Trade Compliance

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Appeals Court Decision Expands Scope of Liability for Non-Compliance

Posted September 26, 2014

Trek Leather, Inc., and its owner were found guilty by the Court of International Trade (CIT) in 2011 for violating 19 U.S.C. §1592 for the undervaluation of imported merchandise. The decision in United States v. Trek Leather, Inc., and Harish Shadadpuri was significant in that if found the owner — an officer of the corporation — was found personally liable for violations by Trek Leather, Inc., a corporation.
Gavel
The case was appealed to the Court of Appeals for the Federal Circuit (CAFC), which reversed the CIT in July 2013. The U.S. Government, however, requested in March 2014 an en banc re-hearing by the CAFC on the matter of personal liability. On September 16, 2014 in U.S. v. Trek Leather, Inc., No. 11-1527, the CAFC reversed its original decision and ruled that Trek Leather’s owner was, in fact, personally liable.

The Washington law firm Arent Fox LLP notes that the Sept. 16 appeals court decision “creates an expansive new category of individuals subject to negligence and gross negligence penalties under the customs penalty statute and regulations.”  Some of the more apparent risks arising from this ruling include:

  • While the potential scope of this decision is still to be determined, import managers and compliance personnel now are certainly at a greater risk under this decision of being held personally liable for “introducing” merchandise contrary to US customs laws.
  • While difficult to predict with certainty regarding the effect on future penalty cases, we expect Customs to be invigorated by the decision as it provides the agency with additional grounds to penalize non-compliant importers.
  • Owners of smaller businesses or closely held corporations, who are more involved in sourcing decisions and shipping arrangements, are particularly at risk.
  • Persons who sign documents (such as NAFTA certificates of origin) are likely to be affected by the case.

Arent Fox also suggests that the decision should encourage importers to “consider how to address the potential effect of this decision in other customs proceedings, such as customs enforcement actions and focused assessments (audits), and the implications under other laws, such as the False Claims Act (FCA).”

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