Trade Compliance

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U.S. Court of Appeals to Review Expanding Customs Civil Penalty Liability to Corporate Officers and

Posted March 24, 2014

In a potentially significant case, the Court of Appeals for the Federal Circuit (CAFC) earlier this month announced that it will hear the issue of whether corporate officers or shareholders can be held personally liable for duties and penalties imposed under 19 U.S.C. § 1592.  If the CAFC broadly interprets the statute, its decision could expand liability for negligence and gross negligence under the Customs laws to individual employees of importers.

Historically, U.S. Customs and Border Protection (CBP) has not imposed personal liability for civil penalties on employees of a corporate importer for negligent or grossly negligent acts involved in importing goods.  Instead, it has limited the assessment of civil penalties to the company that acted as importer of record.  The only exception was for officers or employees that aided or abetted wrongful acts; even then, the courts historically have allowed “aiding and abetting” liability only with regard to fraudulent conduct only.
Legally Binding
In a July 2013 opinion, a divided three-judge CAFC panel reversed a CBP assessment that attempted to hold the president and owner of a Trek Leather Inc. that served as importer of record to be “jointly and severally liable” for customs penalties. The customs violation at issue was Trek’s failure to include “assists” in the value it declared to Customs. The government then sued both Trek and the owner in the Court of International Trade (CIT), seeking a penalty of $2.3 million against the company and owner personally. In 2011, the CIT ruled largely for the government and held the owner “jointly and severally” liable for $534,420 in civil penalties as an individual, after which he filed the appeal to the Federal Circuit.

Following the July 2013 reversal by the initial CAFC panel, the government requested an rehearing by the full court, arguing that the original decision could have “exceptionally far-reaching consequences” and could encourage “widespread evasion of the customs laws.” On March 5, 2014, the CAFC vacated the July 2013 panel opinion and ordered the parties to file new briefs.

A reversal by the Federal Circuit in this case would greatly ease the government’s burden in establishing the personal liability of a company’s officers and shareholders and could be expected to lead to increased enforcement actions.