Background

The Department of Justice reports that the CEO of a children’s apparel company has been sentenced to six months in prison for participating in a years-long scheme to fraudulently avoid customs duties. The DOJ states that this scheme resulted in the loss of more than $1 million in duty revenue.

A DOJ press release states that from about 2007 to about 2015 the company purchased much of its goods from a manufacturer in China. For the first few years the CEO and others engaged in a scheme in which that manufacturer would supply two sets of invoices for the same shipment and the company would use the one with the fraudulent, lower price to calculate duties owed.

The CEO and other employees subsequently engaged in a variation of this scheme involving invoices for “sample” goods. The manufacturer would send two separate sets of invoices for a given shipment that together reflected the true price actually paid. The first invoice described the goods purchased and was submitted to U.S. Customs and Border Protection. The second invoice purportedly reflected amounts paid by the company for sample goods, which are not subject to customs duties. In fact, however, this invoice was a means to make an additional payment to the manufacturer for actual goods purchased by the company without disclosing it to CBP.

The DOJ notes that typically the “sample” invoices reflected a unit price for sample goods that was significantly greater than the unit price for the non-sample goods reflected on the invoice submitted to CBP; e.g., $70-$90 per unit versus $4 per unit. In addition, the “sample” invoice reflected the purchase of unusually large amounts of sample goods; e.g., quantities as large as 24 or 48 pieces of a single color in a single style.

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