cbps operation mirage sparks crackdown on china & fta textile imports prepared for: the los...

CBP’s “Operation Mirage” Sparks Crackdown on China & FTA

Textile ImportsPrepared for:

The Los Angeles Customs Brokers & Freight Forwarders Association

By:

Michelle RodenbornLaw Offices of Michelle Rodenborn

July 22, 2010

What’s In Store with CBP’s Big, New Gun: TESA,

H.R. 5393?

Law Offices of Michelle Rodenborn 2Law Offices of Michelle Rodenborn 2

“Operation Mirage”

• 2009 Special Enforcement Initiative on China Undervaluation:

began with 800 textile importerssettled on a targeted group of 176 importers in Los Angeles and New York.

• Findings:

gross undervaluation of goods, by as much as 300 to 500%;

Phantom "importers of record" that could not be found hidden by layers of “front men”;

Multiple invoice schemes;

Customs Brokers who did not know the IORs’ identities; and

90 IOR’s who did not have “the right to make entry.”

Law Offices of Michelle Rodenborn 3

Enforcement Linchpin: The Right to Make Entry

• 19 USC 1484 (a)(2)(B) provides that only an “importer of record” has the right to make entry of goods.

• “Importer of record” is defined as the owner or purchaser of the goods, or, when designated by the owner, a licensed customs broker.

• “Owner or purchaser” is in turn defined as including: any party with a financial interest in a transaction;

including the actual owner or purchaser of the goods.

May also be a buying or selling agent, a person or firm who imports on consignment, or under loan or lease, or for repair, alteration or further fabrication, etc.


Buck Stops with IOR

• Corresponding to that “right” to make entry, it is the importer of record who will be held liable for all Customs-related aspects of the import transaction.

• The IOR is the party to exercise Reasonable Care.

• Customs will deal with the “Mirages” by:

Refusing and rejecting entries where they can’t track down the identity of the IOR;

Throwing out the phony IOR’s “transaction value”; and

Having the LDP/DDP purchaser make entry; and

Using the LDP/DDPs purchase price as the dutiable value.


Enforcement Tool:Existing Civil and Criminal Statutes

CBP is willing to use weapons in its current arsenal:• Under the commercial fraud statute, § 592:

CBP will use the “aiding and abetting” language to target LDP/DDP purchasers.

• Under the federal criminal code, Title18, CBP may use:

§1001whichprovides for fines and 5 year prison terms for engaging in fraudulent schemes, representations, or writings; and

§1002 which provides the same for possession of false papers to defraud the United States.


(Copied from Janet Labuda’s Slide for California Fashion Association)

Doing Business Using DDP/LDP

Don’t!!!!! But If You Insist…

Make a Surprise Visit to the IoRsAddress

Does it Exist?Is Anyone There?Is It “Virtual” Office Space? Do They Know Details about the Transaction? How Many Layers Are in the

Transaction.


(Copied from Janet Labuda’s Slide for California Fashion Association)

Doing Business Using DDP/LDP

• Ask for and Review the Customs Entry:

– Does the Information on the Entry Match Your Purchase Order?

– Description?

– Quantity?

– Value?

• Who Is the Broker? Has the Broker Met the Importer of Record?

• Who is Orchestrating the Transaction? Importer? Freight Forwarder?


FTA/Trade Preference Verification and Enforcement

• In 2009 CBP’s Textile Production Verification Team:Found 45% of Factories were non-compliant on FTA/Trade

Preference claims; 51% non-compliant re Short Supply claims.

• CBP going forward:Continued TPVT visits;Port verifications;Special ops;Scrutiny of yarn/fabric affidavits;Blanket certificates are not supported;Scrutiny of records that establish origin in the US/region. “Vigorous” focus on CAFTA.

The Textile Enforcementand Security Act of 2010

• TESA, H.R. 5393, introduced May 25, 2010

• A Bill “to provide U.S. Customs and Border Protection with authority to more aggressively enforce trade laws relating to textile or apparel articles…”

• CBP to “ensure that seizures, detentions, special operations, and TPVT’s remain the primary focus” of its textile enforcement.



TESA Highlight:Seizure & Forfeiture Authority Expanded

• TESA provides authority to seize and forfeit where:

1. a trade preference has been claimed, and the goods are:

misdescribed on entry as to country of origin; or

the IOR does not verify actual country of origin; and

It’s for purposes of avoiding a duty or other obligation to the U.S. Government.

2. False Physical Address Information is Given.

The IOR provides a false physical address, or

The IOR does not have “the right to make entry” under 19 USC 1484 (a)(2)(B).

Law Offices of Michelle Rodenborn 11Law Offices of Michelle Rodenborn 11Law Offices of Michelle Rodenborn 11

Use of Amounts from Fines, Penalties, Forfeitures

Under H.R. 5393, Monies Obtained from Fines, Penalties & Forfeitures Would be Used:

• to pay for expenses directly related to textile import investigations and enforcement proceedings, civil or criminal; and• for a “snitch” reward program:

20% of any fine, penalty or forfeiture amount up to $20,000To any person furnishing information leading to an arrest, conviction, civil penalty assessment, or forfeiture of property.


TESA Affidavit Requirement

TESA Amends 19 USC 1484 (a) to Require: An Affidavit containing 6 elements:

1. The physical address of the manufacturer.

2. The contact person's name and complete contact information.

3. A description of the articles, such as fiber content, yarn content, fabric type.

4. The purchase order or invoice number issued for the sale with quantities included.

5. The date of sale or shipment of the articles.

6. If available, the container number and bill of lading number for the articles delivered to the customer.

TESA Bonding Requirement


TESA Amends 19 USC 1623 (b) to Add:

• A provision requiring the amount of the bond for

the importation of textile or apparel articles to

include amounts equal to any duties, fees, and

penalties estimated to be payable on such articles

based on a risk assessment of the importer.

• Will apply to entries made 180 days after enactment

of TESA.

“Person” under 592 Redefined


TESA Amends 19 USC 1592 (a) (1) to Read:

• “Without regard to whether the U.S. is or may be

deprived of all or a portion of any lawful duty, tax,

or fee thereby, no producer, manufacturer,

supplier, seller, importer, exporter, or other person

by fraud, gross negligence, or negligence (A) may

enter, introduce, or attempt to enter or introduce any

merchandise into the commerce of the U.S.

Electronic PreferenceVerification System


TESA Establishes:

• An electronic Preference Verification System

• Will track textile or apparel articles imported or

exported under free trade agreements.

• Confidentiality of information is assured by coding

the information so that only CBP & OTEXA can

access it.

• Congress’s “sense” is stated that this system should

be established in future FTA’s as a priority.


TESA Highlight:Rein in Non-Resident Importers of Textiles

“Declaration Program”: N-R IORs must declare that:

• they have secured a bond (19 USC 1623 (b)(5); and

• established a Power of Attorney.“Information”: N-R IORs must:

• Identify a resident agent in the state of port of entry to accept service of process;

• Certify that the resident agent has assets in the US to cover loss of revenue that exceeds the bond, or for any civil penalties levied by the federal government.

• Include on commercial invoice full contact info for each person involved in the transaction: trading house, freight forwarder, and ultimate purchaser


TESA Highlight:Civil and/or Criminal Penalties

For a “knowing violation” of the Non-Resident IOR Declaration Program:

• civil penalties of not more than $50,000 per violation;

• the violator is also subject to civil/criminal penalties under any other customs law, including:

seizure and forfeiture under the customs laws, or

prosecution under the federal criminal code, Title18:

§1001provides for fines and 5 year prison terms for engaging in fraudulent schemes, representations, or writings; and

§1002 provides the same for possession of false papers to defraud the United States.


Another Role for Department of Justice

• TESA establishes within the DOJ the:

“Office of Textile and Apparel Trade Enforcement”

• It adds more jobs for lawyers!

• Its function is to carry out all enforcement functions on “relevant enforcement cases:”

Those that are referred by DHS, and

Relate to the enforcement of laws regarding the importation of textile or apparel articles.


Guiding Principles for Customs Brokers

1. Anyone can sue anybody over anything and probably will.

(And its corollary truth: Litigation is a synonym for “nightmare.”)



1. “Taking things lightly causes great difficulty.” (Lao Tzu, the Tao Te Ching)



1. It’s always darkest after a Customs audit begins, so

“Do the difficult things while they are easy and do the great things while they are small.” (Lao Tzu again)


Questions?

Please Contact

Michelle RodenbornLAW OFFICES OF MICHELLE RODENBORN

444 W. Ocean Boulevard, Suite 800LONG BEACH, CALIFORNIA 90802

(562) 436-8111 FAX (562) 436-8755eMail: [email protected]

http://www.rodenborn.com

Please check out our web site!!

cbps operation mirage sparks crackdown on china & fta textile imports prepared for: the los...

Documents

customs entry

textile enforcement

entry of goods

janet labudas slide

textile importers

importer of record

enforcement proceedings

import transaction