In today’s Fast Legal Answers series I am going to be talking about Trade & Customs Law, specifically 19 U.S.C. 1592 penalties. These penalties, which are issued by U.S. Customs and Border Protection (CBP), can range in the millions of dollars. We are talking about penalties so large, that they force a company to file for a bankruptcy and shutter their operations. In this short article, I’ll explain how these penalties can reach astronomical heights, how to avoid them, and in the unfortunate event you’ve been issued one, the basics of challenging them.
Basics of a 19 U.S.C. 1592 Penalty
The core principle of the statutute is that you cannot submit any material false statement to the United States in relation to international trade:
(1) General rule
Without regard to whether the United States is or may be deprived of all or a portion of any lawful duty, tax, or fee thereby, no person, by fraud, gross negligence, or negligence—
(A) may enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States by means of—
(i) any document or electronically transmitted data or information, written or oral statement, or act which is material and false, or
(ii) any omission which is material, or
(B) may aid or abet any other person to violate subparagraph (A).
(Emphasis Added).
Essentially, this means that if you are importing something and lie about its quantity, value, or classification you may be subject to a 19 USC 1592 penalty.
Levels of culpability
The statute recognizes different levels of guilt. Fraudulent, or intentional violations, face the harshest penalties. Followed by gross negligence, and finally, simple negligence.
(c) Maximum penalties
(1) Fraud
A fraudulent violation of subsection (a) of this section is punishable by a civil penalty in an amount not to exceed the domestic value of the merchandise.
(2) Gross negligence
A grossly negligent violation of subsection (a) of this section is punishable by a civil penalty in an amount not to exceed—
(A) the lesser of—
(i) the domestic value of the merchandise, or
(ii) four times the lawful duties, taxes, and fees of which the United States is or may be deprived, or
(B) if the violation did not affect the assessment of duties, 40 percent of the dutiable value of the merchandise.
(3) Negligence
A negligent violation of subsection (a) of this section is punishable by a civil penalty in an amount not to exceed—
(A) the lesser of—
(i) the domestic value of the merchandise, or
(ii) two times the lawful duties, taxes, and fees of which the United States is or may be deprived, or
(B) if the violation did not affect the assessment of duties, 20 percent of the dutiable value of the merchandise.
(Emphasis added).
Accordingly, the inquiry into the mental state or intent of the violating party can have a signficant affect on the ultimate penalty in the case. This is another reason why you should work with an experienced trade attorney early on that can help direct your case and potentially avoid a fraud charge. Note that a fraud penalty can be up to the domestic value of the merchandise imported with the fraudulent documentation.
Statute of Limitations
Burying your head in the sand will not help you either. The statute of limitations on 19 USC 1592 penalties is five years. See 19 USC 1621 (action must be commenced “five years after the time when the alleged offense was discovered”). However, even after five years some cases can still survive. The key word is “discovered,” this means fraudulent violations older than 5 years can be prosecuted if the government discovers the fraud at a later date.
Avoiding a 19 U.S.C. 1592 Penalty
The goal for any entity importing or exporting goods to or from the United States is avoiding a costly enforcement action like a 19 USC 1592 penalty. To do this the importer must be knowledgeable about the laws and regulations that are applicable to them and hire trustworthy customs brokers and other trade professionals to assist them in the process.
Best Practices regardless of size
Regardless of the size of your company you should make sure you are complying with Customs laws. If you start as a small importer and you intentionally undervalue goods to get an edge on your competitors, you are in for trouble. While CBP may not catch the violations early on, if they catch them once your company has grown you could end up facing a 19 USC 1592 penalty for fraud. That would result in a penalty equal to the domestic value of all the merchandise you undervalued for possibly a period of years. That almost certainly would cost you your business.
A classic example of such a scheme is double invoicing where you pay your supplier one price and provide invoices reflecting a lower price to CBP for tariff and duty purposes. While this scheme can save you money in the short term, it could prove extremely costly later.
Prior disclosures
If you discover that you may be in violation of 1592 you may be able to submit a prior disclosure and avoid these harsh penalties. A prior disclosure allows you to self-report your violations to CBP. In return for self-reporting, CBP will issue you a much smaller penalty. You should always consult with a trade attorney prior to submitting a prior disclosure, as they are technical and can face procedural issues.
Fighting a 19 U.S.C. 1592 Penalty
Fighting a 19 USC 1592 penalty is something you obviously want to avoid. However, if you find yourself facing one, you should consult with an experienced trade and customs law attorney. They will be able to provide you answers and a strategy for approaching the penalty.
Mitigation
CBP also allows for mitigation in some instances. Whether your specific penalty, or enforcement action, will be subject to mitigation is dependent on the specific facts of the case. However, a good place to look to determine whether mitigation may be an option, and to what extent, is the CBP Mitigation Guidelines.
Conclusion
Hopefully you found this guide helpful. At this time we are not taking on any new clients. All information provided above is for reference purposes and should not be construed as legal advice. You should consult with a licensed attorney before taking any action in your case.
