By Shawna Karajic, Export Solutions Inc.

Customs Violations Penalties & Fines

Since the inception and implementation of the Customs Modernization Act in 1993, the law and regulatory responsibilities changed to fall on the importer. These obligations are to determine the proper value, classification, duty rates, and ensure other government agency requirements are satisfied.

A few of the most common penalties for non-compliance include:

  • Failure to claim antidumping duties
  • Valuation
  • Classification
  • Violations of Intellectual Property Rights

A notable feature of the Mod Act is informed compliance. With this component, U.S. Customs has the responsibility to communicate its requirements to the importer and the importer is responsible for using reasonable care to ensure the accuracy of their importations.

What Are The Amounts & Types of Customs Violations Penalties?

With Customs Compliance, ignorance is not bliss since there are strict penalties that come with instances of non-compliance. Companies can get caught with customs violations for a number of reasons, and in each instance the company will have impacts to their operations and bottomline.

In fact, federal regulations put the burden of compliance on the business owner, and this means that stakeholders need an ongoing continuing review of the international trade processes to ensure they avoid non-compliant behavior.

If you simply did not know you were doing something wrong with your imports, you will not be let off the hook when it comes to fines or penalties. Allegations of non-compliance are taken seriously by the U.S. government, and companies have received steep fines and penalties for even the most “minor” compliance issues.

The penalty amounts issued are based on the value of the merchandise or duties, taxes and fees. These fines can end up being quite substantial based on the level of culpability for non-compliance.

Customs has 3 levels of culpability that they look at when determining the magnitude of the violation – negligence, gross negligence, and fraud.

  1. Negligence: Most companies find themselves with compliance issues at this level of severity. At this stage, a company has failed to comply due to not exercising reasonable care.
  2. Gross Negligence: Companies who receive this level of non-compliance typically show a history of serious non-compliance and receive harsher penalties. At this stage, a company has shown a failure to comply, with “actual knowledge or wanton disregard” for the requirements.
  3. Fraud: This is an extreme example of serious non-compliance, as stakeholders fail to comply due to “voluntarily and intentionally making a false statement or committing another non-compliant act.” Companies who find themselves with this level of non-compliance typically intended to break the law or are found in continuing non-compliance.

It’s important to note that federal regulations are constantly changing, and your company should have a system in place to review all aspects of your international trade procedures. This includes how you onboard new hires to the documents you submit to the government.

While there are corrective actions that you can take after you receive a fine or penalty, the best way to keep your company operating at its best is by preventing compliance issues before they occur.

We are going to look at 4 examples of non-compliance with companies who lacked in their import compliance program and had to pay a hefty price in doing so.

1. Ford and a Valuation Nightmare

Company: Ford Motor Company

Year: 2006

Relevant Court Cases: U.S. v. Ford Motor Company, 436 F. 3d 1286 (Fed. Cir. 2006) and U.S. v. Ford Motor Company, 463 F. 3d 1267 (Fed. Cir. 2006).

Our first example is 2 court decisions against Ford Motor Company.

Customs alleged that Ford:

  • Failed to notify Customs that the prices were provisional and subject to adjustment.
  • Certified that the prices declared were true, when the invoices failed to include the cost of known engineering changes.
  • Failed to notify Customs right away when the information was received declaring the prices needed to be increased due to the engineering changes.

Customs Violations & Ruling By The Court

The U.S. Court of International Trade (“CIT”) and the Court of Appeals for the Federal Circuit (CAFC) fined the Ford Motor Company over $20 million for civil violations of 19 U.S.C 1592 in connection with importations in the late 1980s and early 1990s for under-claiming the value of their importations.

Ford’s defense in the case against them was that they entered the shipment with the value known at the time of entry and they did not violate any Customs law.

In the first decision, the Court noted that even though Ford had an informal procedure to advise Customs that invoice prices were not final, there was a lack of communication internally at Ford about the provisional value policy.

The Court held that the failure to notify Customs of the engineering changes was a material omission and breach of its duty under 19 U.S.C. 1484 to present “true and accurate” information to Customs at the time of entry. The Court held that Ford’s conduct was gross negligence and the penalty to be paid was three times the duties and fees. Ford had to pay $3 million, plus interest and $184,495 in unpaid duties.

In the second decision against Ford, it involved many of the same issues as the first case. This one dealt with imports of vehicle and components imported between 1987 and 1992. In this case the problems were Ford’s omissions in the entry process. The company provided the assists but failed to declare them on the entry documents.

They failed to declare that the values stated weren’t final and the company had to make lump sum payments to the vendors after entry was made. Ford alleged that they made ample efforts to comply with the statutory obligations.

However, the Court concluded that Ford did not follow their internal compliance measures and was negligent under 19 U.S.C. 1592. Ford has assessed the maximum penalty under negligence and had to pay $13,288,279.

In these decisions against Ford, even though they had an informal procedure in place, it was not followed the way it should have been. If they had a proper import compliance program and it was being followed as it should have been, they could have avoided these penalties. With the right checks and balances in place, you can have a streamlined compliance program that will help you remain compliant with Customs regulations.

2. Trek Leather’s Disregard to Add Assists

Our next example demonstrates that ALL members of a company need to be adherent to following Customs Compliance.

Company: Trek Leather:

Year: 2011

Relevant Court Cases: United States v. Trek Leather, Inc., 781 F. Supp. 2d 1306 (Ct. Intl. Trade 2011); U.S. v Trek Leather, Case No. 2011-1527 (2013); United States v. Trek Leather, Inc., No. 11-1527 (Fed. Cir. 2014)

This case was against Trek Leather and the president of the company and their failure to include the cost of fabric assists in the price actually paid for the merchandise. In doing so, they paid a substantially lower amount of duty to CBP.

Facts of the Case:

  • Trek was the importer of record for 72 entries for men’s suits between February 2004 and October 2004.
  • The president of Trek was also the president and a 40% shareholder of Mercantile Electronics, LLC, who was the consignee of the shipments.
  • The president purchased fabric assists and provided them to the foreign manufacturers.
  • The manufacturers then used the assists in the production of the suits which were then imported into the United States.
  • In August 2004, CBP started investigating Trek’s entries and found that the documentation consistently failed to account for the fabric assists in the price paid.

This was not the president of these companies’ first offense. He was investigated in 2002 for the same issue with another company that he owned. The CBP import specialist explained to him what fabric assists were, that they were dutiable, and the value of the assists must be included on the import documentation. After the investigation, that company admitted they failed to add the value to the actual price paid for the merchandise and paid CBP $46,156.89 in unpaid duties.

The same CBP import specialist that investigated the previous violation was the same one investigating the new issue. In November 2004, the import specialist informed the president of Trek, that he should have known to declare the assist, based on the previous violation. His reply was “I know”.

Customs claims and allegations against Trek

  • Trek is liable for damages in the amount of $2,392,307.00 for fraudulently, knowingly, and intentionally understating the dutiable value of the imported merchandise by failing to add the value of the fabric assists to the value of the imported men’s suits.
  • Trek was grossly negligent in their actions and a civil penalty of $534,420.32 should be paid.
  • CBP also alleged a negligence theory of liability and penalties in the amount of $267,310.16
  • Customs also sought the unpaid customs duties of $45,245.39.

In May 2011, Trek admitted liability for gross negligence but didn’t agree with committing intentional fraud. The president of the Trek denied all accounts. Since Trek agreed to gross negligence verbally and, in their documents, it made the president personally liable under the statute 19 U.S.C. § 1592(a), because “[t]he plain language, which proscribes negligent false entries by a person, does not recognize an exception for negligent corporate officers . . . . [A] corporate officer who is negligent can be held liable under §1592(a).”

Trek stated it was the president who had the responsibility to review the documents for the assists in the entry documentation and forward the information to their customs broker. Trek’s president had knowledge of the requirements for the assists due to his previous violations with his other company. He had “actual knowledge or wanton disregard” with following the regulations that were set forth by Customs.

The Court found that Trek and the president of the company committed gross negligence in importing the men’s suits by submitting false entry documents with omitting the assists in the price actually paid or payable for the merchandise for the purposes of calculating duty. The penalties assessed to Trek and the president of the company, in this case, were $45,245.39, plus pre-judgment interest from the date of liquidation and post-judgment interest, as well as civil penalties under 19 U.S.C. § 1592(c)(2) in the amount of $534,420.32 plus interest.

Import compliance starts with the owner of the company and trickles down to everyone else. Had the president of Trek implemented a robust import compliance program that included checking to make sure all assists that were purchased by him where on the entry documents, they could have avoided these penalties to Customs. This is definitely one example that proves the value you declare on your invoices must be true and accurate. Any additional values that can be dutiable for customs purposes must be claimed at the time of entry.

3. Titan Metals Antidumping Disaster

The third example demonstrates the importance of record-keeping and not trying to deceive Customs into believing your shipment is something it isn’t.

Company: Titan Metals Corporation

Year: 2019

Relevant Court Cases: United States v. Titan Metals Corp., No. 13-00398 (Ct. Int’l Trade 2019)

Titan Metals is a small business and typically acquires domestic forging scrap and exports it to India. They do not typically import into the United States. In this one instance, they imported stainless steel flanges from India and did not claim antidumping duties on the entry to Customs.

Facts of the Case:

  • Titan Metals first claimed that the stainless-steel flanges they imported fell outside of the antidumping order
  • They included a GSP Certificate of Origin with their entry documentation with a declaration from the Indian exporter that the flanges were produced in India and it had a stamp from India’s Export Inspection Council that stated the same thing.
  • CBP determined the goods were subject to the antidumping order
  • Titan Metals changed their story, and stated the flanges were “American Goods Returned”
  • They stated the goods were forging scrap and were purchased in the U.S. and was shipped to India by mistake. The company in India was shipping it back.
  • Titan Metals provided documentation to CBP for their purchase of forging scrap from the U.S. Company and its shipment of forging scrap to the company in India.
  • CBP compared the documents, however, upon inspection the weight and value of the shipments were not the same and determined that it was not the same shipment that was exported and returned “as is”.
  • Titan Metals argument was that the discrepancy in value was the export to India was believed to be scrap metal and the import shipment was believed to be good products.
  • The president of Titan Metals admitted that he knew the statement of the goods being made in India were false and they did not review the documents before sending them to their customs broker before submitting them to CBP.
  • The president also acknowledged that they did not file a declaration by the foreign shipper that the articles were exported from the United States and not improved in value or condition in any way, in order to declare American Goods Returned.

CBP alleged that Titan Metals

Description and classification of merchandise on the entry documents was consistent with what was in the antidumping order

  • Did not provide the necessary documentation or evidence that the goods were in fact “American Goods Returned”
  • Committed a negligent violation of 19 U.S.C. § 1592 and owed the Government $283,969.97 in penalties and $146,368.64 in antidumping duties.
  • Did not make a good faith effort to comply with their communications. Often, they were non-responsive and CBP had to send multiple penalty notices to them for the antidumping duties.

The court concluded that Titan Metals was liable for the antidumping duties owed, based on the fact that no evidence was submitted to ascertain their claim for American goods returned and they did not have the proper documentation. Titan Metals was ordered to pay $146,368.64 for the antidumping duties. In addition, the court also found that Titan Metals had been negligent by making false statements and omissions violating 19 U.S.C. § 1592. They were ordered to pay 50% of the maximum penalty permitted for this violation, in the amount of $141,984.98.

Even if you are a small business and don’t import very often, you are still subject to the rules and regulations set forth by U.S. Customs. Anyone that imports, even first-time importers should be aware of all possible duties or other government agency regulations on their products to avoid fines, penalties, and unanticipated problems along the way. One part of a good import compliance program is having detailed information even for record-keeping.

Since Titan Metals buys U.S. scrap and exports it, a solid record-keeping program could have helped them in providing the necessary documents to Customs to prove the import was in fact exported erroneously. If Titan Metals had examined their commercial documents prior to submitting them to their broker, they might have seen the discrepancy.

They would have been able to amend the documents prior to entry or even submit a post summary correction before the entry liquidated and would have avoided the fines and penalties associated with this shipment.

4. Univar USA’s Antidumping Debacle

Our last example involves a company that seemed to be a “good importer”, but inevitably had to pay a substantial amount to U.S. Customs over transshipping their product to avoid antidumping duties.

Company: Univar USA, Inc.

Year: 2015

Relevant Court Cases: United States v. Univar USA, Inc., No. 15-00215 (Ct. Int’l Trade 2016); United States v. Univar USA Inc., No. 15-00215 (Ct. Int’l Trade 2018); United States v Univar USA Inc., No. 15-00215 (Ct. Int’l Trade 2019)

Univar imported saccharin, a non-nutritive sweetener, from China. In 2003, U.S. Department of Commerce issued an antidumping duty order that covered saccharin being imported from China. The China-wide antidumping duty for importing saccharin was 329.33% or 329.94%.

Once the AD order came about, Univar started looking at their supply chain and other sources for its saccharin imports so they would not be subject to the additional duties. They found a new supplier in LH Trading/LH Chemical. However, the new supplier was not registered with the FDA, so they completed the necessary registration with the FDA for their new supplier.

LH Trading was listed as the supplier and LH Chemical was listed as the manufacturer. The owner of both of these companies had informed Univar that he owned a factory in Taiwan that manufactured saccharin. Univar visited LH Trading and even toured a factory, but the factory they toured was actually owned by another company that manufactured saccharin.

In May 2004, Univar began importing saccharin from Taiwan. They also had sent a Rabbi to the plant so the saccharin could be certified as kosher and promote its artificial sweetener as a food additive. Every time the Rabbi went to visit the factory, he was told he couldn’t inspect the plant because it was shut down, either by a flood or by construction.

During the course of 2004, Univar, had received several communications from various people and other companies, that they didn’t think the saccharin they were imported was manufactured in Taiwan and that it was actually manufactured in China. The company that actually produced (and owned the factory that Univar toured) the saccharin in Taiwan had an exclusive agreement with another U.S. company to import their saccharin.

In 2010, Univar was informed that they were under investigation for “possible transshipment of saccharin manufactured in [China] in order to avoid payment/deposit of anti-dumping duties associated with the commodity.” Government agents went to Taiwan, to inspect LH Trading/ LH Chemical and the other company that manufactured saccharin so they could determine the process in which the saccharin was made.

One of the agents noted that he did not observe any manufacturing at the location for LH Trading/ LH Chemical and that the building was in fact a residential apartment building.

During the course of the trial the following came to light:

  • Univar knew that the owner of LH Trading/LH Chemical was a Chinese manufacturer
  • LH Trading / LH Chemical didn’t possess any manufacturing capability or license
  • Taiwan had substantial saccharin imports from China that would be relevant to the Univar entries for 2007 and 2008
  • From 2009 to 2011, there were 20 shipments of saccharin imported into Taiwan from China by LH Chemical and 16 shipments export from Taiwan to the United States by LH Trading from 2009 to 2012.
  • When other companies or individuals starting questioning Univar about where the saccharin was made, Univar never followed through to look at the statements the owner of LH Trading/ LH Chemical had made to them.

Based on all of the evidence that was presented, the Court found Univar grossly negligent or negligent of its 36 shipments. They believed all of them were manufactured in China, transshipped through Taiwan and repacked with Taiwan as the Country of Origin to evade the 329% antidumping duty. In doing so, Univar evaded $36 million in antidumping duties.

CBP was seeking recovery of the unpaid antidumping duties and penalties under 19 U.S.C. § 1592. These duties and penalties totaled $84 million. In the end, Univar agreed to a settlement on the allegations and paid the United States $62.5 million.

The importance of this example is to not take your supplier’s word for where the product comes from. You, as the importer, are ultimately accountable for anything you import, and verifying all the information is correct. Even though Univar was noted as a “good importer”, by a mock audit with a Customs Broker, they still fell short on these shipments.

If they had a well-documented and executed import compliance program, they could have avoided the lawsuit. Even if they couldn’t change their supply chain and had to import from China, it still would have saved them from having to pay an additional $26.5 million to the United States.

Avoid Non-Compliance Headaches With Our Compliance Experts

Don’t let your company become a headline, like some of these were. It doesn’t matter if you are a first-time importer or you have been importing for decades, Customs violations can always sneak up on you. The best way to avoid it is to have a solid import compliance program in place and follow it religiously.

Does your import compliance program have what it takes to help you avoid costly duties, fines, and/or penalties? Do you even have one or does your current compliance program need an overhaul? If you are unsure, don’t hesitate to contact us for a free consultation.

Shawna Karajic is a Senior Consultant for Export Solutions -- a full-service consulting firm specializing in U.S. import and export regulations.