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