The US Criminalization Of Import Violations Continues Unabated

Originally published July 30, 2012

Keywords: DOJ, criminal complaint, import, violations, food safety

On July 23, 2012, the US Department of Justice (DOJ) filed a criminal complaint in a California federal district court, accusing eight individuals and three business entities of operating a fraudulent scheme to evade customs duties on imported goods produced in a foreign country. We have been reporting since October 2010 that there has been an increasing effort to criminalize customs violations, which has focused to date on importers and consignees allegedly circumventing antidumping duty orders or food safety laws. (For more information, see our Legal Updates: " The 'Wolff' at Importers' Doors: Criminal Statute Is New Tool in Trade Enforcement Cases" and " Imports and Consignees Increasingly Facing Criminal Prosecutions in Trade Remedy and Customs Enforcement Cases.") However, unlike other recent criminal actions, this new criminal complaint demonstrates a broadening of the alleged violations that US Customs and Border Protection (CBP) will refer to DOJ for prosecution.

In United States v. Chavez, et al., the DOJ alleges that the named defendants operated a "diversion scheme": they imported dutiable Chinese-made textiles, foreign-made cigarettes, and Mexican food products without paying any customs duties by claiming that the goods were not entering the US for consumption. According to the customs paperwork and database entries filed by the defendants, the foreign products at issue were to be shipped "in-bond" to Mexico (i.e. transiting US territory but not being consumed in the United States) or, for a limited time, be held in a US bonded warehouse or US foreign trade zone (FTZ) pending export to that country.

In-bond merchandise to be re-exported is not subject to US customs duties. However, the DOJ alleges that the foreign-made products were delivered to Los Angeles and other locations throughout the United States for sale and consumption. In addition, the DOJ claims that the defendants understated the value of certain imported Chinese apparel and misrepresented foreign-made cigarettes as American goods.

Notably, the DOJ again has employed a rather obscure criminal statute, 18 U.S.C. §1519, to indict domestic and foreign individuals and companies subject to its jurisdiction for obstruction of justice. Section 1519 states:

Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, ... any record, document, or...