CHS in money laundering charge
The continuing saga at CHS Electronics took a twist last week when it emerged that its US parent faces allegations of money laundering and export law violations.
The continuing saga at CHS Electronics took a twist last week when it emerged that its US parent faces allegations of money laundering and export law violations.
The US Department of Commerce (DoC) is investigating one of the distributor's subsidiaries and its management after it was alleged that US exportation laws had been broken. There were also claims of other illegal acts, including money laundering. The allegations came as the distributor revealed massive third-quarter losses.
The DoC has offered to settle with CHS in the form of a $25 million (£15.6 million) fine in return for a guilty plea from CHS to a "representative sample of the charges". However, a filing with the Securities and Exchange Commission states that the ultimate exposure could be higher if CHS was found to have acted illegally.
The CHS filing did not name the subsidiary or the management connected to the investigation.
It also emerged that CHS is being sued by DHL Airways for $3.1 million for allegedly understating the value of goods shipped by a European subsidiary to the Netherlands to reduce VAT payments and customs fees. The Dutch government billed DHL for the amount outstanding. CHS said it intends to vigorously defend itself against all allegations.
CHS also faces proceedings from SiS International Holdings as SiS alleges the distributor failed to pay $70.4 million for an 80 per cent stake in SiS Distribution. CHS announced the deal in February 1998, but until March this year had not paid outstanding balance of $42.2 million, SiS said.
CHS was unavailable for comment.
One industry source said: "Some shareholders say it's about time Claudio [Claudio Osorio, chief executive of CHS] threw in the towel."
Another added: "This is just another nail in the coffin for CHS. Like the Titanic, CHS bumped into an iceberg some time ago and has been slowly taking on water ever since."
CHS recorded a loss of over $225 million during its third quarter as the cost of placing European subsidiaries into receivership took its toll. The distributor, which put its UK, German and Austrian divisions into receivership in October, posted a net loss of $225 million for the three months to 30 September.
Charges of $170.4 million were primarily due to the loss of goodwill and the cost of closing the failed subsidiaries. During the corresponding period in 1998, CHS made a net profit of $6.6 million. Turnover for the period was $2.1 billion, a four per cent drop on last year's $2.2 billion.