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Court Finds that Individuals May be Personally Liable for Entry Violations on Company Imports

Thursday, September 18, 2014
Sandler, Travis & Rosenberg Trade Report

Import managers, compliance officers, business owners and others can now be held personally liable under U.S. Customs and Border Protection’s penalty statute (19 USC 1592(a)) for fraudulently or negligently providing information on company imports. A Sept. 16 appeals court decision distinguishes between those who “enter” goods (e.g., the importer of record) and those who “introduce” goods into U.S. commerce and broadly defines the latter, creating a wide-ranging new category of individuals subject to penalties for violations of 19 USC 1592(a).

19 USC 1592(a)(1) prohibits any person from fraudulently or negligently entering, introducing or attempting to enter or introduce merchandise into U.S. commerce by means of (a) any document or electronically transmitted data or information, written or oral statement, or act that is material and false or (b) any material omission. U.S. v. Trek Leather Inc. and Harish Shadadpuri centers on Trek’s failure to include in the price actually paid or payable for 72 entries of men’s suits the cost of fabric assists provided to foreign manufacturers that were then incorporated into the imported suits. Shadadpuri argued that although he was Trek’s president and sole shareholder he could not be held personally liable for this failure because he did not serve as the importer of record.

In a Sept. 16 en banc decision, however, the Court of Appeals for the Federal Circuit reversed its split August 2013 decision and ruled that 19 USC 1592(a)(1) applies to any person, regardless of whether or not they are an importer of record, and that “there is simply no basis for giving an artificially limited meaning to this most encompassing of terms, which plainly covers a human being.”

The CAFC then found that Shadadpuri was grossly negligent in introducing goods into U.S. commerce because he (a) transferred ownership of the goods while they were in transit to the U.S. to a company he chose to be the importer of record and (b) furnished to the hired customs broker, for use in completing and submitting the required entry documents, commercial invoices that materially understated the value of the merchandise. The CAFC asserted that this finding is valid regardless of whether or not Shadadpuri entered the goods, citing a 1913 Supreme Court decision as confirming that the term “introduce” in 19 USC 1592(a)(1) means that liability for fraudulent or negligent actions under this provision extends “beyond the act of filing with customs officials papers that ‘enter’ goods into United States commerce.”

The CAFC emphasized that its decision “does not require any piercing of the corporate veil” and that Shadadpuri is not being held liable “because of his prominent officer or owner status” but because he personally violated the statute and there is a “core principle” in the law that “a person who personally commits a wrongful act is not relieved of liability because the person was acting for another.”

This decision should be of immediate concern to individuals who are directly involved in the import process for their companies. It provides another reason to quickly correct entry errors when they are discovered and a compelling motive to engage in prospective compliance rather than reactive compliance.

For more information on this decision and its effects, please contact Larry Ordet or Arthur Purcell.

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