Customs Law Advisory - Guilty Plea In Customs Fraud Case Highlights Responsibilities For Honest Importers

May 31, 2005

Guilty Plea In Customs Fraud Case Highlights Responsibilities For Honest Importers
Earlier this month, the United States Attorney’s office announced that the President of Stealth Components, Inc. pleaded guilty to a scheme designed to avoid payment of import duties to U.S. Customs and Border Protection (“Customs”).   Stealth’s invoicing scam was fraudulent and thus was very different from the good faith customs declarations made by most importers.  However, the structure of the scheme points out how supplier invoices can trip up even honest importers.

On May 12, 2005, the United States Attorney’s office announced that Bernard Smith, age 33, of New Hampshire, pleaded guilty in federal court to a seven-count indictment charging him with conspiracy and false statements.  Smith admitted that from November 1998 through May 2000, he participated in a scheme to defraud Customs of import duties.  Smith directed Stealth’s foreign suppliers to prepare fraudulent invoices and other false entry documents for presentation to Customs in connection with shipments of Dynamic Random Access Memory ("DRAM") for which Stealth acted as importer of record.  The invoices understated the purchase price and falsely described the merchandise.  These steps were designed to lessen the cash deposits paid to Customs under an antidumping duty order on DRAMs from Korea .  Over the course of the scheme, Stealth avoided payment of over $385,000 in antidumping duties.

Although Stealth’s scheme was fraudulent, the situation emphasizes the potential problems that may arise for even well-intentioned importers that rely on commercial paperwork prepared by suppliers.  Many importers arrange for their suppliers’ invoices and other paperwork to be sent directly to the customs broker.  These invoices typically contain the purchase price and often a tariff classification number.  The broker generally uses these documents to prepare the import paperwork on behalf of the importer.  Under U.S. law, it is the importer of record’s responsibility to correctly declare the entry information to Customs, regardless of the opinion expressed in the supplier’s paperwork, even if the supplier is knowledgeable and acts in good faith.  Suppliers may inadvertently give incorrect tariff numbers based on customs interpretations in their home country or U.S. tariff numbers no longer in use.  In addition, even if suppliers correctly invoice their prices, U.S. law may require certain additions to the declared value of the item such as design work, molds or packaging provided to the supplier.  The value of those items may not be part of the price charged by the supplier and may not even be known by the supplier.  Nonetheless, it is the responsibility of the importer of record to direct the broker to add all amounts necessary to ensure the total value of the shipment is declared.

U.S.   law makes it the responsibility of the importer of record not only to pay Customs duties that apply, but also to use “reasonable care” in declaring all information regarding imported merchandise.  This responsibility falls on the importer, not the customs broker or supplier, and the information presented in the entry documents will be presumed by Customs to be as intended by the importer of record.

If you have any questions regarding the preparation of complete and accurate import declarations for U.S. Customs, please contact Greg  McCue at (202) 429-6421.