U.S. illegally. A massive stockpile of aluminum that has crisscrossed the world and depressed the price of some aluminum products was part of the scheme, according to people familiar with the companies involved in the shipments of aluminum.

Hundreds of aluminum seized this week by Homeland Security are owned by Perfectus Aluminum Inc., a California company founded by Mr. Liu's son and now run by one of Mr. Liu's close business associates, according to corporate records, court documents and people familiar with the company. The aluminum had been detained by U.S. customs authorities since September before this week's seizure. The metal will be moved from the Port of Long Beach in California to an undisclosed location, a person familiar with the matter said.

Homeland Security is conducting laboratory tests on the aluminum to determine whether the metal is restricted under U.S. law, according to federal court documents. It is unclear how long testing will take.

In a federal court petition filed in California, Perfectus has asked a judge to force Homeland Security to lift the order, calling it unlawful and imposed without explanation. The company denies that it failed to pay proper import duties on aluminum it imported from China or that it was involved in improper stockpiling of aluminum.

A spokeswoman for China Zhongwang Holdings Ltd., a Chinese aluminum giant controlled by Mr. Liu, said neither the company nor Mr. Liu have any connection to Perfectus. Lawyers representing Perfectus in the case declined to comment.

TheCommerce Department found in December that China Zhongwang was sending metal into the U.S. via other countries to disguise its origin so the company wouldn't have to pay punitive tariffs of up to 374%. Those tariffs were imposed in 2010, when the Commerce Department found China Zhongwang was selling metal subsidized by the Chinese government into the U.S. market -- a practice called "dumping."

An aluminum stockpile allegedly amassed by firms owned by people close to Mr. Liu has moved around the world, according to the people familiar with the shipments of the metal. Recently metal had accumulated in Vietnam, shipping records show, where it joined other caches of aluminum to form an even bigger stash representing 14% of global inventory.

Perfectus said in its petition that it had imported the seized aluminum from China from 2012 to 2014 but is now trying to export it to Vietnam after its plan to sell or lease the products failed. Most of the seized aluminum is in the form of pallets, which are made of shaped products welded together and are typically used for transporting heavy cargo.

Perfectus was founded in 2014 by Mr. Liu's son, Liu Zuopeng. The company is now run by Jacky Cheung, who runs several companies with connections to Mr. Liu. Mr. Cheung owns Aluminicaste, a Mexican company that was the subject of a September article by the Journal that detailed connections between the giant stockpile in Mexico and Mr. Liu. Mr. Cheung is also the owner of Global Vietnam Aluminum, which has overseen the creation of a 1.7-million-ton stockpile of aluminum extrusions -- shaped products such as panels and piping -- worth $5 billion in recent years.

Attempts to reach Liu Zuopeng and Mr. Cheung were unsuccessful.

The court records don't state which company manufactured the aluminum. Shipping records show that a company called Peng Cheng -- which later became part ofPerfectus in a merger -- imported metal from an affiliate of China Zhongwang in 2013 and 2014, according to Panjiva, which tracks shipping records.

Homeland Security had detained another 164 containers of Perfectus's aluminum, but those containers were released in November following an inspection, according to the company's petition. The company said Homeland Security hadn't explained why it released those shipments but continued to detain an additional 552 containers, which Perfectus said hold the same type of aluminum.

China Zhongwang has said the pallets it exported to the U.S. are made of a type of aluminum that isn't covered by Commerce's 2010 ruling, which it didn't contest.

Write to Scott Patterson at

(END) Dow Jones Newswires

January 13, 2017 06:32 ET (11:32 GMT)

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