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 provision 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: