Tuesday, October 23, 2012
Guns R Us: China's Polytechnologies (Bao Li) and Gun Sales in the US
Notes on Keng's Firearms Specialties and the People's Liberation Army's Sales of Guns to American Consumers.
Conversation with **********.
Their only concern and motivation, they've demonstrated, is money. If they can profit from a venture, then will get into any business. Any business. They have no problem getting dollars
**** born in China, mainland, went to Taiwan in 1949, he actually was in the equivalent of a Navy Seal in Taiwan and fought against the communists. We moved to the States in 1973. ****** is his name. He came after his younger brothers. My uncles have been here since the late 1960s in the Atlanta area. When we moved here we started a small jewelry store, retailing. and it was after we closed that down. We did that for 9 years. And after we closed that down, my grandfather became ill and my father returned to Beijing to see him. And during that trip, he spent some time with my grandmother. And her neighbor, interestingly, was chairman of Norinco at the time. And they got talking, and my father was something of a gun buff, and when he came to the US he started collecting--right now he has a collection of about 500 guns. He has always been a gun buff. And he spoke with Norinco's chairman about importing firearms to sell over here. Lai was his first name. But then my father was introduced to others in Norinco, then he did some initial dealings with them with gun parts, but not the actual guns. They found out that he was a straight shooter. Then Poly Technologies became interested, since they were looking forward to expanding into the US. This was in late 1986.
Keng's Firearms Specialties opened in the middle of 1986. It is a corporation, it used to be solely owned by *******, then he gave half the stock to ***** and half to *****. Then he started working with Norinco first, but Poly was looking to make a foothold here in the US since they have access to all the Army surplus, ammunition. And so ammunition and firearms, they could provide at an even lower cost than Norinco. Like the SKS rifle, which China had already been making since 1956. One of the Poly people told us that they had 3 million of them in storage--brand new. And there is nothing over here in the American market that is comparable in terms of quality for even twice the price that we could get from them. So my father started talking to people from Poly and he knew about the American gun market and they could use his expertise. And that is why they decided to establish PTK International, in, January of 1987.
Why set up the new company. At the time Keng's Firearms was pretty small. We are an importer and distributor. We just sell to gun dealers. Logistically it is anightmare to sell guns to individuals. Everything goes through UPS. You would be amazed how much ammunition and guns goes through UPS. They thought that, the way PTK was structured, they owned 75 % of the stock and my father owned 25%, not through Keng's Firearms, but individually. And They did it this way, because they would actually provide all of the credit. My father had to provide only the skills, the marketing and the distribution skills. So they would advance the merchandise to PTK International, Poly Tech would. So Poly advanced the goods to PTK, but they installed KFS as the import agent. We were annointed the agent to import the guns. The reason they did was to reduce the excise tax. Because the way the federal excise tax on guns works is structured. You bring in the gun at say $100 and the first sales that you make, that the importer of record makes is taxed at 11%, so obviously, if PTK International imported them at $100 and resold to the wholesaler at $200, then they would have to pay the tax at $200. So what Poly decided to do was to put KFS in front of PTK so that KFS would be the importer and would sell to PTK at $105 and that would be a nearly 50% slash in the excise tax. FS also continuted to seel Norinco weapons.
There were other companies importing weapons from China. Norinco had their own subsidiary in California, which had started in Texas but then moved to California, called China Sports. In 1987 moved to Los Angeles. And then there was another importer by the name of Sile Firearms in New York, and they had been buying from Norinco since 1985. Another importer bought military surplus from Poly, they are Century International Arms in St. Albans, Vermont. But originally they were a candidate to be Poly's US joint venture partner, but they felt more comfortable with my father since he was Chinese and they could trust him more than they could an outsider. His roots were in mainland China and my grandfather was a general in the KMT. But he was actually treated, my grandfather, with reverence, in Mainland China. The government actually provided him with a nice apartment, the kind that actually had a porcelain toilet. Siles was an American company, Century International was also an American Company. So basically you had these four big players.
We would sell to not to mass merchants, but with firearms wholesalers, like RSR Wholesale guns or Valley Gun Distributors and they distributed to retailers. Now Kengs Firearms, when we additionally started to do business, and the way we still do business, sells primarily to gun stores, but not to wholesalers. Becasue Poly wanted to sell Ak47s in volume and we told them that from a logistics standpoint there was no way we could do the numbers they wanted without using wholesalers, because we didn't have the penetration of the market, we can't sell to every gunstore in the country. We sell in sold in all 50 states, but not in Hawaii or Alaska, there wasn't that much demand and their distribution wasn't that satisfactory to us.
Poly was talking annually volume. In China, volume is everything. They wanted to do, they were pretty, my father gave them pretty conservative numbers but for the first year we wanted to sell 20,000 AKs and 20,000 SKS rifles to go with that and something like 5 million rounds of ammunition.
With the assault rifles, before the STockton episode, nobody ever had a problem with them, because they are not, if you look in the FBI crime statistics, rifles of all kinds account for less than 1 percent of firearms used in cries. The simple reason for that, you can't conceal a rifle. Handguns are the big problem. But people get the perception that oly criminals like these guns because you can't go hunting with them. They aren't really suited for hunting, that is true. You can hunt however with an SKS, and now that is one of our big products is selling the scope mounts for them because people do go hunting with them. But at the time that wasn't the thing. At that time it was just a low cost center fire rifle that was reliable and accurate. So people would buy them, and the ammo was cheap, that, before these Chinese guns came out, the only cheap ammo was .22s. And shooting .22s isn't that fun, so basically the Chinese gun with ammo coming in at the low price established a new market, for the big bore clinker, is what it was. People would take it, we used to do that with friends of ours, take several cases of ammunition, several thousand rounds and then go out in the woods, my father had some property in South Georgia, and like 10 acres, and we built a backstop and we would go and shoot all afternoon. And that was how the market developed. The ammo cost about 1/3 the cost of American ammunition.
There was a clear distinction. The SKS rifle was from their warehouses, was surplus. they had 3 million guns sitting around in their warehouses and they wanted to sell them. Their cost was basically zero, they were surplus. They wanted to sell them. They actually built them in the 1960s when Mao wanted everyone and his cousin to have a firearm. But everyone of those was made available for sale. And the AK on the production line, instead of being assembled as automatic was assembled as semi automatic, and that was it.
At that time I was in school at the University of****, my father talked to them. When they were looking for a joint venture partner, my father spoke to them. And they came to our office then in Atlanta. Now we are in Atlanta, my own company my personal company is in Roswell, and I import auto accessories from Japan.
(Does he know anything about Chinese pistols, knows nothing about them. There was a surplus firearm, a pistol, and we never dealt with them. We were looking at the gun business long term, we wanted to establish a brand identify for Poly Tech guns and because we knew a little more about guns and we told them to make certain modifications and pay attention to fit and finish more than Norinco did, and as a result of that, we could charge a premium over the same gun that Norinco was making. The PolyTech guns were a little better and we put like a spring loaded firing pin in the gun in the AK 47, which mean you could use more than military ammunition you could use hunting ammunition. Because with a standard firing pin if you use what we call soft primers in the hunting ammo, you could accidentally make the gun go off when you are loading the gun. And the way we did out distribution program was we picked our distributors and limited the amount of distributors where Norinco wanted to sell to everybody. So we actually focused on just the SKSs and AKs and we did really nice catalogues. That's what I did. And we were actually very successful in creating the impression that PolyTech was the premium brand of the Chinese guns. We still have some of the old brochures. We called them Poly Tech AKS 762 or AK47S or Poly Tech SKS. Business in 1987 we did $9 million in business, which was above their expectations. In 1988 we did $26 million, which really blew their minds, and in 1989 in for the first year we did $20 million, and that was despite the fact that after March of 1989 we couldn't import any more guns. So, we were doing really well, taking over the market. People had started to recognize the name, and the way we had our distribution set up, the distributors really gave us priority. Coverage. They would buy us instead of Norinco because by limiting the number of distributors we had, and by picking and choosing the ones we considered good, we didn't want the guys that would just turn aroudn and mark it up $5 and wholesale it out, because that didn't do us any good in the long run, that would dilute the value of the brand. We actually terminated som distributors because we felt they weren't trying to make a profit with our line. So we did things a little more unconventionally than the typical Chinese company would. And as a consequence of that we were doing really well. They ended up in Big 5 sports, they bought a lot of Norinco guns. We were not successful in selling to them and China Sports had already moved over there, and China Sports was really in tight with their parent company, Valley Gun distributors.
Poly Technologies initially sent two guys over, Mao Baoping and Zhou Yigang. Mao Baoping used to be the deputy export manager for Poly. He used to sell various fire arms and ammunition primarily to Century International before they joined with us. They moved to Atlanta, bought a house. When they set up a joint venture. They bought a house in Smyrna. Then after a year they concluded they wanted a bigger and better house, their first house was a $200,000 one. In a nice area, but after one year Gary moved into an apartment in Buckhead, which is pretty much the best part of Atlanta, and the rent there was $1200 a month. And Ma bought a new condo in Buckhead for $330,000. At first they didn't have their fajmilies to them. And at first their salary was limited to something like $400 a month, on paper they were paid $2000 but they were only allowed to keep $400 a month. And my father actually subsidized them and gave them spending money. But you could see that they started very quickly started to develop bad habits. I remember one time, we went to eat somewhere, in Atlanta, and Gary and Yigang ordered Orange juice and he cussed the guy out because he said, this isn't fresh squeezed organize juice. My father just lost his temper then and said who do you think you are, to demand that kind of service. The company paid for the condo. The company initially it did. But after they decided that the initial residence was not up to their quality, they became more extravagant. The cars were the same way. First they had two Ford Tauruses, they got rid of those in 6 months. Then they went to Acura Legends and Volvo 750 Turbo, then ujp to a Mercedes 560SEL and a Lexis 400. The money came from the company, and the company leased the cars or actively purchased the company. Who was in charge of the company. Poly had the final say, and because they were the majority shareholder, when things fell out, there was nothing the Kengs could do since they were the 25% minority stockholders. The Keng family never lost any money. It was not a money losing venture, but the Chinese officials had never lived so well in their lives. When they first came to the US they were modest, at first, about spending. They would try to buy noodles and inexpensive products, pretty much living the way they did in Beijing. But once they arrived in the US, and particularly after they set up Dynasty and started doing big defense contracts, they lived, extravagantly.
Kengs and PTK had separate offices in different parts of Atlanta. The Kengs father and mother spent most of the time in PTK and Shane and his brother spent most of their time in the warehouse of King's Firearms, where the guns were actually housed. After they were imported, and sold them on paper to PTK, they were actually warehoused by the Kings. They subleased part of the warehouse. For their shipments. So PTK was basically only a tax loophole. In fact the IRS is currently assessing PTK and Keng's for back taxes, something like $600,000 in excise taxes. The Keng's were advised by their legal attorneys to go after PTK, since there were several cases where like a volkswagen was importer that did the same thing, and in those cases they went after the true importer, the account that billed them.
The bulk of the money was actually staying in the US. They earned enough to pay the factory and to look good on paper. They weren't losing money. The thing with China is, if volume, volume is a t a premium, so if you can do big volume and not lose money, then you're doing well because you are keeping the factories running at full capacity and then you're a hero. It is just a completely different way of doing business. We run into problems now because we don't have as much capital. Sometimes we found products that we'd like to have made in China, but its sort of a niche problem, the volume is smaller but the markup is higher. And it is difficult to find factories to take on that kind of job. Because they want something they can make 100,000 of and not 10,000 of.
We weren't getting our share of the profits as PTK grew. That is where we started having problems because my father never, besides the salary that he made, which was like $3000 a month, from PTK, and my mother made $2000 and my brother and myself made $2000. The used Piet Marwick for accounting. We did the bulk of the work, and it was OK when after 1987 when there wasn't any dividents to go around, but after 1988, when we did $26 million in sales, I think despite all their spending, the net income was something like a $1 million something, it would have been more but they spent most of the money. They would rather spend it, they didn't want to pay income tax, so they'd rather spend the money and expense it out rather and enjoy the fruits of that rather than pay it in taxes. The actual owner of all their assets was in fact the company. Visiting delegations came. There was one delegation that arrived. I remember this very well because I actually took them to Comdex. There was a delegation from the Army, the two guys in charge were generals, in fact one was a marshall, a very skinny guy, pale, he was Mr. Zhang, he was in charge of internal security in 1988. The delegation came by and we took them to Comdex and they then went to Miami, went to Orlando and saw Disney World. They stayed two days there and then drove to Miami and then took a plane to Mass., because they went to Digital, IBM and places like that. We had Wang Jun come by several times, sometimes on business for Coca Cola and they put him up at the Ritz Carlton, and he took time out to talk to my father. He, my father was given a lot of credit for making this joint venture thing work. And he was accorded a lot of respect for that back then, because any time the big guys came by they would always stop by and talk to him. And they always flew first class, but they had Gulfstream jets, their own, they also have two 737s, for their personal use. You wouldn't believe their money. As for women, they were straightforward. They never had mistresses around us. Especially after their wives came here. Around us. Typically the delegations we met had now women with them. They were just army guys or from Poly Tech. They didn't even want to go to the strip shoes or anything like that. One time my father actually met with Yang Shankun, when he was here in the states, up in Washington, DC. He had fairly close access to these people.
We were worried about where the profits were going. That is where we started having problems. It was pretty clear to us that no matter how much money we made, my ****** would never realize any profits because they would spend it all before the end of the year, they would expense it out before they realized a profit. And that didn't sit too well with us. They traveled and entertained. The entertained lavishly, all meals and big gifts for people. I don't know how they got away with it from the IRS. I guess the IRS doesn't pay that close attention to it. I mean some of those things aren't deductible for Americans. they had their own credit cards, PTK International and Dynasty holding all had Mastercards and Visas and had preferred accounts because they had all these deposits in the First National Bank of Atlanta. And so they would give them credit cards with huge credit lines, and they'd go and charge however much they needed and at the end of the month the company would just pay the entire bill. Their kids went didn't come over till real late, and I don't know where they went to school. The only --we have a few receipts that Gary had, some were for jewelry that Gary had, but they weren't for him, they were for gifts for the people above him in Poly. Our accountant told us that gifts for business purposes were up to something like $75, but they were buying gifts of more than $1200 at a crack.
Dynasty Holding Company. One day they announced that they were going to set up Dynasty Holding Company. They wanted a clarification of our arrangement with them. Maybe this was in late 1987. They said basically PTK will be responsible for the importing and selling of guns, and Dynasty will be responsible for the procurement of all of feds articles--they basically didn't want us to get involved in that part of it. Dynasty was created merely as a profit making agent for Poly Technologies. It was the way for them to set aside money in the United States with attracting undue attention in China.
This was created in late 1987, same office and the same officers, the two guys, they were then Dynasty Holding Company. Xie Datong was listed as Chairman of the Board, and it was all the same, it was all PolyTechnologies. And their office was in Atlanta. And at the same time, there was a company set up in Bethesda, Maryland, named JLS International. JLS, Jane Shaw, a Chinese woman who immigrated to the US in the late 1950s. Her relationship was with Deng Xiaopings youngest daughter, Deng Rong, when they went to school here in the states, to American University, Jane took care of them, Deng Rong and He Ping. When He Ping wanted to choose someone to act as a sales agent, he chose JLS Associates. He Ping went to school in Washington, also. At this time, when they had Dynasty, they decided to do business with her. She came to Atlanta one time, to meet with them, and she didn't say what they were doing, but later they received a fax from her attorney in Washington and learned that they were the sales agent for the Boeing Helicopter deal. She was your typical, Taiwanese, real slick, business people. They put on a facade of being friendly, but we tend to avoid people like that.
She had not been in business before. In fact her business partner, a guy named Steve Wong, sold life insurance at Life of Maryland. It had nothing to do with her business acumen, she had the connections with He Ping. The really meaty part of this is that she chose Gary Zhou to be her vice president, and to own, and to split the commission from the Boeing deal 50/50, so he is the actual contduit for He Ping. He is an officer of Dynasty, PLK, and Jane L. Shaw. And the revelation of this is what blew our minds when we found it.
(Document 1) Jane Shaw associates, the 1988 deal with Boeing.
Try talking to International Defense Review, or Janes Defense Weekly. I spoke to a guy there, John Boatman, what ITT Gilcron made. And he told me they made radar. Their office is in suburban Virginia somewhere, the same publication, owned by Janes Defense Weekly.
I was watching these organizatons, and had no problems with them, they told us that the guns were our business and everything else was not our business. But we started to have a problem because the gun part of the business was doing quite well, but they were still spending the money before there was a profit realized. And that is where the problem developed. We had a discussion. Father was patient with them, but the sons were upset. And they were basically getting their salaries. The Keng's were frugal with their expenses, flying coach, finding the best rates on the airlines. I went to Hartford and the direct flight from Atlanta on Delta was $500 but there was a continental flight to Newark that was 1/3 of that, so I flew Continental to Newark and then rented a car to drive to Hartford. And we didn't have a problem with that. But we were trying to make money and maximize profits and on the other side, they were spending money as fast as they could. We could have but we never did.
Ma was in control, and he was the one closest to my father, and it was kind of dragged on for a long time, and tension grew between Ma and the ****** boys. But the father remained trusting and cautioned that he should give them the benefit of the doubt. And he began to realize in 1989 when the imports of these guns were banned, we felt that was the end of the road, but that wasn't really. the Bush administration banned the assault rifle configuration, but you could bring modified versions of the same guns, and put different stocks, mill down the bayonet lug and put a five round magazine on it and you could then import that gun. The old magazine held 30 rounds. So there were cosmetic changes. But by that time, we had already fallen out of favor with them. When my father went to talk about modifying the AK line so we could still continue to sell it, they said no suddenly. To them this was an opportunity to ditch us. So when my father went to talk about modifying the AK line they said no. Poly said they didn't want to do business any more. The word came from Beijing and Ma. Basically, they didn't want to be in business with us any more. They wanted PTK to shut down. That's when things went sour. Father then realized they didn't want to do business with him any more. They basically learned how to sell guns over here so they didn't need us any more. After that they made the modified AK and sold them to Century. They need PTK to market it. And Gary Zhou and Robert Ma they got their income after that from Dynasty. PTK had no income after 1990. There was remaining inventory that was sold at extremely high market because these guns were worth a lot more money. But all subsequent income came through Dynasty and Poly USA.
This was the one that clenched it. This Jane Shaw document. I knew what he was up to. I knew he wasn't taking the money himself. He's taking a cut of it, because the bulk of it was going to He Ping, because this was his deal. But he couldn't accept the money directly. If JLS International had Jane Shaw as president and HE Ping as vice president, that might raise some eyebrows. If someone said that a Chinese government official had a US company over here and was negotiating this would not look good. That Gary Zhou was involved shocked me. He was working in behalf of Poly. JLS does nothing. All the work is already done. And this is where the defense contractors sort of turn a blind eye. They recognize this as the cost of doing business. They build this into their price anyway. But this is the way to avoid detection, a way to avoid bribery. you could take the risk of doing it the way the Lockheed people did with Egyptian officials, but this is more subtle, you have to know who he is and who she is to figure out, there is no way he could keep that money for himself. He was involved as the proxy for He Ping.
He wore so many hats, it didn't matter what the address was. We never saw the figure on the profit and we never knew the total amount of the deal, but I read that the value of the helicopters was $17 million apiece. This was for helicopters from Boeing. Not sure if it was finalized or not.
Copies missing here, let me make some copies. Some of these documents we copied when they weren't looking. After I realized what was going on, we didn't talk to them any more about what was going on. What I did, when he wasn't looking, I 'd go to the xerox machine and just start copying. I didn't take any chances and xeroxed everything in sight and worried about whether it was important or not later.
Documents upset us because, I knew, a military history buff, I knew about foreign corrupt practices, to know that its not proper for a US company to give money to foreign officials to influence them to buy their products. Before the Lockheed deal with the Egyptians, and then in the 1970s some Lockheed officials got in trouble in the 1970s bribing Japanese officials. I remember that. And I told my brother, look, they are doing something wrong. It is obvious to me, that they are trying to set money aside for themselves. It really had nothing to do with what we were doing, but it just wasn't right.
That was one activity. They were not secretive. Matthew Chen, director of international sales at Boeing, was the man they dealt with. His name is on document.
This document, Dynasty holding Company shows how the business is organized. Incorporated in 1988. As the US marketing agent for Poly and so on. And this is from their own desk. For US immigration and naturalization.
This proves that the Poly People , this guy, Zhou Kezha, is the vice president in charge of imports for Poly Tech, and he used to go to Seattle all the time to talk to Matthew Chen, and he would come by our place. This fax is from Gary Zhou to him, and sometimes they would come in the other direction, and he would tell Gary what he had to do.
Claude Collins is the American. He was a software salesman, recommended by a friend of my ******* and I, because we were trying to get their accounting modernized, since they didn't know how to do in house accounting or anything like that. Through a referral Collins came over to PTK to set up software, network, for the PC, he got along real well with Gary Zhou, and evidently he had done a lot of business dealings in the 70s, coal and other things, trading stuff, and they felt like they could pick his brains a little bit, and they hired him as a full time consultant, and gradually he became full-time employee, this letter here, he is already, sort of their point man when Gary is out of the country. He didn't do anything with the gun part of the business. He and Gary were responsible for the procurement stuff. How did he learn it? There is nothing to learn, really. He would receive instructions, from Beijing, and they would merely follow instructions. (The point is that, the officers in Beijing of Poly would benefit from this?) From Dynasty Holding Company, the top individuals, plus, Mai and Zhou obviously shared in the success, they lived a very comfortable life style. In fact, I think Ma, was very good at using company money to buy gifts, to broaden his influence. When the joint venture started, he was sort of an outsider, so to speak, with the big guys, the guys in Charge. he was kind of a gun guy, and basically this was all he paid attention to. But gradually that changed, he bought lavish gifts, and then they let him start Poly Electronic Something in China, a Chinese corporation, that actually developed software,(read the Poly Electronic Technologies in the papers).
This is a perfect example, here. This telex is to Gary Zhou from Zou Kaja, the telex is from JLS International, so it is like their office, he's telling Gary, to wire the money on this particular day, for this contract, these are the amounts. Please confirm above shipping information with Miss Shiao, they've already made all the shipping arrangements, all he has to do is make sure that everything is done according to Poly's instructions. There is nothing for him to do. He acts as the conduit for money to come in and goods to go out.
When the money started coming in, earlier, when they only had PTK, they had so muc money. One time they had $52 million come in, and they didn't know what the best way to invest that money for such a short period of time was. This was in the form of a wire, so my father was good friends with someone in the international banking department, and we met with them, and they suggested repurchase agreements. They were glad to have the business obviously. After that, they would get, the bank would lavish attention on those two and made them feel like real vips. I don't know any of the money company coming in for Dynasty. For the money coming in, Dynasty gave us this, incoming activity and outgoing activity, Selenia Elsag and so on, you see the balance sheet.(Looking it over). There is a letter.
There is something here, let me see, This letter is very important. They produced this in litigation to us. June 1, 1989, it states that PTK INternational, addressed to him, but as of this date, they are not approved to export any dfense articles. Understand this date, and June 1, 1989. Received registration statement. But this is from September 15, 1988, an invoice from Rockwell International, there is no item on the second letter, to be registered as an exporter of defense items, but this Rockwell stuff is gone already on that date. This is for their UH60 Blackhawk helicopters, this is a 40,000 deal, a small deal, here is the purchase order. That makes a little bit of sense. This kind of stuff, you need to get an export permit for, they just didn't bother to do that.
This is the way Rockwell gets away with it, they put the responsibility to PTK, and if PTK didn't get caught, then it was nobody's problem. This was in 1988, and I remember the stuff arrived in the office, it came by air freight, it sat in the office for six days and then they sent it out by China Interocean Transport. They just sent it out. A Chinese government owned freight forwarder.s They have an office in Compton and one in New Jersey, the main office is here, what they do is they assist Poly in getting restricted merchandise out of the country without anyone noticing. I think that the letters I will show you tell how they do that.
They get anything into and out of the country that they need. They have their own private jets. LIke Yang Shankun comes on those, nobody checks their planes. I remember Wang Jun came to Atlanta, and I took him to buy golf clubs, and he had to buy golf clubs for others, he was really into golf, he was horrible buthe was really into it. They spent $4000 on graphite golf clubs in Atlanta. They had to have them UPS next day air to Seattle because it was going out on their plane that was leaving, they were taking delivery of a 737 and they wanted to put this stuff on the plane when it it left. They could have put anything they wanted on it, more than golf clubs, that happens and it is not a one shot deal. I don't think their planes go through customs. And nothing on the plane clears customs. I don't think they do. They are treated with kid gloves, they really are. We've actually taken some of the stuff to show the IRS, the Cayman Islands stuff, and we showed the FBI, and we spoke to US customs in New York, and the field office guys were really gung ho about this, but it got snuffed out at the top. I don't know why. It may be that the US government doesn't want any instability in China. This kind of stuff, if it comes out is quite embarrassing to them. I don't know what the real motive is. It is not like this was kept a total secret. We've used our contacts to make people aware of this, but it never got past the field office.
Shie was fluent in English and French. They with us were so cavalier about this because they didn't think that we would care. And at the time we didn't. But in time, something told me that I should at least make copies of this stuff for future reference. This stuff sat in ***** files for I don't know how long.
The thing is, the reason why we found this out, finding someone in the media who understands it, is the best way to use this information. It rubs you the wrong way when you see people that arrogant. They feel they are higher than everybody else. There are a lot of people in China like that now, they've tasted some success, and somehow they feel that makes them better than everybody else. But the problem is now trying to find these people. We are trying to find where MA is right now, that was the last time. It was so obvious, we went to find Gary Zhou for our law suit, we used a private eye to find him, he was taking all his mail in a housing project, he had some guy go get his mail there for him, it was a real rundown section of the city, but he didn't live there. He didn't want people to find him. it was very odd. And, we couldn't hear part of the deposition because he feared that we would retaliate against him, so he invoked some sort of privilege clause where only our attorney could be present. His immigration status, he is a permanent resident, he got the O1 visas through the companies, and after a certain period of time you can apply for a green card. In fact, that is the way to get green cards now, is to have a mainland Chinese company to set up a US subsidiary, and then to send their key guys over on L1 visas, and after two years you can apply for permanent resident. So he may become a citizen, or he may already be one. His daughter and wife are here. My brother told me he thought they were in Vancouver, and MA has his wife and son over here, and I've seen him several times in Atlanta.
The Digital Equipment deal, let me talk about that. This is still the Rockwell Stuff, you may want to separate that stuff. Now it may turn out that this is not restricted, but I doubt it.
This is the original letter, with the translation here. This one. From Zhou Zhen, he is the military liaison, the guy at Poly Technologies, he wrote this letter to Gary and had it hand delivered to him. And, in Atlanta, and it says hand deliver on it. My dad did this translation. On the matter of packaging of the DEC merchandise, if you can, use...but then, here it gets interesting. You have to read this other letter that goes alone with it, from Su Su, she was in the import department of Poly in Beijing, she saying the same thing, you need to avoid having the same contents on the export permit. Here's the response from Gary. It's this easy. Customs is so overworked, they don't inspect stuff that goes out. They only inspect stuff that goes in. A tracer. They bought this through a company called Bargate. Neither of us can find anything on this company. It makes perfect sense from Gary, this letter, in response, he's already talked to the guy at China Interocean, he says another set of documents can be created, and he asks that others tell him which documents he needs. The invoice should be sent to you by Bargate, and the other stuff should be provided by them. And he is saying, just tell us what you want on there. This stuff I, I used to go there in the middle of the night, because I worked odd hours, he had stuff sitting on his desk. He knew I couldn't read Chinese anyway, so I guess he didn't suspect I would xerox it. He knew I couldn't read it so didn't think I would xerox it. Going through the mails. These three documents together. To me, that's not the smoking gun, but if we could find this Bargate(check in Massachusetts first) and if that doesn't work, then check new York and New Jersey, I assume they are close to Digital, and I called them and I asked them if they had any company that sells their computers by the name of Bargate, and I don't know. Apparently the guys name, is Wu, who is head of this, it says on the other one, DEC and CET are legitimate US companies, their citizenship is not like Wu, they may not be able to do the things that Wu can do. So if Wu is bargate, that would make sense, he could make all these different labels. The next one that catches my eye, really, some of these are duplicated, so none of their files were locked or anything like this.
OK(searching). This is Gilchron, this lady is retired, she no longer works there, they signed this in March, 1988, and I talked to John Boatman at International Defense Review, he says that Gilfilland's speciality is naval radar, and I asked him, I have a copy of a contract of a memorandum that mentions a contract with Gilfilland, and he says that there is no way that the US would sell that stuff, it is state of the art technology. Very restricted. But this is the contract number, you need to bear in mind, as we can see somewhere down the road. You have to get someone to read this, who reads Chinese. You have to have it read, it is highlighted, ******* told me that this says that Margaret Moss is preparing to withdrawn the export permit from the state department, meaning that, if you read this, it implies that they are going to do the same thing they did with Rockwell, which is that ITT Gillfalland, will sell the merchandise to Poly or Dynasty, and they would, the US company that they would be responsible for paying for the necessary export permit. And they just didn't follow it back, and they used CIT again, to ship it, and this to me proves, payment under the same contract number, 1,800,000--total is 2,860,000, this is the second installment of this contract. There is a publication you can trace to see what the manifest on this was. But it supposed to have left on July 22 of 1988 on the Shen He, and there is wiring instructions and everything for Gillfilland. And if you go back to that letter from the state department, there is no way they had the right permits to get this stuff out of the country. The date on this , here is a subsequent wire to them, it wasn't just a once shot deal with them, here is another mention of the ITT Gillfilland contract. Uhm, the next thing:
The TPQ37 radar, artillery fire control radar. My dad talked about it, saying that they wanted to buy this thing. I found that in the International Defense Review, here is a memo in Chinese talking about it, here is another one, part of this got squished in the xeroxing. My father said that this says that Poly or Dynasty gets a kickback from CIT on the shipping. And, the shipping amount was this much, it was 3.5% of the contract value, this letter says that CIT is supposed to kick back, this amount of the contract value, which amounts to this much(see document, which you have to translate). Again it is one thing if they got State Department approval, but I don't think the State Department ever knew about this, or if they did they just didn't care.
This stuff, this again, is ultra high technology equipment, and you were saying, the Chinese army loves to buy this cutting edge technology and then try to reproduce it to sell to other countries. There is no way that the state department would have let this stuff go out.
The FBI crime statistics show that less than 1% of all crimes committed with firearms are committed by rifles of any kind. An exotic weapon, the SKS, it is not cutting edge technology, it's not your typical bolt action hunting rifle. I am sure there are gang people using these, the AK but not the SKS, I can see where they would use it. We've never had protesters, we have a very low profile. We used to be in a strip shopping center, and not even have a sign out front. Now we have a stand alone warehouse without a sign in front and pretty good security. There is a company called Glock, in Smyrna Georgia, and they were broken into, rammed the dock door down, and stole something like 300 pistols. But they, while they are obviously going to be some guns used by criminals, the number is dwarfed by Glocks and Barettas and because we are talking about rifles versus handguns.
The Branch Davidians had AK47s and bought through a dealer in Waco that bought through us, one of our guys went to testify at the trial. But everything we did was legal. We had no idea they were going there. From that standpoint, I'm not really into guns. My father is into them, but it doesn't interst me. I'm not a gun enthusiast, but I understand enough about them so I don't feel like a fool trying to sell them. That was the critical difference between why Poly was successful in marketing their guns as opposed to Norinco, at first Norinco didn't want to spend the money for marketing to get the image of a quality product. Then when they wanted to do that, they didn't have any one in house that understood guns that could do the marketing. I did all the production for the ads themselves, the only thing I had to farm out was the photography, I had somebody, I went to the studio and told them how to do the photo, but they didn't have anybody like that, their ads were like crap, gave the customers the impressions that this was a low end product. Then when the finally decided to spend the money, they had to go outside and find an ad agency, and those people didn't know anything about guns, so they still had the effect of not getting their message across.
So you watched all of this happen. The falling out was when they decided to dump you guys. But at that point there was a huge inventory of weapons imported by you guys, and at that point, let me go back in the chronology, in 1989, they banned further imports of AKs and stuff, in their original configuration, but we still had a stockpile of those, guns, in our warehouse already. They could be legally sold. PTK was charging three times what they were originally charging for those guns. My father was trying to get them to commit to do the new guns, the modified versions, and they wouldn't. So ********* decided that we weren't going to obligate ourselves to sell all the remaining guns in our warehouse to PTK, and that is when they really got upset, because they felt like that was their's. We felt if this was the end of the road for us, then we will at least try to recoup some of the money due to us. We ended up selling about 2 million worth of guns, to not do business with them. AFter they decided they didn't want to use us, we thought they burned their bridges. We sold the guns ourselves and they ended up suing us. They said that we deprived them of their product, and that we were obligated to sell to them those guns, and we said that we were not obligated and basically if we were obligated and if we were obligated then that proved the point that we are the import agent for you guys. They threw around charges, nasty ones, about us embezzling money and stuff, which, when we went to depositions, we went over every item, they had lawyers who would have us explain, why did you go to this city on this day, and we explained to see a customer or whatever. And we had verifications, because we usually went with our sales reps. It cost us $2.8 million, and it cost them $3.9 million. And the settlement, this is the way, it went on for about 18 months. We were running bills of nearly $300,000 per month. The scope of the law suit. And depositions went out every day, and all this discovery. We learned a long time ago that its next to impossible to get financing and then don't worry about insurance, if you've got insurance, it would be outrageous, we learned a long time ago, when we broke off our business with Poly, and we learned to budget ourselves to where we had to eat our own money, there is no way a bank is going to give you credit to go buy guns. Anytime you buy something from the Chinese, we wire the money as soon as it is on the boat, we get a copy of the bill of lading and we wire the money.
Settled, out of court settlement. We got to keep all the inventory at our place, and we are still trying to get rid of it. Very hostile law suit, they were making charges at us for embezzling money and depriving them of business opportunities and all this stuff. The other thing, if we were Americans or white, there is no way they would do that. They are so intimidated by Americans that, that is what really got myf ather angry. I remember he gave Wang Shao Tao an earful about that. He said, "You guys have no dignity." The only reason you are treating us like this is because we are Chinese. If we were an American family, just a cornbread American family, you guys would have high tailed it out of there." They were so racist. Chinese have always been real bad about this.
We stopped sharing an office long before this. Status of PTK is dissolved, shut down their offices and these guys then dissolved Dynasty in Atlanta, also, they are trying to give us the impression that they've left the country, but I don't think so.
They could just start ABC corporation if they wanted. Poly USA, everything that was here in Atlanta is already shut down. Poly USA was the replacement for PTK, they continued to sell SKS and modified AKs to people like Century. But they lost our tax advantage. They imported and then they sold to Century. They were Robert Ma., he was Poly USA. Nothing restricts an individual from doing that. The guy that is auditing now, started in 1991, he is retiring this year, he has been with the IRS for 30 years. He could care less if he gets anything.
Shaw comes down to see them, she was not introduced as anyone important.
Johnny Kao. Mr. K's in Washington. He has real connections, the guy that owns Evergreen Transport, chose him to have him help him secure the air rights, air routes. What happened to Jane Shaw, she is still at JLS. This exists only for a deal going down. They only deal with Poly. They don't make cold calls. Poly sets up everything for them.
This is just one step removed from straight bribery. This is the way much of the arms business is done. If you think about it, they have offices in Beijing, the American companies, for the specific purpose of trying to solicit business, now why would they go out and appoint someone in Maryland to be their sales agent if they already have a sales office in Beijing. Jane Shaw is the agent for Boeing. Poly insisted that she be the agent, the sales agent.
The insurance company in the Cayman Islands. They are trying ... it is PTK, the purpose is to save money. These are for imports. Import insurance. This is product liability insurance. Poly sells guns to distributors, they want product liability insurance. They already have it. This is the insurance that they give to all their distributors, they have to have this to do business. This is for flaws, in case, the gun blows up or some flaw in design. You see here Poly Technologies Dynasty are not on here, this is crucial because their whole basis for doing this policy is that they feel that the coverage that they have is inadequate. And if you read, they did this really slick, I knew this was bogus when I saw it the first time. Product liability insurance for more than $1 million. the premium was $102,600 per year. So they got this policy on the premise that, they felt, here is the letter, you've indicated that the dolphins...they want to provide for dolphin to provide these risk management services. They say the existing policy is inadequate giving you only one million in coverage. And they were willing to offer $4 million in addition to that. But our coverage only goes into effect if the $1 million is exceeded. But, if you remember what I just told you about that, the people are on the existing policy, Poly and Dynasty are not on the first policy, so they are overpaying. Their whole basis was because they wanted protection for Poly and Dynasty, but they are not even on the original policy, and they have one that in case the liability exceeds the first. This is just some shadow corporation, we doubt that it is real insurance, if you went to collect on this insurance, and the premium was $700,000 for that year. In 1990 PTK did business, did $26 million, they are anticipating what the sales will be through year end 89 will be $26 million. PTK was never formerly dissolved. They told us when the ban was announced, this they did when we were cut out of the picture. We got these documents after they cut us out of the picture. They wanted additional coverage for Dynasty and Poly, but the way the policy is written is that it only goes into existence only if the claims made exceed the original policy, and Dynasty and Poly are not even on that policy. This was a method of sending $700,000--they wanted a double whammy, basically. They paid $2.4 million out of PTK to Dynasty, here is an invoice from Dynasty to PTK, for risk management services. They paid 15% of gross sales, for what purpose, to guarantee that they were going to pay this debt. If PTK couldn't pay Poly this debt that they owed, then Dynasty would do this.
Money like this coming back into real estate investment in the US. They claim they are not very good at it. They have one office park in Atlanta called Governor's Ridge, and is supposedly not doing very well, offices. They have one in Phoenix called Terra Cotta Villa. Now poly has additional properties, I don't know if they are through Dynasty but they have an apartment complex in Las Vegas, and what we are talking about here is the Chinese Army. They are very subtle about it, and they don't go around saying hey we are the Chiense Army. The thing is that American business really rolls out the red carpet for these guys.