Border Trouble

The Mounties close in

Two wealthy U.S. business executives, Jay Van Andel and Richard DeVos, faced indictments last week on criminal charges that they had defrauded the Canadian government of more than $22 million in import duties between 1965 and 1980. Van Andel, 58, and DeVos, 56, are chairman and president of Amway, a large direct-selling organization that claims $1.5 billion in annual sales and at least 1 million distributors, mostly part-timers, who peddle the company's diverse line of products, from laundry detergents to health food.

Van Andel and DeVos founded the company, and they and their families own the whole thing. Forbes calculated in September that together the executives were worth $550 million, which put them well up on the magazine's list of the 400 richest Americans. Though Amway has its headquarters in tiny Ada, Mich., Van Andel and DeVos are widely known for their espousal of conservative political and economic ideas. Moreover, Van Andel served in 1979-80 as chairman of the U.S. Chamber of Commerce. DeVos was the Republican National Committee's finance chief until he was fired in August by G.O.P. Chairman Richard Richards.

The criminal charges, which were also brought against Amway itself and two other top company executives, appeared to take Van Andel and DeVos by surprise. But Amway's troubles in Canada are nothing new. Two years ago the Canadians brought suit against the company to collect $118 million in back customs taxes and penalties, arguing that Amway had understated the value of the goods it was importing for sale.

Amway says that the problem arises because its unusual structure makes figuring the customs taxes difficult. Under Canada's rules, the amount of duties on American-made items is determined by the wholesale selling price in the U.S. But Amway has no wholesale prices as such, only the much higher prices used by its system of independent distributors, many of them husband-and-wife teams.

DeVos and Van Andel say the Canadians approved the company's system for handling valuations back in 1965, but the Canadians are arguing that Amway never stuck to that plan at all. Further, they claim that Amway fabricated bogus invoices to fake a low level of wholesale prices. After the customs people filed civil charges against the company, a criminal investigation leading to the indictments was begun by the Royal Canadian Mounted Police.

Van Andel said Amway was "totally innocent of any wrongdoing." Said DeVos: "The 1965 agreement was made between honorable people at the time." DeVos also told TIME, "We don't think they have a case. In no way whatsoever are we crooked."

DeVos blamed Amway's problems on "false and misleading evidence" given the Canadians by the company's former financial vice president, Edward Engel, who is now business manager of the Detroit Free Press. In August, the newspaper published a sweeping expose of Amway's business practices, replete with internal corporate memorandums, but denies that Engel was its main source.

DeVos professes to believe that the Canadian officials who brought the criminal charges may not like some of his and Van Andel's outspoken stands on free enterprise or their support of organizations of the right, such as the Freedoms Foundation at Valley Forge, Morality in Media, and various fundamentalist Christian organizations.

Charges of impropriety, though, have popped up sporadically since Amway was started in 1959. Its way of doing business has made it vulnerable to probing by U.S. agencies, including the Federal Trade Commission and the Internal Revenue Service, and caused its auditors, Arthur Andersen & Co., to resign in 1979.

But nothing seems to have stopped the company's growth. In addition to its direct-selling business, second in size only to Avon's in the U.S., Amway owns the Mutual Broadcasting System, the largest radio network in the U.S. (950 affiliates), two 50,000-watt radio stations in Chicago and New York, the Grand Plaza Hotel in Grand Rapids and a resort in the British Virgin Islands.

The maximum penalty for conviction on criminal fraud in Canada is ten years in jail. The four executives have been ordered to appear in court in Ottawa on Nov. 30, but it is not altogether clear they will obey the Canadian authorities. Says DeVos: "Nov. 30 is a day when you decide whether you are going to stand before them or not stand before them. We have made no such decision."

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