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Chinese firm Gree compensated $91M over dangerous dehumidifiers

On October 29, the U.S. Department of Justice announced that Gree and the U.S. Department of Justice had reached a deferred prosecution agreement (DPA) on deliberately concealing the defects of dehumidifiers sold in the United States from 2012 to 2013. Gree Electric Appliances Inc. (Gree) And its subsidiaries in Hong Kong and the United States agreed to settle criminal charges against them and pay a fine of US $91 million.

gree dangerous dehumidifiers
the U.S. Department of Justice’s briefing on the Gree case

This matter is not complicated. According to the content of the deferred prosecution agreement, after the dehumidifiers sold by gree in the United States was found to cause fire, after discussion, in order not to affect the sales of Gree dehumidifiers and the reputation of Gree products, Gree decided to inform U.S. regulators of product defects and postpone the recall for 6-9 months. This deliberate failure to report product defects is a federal felony under the U.S. Consumer Product Safety Act. From the facts attached to DPA, we can see what serious consequences a company will bring if it cannot quickly make the best business decision for the company in risk control after an important legal risk for commercial institutions occurs. In the whole decision-making process of Gree, the roles of the company’s legal department and external lawyers are absent, or at least not revealed in DPA.

Gree’s decision brought huge legal risks. The decision triggered the criminal accountability of the U.S. government. After a lengthy judicial war, Gree finally pleaded guilty, reached a deferred prosecution agreement with the United States and agreed to pay a total of 91 million US dollars of compensation. This included the confiscation of $39 million in payment and a fine of $52 million. Moreover, the deferred prosecution agreement does not seem to be a 100% clean agreement to solve all responsibilities. The DPA only solves the responsibility problems under the U.S. consumer product safety regulations. Gree may still face prosecution and conviction by other institutions in the future.

In addition, interestingly, although Gree pleaded guilty to its business decision in 2012-2103, two senior executives of Gree America at that time, CEO and CAO, did not plead guilty, and these two senior executives will be tried in U.S. courts in 2022.

The following is the full text of the U.S. Department of Justice’s briefing on the Gree case:

Gree Appliance Companies Charged with Failure to Report Dangerous Dehumidifiers and Agree to $91 Million Resolution

Gree U.S. Subsidiary Agrees to Plead Guilty to Felony Charge – Resolutions Follow Indictment of Company Executives

A Chinese appliance manufacturer and two of its subsidiaries have agreed to resolve criminal charges for failing to notify the U.S. Consumer Product Safety Commission (CPSC) that millions of dehumidifiers they sold to U.S. consumers were defective and could catch fire. The resolutions are the first corporate criminal enforcement actions ever brought under the Consumer Product Safety Act (CPSA).

Gree Electric Appliances Inc. of Zhuhai (Gree Zhuhai), a global appliance manufacturer headquartered in Zhuhai, China, and Hong Kong Gree Electric Appliances Sales Co. Ltd. (Gree Hong Kong) entered into a deferred prosecution agreement (DPA) in connection with a criminal information filed Thursday in the U.S. District Court for the Central District of California. A criminal information filed along with the DPA charges the companies with one felony count under the CPSA of willfully failing to report consumer product safety information to the CPSC. Under the terms of the DPA, Gree Zhuhai and Gree Hong Kong agreed to a total monetary penalty of $91 million and agreed to provide restitution for any uncompensated victims of fires caused by the companies’ defective dehumidifiers.

Gree USA Inc., a U.S. subsidiary based in City of Industry, California, also is charged in the criminal information. Gree USA has agreed to plead guilty to the same charge of willfully failing to report consumer product safety information to the CPSC.

According to court filings, Gree Zhuhai, Gree Hong Kong and Gree USA (collectively, the Gree Companies) knew their dehumidifiers were defective, failed to meet applicable safety standards and could catch fire, but the companies failed to report that information to the CPSC for months. The companies only reported and recalled the dehumidifiers after consumer complaints of fires and resulting harm continued to mount.

The Consumer Protection Branch of the Justice Department’s  Civil Division and the U.S. Attorney’s Office for the Central District of California previously indicted Charley Loh, 63, of Arcadia, California, and Simon Chu, 66, of Chino Hills, California — the Chief Executive Officer and Chief Administrative Officer of Gree USA, respectively — with felony CPSA and wire fraud charges for their alleged roles in the failure to report the defective dehumidifiers. Loh and Chu have pleaded not guilty and are scheduled for trial starting March 15, 2022, in Los Angeles.

“Manufacturers and distributors must immediately report dangerous consumer products to the CPSC so that actions to protect consumers may be taken as soon as possible,” said Acting Assistant Attorney General Brian M. Boynton of the Justice Department’s Civil Division. “Companies and executives that purposefully delay reporting to maintain profits will be prosecuted. The Department of Justice will continue to work closely with the CPSC to ensure consumers’ safety.”

“No one should live in fear that a properly used consumer product might cause injury or death to their loved ones,” said Acting U.S. Attorney Tracy L. Wilkison for the Central District of California. “Gree’s months-long delay in reporting known problems with their dangerous and defective dehumidifiers was both criminal and costly. Gree’s decision to delay the reporting of its defective dehumidifiers has resulted in the recall of millions of those products and the payment of millions of dollars. We will not allow companies to profit at the expense of consumers’ health and safety.”

“This historic criminal enforcement action should serve notice that the CPSC will use its authority to the fullest to keep American families safe,” said Chair Alex Hoehn-Saric of the CPSC. “Failing to report dangerous products puts consumers at an unnecessary risk and will not be tolerated.”

“Inferior goods represent a serious threat to the integrity of the consumer product supply chain that the public needs to rely on with confidence,” said Special Agent in Charge David A. Prince for Homeland Security Investigations (HSI) Los Angeles. “Defective products like these pose a dangerous threat to consumers, who assume the products they buy are safe and reliable. HSI will continue to work with our law enforcement partners to aggressively target and investigate those who knowingly jeopardize public safety in the name of profit.”

As part of the DPA and plea agreement, the Gree Companies admitted that, between 2007 and 2013, they sold in the United States more than two million dehumidifiers manufactured by Gree Zhuhai and imported by Gree Hong Kong. In September 2012, employees of the Gree Companies, including high-level executives, learned that the Gree dehumidifiers had defects that could cause them to overheat and catch fire, and that consumers had reported fires caused by the dehumidifiers. Those same employees also knew of the obligation to report dangerous consumer products to the CPSC. Despite this knowledge, Gree USA continued to sell the defective dehumidifiers in the United States for at least another six months. The Gree Companies delayed reporting knowledge of the fires to the CPSC for approximately six months, and did not report the defects in the dehumidifiers for approximately nine months. Ultimately, Gree Zhuhai recalled the defective dehumidifiers almost a year after learning about the products’ dangerous defects.

As part of the criminal resolutions, the Gree Companies have agreed, among other things, to continue to cooperate with the Civil Division’s Consumer Protection Branch and the U.S. Attorney’s Office in any ongoing or future investigations and prosecutions. The Gree Companies also agreed to strengthen their compliance programs and to enhanced reporting requirements that will require the submission of yearly reports to the Justice Department regarding the status of their compliance programs and internal controls, policies and procedures aimed at improving product safety and deterring and detecting violations of the CPSA, as well as the status of remediation efforts. Consistent with Justice Department policy, the DPA with Gree Zhuhai and Gree Hong Kong credits the Gree Companies’ earlier payment of $15.45 million in civil penalties to the CPSC against the agreed-upon $91 million total monetary penalty.

Senior Litigation Counsel Allan Gordus and Trial Attorneys Natalie Sanders and Maryann McGuire of the Civil Division’s Consumer Protection Branch and Assistant U.S. Attorneys Joseph Johns and Dennis Mitchell of the U.S. Attorney’s Office for the Central District of California prosecuted the case with the assistance of Patricia Vieira of the CPSC’s Office of General Counsel. HSI of the U.S. Department of Homeland Security investigated this case.

Ella Shi

Ella Shi is a third-grade student of the Literature Department, a lover of literature and photography. She used to work for the college media community as an author of the school paper. Now she joins FirmKnow to practice and explore her business knowledge.
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