Tag: negligence

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:

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!

 

Customs Money Seizure Radio Interview

Customs lawyer Jason Wapiennik will be interviewed today at 4:30 EST on Detroit’s AM 680/690 by certified Arabic interpreter Ratib Habbal in a live interview that will be translated from English into Arabic. We will be discussing common questions with regards to customs money seizures, getting seized money back from Customs, and other areas of Great Lakes Customs Law’s many practice areas.

The interview can be heard live by visiting the WNZK‘s live audio stream HERE.

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 § 1592.1 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 violation2; 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.

  1. 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. []
  2. A prior disclosure can still have some benefit after a investigation has begun []

Calculation of Customs penalties for 1592 violations

In a previous article we provided a general overview of U.S. Customs and Border Protection penalties for violations of 19 USC § 1592, and therefore we now address the potential cost of a penalty in terms of dollar amounts and how those amounts are calculated.

In addition to the required payment of any unpaid or underpaid duties (i.e., taxes or tariffs) as a result of a violation of § 1592, a violator will also be responsible for a penalty, which serves  the purpose of deterrence and, to a lesser extent, acts as compensation for the costs of enforcement. § 1592(c). Get ready for the bad news. The penalty amounts range depending, first and foremost, on the level of culpability, as follows:

  • Negligence: Twice (2x) the loss of duties, taxes, and fees or the domestic value of the goods, whichever is less; or, if the violation caused no duty loss then 20% of the dutiable value;
  • Gross Negligence: Four times (4x) the loss of duties,  taxes, and fees or the domestic value of the goods, whichever is less; or, if the violation caused no duty loss then 40% of the dutiable value of the goods;
  • Fraud: An amount not greater than domestic value (1x) of the goods.

Customs can set the penalty anywhere it determines appropriate, but the penalty cannot exceed the maximum amount above for any degree of culpability.

Now get ready for the worse news: Customs can increase a penalty, so long as it does not Frustated Executiveexceed the legal maximum, when it finds the presence of aggravating factors, such as:

  • Obstructing an investigation or audit;
  • Withholding evidence;
  • Providing misleading information;
  • Prior violations;
  • Illegal transshipment such that the country of origin has been falsified;
  • Evidence of a motive to admit inadmissible merchandise;
  • Failure to comply with a demand for records or a summons;

But, there is some good news in the midst of all the bad. Even when aggravating factors are present, these penalties can be reduced by Customs when it finds the presence of  mitigating factors, which include:

  • Contributory customs error, such as receiving misleading or wrong advice from Customs;
  • Cooperating with Customs in an extraordinary fashion, beyond that normally for a penalty action;
  • Taking immediate corrective actions, such as hiring an attorney, payment of the actual loss of duty prior the penalty notice, correction of organization or procedural defects, instituting a compliance program, etc.;
  • Inexperience in importing;
  • Prior good record of importations;
  • Inability to pay, as shown by tax return and financial statements;
  • Customs knew of violations, but failed to inform the violator without justification, and there is no criminal investigation.

These above-listed factors are identified by Customs as mitigating factors at the administrative level (that is, when Customs is deciding the penalty amount). Of course, if you disagree with the final decision on the penalty amount from  Customs you will have the right to have a Court decide the matter. The court determines the penalties according to its own set of considerations (which will be the subject of future articles).

If you are issued a pre-penalty notice, penalty notice, or even if you are in the midst of a penalty case with Customs or before the Court of International Trade, you really should have the benefit of an attorney experienced in the customs laws. Beyond the mere arguing for and against the imposition of a penalty, or the presence and absence of aggravating and mitigating factors, there are technical arguments as well as large and well-developed body of case law about when penalties are allowed, and what amount is appropriate. You may have a complete defense to the imposition of penalties. If you are in such a situation, please make use of our experience and contact us today by calling (734) 855-4999 orby filling out our contact form.

 

Customs penalties for fraud, negligence, and gross negligence under 19 USC § 1592

U.S. Customs & Border Protection (“Customs”) enforces its laws through the imposition of fines, penalties, and forfeitures. This article looks specifically at penalties imposed by Customs under 19 USC § 1592, which is the penalty statute for commercial fraud and negligence.

In essence, § 1592 is a law that penalizes any person that does or attempts to enter or introduce merchandise into the United States by means of any 1) material omission or 2) material and false document, written or oral statement, or act that has the potential to alter the classification, appraisement, or admissibility of merchandise. § 1592(a)(1)(A). It is also a violation to aid or abet anyone in violating this law. § 1592(a)(1)(B) This law is violated even if the government does not lose duties or other revenue.

Customs Penalty - Penalty Flag

Penalties can be assessed at three different levels of culpability, with more severe penalties for offenses committed with greater culpability. These levels of culpability are:

  • Negligence: defined by Customs as failure to exercise reasonable care;
  • Gross Negligence: defined by Customs as “actual knowledge or wanton disregard”; and,
  • Fraud: defined by Customs as “voluntarily and intentionally.”

For an alleged violation of § 1592,  Customs may issue a penalty on (sometimes on form 5955A) against the violator — which may be any person or people involved, including the importer of record, an employee, agent, consignee, etc. You are not immune just because a corporation, limited liability company, or someone else is the importer of record.

Before Customs issues the penalty, however, they must first issue a pre-penalty notice that typically gives the alleged violator 30 days to respond and provide reasons why they should not be penalized. § 1592(b)(1). Although somewhat rare, Customs can then decide against penalty; however, in most circumstances Customs goes forward and issues penalty notice to the alleged violator. If your company receives a pre-penalty notice Customs may still, in the future, go after certain individuals without issuing another pre-penalty notice to them. This often catches people by surprise and some will ignore a penalty notice thinking it will not be applied to them personally, but such is not the case.

If you or your company receives a pre-penalty or penalty notice it should be taken very seriously. Typically, a penalty notice requires a response within 60 days by either paying the alleged penalty, or as we typically recommend to clients, by making an offer in compromise or filing a petition for remission and/or mitigation. These responses – responses to both pre-penalty notices and penalty notices – should be drafted by an attorney experienced in the customs laws and should argue, where the facts and law allow, against imposition of a penalty or reduction in the level of culpability, along with a request to make an oral presentation to Customs.

After Customs first decision on any petition, there is an additional opportunity to file a second or supplemental petitions to argue for a more favorable decision. If you are faced with a penalty, or have recently discovered violations of  § 1592 and are considering a prior disclosure to avoid harsh penalties then please contact our office immediately by filling out our contact form or by calling (734) 855-499 and speaking with a customs lawyer directly.