Investigators pursue luxury car exporters

2013 Mercedes-Benz GL350.

George Hadwin Jr. was working part time driving vehicles for a local automobile dealership in Hardeeville when Wayne Wainwright — the owner of Fast Records Inc., a car export business in Port St. Lucie, Fla. — made what sounded like an easy-money proposition.

Wainwright asked Hadwin to buy high-end luxury vehicles, title them in his own name and then transfer the cars to Florida, where Wainwright would then re-title them and arrange for their export, court records show. Wainwright, who said the arrangement would help him avoid Florida’s high sales tax, promised to front the money for purchases via wire transfers and pay $1,000 per vehicle to the then-77-year-old retiree.

Hadwin agreed, and the arrangement worked fine for a while. But in January 2013, the Secret Service got a tip from officials at SCB&T that large sums of money were inexplicably flowing into and out of Hadwin’s bank account.

The tip helped uncover what federal officials are calling an illegal car export scheme. U.S. attorneys in South Carolina and in other states say it’s a growing problem driven by the demand for luxury cars in China and other emerging economies.

All told, more than 70 cars and $3 million have been seized in multiple South Carolina investigations.

Those who are buying and exporting the cars, however, say they’ve done nothing wrong, and at least one federal judge agrees.

Judge Sandra Beckwith in Ohio last year ordered the government to return a pair of luxury cars to a California business that used the same technique as Hadwin and Wainwright to obtain vehicles for export. Beckwith, in a 26-page ruling, said the government’s evidence of wrongdoing was flimsy at best.

While the ruling has no direct impact on the Wainwright case — or dozens of others pending across the country — it casts doubt on the government’s ability to successfully defend similar seizure warrants that have been used to take millions of dollars worth of cars and bank proceeds.

It also threatens to unravel time and resources federal investigators have spent cracking down on something that might be discouraged by manufacturers but turns out not to be a crime after all.

“The fact that they had success in Ohio means that the same arguments are going to be made elsewhere,” said Wells Dickson, a Kingstree attorney representing Wainwright. “It gives you some good talking points, and it’s something other courts will definitely take a look at.”

Automobile manufacturers prohibit the sale of cars in the U.S. to individuals who intend to export them for sale in another country, primarily because that hurts the manufacturers’ efforts to sell their cars overseas and disrupts their distribution chains.

There are stiff financial penalties for dealerships that knowingly sell their cars for that purpose. For example, BMW will reduce a dealership’s allocation or cancel its franchise contract if it’s caught taking part in such a scheme.

“We have to be amateur detectives,” Joe Lynch, general manager of Baker Motor Co. in Charleston, said, referring to his dealership’s attempts to stop sales to exporters. “We try to weed out as many as we can, and we stop about 80 percent, but some get through.”

The so-called illegal export schemes, investigators say, are designed to circumvent the expensive taxes and tariffs normally charged when a U.S.-made car is sold overseas.

According to investigators, exporters give straw buyers — people who say the car is being purchased for their own personal use — money to buy a car and that vehicle is then transferred to the exporter after the sale. Exporters typically pay each straw buyer a small fee — sometimes just a few hundred dollars — for buying the car.

For example, Suzanne Guzior, another buyer Wainwright recruited, was paid $500 apiece for the eight cars she purchased.

Exporters work to get around the manufacturers’ rules, investigators say, because luxury cars cost much more in such countries as China. The exporters can sell cars to foreign customers for less than it would cost to legitimately purchase the same car in that country, yet still make a hefty profit.

Investigators say the practice usually involves counterfeit titling of automobiles as well as falsified registration and export documents, which can lead to mail fraud and wire fraud charges against the perpetrators. Criminal charges are rare in these instances, however, and none has been brought in Wainwright’s case. The government’s only action to date is a civil seizure against Wainwright’s property.

Assistant U.S. Attorney Stan Ragsdale is asking a federal judge in Charleston for permission to sell a pair of customized BMWs — valued at more than $143,000 apiece — that were seized as part of the investigation into Wainwright’s activities. Federal authorities also seized nearly $125,000 from Wainwright’s bank account.

Wainwright and other claimants want U.S. District Judge Richard Gergel to conduct a probable cause hearing that they say will prove the government had no legal right to seize the property. The claimants want the government to return their cars and money. Gergel has not set a court date.

Wainwright’s case is typical of those that investigators nationwide have targeted over the past couple of years. For example, a pair of California men — Frank Ku and Danny Hsu — were given probation in 2013 after they pleaded guilty to mail fraud and customs violations in a case where 93 cars bought in 16 states were exported to China. Last month in Milwaukee, federal agents announced an investigation into a couple suspected of shipping 400 luxury cars to China through a network of 100 straw buyers they cultivated over several years.

Anecdotal evidence and court filings show thousands of alleged illegal exports occur every year. The cost to manufacturers is all over the map — one court filing says car makers have lost at least $150 million in overseas sales since 2008 while an economist hired by BMW put the losses for that manufacturer in 2012 alone at $212 million.

South Carolina is a popular target for such schemes, investigators say, because the state caps the sales tax for a new vehicle at $300, compared with a place such as New York, where the tax rate approaches 9 percent.

Wire transfers of tens of thousands of dollars were hitting Hadwin’s bank account just weeks apart — a total of nearly $2 million over 16 months. Court records show Hadwin then withdrew the money and purchased cashier’s checks made out to luxury car dealerships throughout South Carolina, including Charleston, and other states.

For example, federal officials say Hadwin bought a Lexus for $85,162 from Hendrick Lexus of Charleston, titled the car in his own name, and then Wainright re-titled the vehicle to a person living in Florida. The vehicle eventually was exported from Charleston to a dealership in the Netherlands.

On another occasion, Hadwin spent almost $109,000 at Baker Motor Co. on a Mercedes that was registered in South Carolina, re-titled and then shipped out of the country.

Hadwin did not return a telephone call seeking comment. He has not been charged with any crime.

David Yarborough, general manager at Hendrick Lexus of Charleston, and Lynch, of Baker Motor Co., told law enforcement they had no knowledge that the vehicles were going to be exported, court documents show. Yarborough did not return a telephone call seeking comment.

The paper trail from Hadwin’s bank account ultimately led investigators to Wainright and a pair of other straw buyers who had been recruited by Hadwin, court records show.

Wainwright, in court documents, says his right to due process was violated because he had no opportunity to submit evidence disputing the government’s stance before his vehicles and cash were taken. He and other claimants say the seizures were based partly on inaccurate statements made by investigators and that the process of getting straw buyers to purchase cars for export is well-known — and often encouraged — by dealerships.

“The government chose to seize first and ask questions later,” said Dickson, the attorney representing Wainwright, adding that federal officials have held the cars and money for more than 18 months without giving his client a chance to present evidence fighting the seizure.

In addition to Dickson, Wainwright has hired some of the same lawyers who won the Ohio case to represent him in South Carolina.

Ragsdale, the federal prosecutor, said he cannot comment on pending cases.

Automobile dealers who face possible retribution from their manufacturers say they “often felt they had to act as the police because nobody seemed to be trying to stop the practice,” according to court documents.

Managers at McDaniel’s Porsche in Columbia told investigators they “could sell their entire inventory of Porsches in a day to auto exporters,” because the demand is so high. Those managers said they turn down sales to about 15 suspected auto exporters every week.

Many car dealers keep “black lists” of people who are known to be exporters or straw buyers, and they check those lists every time a car is sold to make sure the purchase is legitimate. Some dealerships also subscribe to commercial databases listing known vehicle exporters.

Lynch told investigators that Wainwright was on his dealership’s “black list,” but the dealership did not know the cars were being purchased for him.

“If Baker Motor Co. had been aware of Wainwright’s involvement in the purchase, it would not have sold the vehicle,” court documents state.

Lexus attempted to sanction Hendrick Lexus of Charleston over sales that wound up in Wainwright’s hands, Yarborough told investigators. The car manufacturer backed down because the Savannah Highway dealership was able to prove that it “lacked knowledge that the vehicles would be exported because both purchasers were local residents living in South Carolina.”

Dickson said in a court filing that “local franchise dealerships routinely sell new vehicles to brokers with the knowledge that the vehicles will soon be exported.” He said the use of straw buyers gives local dealers plausible deniability when the manufacturer questions a sale, thus avoiding penalties.

Lynch said that isn’t true, adding there is too much at stake for a dealership to go along with such a scheme.

“The manufacturer will fine us between $6,000 and $10,000,” he said.

As exporters become more sophisticated — websites and YouTube videos explain how to get away with the practice — car dealers say they have had to step up their vigilance. They often check a buyer’s Facebook page to get a sense of his or her lifestyle and whether they are legitimate luxury-car buyers. They also call other dealers to see if the same buyer has inquired about purchasing a vehicle there. In most instances, straw buyers purchase several cars so a name that shows up too many times is a red flag.

Ultimately, though, it can come down to gut instinct.

“The dealership is caught between a rock and a hard place,” Lynch said. “Someone can tell you they’re not an exporter and, even though you see all the red flags, you can’t accuse someone of doing something wrong.”

Some exporters say the U.S. Attorney’s office has misguidedly stepped into the middle of a fight that isn’t about criminal activity but manufacturers’ greed.

“Manufacturers are upset that somebody else is making money when they want to make all the money,” Joshua Widlansky, an attorney in the Ohio case, said during a court hearing there.

Reach David Wren at 937-5550 or on Twitter at @David_Wren_