592 Penalty Filing Against Importer Warns Corporate Officers Could be Next
A recent penalty case filed against a U.S. importer indicates that U.S. Customs and Border Protection may go after the importer’s corporate officers as well at some later date. The warning, which appears in the government’s complaint, highlights the increasing potential for personal liability for customs violations, as affirmed by the Court of Appeals for the Federal Circuit last fall in the case of U.S. v. Trek Leather Inc. and Harish Shadadpuri.
On March 9 the U.S. filed at the Court of International Trade a suit seeking to recover lost duties and civil penalties under 19 USC 1592 for the misclassification of 253 entries of tires under duty-free HTSUS subheadings. Alleging that the importer directed its customs broker to falsely use these specific subheadings, the U.S. is seeking the repayment of $242,028 in lost duty revenue (the total loss of revenue, including amounts already paid, was $404,082.95) plus a $16.9 million penalty for fraud or, alternatively, a $1.6 million penalty for gross negligence or an $808,166 penalty for negligence.
According to the complaint, CBP issued a penalty against the importer and two of its officers as jointly and severally liable for the misclassification. The filing states that the U.S. is “not currently initiating an action against the corporate officers but may do so should sufficient evidence warranting personal liability come to light.”
While CBP has pursued penalties against individuals for fraud or aiding and abetting customs violations in the past, the question of personal liability for corporate violations under 19 USC 1592 is one of great concern to the trade community. In September 2014 a CAFC decision in U.S. v. Trek Leather Inc. and Harish Shadadpuri created a broad new category of individuals who may be subject to non-fraud penalties for corporate entry violations beyond those who enter goods (e.g., the importer of record) to include those who “introduce” goods into U.S. commerce such as import managers, compliance officers and business owners. The Supreme Court was recently asked to review the CAFC’s ruling.