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Importers Sentenced to Prison for Fraudulently Evading $42M in Customs Duties

iStock-1500908658-300x169The conspirators allegedly transshipped Chinese-manufactured merchandise through Malaysia, then falsely declared its country of origin as Malaysia instead of China when importing it into the United States

A federal court has sentenced a Florida couple to five years in prison for fraudulently evading $42.4 million in customs duties on imports of Chinese plywood.

According to prosecutors, the pair caused the goods to be transshipped to Malaysia before being reshipped to the United States with Malaysia rather than China falsely declared as their “country of origin.”

The goods were reloaded into new containers falsely marked “country of origin Malaysia,” with false certificates of origin naming Malaysia, before being re-routed to the United States, according to the indictment.

Certain shipments were also misclassified as duty-free softwood instead of Chinese hardwood plywood, or were mismarked and misdeclared as products of Sri Lanka, Russia, Chile or Vietnam.

The conspirators thereby evaded antidumping and countervailing duties, known as AD/CVDs, of more than 200% which were owed.

The couple, who initially fled to Panama and Montenegro before being extradited to the U.S., pleaded guilty to violating federal law, according to prosecutors.

They initially conducted the scheme through a company they owned, court papers reveal.  After the U.S. Customs and Border Protection, which is known as CBP, determined it was misclassifying its imports, however, they switched to using a network of shell companies which they controlled as the supposed buyers and importers of record of the plywood.  Those companies listed friends and relatives of the pair as their corporate officers and agents, concealing the couple’s involvement in the transactions, prosecutors alleged.

Transshipment to evade customs duties

Transshipment is a type of customs fraud involving the shipment of goods from their true country of origin to an intermediate destination country before being imported into the United States as a pretext for misdeclaring their country of origin and thereby evading customs duties.

This fraudulent practice is believed to be widespread as importers seek to circumvent the high import duties—including AD/CVDs and Section 301 tariffs—which have been imposed by the U.S. government on imports of Chinese merchandise.  Taiwan, Vietnam, Malaysia and Thailand reportedly are major hubs for illegally transshipped Chinese goods.

All imports into the United States are  subject to the Harmonized Tariff Schedule of the United States, known as the HTS or HTSUS, which sets forth statistical classifications and duty rates.  Importers are required to declare the appropriate tariff codes and duty rates, including for any applicable AD/CVDs, on their CBP Form 7501 customs entry summaries, known as customs declarations.

AD/CVDs are extra import duties imposed by the U.S. Department of Commerce, the function of which is to level the playing field for domestic industries injured by foreign suppliers supported by their governments to sell products in the United States below market value.

The False Claims Act and customs fraud

Although the Florida couple’s criminal convictions stemmed from an investigation conducted by CBP, the fraudulent evasion of customs duties, including by means of transshipment and/or the misdeclaration of the country of origin, can be grounds for a whistleblower lawsuit under the False Claims Act.

The False Claims Act imposes significant liability on parties that defraud the U.S. government.  In addition, parties with evidence of violations are entitled to  file whistleblower lawsuits on the government’s behalf and receive 15%-30% of any recovery as a whistleblower reward.

Whistleblowers play a significant role in exposing customs fraud, which is believed to be rampant and otherwise difficult to detect.

Import duties and tariffs are a major source of federal revenue, and prosecution of customs fraud is a high priority of the U.S. Department of Justice.

Speak to a customs-fraud whistleblower attorney

Individuals with evidence or information about customs fraud should contact customs-fraud whistleblower attorney Mark A. Strauss to learn about becoming a False Claims Act whistleblower.  Mr. Strauss has successfully litigated numerous customs-fraud whistleblower lawsuits, obtaining favorable results including significant whistleblower rewards for whistleblower clients.

Merely filing a trade violation report or e-Allegation with CBP is not sufficient to receive a False Claims Act whistleblower award.  You must be represented by an attorney and file a False Claims Act lawsuit.

All communications with customs-fraud whistleblower attorney Mark A. Strauss are protected by attorney-client privilege.