In stark contrast to the example discussed yesterday of a company benefiting from the exercise of “reasonable care” in their dealings with U.S. Customs, another recent case involving a U.S. tire importer/distributor facing penalties of more than $17 million in a fraud action brought by the federal government, is perhaps an object lesson in the perils of non-compliance.
Earlier this month, the U.S. Justice Department (DOJ) on behalf of U.S. Customs and Border Protection (CBP) filed a complaint in the U.S. Court of International Trade against China Tire Warehouse Inc. of San Dimas, Calif., for lying about the merchandise it was importing so it could be filed under duty-free categories.
According to the DOJ’s complaint, China Tire began importing bus and truck tires from China in 2005 under the dutiable provisions of the Harmonized Tariff Schedule of the United States (HTSUS). After doing so for a period of approximately six months, China Tire is alleged to have instructed its customs broker to reclassify the company’s shipments under a duty-free provision. The broker however maintained that the initial classification was correct under the law and refused to cooperate with this scheme, prompting China Tire to terminate its relationship with the firm and hire a new customs broker to transact business on its behalf.
Between September 2005 and March 2007, the new broker filed more than 150 entries with CBP on China Tire’s behalf, describing the imports as “used pneumatic tires for tractors and other vehicles,” which are duty-free under the HTUS, despite the goods in question being much larger, new and for a different use, according to the suit. When subsequently queried by the CBP about the merchandise, China Tire provided Customs with photographs of new pneumatic tires for passenger cars, which are subject to a 4% duty. The company then immediately began filing under different duty-free provisions, now claiming the same goods were “new tires for agricultural and forestry vehicles,” even though out of more than a 100 entries only one contained tires of that description.
In July 2011, CBP issued a pre-penalty notice against China Tire and two of its executives holding them jointly and severally liable for 253 false entries, with a proposed penalty of nearly $8.1 million. The importer’s fraudulent entries cost CBP more than $404,000 in revenue, of which more than $242,000 is still unpaid. The DOJ’s complaint levels three alternative counts against China Tire, based on charges of fraud, gross negligence or negligence. Depending on how the case is resolved and the degree of offense committed, China Tire could face penalties ranging from a low of $800,000 to a maximum of nearly $17 million, plus the unpaid balance of duties of owing and any interest accrued.