U.S. Cracks Down on Cheating by Emission Labs Testing Foreign Cars
A federal crackdown on cheating by Orange County automotive testing laboratories is being welcomed by legitimate operators, who say the offenders have not only polluted the air but cost law-abiding labs millions of dollars in lost revenue.
In recent months, three lab owners and dozens of employees have been indicted on felony charges of submitting false emission test results from imported cars to the U.S. Environmental Protection Agency.
“Everybody in the industry knew there was cheating,” said Caleb (Bud) Swanson, president of Air Quality Products Inc. in Anaheim. His lab no longer performs the tests, but he formerly leased space to a company under indictment. “After a period of time, I simply told them they couldn’t cheat here anymore, so they broke their lease and left,” he said.
10,000 Automobiles
Federal prosecutors say more than 10,000 expensive imported automobiles were involved in the fraudulent tests. Owners of the cars may have paid thousands of dollars for useless or faulty emission control equipment installed by unscrupulous car modifiers, the government charges.
However, an Environmental Protection Agency spokesman said the importer, not the registered owner, will be responsible for repairing and retesting the cars once the legal dust settles.
Industry sources said there is a clear economic incentive to cheat because, when performed correctly, the emissions test takes about 15 hours to complete and costs between $600 and $1,200.
Strict controls are placed on every phase of the test, which measures exactly how much pollution a car emits while warming up, running and cooling down. Before a car can undergo testing, it must be parked for about 12 hours. Its fuel tank is emptied and a special fuel is used for the test.
Taking Shortcuts
Operators can process many more cars in a day if they take shortcuts or skip entire portions of the test.
Late last month, a Los Angeles federal grand jury indicted the owners and 23 employees of Import Certification Lab Inc. (ICL) in Orange for submitting “falsified and fabricated” test data to the EPA, according to the indictment. ICL, one of the nation’s largest testing labs, processed about 7,900 cars between 1983 and 1986, the indictment said. It also holds a contract with the state to test autos for the Air Resources Board.
ICL President Andrew Krumm and Vice President Dennis Holding have pleaded not guilty. Meanwhile, court records show that ICL and a related firm, Import Automotive Technologies Inc. of Orange, which did modifications on cars tested by ICL, filed for bankruptcy protection Jan. 26, 1987.
The federal crackdown began in 1985 with charges filed against Newport Beach importer Albert Mardikian. He pleaded guilty to one count of mail fraud and nine counts of submitting false documents to the EPA and later was sentenced to six months in prison.
In December, 1986, Billy Closson, owner of defunct Custom Engineering Inc. in Garden Grove, pleaded guilty to nine counts of submitting false information to the EPA. Closson has not been sentenced.
Meanwhile, a third Orange County lab, North American Compliance Inc. in Santa Ana, is currently under investigation by the EPA, according to a spokesman for the agency.
Federal Standards
The EPA requires that cars manufactured for use abroad be modified to meet federal air pollution standards. The law was originally intended for diplomats and servicemen living abroad who wanted to bring their cars home, but soon many other motorists were buying autos abroad.
Drivers who coveted the faster, sleeker European models of Mercedes-Benz, BMW and Ferrari found that with the strong U.S. dollar, they could buy a car much cheaper abroad than in the United States. Even after spending $2,000 to $7,500 for the required emission control equipment and other safety features, buyers found the so-called “gray market” cars a bargain.
In 1985, a record 67,000 gray market cars arrived in the United States, according to Ben Jackson, executive director of the Automotive Importers Compliance Assn. in Reston, Va. As the dollar has weakened, the number has dropped and this year, Jackson predicted, no more than 12,000 gray market cars will be imported.
Due to the decline in imports, many testing labs have gone out of business. Membership in AICA has plummeted from 600 to 100, Jackson said.
Jackson said the Orange County lab owners were the first to be indicted on federal criminal charges.
“The California group is unique in terms of the number of labs (under investigation),” Jackson said in an interview.
Clear Warnings
He said the forms carry clear warnings of the penalties for knowingly submitting false data.
“It’s amazing how blatant fraud is in the industry,” said Assistant U.S. Atty. Janet L. Goldstein, who works in the Justice Department’s environmental fraud unit in Los Angeles. In the Custom Engineering case, Goldstein said, the owner designed a computer program to mass-produce phony test data. His workers also manipulated testing machinery and drew by hand the required graphs and charts. Another lab owner had a person working full time to falsify test results.
Only laboratories appearing on an approved EPA list can submit test packets to the agency. This year, there are 35 labs on the list, with 10 in California.
Packets on Hold
The EPA is not accepting test packets from ICL. It has also placed a hold on packets completed by North American Compliance Inc. of Santa Ana, according to Robert Montgomery, acting chief of the EPA’s manufacturers’ program branch.
“No decision has been made on whether to reject the ICL test packets because our investigation is continuing,” Montgomery said. He said the Justice Department is pressing criminal charges against ICL, while his agency is proceeding administratively.
ICL President Krumm declined to comment on the specific federal allegations, but denied any wrongdoing.
“I really cannot say anything, as much as I would like to,” said Holding, the firm’s vice president.
A recent visit to ICL revealed that its imported car testing business has dropped off to nothing. Krumm said he is referring cars to other labs.
However, ICL has a $400,000 contract to test 210 cars for the California Air Resources Board. That work, in which the state provides privately owned cars for testing, is continuing at ICL despite the bankruptcy action. So far, the state has been pleased with ICL’s work, according to Norman Kayne, chief of the ARB’s in-use vehicle testing programs branch in El Monte.
“We are constantly watching out,” Kayne said. “We have our own people down there to be assured the data is right.”
Not Aware of Charges
Kayne said he was aware of the federal charges, but did not think they would affect ICL’s state contract.
“Up to a week ago, nothing but good things were said about the company (ICL),” said ARB spokesman Bill Sessa.
Meanwhile, the legitimate lab owners say they have watched their business evaporate as the cheaters prospered.
“The people who work for me are victims because we chose to operate in a responsible fashion,” said Larry Smith, a 20-year veteran of the automotive research industry and vice president of Olson Engineering Inc. in Huntington Beach. “We didn’t get very much of what was a lucrative business.” Smith said his firm once invested $13,000 in labor and equipment to make sure a 1982 Mercedes-Benz 380 SL passed the emissions test. The car’s owner was charged about $3,500. He said the company laid off workers and scrambled for research contracts to stay alive because “the industry knew you couldn’t buy a pass at Olson Engineering.”
