The question of whether one is permitted to export a vehicle from the United States to a foreign buyer (in China, Dubai, etc) is a tricky one. Over the last few years there have been cases of federal officials seizing vehicles and cash associated with the business of exporting vehicles. News articles and government press releases of such scenarios have been reported on:
U.S. Targets Buyers of China-Bound Luxury Cars (February 11, 2014)
Man accused of identity theft, fraud in car scheme arrested (March 18, 2015)
Exporting luxury cars is lucrative, legally questionable (August 6, 2014)
U.S. authorities are cracking down on oversea auto exporters (October 2, 2014)
Investigators pursue luxury car exporters (January 17, 2015)
Inside Stories From the War Between Automakers And Dealers Over Exports (February 12, 2016).
In United States v. Content of Wells Fargo Bank, et al, the court ordered the federal government to return money and vehicles it seized from an automotive export business that sold luxury vehicles to the overseas market. The government argued that there were federal wire fraud laws violated by using foreign money to defraud American car dealers into selling them vehicles that were intended to stay in the United States. Specifically, luxury vehicle dealers are prohibited by their manufacturers from selling cars for export. Dealers have the purchaser sign a contractual agreement stating that the cars are not to be exported. In order the facilitate the purchase of luxury vehicles the automotive export company used “straw buyers” to purchase said vehicles (if the same purchaser walked into the same dealership multiple times to purchase luxury vehicles the dealership may get suspicious and prohibit the sale) and thereafter shipped them overseas. The court held that the government could not establish probable cause to believe that the funds seized are the “proceeds” of wire or mail fraud. The court reasoned that the misrepresentation was only a civil matter (not criminal) because the party deceived by a material misrepresentation (dealer) is NOT the same party injured (manufacturer). Therefore, the court ordered the immediate release of seized funds and vehicles.
While this decision may protect one from criminal liability there is still the question of civil liability. In an article written by Automotive News entitled Dealer scores in suit against illegal exporters over 100 vehicles were purchased and exported overseas without the dealer’s knowledge. As a result, the dealer violated its franchise agreement (which prohibited the sale of vehicles for export) and was liable to reimburse the manufacturer for incentive money it did not qualify for. Thereafter, the dealer filed suit against the purchasers and a jury found in favor of the dealer under claims of fraud, breach of contract, and intentional misrepresentation or concealment and violation of the RICO act.
Based on these cases, one must be careful in conducting an auto export business.
In addition, U.S. Customs and Border Protection (“Customs”) provides a list of regulations on its website regarding the export of vehicles here. One important point is the definition of “used” vehicles for purposes of filings in the Automated Export System (“AES”). For example, you go into a dealership and purchase a vehicle. You drive it off the lot, is it now considered a “used” vehicle? Further, the distinction between a “new” versus “used” and “titled” versus “untitled” vehicle correlates to the type of documentation needed to be provided to Customs.
With respect to the definition of “used”:
- Used. “Used” refers to any self-propelled vehicle the equitable or legal title to which has been transferred by a manufacturer, distributor, or dealer to an ultimate purchaser.
- Ultimate Purchaser. “Ultimate Purchaser” means the first person, other than a dealer purchasing in his capacity as a dealer, who in good faith purchases a self-propelled vehicle for purposes other than resale.
A mistake in the designation of a vehicle as “new” versus “used” in the AES can result in the seizure of said vehicles. Thus, it is vital that one carefully reviews the Customs regulations prior to export.
For more information about this blog post, please contact Abady Law Firm, P.C. and speak with our customs lawyer at (800) 549-5099. Also visit www.customsesq.com to chat with a customs lawyer — who has insight into Exporting Vehicles — about your company’s export situation and to schedule a consultation. To chat with us, click the bottom right corner tab of our homepage.