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,



Post-Entry Preference Program Claims II

Dear Friends,

We wrote to you back in November about a development which was expected to expand the number of preferential duty claims that could be asserted for the first time via protest. 

U.S. Customs and Border Protection (CBP) has now issued updated guidance specifying that all preferential trade agreements for which post-importation refund claims were previously limited to post-entry amendments (PEAs) or post-summary correction (PSCs) may now also be raised for the first time via protest.  This includes preferential claims under GSP, AGOA, the Australia, Bahrain, Israel, Jordon, Morocco and Singapore FTAs, and the Pharmaceutical Products Agreement, among others.

As noted below, this is a significant development since it expands the period in which post-entry refund claims may be made under certain preference programs.  It also breathes new life into protests filed for such claims that were previously rejected as “non-protestable”.  We have been helping clients secure refunds from CBP on such protests and would be happy to discuss this with you further, if relevant.

We hope this is helpful.  If you have any questions about this issue, please let us know.

Best regards,


GAO Report on C-TPAT

Dear Friends,

The U.S. Government Accountability Office (GAO) recently released a report on the U.S. Customs and Border Protection (CBP) Customs-Trade Partnership Against Terrorism (C-TPAT) program that we thought you might find to be of interest.  In conducting this review, the GAO sought to assess the extent to which (1) CBP is meeting its security validation responsibilities, and (2) C-TPAT members are receiving the benefits promised by CBP for participation. 

While the full report is worth a quick read (available here), the GAO concluded that problems with the data management system (i.e., the Portal) have led to problems with C-TPAT validations (e.g., incorrect tier levels being reflected in the system, incorrect dates for profile updates/reviews, lack of standardized guidance from CBP HQ, etc.) and that CBP cannot determine the extent to which C-TPAT members are actually receiving benefits because of these data problems.  On this latter point, GAO stated:

Since 2012, CBP has compiled data on certain events or actions it has taken regarding arriving shipments—such as examinations, holds, and processing times—for both C-TPAT and non-C-TPAT members through its C-TPAT Dashboard.20 However, based on GAO’s preliminary analyses of data contained in the Dashboard, and data accuracy and reliability concerns cited by C-TPAT program officials, we concluded that CBP staff are not able to determine the extent to which C-TPAT members are receiving benefits, such as reduced likelihood of examinations of their shipments and expedited shipment processing, compared to non-members.

We conducted preliminary analyses of C-TPAT program data from the Dashboard to understand, for example, how the examination rates of C-TPAT members’ shipments compared with those of non-C-TPAT members across different modes of transportation (air, truck, vessel, and rail) for each year from fiscal year 2011 through fiscal year 2015. The results of our analyses showed that C-TPAT members’ shipments did not consistently experience lower examination and hold rates and processing times compared to non-members’ shipments across the different modes of transportation.

Report at 18. 

While the findings of this report many not come as much of a surprise to the companies that participate in the program, it is good to see the government auditing the program and trying to make it better. 

If you have any questions about the report, or C-TPAT more generally, please let us know.

Best regards,


Dutiability of Royalties

Dear Friends,

U.S. Customs and Border Protection (CBP) recently published a customs valuation ruling that we thought you might find to be of interest.  The ruling, HQ H233376 (Sept. 19, 2016) involves the dutiability of royalties paid to a licensor unrelated to the importer or the manufacturer of the imported merchandise.  The issue in the ruling was whether the payment of royalties to a third party licensor unrelated to the manufacturer were considered to be a “condition of the sale” of the imported merchandise.

This ruling is worth a quick read, but we have summarized the key facts for your reference below.

The importer entered into an agreement with an unrelated U.S. patent holder to license certain utility patents.  The license covered, among other things, the right to “make, have made, use, sell, offer for sale and import” licensed devices.  The technology covered by the patents was developed in the United States.

The importer also entered into a manufacturing agreement with an unrelated Malaysian manufacturer to have the imported merchandise made.  The agreement authorizes the manufacturer to use the technology disclosed to it by the company to make the imported merchandise.  The importer declared upon importation the price it paid to the manufacturer for the goods.

The importer pays the U.S. patent holder a royalty based on the resale price of the imported merchandise in the United States.

Based on these facts, CBP concluded that (i) the royalty was related to the imported merchandise, and (ii) the importer was required to pay it directly to the licensor.  As a result, the only remaining issue was whether the royalty payments were a “condition of the sale” of the imported merchandise.  This is was particularly important here since the royalties were paid to a licensor who was unrelated to the manufacturer of the imported merchandise (i.e., is a royalty payment to an unrelated third party licensor a condition of the sale of merchandise between two other parties?). 

CBP ultimately adopted what it referred to as a “practical, common sense” approach to this issue and concluded that the royalties were part of the dutiable value of the imported merchandise.  CBP found it relevant that the royalties were for patents, as opposed to trademarks, and that the licensed technology was necessary to produce the imported merchandise. 

The ruling highlights several important points all importers should keep in mind, namely:

(1) royalties paid for patents are more likely to be dutiable under U.S. law than are royalties paid for trademarks, regardless of to whom they are paid (i.e., to the seller or even to a party unrelated to the seller);

(2) the request for internal advice grew out of a Focused Assessment – which demonstrates how closely Regulatory Audit looks at such issues; and

(3) the ruling was issued more than 4 years after the request for internal advice was originally submitted to CBP HQ — which demonstrates how long it takes CBP HQ to issue customs valuation rulings, in particular.

In light of the foregoing, all importers should confirm internally whether any royalties or licenses fees are paid in relation to any imported merchandise.  If so, then the agreements should be reviewed to determine whether the royalties or license fees are dutiable additions to value.  This is not particularly difficult to do.  We regularly help importers with this issue and would be happy to discuss with you how best to do so, if helpful.  If such a discussion would be helpful, just let us know.

We hope this is helpful.

Best regards,


Post-Entry Preference Program Claims

Dear Friends,

There has been some recent developments in the world of post-entry preference program claims that we wanted to make sure you were aware of, as they could provide meaningful refund opportunities.  A recent decision by the U.S. Court of International Trade (CIT) raised serious concerns about the legality of U.S. Customs and Border Protection’s 2014 policy limiting the filing of post-importation claims for preferential tariff treatment under a number of programs, including GSP, AGOA, the US FTAs with Australia, Bahrain, Israel, Jordan, Morocco and Singapore, the Pharmaceutical Products Agreement, and others (“the 2014 Policy”).  It is now being reported that CBP may have abandoned the 2014 Policy altogether.

There are two key outcomes from this development.  First, post-entry claims under certain preferential duty programs may now be raised for the first time in a protest.  Second, for companies which have filed protests asserting such claims, there may be an opportunity to revive such protests and obtain the duty savings, regardless of how long ago such protests were filed.


Preferential duty programs (such as free trade agreements, GSP and the like) can be grouped into two buckets when it comes to post-entry preference claims—the programs which explicitly authorize post-entry claims (e.g., NAFTA), and those which do not.  When it comes to asserting post-entry preference claims for the second bucket of programs, CBP has, since 2014, taken the view that such claims could only be made prior to liquidation.  In other words, for this second group of programs, a preferential duty claim could not be raised for the first time in a protest.  Once an entry was liquidated, the window for claiming a duty preference was closed.

In August, the CIT issued an opinion in a case captioned, Zojirushi America Corp. v. United States, which questioned the legality of CBP’s 2014 Policy.  The CIT said that the 2014 Policy was based on a misreading of two key Federal Circuit cases.  Both of those cases had addressed post-entry claims for NAFTA (which belongs to the first bucket of preferential duty programs), and according to the CIT, it was a mistake for CBP to try and apply the outcome of those cases to post-entry claims made under preferential duty programs falling in the second bucket. 

Zojirushi was dismissed by the CIT for lack of jurisdiction, because the Court found that the importer had not followed the appropriate course to get into court.  The importer claimed that it could not follow the traditional course for bringing a customs case at the CIT, because CBP would not deny its protests.  Instead, its protests had been “rejected as non-protestable”, leaving the protests in a state of limbo— having been neither allowed nor denied. 

The Court pointed out that there is a way to get your protest denied, even where CBP merely rejects them.  Namely, an importer can file a request for “accelerated disposition”.  Any such protest that is not granted within 30 days is deemed to be denied, thereby satisfying one of the prerequisites for getting into court.  Interestingly, there is no limit on the time for requesting accelerated disposition on a protest that has not been denied.  In other words, any protest that (1) has not been approved or denied, or (2) has been rejected as non-protestable, can be “revived” by filing a request for accelerated disposition.  At the very least, the request for accelerated disposition will trigger a deemed denial, which will in turn start the 180-day clock for filing a summons with the CIT.

Just this week, it has been reported that Zojirushi took the Court’s advice.  It went back to CBP and requested accelerated disposition for all of its rejected protests.  CBP could have denied the protests, or just waited 30 days until they were deemed denied, giving Zojirushi a path back to court.  Instead, we understand that CBP has relented with respect to its 2014 Policy, and has decided to allow these protests, rather than denying them.  While this change in policy by CBP has not been formally announced, we believe that a similar outcome is likely available to any importer with similar facts.

What To Do Now

(1)  Make a note of this change in the law.  If you need to make a post-entry preference claim under a preferential program in the second bucket (i.e., a program which does not include an explicit post-entry refund provision), you may now seek to do so by filing a protest, which extends the period available to file the claim.

(2)  Review your records to identify any protests that your company may have filed that were “rejected as non-protestable”, particularly protests that were rejected for the reasons set out in CBP’s 2014 Policy. 

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We hope this is helpful.  If you have any questions on this potential refund opportunity, please let us know.

Best regards,


Customs-Related Qui Tam Actions

Dear Friends,

We are writing to let you know about two recent developments that highlight the continued evolution of private party-initiated trade enforcement actions filed under the qui tam provisions of the False Claims Act (“FCA”).  The developments are as follows:

  • Earlier this month, federal prosecutors filed suit in the Southern District of New York (“SDNY”) alleging that a double invoicing scheme, involving a Chinese manufacturer (Wuxi Yifeng Garments), its U.S. subsidiary (Yingshun Garments), and a U.S. wholesale customer (Notations, Inc.), defrauded the United States of millions of dollars of customs duties on garments imported from China.  The complaint, filed following an investigation by U.S. Customs and Border Protection (“CBP”) and Immigration and Customs Enforcement’s (“ICE”) Homeland Security Investigations, alleged that between 2009 and 2014, Yingshun submitted fraudulent commercial invoices to CBP, purposefully undervaluing imported garments by 75% or more.  Additionally, the complaint alleged that Yingshun’s managing director oversaw much of the undervaluation scheme and Notations (who purchased imported garments from Yingshun) actively participated in the scheme by falsely representing to U.S. retail customers that documentation submitted to CBP by Yingshun was accurate.  A copy of the compliant is attached for your reference.
  • Last week, the U.S. Court of Appeals for the Third Circuit remanded a May 2013 suit against a U.S. pipe fittings manufacturer, Victaulic Co., back to the U.S. district judge (who had originally dismissed it).  The underlying complaint alleged that Victaulic (1) purposefully failed to mark its foreign-made pipe fittings to hide the country of origin, and (2) falsified entry documents to avoid having to pay marking duties.  In dismissing the suit, the U.S. district judge found that, while the alleged violations could rise to a claim under the FCA, the relator “provide[d] no basis for its wholly conclusory allegations that [the U.S. company] had falsified its customs entry documents or knowingly avoided paying any required marking duties.”  In remanding the case, however, Judge Jane Richards Roth emphasized that “the plain text of the FCA’s reverse claims provision is clear:  any individual who knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the government may be subject to liability”.  A copy of the Third Circuit’s opinion is attached.

These cases are significant for a few reasons. 

First, the targets being pursued for customs noncompliance under the FCA are expanding.  While private party-initiated trade enforcement actions are increasingly common, most qui tam FCA cases that we have seen focus enforcement efforts against parties that make direct representations to the government (e.g., importers that submit false invoices to CBP).  In the SDNY case, however, federal prosecutors included a U.S. downstream purchaser, that neither imported the subject garments nor made direct representations to the government, as a defendant in the complaint.

Second, the types of parties pursuing customs noncompliance under the FCA are expanding.  Both cases were initiated by relators that had little or no relationship to the target companies.  Specifically, the relator in the SDNY suit was the mother of an ex-employee of the target.  As we originally reported in 2014, the relator in the Third Circuit appeal was Customs Fraud Investigations, LLC (“CFI”), a company that was created for the specific purpose of analyzing potential customs fraud, filing FCA suits, and recovering financial incentives resulting from the settlements of those suits (i.e., the case was brought by an entity that did nothing more than scour the internet for possible violations).  While we have seen cases initiated by various categories of whistleblowers (e.g., competitors, disgruntled employees, trade associations, etc.)  these are the first instances we are aware of where the relators are this far removed from the targets.

Finally, the SDNY suit highlights the government’s willingness to prosecute not only companies for customs noncompliance, but the individual employees involved in the noncompliance, as well.  As discussed above, federal prosecutors named the target importer, as well as its managing director, as defendants in the complaint.

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Taken together, these cases underscore the continued trend (and evolution) of private parties initiating their own trade enforcement actions.  Given the increasing number (and type) of these cases, all companies should make sure they have effective internal controls in place that include processes for vetting suppliers and reporting issues of non-compliance.

We hope this is helpful.  If you have any questions, or would like to discuss these issues further, please let us know. 

Best regards,


New Developments: Increase in CEE-Driven Enforcement Activities

Dear Friends,

Further to our initial post, we wanted to make sure you were aware of two developments from last week that will likely result in an increase in U.S. Customs and Border Protection (CBP) enforcement actions. 

The first was the publication of a report by the United States Government Accountability Office (GAO) critical of CBP’s handling of antidumping/countervailing duty (AD/CVD) orders.  The report, which is entitled, “Antidumping and Countervailing Duties:  CBP Action Needed to Reduce Duty Processing Errors and Mitigate Nonpayment Risk” concluded that CBP failed to collect approximately $2.3 billion in antidumping & countervailing duties between Oct. 1, 2001 and Sept. 30, 2014.  While this may not be entirely CBP’s fault (e.g., the retrospective nature of our trade remedies law), the GAO takes CBP to task for “miss[ing] opportunities to identify and mitigate nonpayment risk.”  Given the politics surrounding this issue (the report was delivered to the Senate Finance Committee), we can expect to see increased AD/CVD enforcement as CBP attempts to demonstrate its commitment to addressing this issue.

The second was the pre-publication by CBP of interim regulations entitled, “Investigation of Claims of Evasion of Antidumping and Countervailing Duties”.  These regulations were mandated by section 421 of the Trade Facilitation and Trade Enforcement Act of 2015, which was signed into law earlier this year.  The interim regulations, which will take effect on Monday, August 22, 2016, establish procedures for investigating claims of AD/CVD order evasion.  The procedures contain detailed timelines for initiating, conducting and completing investigations based on claims from private parties or other government agencies.  The process created by the interim regulations has numerous advantages over the e-allegation system (which will continue to exist) and we expect that it will be well-used by domestic producers, as well as companies who have reason to believe that competitors are not properly declaring merchandise subject to AD/CVD orders upon importation.

We hope this is helpful.  If you have any questions about the GAO report, or CBP’s interim regulations, please let us know.

Best regards,