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First-Time Importer Hit With $142,000 Fine After ‘Tangled Web’ Unravels

Posted May 01, 2019

A recent case decided before the U.S. Court of International Trade not only provides an important reminder for every company about the significance of customs compliance, but also serves as a cautionary tale with respect to those new to importing who may therefore be unfamiliar with the standard of “reasonable care” which is also expected from them.
Judicial Balance

Importer Claims that Duties are not Owed

As stated at the outset by the presiding judge, the case “presents a ‘tangled web’ of changing stories and disputed consequences: an importer claims that duties are not owed because the goods fall outside the scope of an antidumping order; then five years after the importation of the merchandise, the importer abandons that argument and newly contends that duties are not owed because the merchandise was ‘American Goods Returned’ and not subject to the order.”

“Could it be said that the importer acted with reasonable care in declining to indicate why merchandise plainly covered by an AD Order was duty-free?” asked the judge in his outline of the key questions before the court. “Was the importer’s dishonesty so egregious that the Government was entitled to the maximum penalty permitted by the statute authorizing penalties for false statements, acts and omissions in connection with the importation of merchandise into the United States? Or was the importer only deserving of a lesser penalty, if any?”

Single Entry Import (One-Time Import)

Titan Metals Inc., the plaintiff in his case, is a small business based in Houston, Texas, engaged primarily in buying domestic origin forging scrap and selling it to India. As noted by the court, the company “does not typically import goods into the United States.” Back in 2004, however, Titan Metals filed an entry summary for a “one-time importation” of stainless steel flanges, indicating that the goods were exempt from a longstanding antidumping duty (AD) order that would otherwise be applicable by falsely claiming the goods qualified for duty-free treatment under the Generalized System of Preferences – a certified export declaration being provided for this purpose – and identifying the entry type as “01” (consumption entry) rather than “03” (AD entry).

Importer Claims vs. Customs Determination

When U.S. Customs and Border Protection eventually determined that the goods were, in fact, subject to the AD duty order and issued a notice for a penalty of $292,737.28 and a demand of $146,368.64 for loss of revenue, Titan Metals claimed the goods were not subject to the order because they were unfinished, even though the order plainly states that it covers “flanges both finished and not-finished.” The company later dropped this obviously flawed argument, which the company’s new attorney ascribed to the lawyer that had previously been handling the case.

Importer Failings and Illegal Actions

Several years after the CBP’s Office of Regulations and Rulings issued a finding that Titan Metals was culpable of negligence for having “failed to exercise reasonable care” in the matter, the company began asserting that the goods were not of Indian origin as it had first claimed, but were actually American-made product that had been “erroneously” shipped to India and returned – and therefore not subject to antidumping duties. While the company endeavoured to substantiate this alleged mix-up by providing some questionable documentation (i.e., containing discrepancies in weight, description, etc., that it was unable to explain), as the court noted with some exasperation, “Titan Metals still has not submitted all necessary paperwork to establish that its products are American Goods Returned, almost fifteen years after the merchandise was imported.”

Although Titan Metals ultimately acknowledged in court that “its falsification of customs documents may subject it to some penalty,” it argued for a fine below the statutory maximum owing to the company being an inexperienced first-time importer and a small business with no past violations. While taking these mitigating factors into account, the judge in the case was unequivocal in stating that “even small, unsophisticated, first-time importers should understand that knowingly submitting false statements to CBP is illegal.”

In assessing whether the maximum penalty was warranted in this case, the judge weighed the various mitigating factors against aggravating ones such as the “bad faith and culpability” shown by the plaintiff, including the “particularly egregious” falsification of CBP forms, and the company’s “limited and often non-responsive communications” with government agencies, which he said clearly demonstrated the absence of “a good faith effort to comply.”

The Result - Duties Owed and Penalties 

After balancing all of the foregoing considerations, the Court of International Trade held that Titan Metals was liable for $146,368.64 in duties owed under the AD Order and concluded that it had negligently violated 19 U.S.C. § 1592 by making materially false statements and omissions, for which it ordered the company to pay 50% of the maximum penalty permitted under the statute, in the amount of $141,984.98.


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