Another Customs-Related Qui Tam Action

Dear Friends:

I am writing to let you know about another customs-related qui tam action.

Last week, the U.S. Department of Justice announced that an Ohio-based company had agreed to pay $1.1 million to resolve allegations that it had intentionally filed false customs declarations to avoid the payment of antidumping and countervailing duties on Chinese-origin aluminum extrusions.  The announcement states that DOJ is also pursuing claims against 4 other companies and two individuals for similar violations.  A copy of DOJ’s press release can be found here.

The defendants are alleged to have transshipped Chinese-origin aluminum extrusions through Malaysia to hide the true country of origin (China) and avoid the payment of ADD/CVD upon importation into the United States (as many of you know, aluminum extrusions from China are subject to ADD/CVD rates of well over 100%).

The case was originally filed by a whistleblower under the qui tam provisions of the False Claims act.  The whistleblower (known as the “relator” under the False Claims Act) is entitled to a meaningful portion of any recovery from this action (including the $1.1 million collected thus far).

This case is part of a larger trend we have been seeing develop over the last couple of years – namely, that private parties are increasingly turning to the False Claims Act to address potential trade compliance violations by others (e.g., competitors, employers, etc.).  In addition to the obvious financial incentives (again, whistleblowers under the False Claims Act are entitled to a meaningful percentage of any recovery the government makes as a result of the case), government enforcement efforts in this area are viewed as increasingly resource-constrained, inefficient and/or ineffective.  In contrast, local U.S. Attorney Offices are showing strong interest in prosecuting these types of violations (particularly those involving government procurement, such as “buy America” violations, and antidumping/countervailing duty issues).  We expect to see this trend continue for some time.

The rise of private party-initiated trade compliance actions should incentivize all companies to review their internal controls over this area and ensure that they are working effectively.   Otherwise, companies may find themselves embroiled in expensive enforcement actions, like those described above and below.  Similarly, if you are aware of non-compliance by others that is unfairly tilting the playing field (e.g., a competitor not paying antidumping/countervailing duties rightfully owed, or misstating the origin of their products, to get a competitive advantage), there are steps you can take to address it, even if the responsible government agency has not done so.

We hope that this is helpful.  We have significant experience advising clients on how to test (and improve, when necessary) trade-related internal controls.  We also are advising several clients on how best to address potential non-compliance by competitors/others.  If you have any questions, or if you would like to discuss these issues further, please let us know.

Best regards,

Ted

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C-TPAT Update

Dear Friends:

US Customs and Border Protection recently released an update on the Customs-Trade Partnership Against Terrorism (C-TPAT) program that we thought you might find to be of interest.  A copy of the update itself can be found here.

The update, which is current through September 4, 2013, indicates that:

  • There are currently 10,643 certified C-TPAT members.  Of that amount, approximately 40% are importers.  Approximately 7% of importer members have been certified as Tier 3 (i.e., 4,340 of 10,643 members are importers; and 330 of the 4,340 importers are certified as Tier 3).
  • The number of C-TPAT validations/revalidations have continued to drop year-on-year.  The updates states that there was a total of 1,284 validations/revalidations in 2013 versus 2,376 validation/revalidations in 2012 (i.e., a drop of more than 50% year-on-year).
  • Interestingly, the number of suspensions/removals (which presumably includes companies voluntarily leaving the program; something which has also been increasing in recent years) at almost 3,000 companies.  This would mean that upwards of 25% of all C-TPAT members have left the program for one reason or another.

While all importers should take steps to secure their international supply chains, there are a number of concerns with the C-TPAT program itself.  The fact that there is no legislation, or even regulation, governing the program means CBP is more or less free to modify the program at will.  As a result, the requirements imposed on importers participating in the program have steadily increased over the years; while the promised tangible benefits have failed to materialize for most participants.  Unfortunately, we expect this trend to continue well into the future.

If you are currently a C-TPAT member and have any questions about your annual risk assessment program, upcoming validation or revalidation, or about voluntarily withdrawing from the program, please let us know.  If you are considering applying to participate in the C-TPAT program, we recommend that you make sure that management understands the evolving nature of the requirements so that issues do not arise down the line (i.e., the company making promises it is not able to keep).

We hope that this update is helpful.

Best regards,

Ted

CBP Import Trends Report (FY2012)

Dear Friends:

I thought that you might find US Customs and Border Protection’s recently-released annual Import Trade Trends Report for FY2012 to be of interest. The report (which can be found here) contains a number of interesting statistics about CBP’s FY2012 operations. For example, CBP:

• processed $2.38 trillion worth of imports (a 5% increase over FY2011);
• collected $39.4 billion in duties and fees (a 6% increase);
• collected approximately $400 million in antidumping and countervailing duties ($329 million in ADD, a 13% increase; $69 million in CVD a 160% increase).

The report also contains interesting information on the relatively new CBP Centers of Excellence and Expertise, which are processing an increasing percentage of entries in covered industries. Given that 4 additional CEE’s are scheduled to come on line in FY2013 (in addition to the 4 that are already up and running – Pharmaceuticals, Healthcare & Chemicals; Electronics; Automotive & Aerospace; Petroleum, Natural Gas & Minerals), this trend is likely to continue to grow.

In terms of voluntary programs, such as the Customs-Trade Partnership Against Terrorism (C-TPAT) and the Importer Self-Assessment (ISA) programs, the report indicates that participation is relatively flat. The number and percentage of entry summaries filed by C-TPAT members was unchanged (with the value increasing by approx. 2%), as was the percentage of total entries accounted for by C-TPAT members (24% of all entries were filed by C-TPAT members). The numbers for ISA grew a bit more between FY2011 and FY2012, both in terms of the absolute and relative numbers.

One of the more interesting statistics included in the report relates to “net estimated undercollections”. While the report contains very little explanation, it states that CBP estimates that it failed to collect $484 million in required duties and fees in FY2012. This represents a more than 40% increase over the amount uncollected in FY2011. Given how large this amount is (again, both in absolute and relative terms), it is likely that revenue collection/enforcement will be a heightened priority for CBP.

The report contains a number of other interesting statistics and is certainly worth a quick read by anyone who is interested in understanding where CBP will be focusing its increasingly limited resources in FY2013 and beyond.

We hope you find this helpful. If you have any questions, please let me know.

Best regards,

Ted