Tag: 19 USC 1592

A screen capture of the CBP portal for reporting trade violations called e-allegations will soon be supplemented with a throrough new procedure for intiating a request for investigation into companies suspected of evading antidump and countervailing duty orders (AD/CVD duties)

CBP’s Request to Review AD/CVD Evasion Procedures

Evasion of anti-dumping and countervailing duty (AD/CVD) orders is a priority trade issue for U.S. Customs & Border Protection. Evasion of AD/CVD duties can take the form of misrepresenting the country of origin, misclassification/misrepresentation of the physical characteristics of the product itself. What follows is a brief summary of the new procedures and their importance for the trade community.

Why is AD/CVD evasion bad?

In addition to the harm to revenue, domestic manufacturers and importers who are paying under the AD/CVD orders are hurt by those who do pay the AD/CVD duties, but should. For this reason, CBP is enacting a new procedure that allows an interested party to make a claim that an importer is evading anti-dumping or countervailing duties (AD/CVD) which looks back over importations for a period of 1 year.

What is CBP doing about AD/CVD evasion?

An interim rule was published in the Federal Register on August 22, 2016, and comments on the interim rule are due no later than October 21, 2016 (note: later extended to December 20, 2016). The new regulations appear as part 165 of Title 19 of the Code of Federal Regulations (19 CFR 165, et seq.). The regulations implement the provisions of the newly created 19 USC § 1517, which is entitled “Procedures for investigating claims of evasion of antidumping and countervailing duty orders.”

These new procedures are designed to give interested parties an opportunity to participate in the investigation and also requires CBP to notify parties about the outcome of a review (previously, parties were limited to sending in “tips” through CBP’s “e-Allegations” system). Upon filing a Request for Investigation by an interested party, CBP has 15 days to initiate an investigation.

If CBP decides to move forward with an investigation (note, an interested party may “request” an investigation, but CBP is not obliged in all cases to conduct an investigation), it has up to 300 days to reach a determination as to whether or not someone is evading AD/CVD orders/duties (or 360 days in complex cases).

A full explanation of the applicable timelines/deadlines has now been published by CBP.

To reach this determination, CBP may use any means it deems appropriate, but in most cases this process will at least begin by sending questionnaires to interested parties and the alleged evader of AD/CVD duties. If a party fails to cooperate in the information collection stage of the investigation, CBP may make an “adverse inference,” or in other words, assume that they are evading the AD/CVD duties.

What can CBP do if it determines someone is evading AD/CVD duties?

If CBP determines that evasion of AD/CVD duties is occurring, they can:

  • Suspend liquidation of unliquidated entries of the subject imports;
  • Extend liquidation for unliquidated entries that occurred before the initiation of the investigation;
  • Notify the Department of Commerce to determine the applicable duty rates;
  • Require that cash deposits be posted and correct duty assessments;
  • Reliquidate entries;
  • Refer matters to ICE for possible civil or criminal investigation; and,
  • Any other appropriate enforcement action (including penalties under 19 USC § 1592)

In the first 90 days of the investigation, if CBP reasonably suspects there is AD/CVD evasion, they may require cash deposits or that a single transaction bond be posted to ensure that CBP does not lose duties that it may have a right to collect.

Is there a review of CBP’s determination of AD/CVD evasion investigations?

Most interestingly, whatever the result of the investigation by CBP, an interested party may request a de novo administrative review through CBP’s Regulations & Rulings, Office of Trade. That review must be completed within 60 business days. After administrative remedies are exhausted, a request for judicial review at the Court of International Trade can be made within 30 business days of a final administrative determination. However, bear in mind a refusal by CBP to investigate after a request for review has been received is not subject to administrative or judicial review (though I suspect that will be litigated in the future).

Want to file comments or participate in an investigation into the evasion of AD/CVD orders?

Great Lakes Customs Law is available to assist interested parties and trade organizations in preparing comments to the interim final rule that must be received by CBP by October 22, 2016 (again, now extended to December 20, 2016). If you’ve been named a respondent or have received a questionnaire from CBP about your import practices, or are interested in commencing an investigation against someone who you believe is evading anti-dumping duties imposed by CBP, give our customs law firm a call for a free telephone consultation.

Customs Seeks to Enforce § 1592 Penalties for Misclassification at CIT

The industry website RubberNews.com has a story about a tire distributor called China Tire out of California who is facing a potential $17 million fraud penaltiy under 19 USC  § 1592 for allegedly fradulent, negligent, or grossly negligent mis-classification of certain bus and truck tires into the United States. According to the story, which relies on the government’s allegations filed in the Court of International Trade, China Tire basically did some broker-shopping after its first customs broker refused to re-classify its product into a duty free Customs Money Seizureprovision of the Harmonized Tariff Schedule (HTS).

Instead of classifying them as bus and truck tires, they were classified as duty-free pneumatic tires. This classification caught the attention of Customs and requests for information were sent out. China Tire responded to these requests that “they were pneumatic tires for passenger cars.” Subsequently, China Tire directed its broker to again change classification to tires that were for agriculture and forestry uses.

What followed were standard 19 USC  § 1592 administrative penalty proceedings:

In July 2011, CBP issued a pre-penalty notice against China Tire and its executives John Cheng and Licheng Wang. In that notice, the complaint said, Wang and Cheng were held jointly and severally liable for 253 false entries, with a proposed penalty of nearly $8.1 million.

China Tire’s fraudulent entries cost CBP more than $404,000 in revenue, of which more than $242,000 is still unpaid, according to the complaint.

The current complaint proposes three alternative counts against China Tire, based on charges of fraud, gross negligence or negligence.

If found guilty of fraud, China Tire would face a penalty of nearly $16.9 million, plus the unpaid tariff balance. If found guilty of gross negligence, it would face a penalty of just over $1.6 million, plus the unpaid tariffs. If found guilty of negligence, it would face a penalty of $808,000, plus the unpaid tariffs.

A prior disclosure of the mis-classification would have potentially substantially reduced China Tires’ liability. If you face duty or penalty liability with customs you should contact our office by e-mail or call (734) 855-4999. We are experienced in defending customs 592 penalties, disclosing potential violations through prior disclosures, responding to notices of penalties, and preparing detailed and well argued petitions for mitigation of penalties or liquidated damages. You can also make use of our other articles, such as:

Customs 592 penalties articles:

Importer Allegedly Undervalues Shoe Imports and Gets Criminally Charged

Imports into the United States must be properly classified and valued. Classification has to do with categorizing them on the Harmonized Tariff Schedule of the United States (HTSUS) in an 8 digit tariff code, and a 2 digit statistical suffix; valuation has to do with reporting the dutiable value of the merchandise which is usually the amount paid for the merchandise, plus certain other charges. Classification and valuation are bedrock principles of customs compliance.

In this vein, I was alerted  to a story about about a company that sells shoes/footwear which was, allegedly, reporting incorrect values to customs in order to save on duties. It looks like the company has been making its way in the courts for other reasons to, including trademark and breach of contract disputes. This story illustrates the importance of verify correct classification and valuation of merchandise; this can easily be done by requesting a prospective ruling from customs.

A federal grand jury in Sacramento on Thursday charged Romeo with evading about $5.6 million in customs duties. The company imports the popular Bearpaw brand of shearling slippers and boots and sells them nationally.Customs Classification and Valuation

. . .

“Tom has been fully cooperating with customs over the past several years,” said attorney Malcolm Segal, with Segal & Associates PC in Sacramento.

Romeo has deposited more than $4 million with U.S. Customs while the issue remains unsettled, Segal said.

Segal said the dispute arises from a technical issue over whether the shoes are completed products or component parts. The duties are different depending on how the shoes are classified.

Romeo owns and operates Romeo & Juliette Inc., a company that imports shoes and boots made in China and distributed under the brand names Bearpaw and Attix. The company sells to many national retailers.

The indictment alleges that from 1994 through 2011 Romeo had employees and others create false invoices that undervalued footwear he imported from China.

Source: Sacramento Business Journal. It sounds as though Romeo & Juliette filed a prior disclosure based on their attorney’s statement that $4 million was deposited with customs while it considers if it owes any money. That’s a smart move. Unfortunately, violations of the customs laws often involve criminal consequences in addition to severe civil penalties. It appears in vogue for Customs to pursue criminal charges for import violations: In August we posted analysis of a story of smugglers circumventing anti-dumping duties by transshipping aluminum extrusions from China to Malayasia and importing them via false documentation in San Juan.
If you need help conducting due diligence, or face duty or penalty liability with customs you should contact our office by e-mail or call (734) 855-4999. We are experienced in defending customs 592 penalties, disclosing potential violations through prior disclosures, responding to notices of penalties, and preparing detailed and well argued petitions for mitigation of penalties or liquidated damages You can also make use of our other articles, such as:

Customs Wood Packaging Material Violations In The News Again

Wood Packaging Material violations and penalties should be something you don’t hear about in the news anymore. But WPM violations and the penalties that come with them, still rear their head everyone once in a while. We authored an article on everything you need to know about Regulated Wood Packaging Material violations and penalties, which discussed the elements of a violation, possible resolutions for the importer who is facing re-export of WPM, and notice of penalty for importations contrary to law for WPM violations.

The reason this should be something that don’t hear about anymore is because the restrictions on WPM have been in place since 2005… the trade community was given ample time to comply. Yet still, almost 10 years

WPM Mark
WPM Mark

later, customs released a C-TPAT alert for non-compliant wood packaging material violations. The whole alert is HERE, but I quote some parts below:

The purpose of this C-TPAT Alert is to inform all C-TPAT Partners, particularly its sea carriers, of recent interceptions of non-compliant wood packing material (WPM) used in flat rack cargo carried by ocean vessels traversing the Mediterranean.

WPM is defined as wood or wood products (excluding paper products) used in supporting, protecting, or carrying a commodity. Some examples of WPM include: bins, cases, cratings, reels, load boards, boxes, containers, pallets, skids, dunnage and crates. Snails and other pests may infest non-compliant wood packing material. These pests are regulated under the Federal Plant Protection Act. Snail

infestations of WPM is just an example of a threat that targets the world’s agriculture and the Nation’ food supply. With the ever increasing amount of trade, the threat to U.S. crops and livestock is real.

The commodities with the highest incidence of WPM pests include: manifested WPM; machinery (including auto parts); metal products; and stone products (including tile).
Other high risk commodities include electronics and electronic components, finished wood articles, plant products and foodstuffs.

Please read our article including everything you need to know about WPM violations by CLICKING HERE.

If you have been informed that you wood packaging material is in violation of the law and needs to be re-exported, immediately call or e-mail office at (734) 855-4999 and we can prepare an application to separate violative wood packaging material so that, if it is granted, you do not have to undergo the time and expense of re-exporting the merchandise you are trying to import.

If you have received a notice of penalty or liquidated damages and are being told you must pay as a result of the violation, immediately call or e-mail our office at (734) 855-4999 and we can prepare a petition for mitigation of the penalty amount.

Never pay full price in a penalty proceeding!


Regulated Wood Packaging Material Customs Violations

In 2007, Customs & Border Protection began enforcing requirements that regulated wood packaging material imported into the United States mandating that it meet certain requirements. Although an “old” issue, importers still run afoul of these requirements and get themselves into trouble. These requirements have the effect of limiting the risk that wood packaging material imported into the United States will introduce foreign insects into the U.S. ecosystem that could be harmful to the environment and U.S. industries, particularly the lumber industry and native tree populations in our forests.

What is wood packaging material, and what is regulated?

First, it should be noted that there is a distinction between wood packaging material and regulated  wood packaging material. Wood packaging material is just wood or wood products, excluding paper products, used in support, protecting, or carrying a commodity, including dunnage. 7 CFR 314.40-1.

Regulated wood packaging material  is defined as:

Wood packaging material other than manufactured wood materials, loose wood packaging materials, and wood pieces less than 6 mm thick in any dimension, that are used or for use with cargo to prevent damage, including, but not limited to, dunnage, crating, pallets, packing blocks, drums, cases, and skids.

7 CFR 314.40-1.

Although not really made clear in the regulations, for purposes of enforcement Customs probably considers manufactured wood materials to woods like plywood, fiber board, whiskey barrels, wine barrels, and veneer. Regulated wood packaging materials include materials like dunnage, crating, pallets, packing blocks, cases, skids, and other wood that is dry and loose (as in the case of sawdust or wood shavings) and is not less than 6mm thick (as in the case of certain shims).

What must be done to wood packaging material so that it is compliant?

The requirements can be complicated in certain situations, and there are a limited number of exemptions, especially for trade with Canada and Mexico. But generally speaking, the wood must be treated and marked. 7 CFR 319.40-3. The wood must be marked in a “in a visible location on each article, preferably on at least two opposite sides of the article, with a legible and permanent mark that indicates that the article meets” the requirements of the law. The mark looks something like shown below, but the letters and numbers will vary depending on the circumstances (i.e., origin and type of treatment).

WPM Mark
WPM Mark

The means of treatment is set out in 7 CFR 305, and consists of heat treatment or a type of fumigation through chemical treatment with methyl bromide.

What if regulated wood packaging material is untreated or unmarked?

If your wood packaging material is regulated wood packaging material, meaning that there is no exception to the treatment and marking requirements, then it is violative wood packaging materials if it is not both marked and treated. A violation can either be because the treatment was not done, because the mark is not present, or because the mark is illegible. Even if the wood is actually treated but is not stamped, it is still violative. Even if you somehow know for a fact that the wood is not infested, it is still violative.

As such, it is most likely that you will be required to immediately re-export the wood packaging material out of the country. This will be done through the issuance of an Emergency Action Notification that gives you a certain period of time to re-export your entire shipment.

After receiving a notice of the presence of a violative wood packaging material, whether verbally or through an Emergency Action Notification, it is important to move very quickly. Failure to be obey the deadline given in the Emergency Action Notification can result in additional penalties.

Is there an alternative to re-exporting my merchandise?

It is possible to get permission from the Port Director to separate the violative wood packaging material from the commodity (e.g., separate the merchandise from its pallets), and re-export only the violative wood packaging material and enter the commodity. However, that is a complicated process with its own legal procedures, involving meeting certain requirements, demonstrating certain safeguards, paying certain costs, and filing an Application to Separate Violative Wood Packaging Material directly with the port director.

Obviously, this Application to Separate can be granted or denied. Filing of the application does not suspend the time period in which you must comply with the Emergency Action Notification to re-export. And if denied, you will still need to re-export. So, application to separate should prepared and filed as soon as possible. If the application is not successful, you will be re-exporting your commodities.

What are the ramifications of importing, or attempting to import, violative wood packaging materials?

Apart from the requirement to re-export the materials and your merchandise, and the costs associated with that come from your supply chain and your inventory problem, there are penalties that can be imposed by Customs for this type of violation.

Customs will usually send a Notice of Penalty or Liquidated Damages to the importer involved with the wood packaging material violation for violations of 7 CFR 319.40 as being an importation, or attempted importation, contrary to law under 19 USC 1595a, or as commercial fraud or negligence under 19 USC 1592. As in the case with all customs penalties, there are guidelines for reducing the amount of money customs seeks in penalty. This can only be done by filing a petition for mitigation.

What do I do next?

If you have been informed that you wood packaging material is in violation of the law and needs to be re-exported, immediately call or e-mail office at (734) 855-4999 and we can prepare an application to separate violative wood packaging material so that, if it is granted, you do not have to undergo the time and expense of re-exporting the merchandise you are trying to import.

If you have received a notice of penalty or liquidated damages and are being told you must as a result of the violation, immediately call or e-mail our office at (734) 855-4999 and we can prepare a petition for mitigation of the penalty amount.

Reducing Penalties through Prior Disclosures of 1592 Import Violations

Importing into the United States requires the importer exercise reasonable care, but competitive market forces and human nature can create the temptation to reduce expenses and maximize profits by finding new ways to save money through questionable application of the customs laws. Failing to exercise reasonable care, however, means possibly being penalized by Customs for import violations under § 1592. ((In summary, if any person does or attempts to enter or introduce merchandise into the United States by means of any material omission or material and false document, written or oral statement, or act that has the potential to alter the classification, appraisement, or admissibility of merchandise Customs will impose costly penalties on the violator. Bear in mind that Customs can impose penalties  – civil, criminal and monetary – under a variety of federal laws, not just under 1592.)) This means, among other things, an importer must make sure that they are classifying the merchandise properly. under the correct duty rate, giving accurate dutiable values and descriptions for the merchandise, marking the country of origin correctly, and much more. Failure to do so could cost you dearly in the form of severe monetary penalties, among other potential penalties, imposed by Customs.

"I think we could lessen our penalty exposure if we make a valid prior disclosure."
“Say, our customs attorney says we can lessen our penalty exposure if we make a valid prior disclosure to U.S. Customs for those import violations we found.”

CBP encourages importers who may have committed a violation to make a “prior disclosure.” If an importer becomes aware of § 1592 violations, they should not wait for Customs to notify them of the violations and demand payment of duties and penalties; rather they should act immediately and pro-actively and disclose violations or potential violations to Customs so that they can take advantage of significant penalty reductions allowed for those who disclose violations prior to a Customs investigation. This “prior disclosure” process is a formal notice, usually in writing, made to Customs regarding the circumstances of a 1592 violation. 19 CFR § 162.74.

How to Make a Valid Prior Disclosure

For a prior disclosure to be valid, a person must first make the prior disclosure before, or without knowing, that Customs has begun a formal investigation into the potential violation ((A prior disclosure can still have some benefit after a investigation has begun)); also, if the amount of duty loss is known, tender any actual loss of duties, taxes and fees or actual loss of revenue to Customs. In addition to this, the person must disclose the circumstances of the violation, including:

(1) Identif[ying] the class or kind of merchandise involved in the violation;

(2) Identif[ying] the importation or drawback claim included in the disclosure by entry number, drawback claim number, or by indicating each concerned Customs port of entry and the approximate dates of entry or dates of drawback claims;

(3) Specif[ying] the material false statements, omissions or acts including an explanation as to how and when they occurred; and

(4) Set[ting] forth, to the best of the disclosing party’s knowledge, the true and accurate information or data that should have been provided in the entry or drawback claim documents, and stat[ing] that the disclosing party will provide any information or data unknown at the time of disclosure within 30 days of the initial disclosure date. [ . . . ]

19 CFR 162.74(b).

It should be noted that, because the issues that go into making a valid prior disclosure are often complex, when properly done a person can still initiate a valid prior disclosure while avoiding immediate payment of suspected duty loss, and get additional time to assemble all the necessary information.

How Penalties Can Be Reduced or Avoided

Meeting these requirements will qualify the person for substantial penalty reductions in the event that penalties are appropriate. In order for Customs not to levy penalties at all Customs must find the absence of fraud, the presence of negligence or gross negligence, and the merchandise must be unliquidated. In the case of negligence or gross negligence and liquidation has already occurred  the penalty will be “the interest on any loss of duties, taxes and fees” “at the prevailing rate of interest” under the Internal Revenue Code. 19 CFR § 162.73(b)(2).

If the violation is a result of fraud and a valid prior disclosure is made, the penalty may be reduced from the equivalent to the domestic value of the goods and to only the amount of lost duties, taxes and fees, or if not duty loss, then just 10% of the dutiable value.

If you believe or have a question about whether you should make a prior disclosure, or have concerns about representations made to Customs or omissions  it is in your best interest to consult with an attorney experienced in customs law and prior disclosures. Please contact our office today at (734) 855-4999, or by visiting our contact page.