Worldwide: The Continuing US Trend To Criminalize Customs Violations

Keywords: DOJ, customs violations, antidumping duties, import fraud

On October 17, 2012, the US Department of Justice (DOJ) filed a criminal indictment in a Georgia federal district court, accusing nine individual and corporate defendants of operating a fraudulent scheme to evade more than $20 million in antidumping duties imposed on Chinese imports. The indictment continues an approximately two-year old trend in the United States of criminalizing customs violations, which used to be relegated to civil enforcement.

While a variety of violations have been criminalized, several of these cases have focused on importers and consignees that allegedly circumvented antidumping duty orders. (For further information, see our Legal Updates: " The 'Wolff' at Importers' Doors: Criminal Statute Is New Tool in Trade Enforcement Cases," " Imports and Consignees Increasingly Facing Criminal Prosecutions in Trade Remedy and Customs Enforcement Cases" and " The US Criminalization of Import Violations Continues Unabated.") This new indictment demonstrates that antidumping duty-evasion schemes continue to stay on the US Customs and Border Protection's (CBP) radar for potential criminal enforcement referral to the DOJ.

In United States v. Apego, Inc., et. al., the 13-count indictment charged US-based Apego, its Chinese supplier, a Taiwanese company related to Apego, and several key executives or shareholders of these companies with import fraud (18 U.S.C. § 542) and conspiracy to commit import fraud.¹ These charges are based on the defendants' alleged involvement in an elaborate duty-evasion scheme to skirt antidumping duties through concealment of the Chinese origin of certain paper products. The detailed indictment includes descriptions of incriminating emails showing the extent of the operation, as well as factual allegations concerning witness tampering.²

As background, in 2006, the US Department of Commerce issued an antidumping order against certain lined paper products imported from China, imposing antidumping duties ranging from 76.7 to 258.21 percent.

The indictment alleges that to evade the special duties, Apego employed several strategies to create the false appearance that lined paper products purchased from its Chinese supplier had been made in Taiwan. Among other things, Apego allegedly obtained warehouse space in Taiwan and hired additional labor to replace the original Chinese-origin marks on the paper products and falsely label them as "Made in Taiwan." In addition, Apego and its related-company in Taiwan are accused of bribing Taiwanese customs officials to improperly enter Chinese products that were falsely labeled as "Made in Taiwan" or bore no origin marks. The bribes allegedly reduced the extent of "reworking" necessary in Taiwan, allowing for easier transshipment of US-bound products of hidden Chinese origin.

In Apego, most of the charges are brought under 18 U.S.C. § 542. Titled "Entry of Goods by Means of False Statements," Section 542 reads in relevant part:

Section 542 is the traditional statutory weapon used to pursue criminally fraudulent import customs violation. It was alleged in Apego that to secure safe entry of the paper shipments into the United States without paying the antidumping duties, the defendants falsified shipping documents and provided fraudulent invoices, bills of lading and packaging lists to hide the Chinese origin of the products. If true, this conduct would fall squarely within Section 542's prohibition. Even though the statute only allows a maximum of two-years incarceration, with 13 counts of alleged violations, the Apego defendants are still facing substantial prison terms as potential punishment.

The Apego case demonstrates that the US government's interest in criminalizing customs enforcement is not likely to abate in the near future. Against this background, US importers and consignees should monitor developments in this area of the law and carefully review their import compliance procedures and implementation. This is particularly true for parties that routinely deal with products that might be subject to antidumping duty orders, as several criminal enforcement cases have targeted these companies.

Footnotes

1 The indictment includes 12 counts of import fraud violation, and 1 count of conspiracy. The conspiracy count is predicated on two grounds: 1) 18 U.S.C. § 542's prohibition on import fraud; and 2) 18 U.S.C. § 541's prohibition on knowingly enter goods falsely classified or without adequate import duty payment.

2 See United States v. Apego, Inc., et. al., Criminal Indictment No. 1 12-CR-350 (N.D. Ga.) (Oct. 17, 2012).

Originally published October 30, 2012

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