Attorney General Sally Q. Yates Discusses New DOJ Individual Accountability Website

On November 30, 2016, Attorney General Sally Q. Yates spoke at the Annual International Conference on Foreign Corrupt Practices Act.  In her remarks, she clarified the goals of the Justice Department in holding individuals and corporations accountable for their actions.

During her address, she discussed the so-called Yates Memo of September 2015 and reiterated the fact that it was never the intention of the Justice Department to merely increase the number of prosecutions each year by some arbitrary percentage.  Rather, Yates explained, “our goal was to develop and institutionalize mechanisms to ensure that, across the department, we consistently investigate and prosecute corporate cases as effectively as possible.”  To this end, she outlined three areas of focus:  1) corporations will only receive credit for cooperating if they willingly provide information regarding the individuals who have made the decision to knowingly violate the law; 2) department lawyers will pursue civil penalties as well as criminal penalties against wrongdoers, whether or not these individuals have the means to pay penalties; and 3) the Justice Department is going to treat companies who voluntarily self-disclose differently from those companies who only begin cooperating once their wrongdoing has been discovered by the Justice Department.

She acknowledged that,until recently, companies have lacked incentive to self-disclose because of the perception, which Yates admitted was based somewhat in fact, that there was little to be gained by self-disclosing.  Now, however, due to changes made last year to the Filip Factors, the question of whether self-disclosure occurred will make a key difference in how companies are treated.

Yates also announced the creation of a new website pertaining to these issues at https://www.justice.gov/dag/individual-accountability.

A full transcript of Yates’ remarks can be found here:  https://www.justice.gov/opa/speech/deputy-attorney-general-sally-q-yates-delivers-remarks-33rd-annual-international

 

Suzanne DeCuir, Global Trade Expertise

December 16, 2016

DEVELOPMENTS IN COMPLIANCE ENFORCEMENT

On August 15, 2016, the GAO (US Government Accountability Office) released a report that was critical of CBP’s handling of antidumping and countervailing duty orders, detailing the failure of CBP to collect roughly 2.3 billion in duties between 2001 and 2014.  In the report, the GAO stated the CBP “missed opportunities to identify and mitigate nonpayment risk.”  The trade community expects to see enforcement efforts increase in light of the fact that this report has a high profile and was delivered to the Senate Finance Committee.

Also released recently were CBP’s interim regulations, called “Investigation of Claims of Evasion of Antidumping and Countervailing Duties.”  These regulations took effect on Monday, August 22 and outline the process for CBP’s investigation of claims of AD/CVD order evasion. The new regulations were mandated by section 421 of the Trade Facilitation and Trade Enforcement Act of 2015 which became law earlier in 2016.  The current e-allegation system will continue to be in place, but the new system is designed to have advantages over that system; the procedures laid out include detailed steps for initiating, carrying out, and completing investigations.  This comprehensive process for investigating can be used by other government agencies as well as private parties.

CPB Announces One-Day Grace Period This Month

CPB has been working to make a transition to all electronic filing of protests to ACT, the Automated Commercial Environment.  A series of notices lays out some of the guidelines and deadlines, and on August 8th, CBP announced the addition of a one-day grace period; CBP stated that it will accept protests filed in the ACE Portal past the required due date.  Beginning on August 27th, all Protests must be filed in the ACE Portal.  The transition from ACS to ACE will occur on August 29th, 2016, and since the ACS will be down on August 28th for the cutover, CBP will allow any protest due on August 28th to be filed in the ACE Portal on August 29th. 

A complete summary of the transition dates and necessary steps for using the new system is available at CBP at: https://www.cbp.gov/trade/automated/news/protest 

Consequences of Non-Compliance – Lacey Act Enforcement

One particular area where U.S. companies have failed to comply with stringent import laws, knowingly or unknowingly, involves wildlife and natural products. The Lacey Act, 16 U.S.C. 3371, is one of the primary federal statutes employed to combat the illicit trafficking of products within these categories. Initially enacted to protect animal species, the Act was amended in 2008 to more broadly include plant species. Specifically, the Act now prohibits the U.S. importation of illegally-harvested timber, meaning it is unlawful to trade in any plant that is taken, possessed, transported or sold in violation of the laws of any U.S. state, Indian Tribe, or any foreign law that protects plants. The Lacey Act does not impose U.S. law on other countries. “Illegally sourced” is defined by the content of a sovereign nation’s own laws. In addition, it is unlawful to falsify or submit falsified documents, accounts or records of any plant covered by the Lacey Act.

Violations of the Lacey Act carry serious penalties for companies and individuals. In addition to civil fines and forfeiture of goods, criminal penalties may also attach to the companies and individuals found to have knowingly violated the Act. A misdemeanor violation of the Lacey Act is punishable by up to one year in prison and a fine of $200,000.00 for companies and $100,000.00 for an individual. Felony culpability is punishable by up to five years in prison and a $500,000.00 fine per violation for a company and $250,000.00 for an individual.

Two Lacey Act enforcement agreements that demonstrate the severity of violations and highlight the importance of companies having compliance infrastructure that properly functions to avoid such violations are the Gibson Guitar Corporation Settlement and the Lumber Liquidators Settlement.

Gibson Guitar Corporation (“Gibson”) came under federal scrutiny not once but twice, first in 2009 and again in 2011 for violations of the Lacey Act. Gibson is headquartered in Nashville, Tennessee and manufactures a variety of musical instruments, most notably guitars. The violations involved parts of the guitar called fretboards. The imports at issue were orders of Madagascar ebony fingerboards (used to make fretboards) from a supplier called T.N. GMBH (“TN”), located in Hamburg, Germany. Gibson failed to verify that TN was sourcing its wood legally from Madagascar, and it turned out that it was illegally sourced. In addition, Gibson knowingly ignored red flags that the wood TN was providing was illegally obtained. For example, TN’s failed to provide documentation to Gibson evidencing that the ebony sourced from Madagascar was harvested lawfully. Madagascar law states that all ebony harvested after a specific date was illegal unless it was considered “finished wood” or had received “exceptional authority” from the government.

In addition, prior to purchasing the wood, Gibson had sent a specialist to Madagascar to assess the potential for supporting sustainable forestry. During his investigation, the specialist obtained the Madagascar Order regarding the particularities about finished and unfinished wood and in his report highlighted that this would be an issue for Gibson. Despite this knowledge, Gibson continued to purchase wood from TN.

These violations resulted in the finding of a Lacey Act misdemeanor violation with a fine of $300,000.00 plus a $50,000.00 community service payment to the National Fish and Wildlife Foundation. In addition to the monetary fines, Gibson also was required to strengthen its compliance program.

Gibson established a new compliance program that clearly stated the objectives of maintaining compliance with relevant laws and in particular the Lacey Act. The new program provided the history and applicable penalties for the Lacey Act, listed the due care standard that it would apply to its processes to assure compliance with applicable law, and then listed the internal checks and balances that would be implemented to demonstrate the satisfaction of this duty. The compliance program also stressed Gibson’s commitment to developing policies and procedures for the procurement of wood and for verifying that all necessary foreign licenses and/or certifications are obtained prior to approval of a purchase. The compliance program listed resources to obtain current applicable law and stated a commitment to an annual audit of its wood purchasing processes, a commitment to training its employees, and plans for retaining adequate records.

The compliance program created by Gibson emphasizes the necessary steps required under the Lacey Act to specifically detail the unique company processes and procedures created to effectuate compliance and satisfy reasonable care in conducting imports.

The second settlement involved Lumber Liquidators (“LL”). LL is a Virginia-based flooring retailer that was sentenced to pay a total of $13.15 million for five counts of Lacey Act violations. The fines included 7.8 million in criminal fines, $969,175.00 in criminal forfeitures, $1.23 million in community service payments, and 3.15 million in civil forfeitures. They were also sentenced to a five-year probationary term during which they were to create an Environmental Compliance Plan and engage an outside accounting and environmental consulting firm. The $13.5 million dollar penalty constitutes the largest financial penalty ever for illegal trafficking in timber under the Lacey Act.

The retailer pleaded guilty to one felony count of importing goods through false statements and four misdemeanor violations of the Lacey Act. The charges stated that Lumber Liquidators was using timber that was illegally logged in Far East Russia and had submitted false Lacey Act declarations that obfuscated the true species and the source of the timber. Although, LL had a compliance program in place that identified this activity, it ignored the red flags and continued to purchase the timber.

LL imports wood flooring from China and distributes it throughout the U.S. However, the timber used to manufacture the flooring in China was harvested from different countries, two of which were Far East Russia and Myanmar. LL had a compliance program at the time of the violations and, in fact, employees were aware that some of the wood was harvested from Far East Russia and posed a significant compliance risk. In addition, LL had also been conducting employee training discussing the compliance risk of Far East Russia. But despite this information, LL continued to import wood coming from Far East Russia and Myanmar. Thus, although the compliance program was in place, LL failed to uphold the policies in its manual. In addition, LL also submitted inaccurate information on Lacey Act documentation required upon importation.

What these examples illustrate is that the enforcement of U.S. Customs laws, and in particular the Lacey Act, has significant monetary and functional consequences. There is a strict duty to comply imposed on the party conducting the international trade and the responsibility to develop processes to comply with U.S. Customs laws is imposed on both the business and individual level. The penalties go far beyond mere monetary fines, and include forfeitures, corporate governance and operational restrictions.

Furthermore, having a compliance program alone does not protect against violations or mitigate penalties. Compliance programs will be judged on their actual application to relevant internal processes, the effectiveness of their implementation, and their actual capacity to successfully identify and remedy trade violations. Ultimately, the law imposes a corporate responsibility to educate employees and management who oversee trade functions and instruct them on how to effectively remedy identified violations.

What does this mean for the US business? Investing resources into developing a compliance program and implementation is an upfront cost that is absolutely necessary and indirectly required to avoid the significant consequences of violating US Customs laws.

Amber M. Johns, Global Trade Expertise Intern

Chinese Pharmaceutical Company Agrees to $12.8 Million Fine

According to the U.S. Securities and Exchange Commission (SEC), this February, SciClone Pharmaceuticals Inc. agreed to pay $12.8 million to settle the investigation into potential violations of the Foreign Corrupt Practices Act. Allegations stretch back to at least 2007, and include multiple instances of bribery in exchange for sales made to Chinese clients. Under the terms of the agreement, SciClone does not admit or deny any wrongdoing.

The details included in the SEC’s press release of February 4, 2016 point to numerous instances of SciClone’s offering lavish gifts, trips, and entertainment and then booking such expenses as legitimate business dealings. For instance, in April of 2010, SPIL (a wholly owned subsidiary of SciClone) sponsored Chinese health care professionals to attend a seminar in Japan pertaining to its principal drug, Zadaxin. Only half a day appeared to be devoted to educational activities; the rest of the 6-day trip involved visiting Mt. Fuji and other tourist locations. The SEC detailed numerous instances of travel and outings hosted by SPIL and designed to lure state health care employees to purchase the company’s pharmaceuticals and devices.

Included in the terms of the agreement are provisions that SciClone make a number of changes to improve its internal accounting controls and prevent the recurrence of any similar violations. SciClone has agreed to hire a compliance officer and create an internal audit department and compliance department; undertake a comprehensive review of the policies and procedures pertaining to employee travel; reduce the number of third party suppliers who provide travel and event planning services, and provide anti- corruption training to its own employees as well as to vendors.

SciClone is best known for its Hepatitis B treatment Zadaxin; its shares rose 16% to $9.47 following the news of the settlement agreement.

Suzanne DeCuir, Global Trade Expertise

Rejection of Deferred-Prosecution Agreement Debated

Attorneys for the US government and Fokker Technology Holding BV, a Dutch aerospace company, appeared before federal appeals judges on September 11, 2015 to argue that a judge should not have the leeway to reject the deferred prosecution agreement between the company and DOJ. In February of this year, US District Judge Richard Leon rejected the $21 million dollar agreement the government had reached with Fokker, saying that it was too lenient and “grossly disproportionate to the gravity of Fokker Services’ conduct in a post 9/11 world.”

Fokker allegedly violated US law more than 1000 times shipping aircraft parts to Burma, Iran, and Sudan. Fokker admitted to wrongdoing and agreed to pay what the company felt were reasonable fees. The company also agreed to an 18-month deferred-prosecution agreement and to strengthen compliance policies. Back in February, however, Judge Richard Leon refused to go along with the agreement between Fokker and the Department of Justice.

At this stage, the issue goes beyond the particulars of this case and concerns whether or not Judge Leon should have the latitude to disapprove of settlements such as these in which the Justice Department agrees to defer corporate prosecution and ultimately drop charges, as long as the company admits wrongdoing, agrees to pay a fine, and complies with certain conditions to avoid future wrongdoing.

Arguments before the three-judge appeals panel took place Friday, Sept. 11, only a day after the US DOJ announced their intention to take a harder line against white-collar crime, including increasing focus on holding senior executives responsible when laws are broken.

Lawyers for the DOJ and Fokker, allies in the appeal, argued that Leon had committed a “clear and undisputable” error. Lawyer Adam Unikowsky defended Judge Leon’s actions, saying Congress gave judges the discretion to decide whether or not a prosecution agreement is too lenient or not. A decision is expected sometime in the next few months.

Suzanne DeCuir, Global Trade Expertise

Chicago-based Company Fined for Sanction Violations

John Bean Technologies has agreed to pay approximately $400,000 in fines for violating US sanctions against Iran. The Chicago-based company designs, manufactures, and services airport equipment and food processing systems. According to the US Department of the Treasury, the company sold goods to a Chinese company in April of 2009. Details about the case were contained in a penalty notice from the Treasury’s Office of Foreign Assets: the products were said to have been shipped via the Iranian state shipping line on a blocked vessel traveling from Spain to China; accompanying trade paperwork related to the shipment was sent to a US bank for payment based on a letter of credit. Allegedly, the Iranian shipping line (IRISL) has links to that nation’s military and many of its ships have been blocked despite the practice of changing flags often to avoid detection.

The OFAC notice indicated that John Bean Technologies has been cooperative and its company spokesperson said that action was taken as soon as the matter arose. In fact, the spokesperson explained that the company informed OFAC about the alleged violations.

According to the Wall Street Journal, “the penalty notice said John Bean, after the U.S. bank declined to advise the letter of credit, presented documents related to the shipment to a Spanish bank in May 2009 to receive payment. And, it said, John Bean reimbursed a Spanish unit for charges paid to its freight forwarder for the shipping services rendered by the Iranian shipping line and to the Spanish bank for fees associated with negotiating the letter of credit.”

Suzanne DeCuir, Global Trade Expertise July 2, 2015

Source: Wall Street Journal, June 19, 2015 

Mistaken Importer of Record Held Liable for Duties After Liquidation

Lifestyle Furniture has been pursuing two separate federal court cases in an effort to avoid paying antidumping duties, which are being assessed because it was incorrectly listed as the importer of record on an entry.  According to CBP ruling HQ H157616, Lifestyle Furniture was listed as the importer of record for an entry to Puerto Rico in 2005 and is liable for antidumping duties of in the amount of 216.01% for wooden bedroom furniture from China.  

According to Lifestyle, Starcorp, the Chinese exporter, was supposed to be listed as the importer of record, but the customs broker listed Lifestyle Furniture by mistake.  Starcorp hired C.H. Robinson as its broker, but entries subject to antidumping duties were not eligible for remote filing under national permits.  Therefore, C.H. Robinson brought in Nestor Reyes, a local Puerto Rican customs broker to file entry.  Reyes had power of attorney (POA) for Starcorp, but not for Lifestyle.  Reyes proceeded to file the entry, but listed Lifestyle as the importer of record in error.  Both C.H. Robinson and Reyes have admitted fault in this error, but claim no responsibility for the duties owed.

Although Lifestyle protested paying the antidumping duties due to error, CBP advised that Lifestyle is liable because it is the parties’ responsibility to determine who will be listed as importer of record.  Because Lifestyle is actually an eligible importer of record as the consignee, CBP is not responsible to determine which eligible party to accept entry from.  While CBP sent a notice of liquidation to Lifestyle one month prior to liquidation, Lifestyle stated that it was not notified until receiving the final bill of liquidation, arguing it was not given time to correct the entry.  CBP held that it is the responsibility of the importer to maintain processes of checking entries to ensure that all entries with their name as importer of record are correct if they do not want to be held liable for errors, such as these.  Furthermore, Lifestyle, nor CBP can go after Starcorp for the duties owed because it has gone out of business.   

Lifestyle Furniture has now filed a lawsuit against CBP regarding its initial protest in the Court of International Trade, as well as seeking a ruling against both Reyes and C.H. Robinson in the district court of North Carolina.  At this time, neither case has been heard before the courts.

Aaron Ambrite, Extern, Global Trade Expertise

Supreme Court Denies to Hear Trek Leather Case

On May 26, 2015, the Supreme Court denied a petition to hear an appeal of Trek Leather, firmly establishing the lower court’s decision to hold corporate officers and employees of companies listed as the importer of record liable for customs violations.  The denial comes amidst a long list of other cases denied without explanation or comments.  The Supreme Court’s denial effectively lets stand the U.S. Court of Appeals decision finding that Harish Shadadpuri is personally liable for the corporation’s failure to declare assists on entry documentation. 

Although Shadadpuri was not listed as the importer of record, the U.S. Court of Appeals found him personally liable because he introduced goods into the United States by providing invoices that did not report assists provided to the manufacturer.  The court found that the transmission of the inaccurate invoices to the customs broker amounted to the “introduction” of the merchandise into United States commerce under 19 USC 1592.  Shadadpuri argued that he could not be held personally liable for a corporate importer of record unless he was found to have personally “aided and abetted” the violation, but, ultimately, the court sided with the government.

The decision has garnered significant criticism from importers and their representing bodies as the judgment is expected to dramatically expand the scope of liability for corporate executives, compliance officers, and other employees involved in daily import transactions or transmissions.  One such representing body, the American Association of Exporters and Importers (AAEI), filed a brief in support of Shadadpuri stating that the court’s decision has effectively lowered the government’s burden of proof for finding a natural person liable for customs violations by eliminating the requirement for the court to prove fraudulent intent. Further, AAEI feels that the term “introduce” has been wrongly reinterpreted to include “all activities to bring goods to the threshold of the process of entry,” so that, in effect, “every negligent entry by a corporate importer of record will always be accompanied by a negligent introduction.”  AAEI is concerned that this court decision will increase the trade industry’s risk and cost of doing business due to subjecting import compliance managers to massive penalties.  Some employees may not wish to work in jobs associated with higher personal risk of liability, or employees might seek additional compensation for their duties.  Further, AAEI suggested that some importers might choose to allow foreign suppliers to act as non-resident importers of record in order to have import transactions handled outside the reach of US jurisdiction.

Importers anxiously awaiting a Supreme Court hearing on Trek Leather are likely to be disappointed by the denial as the decision will have definite repercussions for the trade community.  Importers will surely continue to watch other cases to determine how far the court will take the Trek Leather case in applying it to other importers.   

Aaron Ambrite, Extern, Global Trade Expertise

Congress Introduces Retroactive GSP Renewal Bill

On April 16, 2015, Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) along with House Ways and Means Chairman Paul Ryan (R-WI) and Ranking Member Sander Levin (D-MI) introduced legislations to renew the Generalized System of Preferences (GSP) and other preference programs, such as the African Growth and Opportunity Act (AGOA).

The GSP program, which expired on July 31, 2013, reduces tariffs on imports from over 130 countries in an effort to promote economic growth in the developing world. The new legislation, if passed, would renew the GSP through December 31, 2017 and apply retroactively to provide refunds for eligible products imported while the program was expired. Currently, American companies have paid over $1 billion in import tariffs since the programs expiration.

Dan Anthony, Executive Director of the Coalition for GSP, stated that “by refunding tariffs paid and extending the program through 2017, Congress would give companies the ability to make long-term sourcing decisions – to the benefit of both suppliers in developing countries and their workers at home.”

Additionally, the new legislation will give the administration new flexibility to suspend or selectively limit the benefits of participating countries, rather than solely being empowered to completely withdraw all benefits. The bill gives the administration the power to initiate an out-of-cycle review of beneficiary countries to determine continual progress in meeting the eligibility criteria. By giving the administration this additional flexibility and power, the legislation attempts to prevent countries from receiving benefits from the preference programs while imposing unfair limits on American imports.

Aaron Ambrite, Extern, Global Trade Expertise 

CBP to Make C-TPAT Available to Exporters May 17, 2015

Customs and Border Protection (CBP) will make the Customs-Trade Partnership Against Terrorism (C-TPAT) available to exporters starting May 17, 2015. According to CBP, potential benefits of being a C-TPAT-certified exporter will include prioritized export shipments, global security partnerships, heightened facilitation from mutually-recognized customs partners, access to C-TPAT sponsored security seminars, and reduced examinations of shipments.

According to CBP, “any person or company who, as the principal party in interest in the export transaction, has the power and responsibility for determining and controlling the sending of the items out of the United States” and satisfies the additional eligibility requirements can now apply to become C-TPAT certified as an “export-only” organization. Among the list of eligibility requirements are the following chief components: the exporter must be actively exporting and maintain an office based in the United States, maintain a documented export security program meeting all the C-TAPT criteria, and have a good compliance record in accordance with requirements.

The new availability to export-only companies follows one day after CBP’s Phase II deployment for the C-TPAT portal. The deployment will restructure the security profile function into individual line items, streamline applications to U.S. partnership programs, add functionality, and meet DHS mandated requirements. The new design will give users greater flexibility and security in maintaining and updating their accounts.

Aaron Ambrite, Extern, Global Trade Expertise 

BNP Paribas Sentencedwith $8.8 Billion Penalty for Conspiring to Violate IEEPA and TWEA

    On May 1, 2015, the world’s fourth largest bank, BNP Paribas S.A. (BNPP) was sentenced to a five-year probation, ordered to forfeit over $8.8 billion to the United States, and pay a $1.4 million fine for conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Trading With the Enemies Act (TWEA). BNPP is a global financial institution headquartered in Paris that knowingly processed billions of dollars in transactions through the United States financial system on behalf of foreign sanctioned entities subject to U.S. economic sanctions.  The sentencing, imposed by Judge Lorna G. Schofield of the Southern District of New York,  constitutes the first time a financial institution has ever been convicted and sentenced for violating U.S. economic sanctions. The combined forfeiture and penalty resulted in the largest financial penalty ever imposed in a criminal case.

    In its guilty plea on July 9, 2014, BNPP admitted to knowingly and willfully moving over $8.8 billion through the U.S. financial system on behalf of Sudanese, Iranian, and Cuban sanctioned entities between 2004 and 2012. Between July 2006 and June 2007, BNPP processed $6.4 billion of the $8.8 billion through the United States on behalf of Sudanese sanctioned entities, which are subject to U.S. embargo because of the Sudanese government’s role in facilitating terrorism and committing human rights abuses. 

    BNPP admitted to processing $1.74 billion on behalf of Cuban entities, even after it was clear that completing such transactions was illegal. Similarly, BNPP assisted Iranian sanctioned entities in transactions totaling more that $650 million, even after completing an internal investigation into sanctions compliance and pledging to cooperate with the government. 

    All U.S. government departments involved stressed the importance of this case and indicated that such action will be subject to similar consequences. Assistant Attorney General Caldwell stated that the “sentence demonstrates that financial institutions will be punished severely but appropriately for violating sanctions laws and risking our national security interests.” Chief Weber added that “the ability of IRS-CI and our partners to expose blatant violations of U.S. embargos and sanctions has changed the way financial matters are handled worldwide. We will continue to use our financial expertise to uncover these types of violations, as well as methodical and deliberate actions to conceal prohibited transactions from U.S. regulators and law enforcement.”

    Additionally, BNPP pleaded guilty in New York Supreme Court to falsifying business records and conspiring to falsify business records. As a result, BNPP agreed to terminate thirteen executives, including the Chief Operating Officer, suspend U.S. dollar clearing operations through its New York Branch and other affiliates for one year for business lines on which the misconduct centered, and extend for two years a monitorship put in place in 2013.

Aaron Ambrite, Extern, Global Trade Expertise

AAEI Files Brief with Supreme Court to Overturn the Expansion of Corporate Officer Liability in Trek Leather Decision

On March 16, 2015, The American Association for Exporter and Importers (AAEI) filed an amicus brief arguing that the Supreme Court should hear and overturn the Court of Appeals decision to hold the President and sole shareholder of Trek Leather, Harish Shadadpuri, liable for Trek’s negligent omission on entry documentation.  By holding Shadapuri liable, the court subjects shareholders, executives, and compliance officers to penalties for their organizations’ negligence in filing customs entries.

Trek Leather, who is listed as the Importer of Record, provided its foreign manufacturers with fabric either free of charge or at a reduced cost to produce its suits.  When Trek imported the suits, they failed to include the fabric as an “assist” in determining the total dutiable transaction value.  By failing to include the assist’s value, Trek understated the dutiable value to CBP.  The court found Shadadpuri personally liable for violating §1592(a)(1)(A) under the theory that he negligently “introduced” the imported goods into U.S. commerce by means of false statements.  The court determined that Shadadpuri satisfied the definition of “introduced” under §1592(a)(1)(A) because he “sent manufactures’ invoices to the customs broker for broker’s use in completing entry filings to secure release from CBP.”  

According to the brief, AAEI argues that the court distorts the scope of liability intended by Congress in §1592(a) by expanding the definition of “introduce” to encompass all activities that necessarily “bring goods to the threshold of the process of entry.”  AAEI argues that by expanding the scope of liability, every negligent entry will always be accompanied by a negligent introduction by an importer’s employee or agent.  AAEI’s concern is that the Trek Leather case now subjects thousands of corporate importers’ employees to personal liability for making routine entries on behalf of their employer.

Furthermore, AAEI argues that the court misinterpreted the term “introduction” to include Shadadpuri’s negligent submission of invoices.  The submission of documents to a customs broker for the purpose of valuation is not the actual “introduction” of merchandise, but is rather related to the entry process.  The brief states that applying the term “introduction” to negligent submissions of entry documents eliminates the need for §1592(a)(1)(B) in which the court can apply personal liability to natural persons for fraudulently aiding and abetting in entry or introduction of merchandise with the knowledge and intent to further fraudulent conduct.  AAEI is concerned that removing the requirement for the court to find fraudulent intent before a natural person can be held personally liable relaxes the government’s burden of proof.  The brief explained that this will allow the government to pick and choose amongst any of an importer’s employers who took part preparing documentation or handling imported merchandise without those employees having requisite knowledge of the wrong doing. 

AAEI ultimately is concerned that the appellate opinion in Trek Leather puts an undue burden on importers which could ultimately result in their employees either requiring additional compensation or seeking jobs with lower associated risk of personal liability.  Due to this undue burden, importers may elect to let foreign suppliers act as non-resident importers of record and CBP could no longer enforce the penalties because those importers of record would be outside of Federal jurisdiction.  The brief states that either of these outcomes would be against the United States’ best interest.

Aaron Ambrite, Extern, Global Trade Expertise

CBP Rules Time Limit for Liquidation Begins Day After Triggering Event

In Headquarters Ruling Letter H173819, dated September 12, 2014, Customs and Border Protection ("CBP") determined that it had correctly liquidated an entry made by Coaster Corporation of America within the six-month required timeframe that starts the day after the triggering event.

Coaster Corporation imported furniture from China in 2008.  At the time of entry, Coaster paid antidumping duties of 7.24%.  The antidumping order dated January 4, 2005 regarding the imported product actually set the duty at 6.65% and instructed CBP to suspend liquidation of all entries of the subject merchandise.  On August 18, 2010, the Department of Commerce published the Federal Register dictating a new antidumping duty of 216.01% for the subject merchandise.  On February 18, 2011, CBP liquidated the subject entry and assessed the 216.01% antidumping duty.

“CBP is obligated to suspend the liquidation of entries once Commerce makes an affirmative preliminary determination of dumping pursuant to 19 U.S.C. § 1673b(d)(2).  Once suspension is removed, 19 U.S.C. § 1504(d) requires CBP to liquidate the entry within six months after receiving notice of lifting of the suspension, unless liquidation is properly extended.” HQH173819.  If CBP does not liquidate within six months of receiving notice, the entries are deemed liquidated at the rate of duty declared by importer.  The court has determined that publication of the final results of the Federal Register constitutes notice from the Department of Commerce to CBP that the suspension of liquidation on entries subject to the administrative review is removed.  

Coaster argued that CBP did not liquidate “within” the required six-month time period after receiving notice from the publishing of the Federal Register and that the entry should be deemed liquidated at the 7.24% duty initially entered.  Coaster asserted that the statutory time limit expired at the end of the day on February 17, 2011, which is six months after the Federal Register was published on the August 18, 2010.  CBP, however, ruled that the end of the day on February 18, 2011 was the last day to liquidate within the six-month required timeframe.  CBP declared that both the courts and the CBP have consistently calculated statutory deadlines starting the day after the triggering event and including the entirety of the deadline day.  CBP ultimately concluded that the end of the day on February 18, 2011 was the last day to liquidate within the six-months because the time limit begins the day after the triggering event.  

Aaron Ambrite, Extern, Global Trade Expertise

Importer Faces $17 Million Fraud Penalty For Misclassifying Tires

According to a complaint filed in the United States Court of International Trade on March 9, 2015, an importer faces nearly $17 million in penalties for fraudulently misclassifying Chinese tires under duty free tariff subheadings. The importer’s false statements are considered material by CBP as they resulted in a loss of revenue over $400,000.

According to the complaint, importer, China Tire Warehouse of San Dimas, CA, requested their Customs Broker, Ultimate Customs Brokers, to reclassify their imported “new tires” as “used tires” to avoid duties.  New tires impose a duty of 4%, while used tires are duty free.  When Ultimate Customs Brokers refused to reclassify the tires, China Tire retained Phoenix International to file their entries.  Phoenix filed all entries under the duty free subheading, “used tires.”  

CBP requested information from China Tire regarding the used tire entries.  China Tire declared that the tires were new and were properly classified with a 4% duty.  Despite having confirmed that the tires were new, China Tire immediately began entering the same merchandise under a different duty-free subheading. Phoenix International informed CBP that China Tire directed the classification to use for the subject entries. CBP determined from China Tire’s website and sales literature that China Tire did not sell tires as described in its misclassified entries. 

The United States seeks $16,888,211.73 in penalties for fraud, which represents the domestic value of the merchandise imported. If fraud is not found, the United States seeks four times the lost revenue or $1,616,331.80 for gross negligence. If fraud and gross negligence are unfounded, the government seeks damages totaling two times the lost revenue or $808,165.90 for negligence.

Aaron Ambrite, Extern, Global Trade Expertise

Forwarder Required to Pay $10,000 Penalty for “Customs Business” without License

On January 21, 2015, the CIT ordered Freight Forwarder International (FFI) to pay a $10,000 penalty for intentionally paying duties and fees on behalf of non-related parties to CBP without a corporate license.  

Between June of 2009 and January 2010, FFI was the payer company for duties and fees on 19 entries paid on behalf of other persons.  FFI then invoiced its clients for the payments on its own letterhead.  Although FFI advertised itself as having in-house customs brokers services and retained an employee with a customs broker’s license, FFI did not hold a corporate custom’s broker’s license in accordance with 19 U.S.C. § 1641.  The CIT found “section 1641(b)(6) makes it a violation for any person who intentionally transacts customs business, other than solely on the behalf of that person, without holding a valid customs broker's license granted to that person.”  As per 19 U.S.C. § 1401(d) a person “includes partnerships, associations, and corporations.”  The CIT concluded “customs business includes payment of duties and the preparation of invoices intended to be filed with CBP.”

Because FFI was a corporation preforming customs business without a license, the CIT held FFI liable for a $10,000 penalty plus post-judgment interests and costs.

Source:  U.S. v. Freight Forwarder Int'l, Inc., Slip Op. 15-05, #14-00134, dated 01/21/15, Judge Kelly
Aaron Ambrite, Extern, Global Trade Expertise, February 6, 2015

Chinese National Accused of Exporting Nuclear Parts to Iran

Early last month, the Boston Globe reported that Sihai Cheng, a Chinese national, appeared in federal court in Boston to face charges related to allegedly smuggling US-made equipment used to process weapons-grade uranium.  He has been ordered held without bail on charges of smuggling and conspiracy to export US goods into Iran. 

The case was brought to court in Boston because the equipment in question was manufactured by MKS Instruments, a company based in Andover, MA.  The company does not face any accusations of wrongdoing.  

Cheng is accused of smuggling transducers which are pressure-measuring sensors commonly used in manufacturing, but also necessary for turning uranium into a form that is usable for making nuclear weapons.

While it is permissible to distribute transducers to a number of foreign countries provided the necessary export license is obtained, it is not legal to export transducers to Iran at present.   The FBI believes Cheng worked around this obstacle by creating shell companies in China.  He is accused of conspiring to export the goods to legitimate companies in China, and then designate the shell companies as the intended recipients of the goods.  The goods were then shipped to Iran instead.

Cheng is 34, speaks English, and holds a bachelor’s degree from a university in China.  According to a federal indictment, more than 1,000 orders were placed for MKS transducers, valued at more than $1.8 million.  If convicted, Cheng could face 20 years in prison and up to $40 million in fines.  Authorities believe Cheng has been working with Iranian national Seyed Abolfazl Shabab Jamili, and two Iranian companies, Nicaro Eng. Co. Ltd., known as Nicaro, and Eyvaz Technic Manufacturing Co., known as Eyvaz.

by Suzanne DeCuir

All Duty Drawback Claims Filed Prior to December 2004 Deemed Liquidated by CIT

On January 13, 2015, the Court of International Trade ruled that all duty drawback claims filed prior to December 3, 2004 are to be deemed liquidated at the amount declared by the claimant at the time of the claim.  The CIT, finding in favor of the Ford Motor Company, deemed the claims liquidated pursuant to 19 U.S.C. § 1504(a)(2), which was enacted by Congress in 2004 as part of the Miscellaneous Trade and Technical Corrections Act.  

As stated by the CIT, due to the growing number of aging duty drawback claims, 19 U.S.C. § 1504(a)(2) was enacted in an effort to “both put in place a one-time mechanism for the swift resolution of the then-existing (i.e., pre-December 3, 2004, or pre-enactment) drawback claims and, in addition, establish a framework for the liquidation of all future (i.e., post-enactment) drawback claims.”  Subsection (A) of 19 U.S.C. § 1504(a)(2) establishes the general rule that all duty drawback entries that are not liquidated within one year of its filing are to be deemed liquidated at the amount asserted by the claim.  Subsection (B) offers an exception to subsection (A) that gives the claimant the option to have their drawback claims deemed liquidated, even if the underlying import entries are not yet final.  To have the claim deemed liquidated under subsection (B), the claimant must deposit the estimated duties on the unliquidated merchandise, file a written request for liquidation of the drawback, and file a waiver to the right to refund under the law.  Subsection (C) offers a second exception to Subsection A that applies to all drawbacks filed prior to December 3, 2004.  According to 19 U.S.C. § 1504(a)(2)(c) “An entry or claim for drawback filed before December 3, 2004, the liquidation of which is not final as of December 3, 2004, shall be deemed liquidated on the date that is 1 year after December 3, 2004 [i.e., on December 3, 2005], at the drawback amount asserted by the claimant at the time of the entry or claim.” 

Ford had filed 17 drawback claims prior to December 3, 2004 and obtained accelerated payment, in which Customs paid the estimated drawback amount prior to liquidation.  Although Ford was under the impression that these drawback claims were liquidated under 19 U.S.C. § 1504(a)(2)(c) on December 3, 2005 and finalized, Customs began to approach Ford for refunds where they had determined overpayments were made.  Customs argued that because some of the underlying import entries were not final on the 17 drawback claims by December 3, 2005, subsection (B) should apply.  According to Customs, the drawback claims were not liquidated because Ford had not provided the written request for liquidation and did not provide the waiver to right of a refund required by subsection (B).

The CIT, however, sided with Ford, ruling that 19 U.S.C. § 1504(a)(2)(c) should apply to the 17 drawback claims.  The court determined that the language of subsection (C) is clear, and should apply to all drawback claims made prior to December 3, 2004.  The court concluded that there is no language in 19 U.S.C. § 1504(a)(2) that would limit the application of subsection (C) to only claims that were finalized, and that subsection (B) is to be applied as an exception for drawbacks filed after December 3, 2004. 

(Ford Motor Company v. U.S., Slip Op. 15-02, CIT # 09.00375, dated 01/13/15, Judge Ridgway)

Aaron Ambrite, Extern, Global Trade Expertise, January 16, 2015

CBP Signs Customs Agreements with Singapore

On December 1, 2014, the U.S. Customs and Border Protection (CBP) signed three Customs agreements with Singapore, ensuring greater cooperation and mutual assistance on Customs enforcement and the facilitation of lawful trade and travel. 

U.S. Customs and Border Protection Commissioner R. Gil Kerlikowske and Singapore Customs Director General Ho Chee Pong signed a U.S.– Singapore Customs Mutual Assistance Agreement (CMAA) and a Mutual Recognition Arrangement (MRA) between U.S. Customs and Border Protection’s Customs-Trade Partnership Against Terrorism (C-TPAT) and Singapore’s Customs’ Secure Trade (STC) Partnership. 

The mutual recognition arrangement between C-TPAT and Singapore’s STC will link the two industry partnership programs, so that together they create a unified and sustainable security posture that can assist in securing and facilitating global cargo trade. It provides tangible and intangible benefits to C-TPAT and Singapore’s STP members including fewer exams when shipping cargo, a faster validation process, common standards, and efficiency for Customs and business, transparency between Customs administrations, business resumption, front-of-the-line processing, and marketability.

Also signed today by Commissioner Kerlikowske and Singapore’s Commissioner of Immigration & Checkpoints Authority Clarence Yeo is a joint statement regarding U.S. Customs and Border Protection’s Global Entry Program. Global Entry is a U.S. Customs and Border Protection program that allows expedited clearance for pre-approved, low-risk travelers upon arrival in the United States.

  

COOL Calls on Congress for Contingency Plan

In a letter to Congress dated November 21, 2014, the Country of Origin Labeling (COOL) Reform Coalition called on lawmakers to act quickly to pass a law authorizing the Department of Agriculture to make changes to its country of origin labeling protocol regarding beef and pork to avoid potential retaliatory tariff hikes from Canada and Mexico.  The urgency to put a contingency plan in place stems from the October 20, 2014 release of a World Trade Organization (WTO) report declaring the U.S. COOL revised rules non-compliant.  The Mexican and Canadian governments, which submitted the case to the WTO, would be in a position to impose tariffs on U.S. goods and agricultural products depending on the adjudication of the matter by the WTO.  That adjudication is expected in the latter part of 2015.  

The letter to Congress asks that the current statute be amended to include a contingency plan that would take effect if the WTO makes the determination that the U.S. is out of compliance with its trade obligations. The COOL Reform Coalition seeks to avoid the possible $2 billion in retaliatory tariffs that could be levied against U.S. agricultural and manufactured goods and products. 

by Suzanne DeCuir