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Importer Ordered to Pay Negligence Penalty in Misclassification Case

Thursday, June 15, 2017
Sandler, Travis & Rosenberg Trade Report

The Court of International Trade has determined that an importer is liable for a negligence penalty in a case involving misclassified imports. In an earlier decision in this case the CIT awarded U.S. Customs and Border Protection unpaid duties and pre-judgment interest.

This case involves various types of plywood that were entered or attempted to be entered under inapplicable duty-free tariff subheadings. CBP demanded payment of $120,254 in outstanding duties as well as a penalty of $324,540 for negligence. CBP recovered $50,000 from the importer’s surety and in 2015 the CIT ordered the importer to pay the remaining $70,254 in duties owed after the importer admitted to the misclassification.

The CIT withheld a decision on the negligence penalty because there was a genuine factual issue as to whether the importer exercised reasonable care. The importer claimed it made the entries using an authorized customs broker but the court said it appeared that the importer had instructed its broker to use one of the inapplicable classifications with respect to at least some of the entries, even after CBP advised it of the correct classification.

The CIT now states that there is no evidence as to any steps taken by the importer or its broker to ascertain the correct classification and that the imported failed to demonstrate that it made a good faith effort to assert the correct classification at entry. In addition, the record demonstrates that the importer disregarded information on invoices that contradicted its description of the goods on the entries. As a result, the court states, the record lacks any evidence to suggest a reason for the importer’s actions other than an unlawful effort to obtain duty-free treatment.

Nevertheless, the CIT declined to impose the statutory maximum penalty for negligence, instead setting the amount at $162,270. The court states that a significant penalty is warranted due to the nature of the violations as well as the importer’s “slow-playing” the government by drawing these proceedings out over several years. However, the CIT also rejects CBP’s efforts to include the defendant’s “uncooperative and dilatory behavior before the court” in the calculation of an administrative penalty because such conduct is governed by other more specific court rules.

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