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Misclassified Imports Net Maximum Penalty

Monday, May 08, 2017
Sandler, Travis & Rosenberg Trade Report

In a May 5 decision the Court of International Trade assessed the statutory maximum penalty of $691,311.54, plus pre- and post-judgment interest, for what it found to be a negligent misclassification of imports.

This case involves eight shipments of sugar that the defendants classified under HTSUS 1701.99.0500 ($0.036606/kg duty), which covers cane or beet sugar that is described in HTSUS General Note 15 and entered pursuant to its provisions. Under that note, entries of sugar under Chapter 17 that would typically be subject to a tariff-rate quota are not counted against the in-quota quantity when they meet specific requirements; e.g., they are imported by or for the account of a U.S. agency, for personal use in shipments not exceeding five kilograms each, or as samples not entered into U.S. commerce. However, the sugar at issue did not meet these requirements and U.S. Customs and Border Protection ultimately reclassified it under HTSUS 1701.99.5010 and 1701.99.5090 ($0.3574/kg duty).

The CIT concludes that the defendants’ classification of the sugar under HTSUS 1701.99.0500 constituted a false statement. In addition, because the misclassification resulted in $345,655.77 in lost revenue to the U.S. government, the false statement is material. The defendants did not offer any evidence showing that the misclassification did not occur as a result of negligence, so the court ordered them to pay the amount of lost revenue less the $50,000 recovered from their surety. The court also ordered the statutory maximum penalty of $691,311.54 (two times the lost revenue) after determining that a review of 14 factors (e.g., degree of culpability, history of previous violations, gravity of the violation, public interest) supported the imposition of a substantial penalty.

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