A Chinese firm that supplied millions of defective dehumidifiers to U.S. customers will pay $91 million for omitting to inform regulators that the devices could overheat and could catch fire, AP reported.

More than 2 million dehumidifiers, 450 fires and nearly $20 million in property damage

Gree Electric Appliances, Inc. of Zuhai, China, and its Hong Kong subsidiary reached an agreement to avoid criminal prosecution, the U.S. attorney’s office announced. The companies also will provide indemnity to victims for fire damage caused by the dehumidifiers. The agreement was filed in federal court in Los Angeles.

The agreements are “the first corporate criminal enforcement actions ever brought under the Consumer Product Safety Act,” according to a statement from the U.S. attorney’s office.

Gree USA Inc., another subsidiary based in the City of Industry near Los Angeles, has admitted that they willfully failed to report consumer product safety information, prosecutors said.

The case involved more than 2 million dehumidifiers that were sold in the U.S. between 2007 and 2013 under various brand names in stores such as Costco, Lowe’s, Menards, and Walmart, A.P. added.
According to court filings, consumers reported some 450 fires and nearly $20 million in property damage. No injuries were reported.

Prosecutors argued that Gree and the subsidiaries knew that their dehumidifiers were made with parts that didn’t meet safety standards and could catch fire but didn’t report it to the U.S. Product Safety Commission for months.

The company only reported problems and finally recalled the devices after “consumer complaints of fires and resulting harm continued to mount,” the U.S. attorney’s office statement said.
The 2013 recall came nearly a year after executives first learned about the product’s dangers, authorities said.

“No one should live in fear that a properly used consumer product might cause injury or death to their loved ones,” acting U.S. Attorney Tracy L. Wilkison said in the statement. “We will not allow companies to profit at the expense of consumers’ health and safety.”

The chief executive officer and chief administrative officer of Gree USA also face criminal prosecution. They have pleaded not guilty to fraud charges and face trial next March in Los Angeles.

High safety risk from Chinese goods and limited resource of US safety authority

According to a report by the US-China Economic and Security Review Commission, Chinese consumer exports to the United States have been continuously posing a product safety risk, but U.S. regulators have limited resources to inspect imports for safety lapses. 

The report reveals that in 2014 Chinese goods amounted to 23 percent of all goods in the United States under the U.S. Consumer Product Safety Commission’s (CPSC) jurisdiction, but represented 51 percent of all product safety recalls posted by the CPSC. Since 2012, Chinese products have accounted for the majority of all CPSC-posted safety recalls.

The report also warns that the CPSC has enough personnel to regularly staff only 5 percent of U.S. points of entry, and has not been able to inspect all shipments identified as “high risk” by its import targeting methodology. Occasionally, Chinese suppliers have cut corners in production to save costs, supplying U.S. importers with faulty goods. Without vigilant importer monitoring, these flawed products can enter U.S. markets, raising safety risks and leaving U.S. retailers responsible for recall and replacement costs.

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