New York authorities appear to be getting closer to filing charges in connection with an investigation into allegations of kickbacks being paid to salesman at high-end car dealerships in the New York area. The investigation is part of a broad national crackdown on businesses seeking to turn a quick profit by exporting luxury cars from the United States to China.
Two weeks ago, in an indication that the investigation has picked up steam, Prestige Motors, one of the largest luxury car dealers in the region, fired or suspended a half-dozen executives after an internal inquiry by the law firm Drinker Biddle & Reath, said two people briefed on the matter but not authorized to speak publicly. The action was a response to the investigation being led by New York State’s attorney general, Eric T. Schneiderman, whose office has begun reaching out to some of those Prestige employees.
Mr. Schneiderman’s office is looking at several dealerships in New York and New Jersey that sell Mercedes, BMWs, Range Rovers and Porsches to determine whether sale executives there sold new cars to businesses engaged in exporting luxury vehicles to China. New cars can be resold in China for as much as three times the sticker price because of the high demand in cities like Shanghai and Beijing for luxury vehicles, said the people briefed on the matter.
The investigation centers around allegations that some sales executives at luxury auto dealerships took bribes or other payments from these exporting businesses, which typically pay local residents to serve as “straw buyers†who claim to be buying the cars for themselves. The straw buyers come to the dealerships with wallets full of cash to purchase cars that typically retail for $55,000 to $75,000 and are supposed to be sold only for domestic use.
It is not clear what laws the export businesses are violating. In some cases, the authorities have claimed that car export firms violated United States law by using deception to purchase cars and also sometimes submitting falsified shipping documents to conceal the fact the cars were newly purchased. Lawyers for the firms counter that there was nothing inherently illegal in buying car in the United States and shipping it overseas and that government lawyers were effectively getting involved in a commercial dispute between auto manufacturers and export firms.
Mr. Schneiderman’s office, along with agents from the Secret Service and the Department of Homeland Security, began investigating the activities at New York-area car dealerships last fall. Several months earlier, the Secret Service began a broad national crackdown in a half-dozen states on automotive firms that specialize in exporting newly purchased luxury cars to China and other overseas countries.
Representatives from the two federal agencies recently met with lawyers in Mr. Schneiderman’s office to discuss the investigation and are still deciding whether to pursue the matter criminally or civilly, said another person briefed on the matter but not authorized to discuss it publicly.
The inquiry by Mr. Schneiderman’s office, if it results in criminal charges, would be a significant escalation in the government crackdown and potentially put a further chill in the profit potential for this type of business.
To date, most of the actions have involved civil forfeiture brought by federal prosecutors in Florida, New York, New Jersey, Ohio and South Carolina. In those states, federal authorities have seized cars and frozen the bank accounts of the export firms in an attempt to squeeze this gray market export business, which is believed responsible for sending as many as 35,000 new luxury cars a year from the United States to China, Russia and other countries.
Theresa Boylan, a spokeswoman for Prestige Management Services, which operates seven Prestige Motor dealerships in northern New Jersey, declined to confirm the firings and dismissals or Mr. Schneiderman’s investigation. But Ms. Boylan said the company, which also has dealerships in Colorado and Connecticut, “continues to look closely at its business operations and will take appropriate action in any situation involving improper export sales.â€
Earlier this month, the export firms scored a legal victory when a federal judge in Ohio ordered the federal government to return money and cars it seized in September from a Los Angeles-based automotive export business involved in reselling newly purchased luxury vehicles. Judge Sandra S. Beckwith, of the Federal District Court for the Southern District of Ohio, said that prosecutors had failed to produce sufficient evidence of wrongdoing by the car export company to justify the asset freeze.
But government authorities suspect that some of the money being used by the export companies is coming from foreign buyers looking to launder money from the proceeds of illegal activities. The authorities also contend that the car export business subjects dealerships in the United States to potential penalties from foreign auto manufacturers that seek to impose limits on where their cars are sold around the globe and the prices they are sold for.
Reports of auto salesman taking cash payments to look the other way at the activities are not limited to dealerships in the New York area. A person who works for an export firm but declined to be identified because it might expose his firm to potential liability said dealers in other states asked him for cash payments of $5,000 to overlook the fact a car was being sold to an exporter.
Others in the export industry said the government’s yearlong crackdown was starting to have an impact on overseas demand and had caused some wealthy buyers in China to back away from transactions.
