Interesting Customs Enforcement Action

Dear Friends,

I recently came across a story about customs enforcement in Singapore that I thought you might find to be of interest.

The case involves a marketing manager in Singapore who was sentenced by a Singapore court to a fine of SGD$92,000 (roughly, $68,000) for counterfeiting U.S.-Singapore Free Trade Agreement Certificates of Origin provided to a U.S. customer, and for making false statements to the Singapore government when applying for the certificates.  It appears that the marketing manager was engaged in a scheme to help defraud the U.S. government of antidumping duties (i.e., passing Chinese-origin uncovered innerspring units as being of Singapore origin) and, in the process, making false statements to Singapore Customs.  A copy of the Singapore Customs press release is available here.

There are several interesting things about this case.  First, the prosecution was based on information supplied to Singapore Customs by U.S. Customs and Border Protection (CBP).  It appears that CBP may have uncovered the fraud on the U.S. side and then provided information about the exporter to the Singapore authorities.  Second, it appears that CBP may have uncovered the fraud when the U.S. importer/customer underwent a CBP audit.  See Headquarters Ruling #h270834 (March 2, 2017).

We hope you find this interesting/helpful.  If you have any questions, please let us know.

Best regards,

Ted

 

Customs Fraud May Lead to a €2 Billion Bill for the UK

Dear Friends,

We are writing to let you know about an interesting story involving potential customs valuation fraud in the UK that could have meaningful implications for importers, as well as for Brexit.

It is being widely-reported this week that the European Union Anti-Fraud Office (commonly known as “OLAF” for the French — Office Européen de Lutte Antifraude) claims that the United Kingdom owes the European Commission €2 billion (~$2.1 billion) in lost customs revenue.  The claim is based on an allegation that HM Revenue & Customs failed to adequately address the widespread and deliberate undervaluation of imported apparel and footwear (i.e., articles with high duty rates) during the period 2013-2016.  OLAF’s investigation found that the fraud was committed by organized crime groups, who used false/undervalued invoices to enter goods through the UK for wider distribution throughout the EU.  The claim alleges that, while other member states took action to combat the fraud, HMRC did not, despite several warnings from OLAF.  The HMRC’s failure to stop this intentional undervaluation at the border resulted in a loss of €2 billion in customs duties, as well as several billion more in uncollected VAT in various member states.  OLAF has also claimed that the fraud is likely to be continuing, HMRC has still not done enough to address the problem.  OLAF has reportedly recommended that the European Commission use its powers to recover the €2 billion in lost customs duties from the UK.   HMRC is contesting the allegations.  More information about this story can be found here, here and here.

This story will have implications for anyone importing apparel, footwear or other dutiable items into the UK.  One would expect that the OLAF claim will lead to increased scrutiny of such imports by HMRC.  Importers of these articles can also likely expect increased audit activity.  This issue will also likely complicate the UK’s withdrawal from the EU (i.e., Brexit).  The UK is hoping to negotiate a favorable trading arrangement with the EU post-withdrawal, and the claim that the UK has not tackled blatant customs fraud, to the detriment of other EU member states, will not help that effort. 

We hope you find this helpful.  If you have any questions about these issues, or what you can do to prepare for greater scrutiny of your imports into the UK, please let us know.

Best regards,
Ted

 

Footwear Importer Indicted for Customs Fraud

Dear Friends,

I thought you might be interested in a customs fraud case involving a footwear importer recently unsealed in the U.S. District Court for the Eastern District of California.

The indictment unsealed late last week alleges that Thomas Romeo, the owner of a footwear importer (Romeo and Juliette, Inc.), engaged in a scheme to defraud the U.S. government of customs duties.  The alleged scheme involved intentionally understating the value of footwear the company imported into the United States from 1994 through March 2010 (at Mr. Romeo’s direction).  The undervaluation resulted in the company not paying at least $5.6 million in duties and fees that were legally owed.  The indictment also alleges that Mr. Romeo provided a “false and fictitious document purportedly from a customs broker” to ICE during the investigation (the document advises Romeo and Juliette to pay duty on the understated value).  The document was alleged to have been created by employees of Romeo and Juliette, at Mr. Romeo’s direction.  Mr. Romeo is also alleged to have instructed employees to make false statements to ICE, if questioned during the investigation.

This case is interesting on a number of levels.  First, it demonstrate that CBP/ICE are actively pursuing trade fraud cases.  What appears to have started as a routine trade compliance inquiry turned into more based on the evidence CBP/ICE uncovered.  Second, it will be interesting to see if any of Romeo and Juliette’s customers are drawn into the case.  Romeo and Juliette’s products are sold by a number of major retailers (under the BEARPAW brand) and, while none are likely to have been involved in the scheme (and the indictment does not allege that any were involved), it would be interesting to know if the prices Romeo and Juliette offered these customers were “too good to be true” or not.  If Romeo and Juliette did pass at least some of the (substantial) cost savings on to its customers in the form of lower prices, a question could be raised as to whether the customers should have known that something was amiss (or at least asked why the prices on the imported footwear were so low).

We expect that a plea agreement will ultimately be reached in this matter and a trial will be avoided.

If you have any questions about this matter, or customs issues more generally, please let us know.

Best regards,

Ted