BMW chases China car smugglers across Canada over fake papers, bogus bank accounts

Ian Young, South China Morning Post

Posted at Jul 30 2021 01:41 PM

On April 15, a young man walked into a BMW dealership in Markham, Ontario, and signed a lease on a new X7 SUV, taking delivery of the C$140,000 (US$112,000) vehicle the next month.

Within days, the luxury car was heading west on a 4,000km (2,500 miles) journey to Vancouver, British Columbia.

And the chase was on – because this was no ordinary road trip.

BMW said it started tracking the car via its onboard GPS after the buyer, who said his surname was Dai, failed to make his first lease payment; his bank account was fake, BMW said in court filings.

The X7’s destination – its Canadian destination, at least – was a freight-forwarding company in the Vancouver-area satellite of Richmond.

A GPS ping led to a warehouse where a bailiff found BMWs parked “bumper to bumper”, according to a petition for the vehicle’s seizure, lodged by BMW Canada’s financing arm in the Supreme Court of British Columbia.

Then the GPS went dead, the X7’s battery apparently disconnected. BMW feared the vehicle was about to be loaded onto a ship and sent overseas – despite an explicit promise by Dai not to export the car, let alone his failure to have paid anything for it after putting down a C$12,000 deposit.

“We know where it was about one week ago and we’re hoping it’s still there. If we can get the bailiff there soon enough we may be able to recover it before it’s loaded to a container,” said BMW’s lawyer, Kim Owen LaBelle, in a June 3 hearing.

The car’s cross-country journey is revealed among a series of similar court actions which depict BMW racing to locate and seize its vehicles, sometimes out of containers, before they can be loaded onto ships and sent to China.

The problem of car smugglers, who use straw buyers to obtain luxury vehicles, was highlighted by a 2019 BC government report, which found a “huge” grey market in vehicles sent to China, where they fetch higher prices.

Many of the models involved have not been released in China, and their sale there is prohibited by the maker.

But rather than being stamped out in the wake of the high-profile findings, a South China Morning Post investigation suggests the undeterred smugglers have instead grown more sophisticated in their strategies to defeat BMW’s investigators and authorities.

They also go well beyond the typical grey-market practice of buying then illicitly reselling or exporting a car without permission.

They appear to involve outright theft.

In case after case, BMW says it received only a small down payment on a conditional sale or lease, with the company’s own financing arm stuck with the balance.

The smugglers and their straw buyers have allegedly used counterfeit government documents, fake jobs and bogus bank accounts to trick dealers in Ontario and BC into handing over cars worth more than C$100,000.

And BMW has often been left with no idea of the true identity of the buyers.

‘It’s in a container waiting for shipment to China’
The Post used court records to trace seven seizure cases since February 2020 involving BMW’s financing arm.

The nature of the document search meant that only cases involving BMW Group Financial Services Canada could be reliably identified.

But LaBelle said in a hearing in March 2020 that “dozens [of BMWs] are missing”, destined for overseas shipment.

“I’ve done four of these in the past couple of weeks,” he told the BC Supreme Court, hinting at the scale of the problem.

BMW refused to discuss the issue or the fate of its cars, citing “legal reasons”.

None of the customers has been criminally prosecuted – at least, not under their purported names. None of the petitions to seize the vehicles were contested.

Neither is surprising, since the identities of the respondents often seem to be entirely fake. The Post has also been unable to confirm the identities of the customers so it is referring to them only by the surnames on their purchase and lease agreements.

Because of various licensing rules and regional marketing exclusions, BMWs are a favourite of China car smugglers, the X5 and X7 SUV models in particular.

In its efforts to thwart the smugglers, BMW has drawn up agreements warning customers not to act as straw buyers for smugglers or to send their cars overseas. The signed agreements feature as evidence in some of the court petitions.

One such agreement, titled the “BMW non-export agreement, BMW X5 vehicles”, tells customers in all-capitals, bold-type text that “BMW Canada and the Canadian authorities are aware that certain individuals, entities, organised crime groups, and criminal money-launderers will purchase BMW vehicles in Canada for export”, violating buyer contracts.

Buyers are warned not to buy or lease vehicles on behalf of smugglers, or attempt to send their cars overseas.

“Do not be duped,” it says, before warning of prosecution, fines, and BMW’s right to track suspect vehicles via GPS over the duration of their contracts.

Court exhibits show that a man said to be surnamed Xiong signed such an agreement when he put down a C$15,000 deposit at a Brampton, Ontario, dealership and drove off in a C$100,000 X5 X-Drive on September 22. But by October 5, the vehicle was “in a container at Deltaport (in BC) as we speak and is scheduled to be loaded onto a ship in the next day or two”, LaBelle told a court hearing that day that resulted in a seizure order.

He said that the car had been sent across the country before the first payment was even due. “Exporting of new vehicles is a problem for more than just BMW, but BMW seems to be particularly hard hit,” he told the master of the court overseeing the hearing. He said X5s and X7s were the “problem vehicles”.

Another X5 X-Drive was apprehended at Deltaport in February, having been secured with a C$15,000 deposit by a person who gave his surname as Zhang. A suspicious Royal Canadian Mounted Police officer had flagged the vehicle to BMW’s finance department, which then went to court.

“We believe in good faith that the vehicle is in jeopardy … The [contractual] default has occurred by the fact that it’s in a container waiting for shipment to China,” said LaBelle.

New tactics and ‘huge profits’ in China
The petitions highlight the challenges posed by the smugglers, but only represent a fraction of the cases known to authorities.

A Canada Border Services Agency (CBSA) spokeswoman said that in 2020, its officers had examined 2,550 vehicles bound for export, referring 1,250 to police as suspected stolen vehicles.

Annual enforcement updates issued by the CBSA say that its Atlantic and Quebec region officers intercepted about 815 vehicles worth about C$38 million in 2020; the summary for the Pacific region, covering Vancouver, does not provide such figures.

The agency would not break down its statistics by intended destination or vehicle type, but it has occasionally highlighted seizures in social media postings.

Last August, the CBSA shared photos of two new-model Range Rovers and a C$190,000 Mercedes C63 coupe against a backdrop of shipping containers, saying they were stolen vehicles intercepted in Vancouver “in export containers destined for Asia”.

A Range Rover and an Audi SUV were meanwhile among seven stolen vehicles seized from containers in Vancouver and Prince Rupert, “destined for Africa and Asia”, the agency said in a June 2020 tweet.

Although the problem involves other destinations, China has dominated the grey-market smuggling arena.

The 2019 BC Government report into the problem, by former senior RCMP officer Peter German, described how thousands of proxy buyers purchased vehicles in the province on behalf of smugglers illicitly sending vehicles to China; although such practices could appear legal, they represented a large money-laundering risk that flouted manufacturers’ rules for their customers.

“In BC, the ‘grey market’ in the sale of luxury vehicles for export to China is huge; involving straw buyers, dealers, and exporters,” the German report found.

“The grey market is unregulated from a financial crime perspective, resulting in very little being known about the persons and companies involved, the source of funds of purchasers, and their methods of payment.”

He said that provincial employees had identified “numerous red flags of money laundering”. These included 4,108 individual straw buyers – one of whom bought at least 25 cars – while more than 1,000 purchases appeared to be linked to a single exporter.

The report focused on vehicles purchased in BC, with the size of the problem suggested by a huge increase in refunds for provincial sales taxes, which applied to vehicles bought in the province but resold abroad.

“There has been an explosion in the number of grey market vehicles exported to China since 2013, growing from less than 100 vehicles in 2013 to over 4,400 vehicles in 2018,” German wrote.

German said that straw buyers typically worked for a fee from the grey marketeers, who relied on international price differentials to “ensure huge profits”.

“BC’s unique geographic location and ethnography make it an incredibly attractive venue for this activity,” said German.

The report triggered scrutiny and a crackdown on the grey market; for instance, in April, BC’s budget included the abolition of the tax rebates for buyers who resell vehicles within seven days.

However, recent court records show smugglers are now obtaining vehicles in eastern Canada, before sending them across the country to Vancouver for export.

And instead of sticking to the letter of the law, they appear to be simply stealing cars by having buyers use fake documentation to enter sales or lease agreements they have no intention of fulfilling.

The BMW X7 obtained by Dai in Markham seems to have ticked all those boxes.

The buyer used a “false bank account” and invalid insurance to secure the lease, LaBelle said.

“Our vehicle is in a warehouse that the bailiff has said is full of BMWs, bumper to bumper,” LaBelle told the June 3 petition hearing. “We’re trying to do this on a rush basis. We think the vehicle’s on its way out of the port.”

The petition to seize the car was granted, but it appears to have come too late.

Five days later, LaBelle was back in court trying to thwart the export of another X7, this one leased in Newmarket, Ontario, by a person giving the surname Li. When the first lease payment failed due to insufficient funds, a BMW investigator called Li’s supposed employer and was told they did not know him.

LaBelle alluded to Dai’s car, saying its seizure order came “a day late”.

“We didn’t get [Dai’s] vehicle. It was C$140,000 and it was loaded in a container. Canada border security is trying to find it, but without the container number we don’t think we’ll ever see it again,” he said, adding “we’re hoping to catch this one [Li’s] before it departs”.

LaBelle joked with Master Matthew Taylor about the regularity of the problem, when Taylor said that the C$15,000 deposit paid by Li was a “pretty good deal” for a C$140,000 car.

“That’s why they’re going off the lot like crazy,” said LaBelle.

The seizure order was granted for Li’s vehicle, which GPS had located in a Richmond freight-forwarding facility; BMW would not discuss the outcome with the Post.

Without referring to specific cases, Sergeant Janelle Shoihet of the BC RCMP said that those involved in vehicle smuggling risked prosecution for theft, fraud, possession of property obtained by crime and offences under the Canada Excise Act.

Asked if the RCMP was working on the problem with Chinese or other foreign authorities, Shoihet said the RCMP “regularly works with our domestic and international partners to combat the importation and exportation of illegal goods across our borders”.

‘I just pay the money and I get the car’
Despite BMW’s efforts to hunt down its cars, the cases reviewed by the Post raise questions about the internal practices of the auto maker and its dealers, as they repeatedly hand over luxury vehicles to customers whose credentials fail subsequent scrutiny.

“The Petitioner has been unable to determine the true identity, citizenship or work status of the Respondent,” said LaBelle in a March 6, 2020, petition, referring to a customer who allegedly made off with a C$114,000

BMW M5 after leasing it in Vancouver on February 2 last year while owing about C$101,000 on the contract.

The customer, said to be surnamed Wu, was purportedly the 19-year-old manager of a Richmond karaoke bar, where he was said to earn C$72,000 a year, topped up by C$30,000 in “family support”, according to his lease.

He was said to be a Chinese citizen on a four-year work permit, who had arrived in Canada five months before signing the lease.

But the government permit was counterfeit – BMW realised that a different person, who said his surname was Bo, had used a document with the same number a week earlier, at the same dealership.

Bo, supposedly a 31-year-old adviser to an online tutoring company for Chinese students, leased a C$101,000 X7 SUV on January 26, then vanished with C$88,507 owing on the contract.

BMW concluded that both men’s documents were fake.

“How is the BMW retailer seemingly getting so easily defrauded?” asked Master Stuart Cameron as he heard petitions to seize both vehicles, adding “don’t they take photo ID?”

LaBelle said he didn’t know whether the photo IDs were authentic. “I’m sure that dozens [of cars] are missing, to be quite honest. Most of them on the face of the documentation there’s nothing really wrong with the contract,” he said. “It’s just that it’s the intentions of the buyers at the time are not known … they’re shipping them out of the country.”

Cameron highlighted the apparent breakdown in BMW’s security rigour.

“I was just thinking that presumably they [the BMW dealership] will want to have a look at their process and procedure,” said Cameron, prompting a burst of laughter from the court, then adding “always anxious to sell a C$100,000 car if you can, though, I suppose.”

The Post was unable to confirm the identities of any customers named in BMW’s petitions.

But it did contact a man who identified himself by Wu’s full name.

In a brief phone interview, the man said he was not, in fact, a karaoke bar manager, but was a full-time international student from China. Although the birth date on the work permit was his, he agreed that the document was fake.

“I’m not using a work permit. At that time, I just give my passport and study permit. I just pay the money and I get the car,” he said.

A woman who identified herself only as Wu’s girlfriend blamed a saleswoman at the dealership for substituting the documents. “I think she’s using this work permit to help international students purchase cars,” she said.

As for the fate of the M5 sports car, public records suggest that no criminal prosecution resulted from the transaction. And Wu said that after the “problem” with the original lease, he simply went to a different dealer and got another BMW there.

It was, he said, for his personal use.

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