TRADE CUSTOMS FRAUD Presidential Pulse … from country other than China, ... China Italy Canada & China Vietnam ... TRADE CUSTOMS FRAUD_Presidential Pulse Strategy Summit_May 25

©2017 Seyfarth Shaw LLP

MAY 25, 2017


Trade & Customs Fraud Enforcement:A "High Priority"

Trade & Customs Fraud Enforcement 1

Matthew T. GauderDepartment of Homeland Security

U.S. Immigration and Customs Enforcement (ICE)Homity Investigations (HSI)

Andrew S. BoutrosSeyfarth Shaw LLP

Partner

©2017 Seyfarth Shaw LLP©2017 Seyfarth Shaw LLP

President Trump Declares Customs and Trade Fraud Enforcement a

“High Priority”



Framing the Trade Issue

• USA is world’s largest importer of goods

– $2.252 trillion of goods from around globe in 2016

– Increase of 40.6% since 2009

• In 2016

– 45.7% from Asian countries

– 25.8% from North American partners

– 21.5% from Europe

• Staggering volume of merchandise crossing U.S. border

– Tremendous opportunity for fraud and cheating

– Increased enforcement offers strong solution



The Campaign + Executive Orders

• President Trump campaigned vigorously on trade issues

– Stopping commercial cheating at border

– Creating one-tier system (instead of a two-tier system)

– Making sure everyone plays by same rules

– Stopping other countries from injuring domestic industries

• March 31, 2017, President Trump delivers on campaign promises

– Signs two Executive Orders addressing various trade matters



The Executive Orders: One

• Order One:

– Study and better understand scope and magnitude of trade problem and deficits

• E.g., major causes of trade deficit, tariffs, non- tariff barriers, injurious dumping, injurious government subsidization, intellectual property theft, denial of worker rights, unfair labor standards, discrimination against commerce of USA

– Secretary of Commerce and US Trade Representative to submit Report to President



The Executive Orders: Two

• Order Two:

– Announces new law enforcement policy initiative

– Federal prosecutors and law enforcement partners must “vigorously enforc[e] our Nation’s trade laws”

– Attorney General and Secretary of Homeland Security:

• “shall develop recommended prosecution practices and allocate appropriate resources to ensure that Federal prosecutors accord a high priority to prosecuting significant offenses related to violations of trade laws.’’

– Bottom line: Unfair trade practices ‘‘expose United States employers to unfair competition and deprive the Federal Government of lawful revenue’’



Why the Big Deal?



Customs Fraud Statutes

• 18 USC 545 Second ¶: “Whoever fraudulently or knowingly importsor brings into the United States, any merchandise contrary to law, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of such merchandise after importation, knowing the same to have been imported or brought into the United States contrary to law”

– Commits a 20-year felony

– Subject to have merchandise or value thereof forfeited

– Notice

• Actual knowledge or willful blindness (head in sand)

• Prosecutor gets to pick predicate “law” – like RICO



Supply Chain Implications

• Unlike other federal laws, such as FCPA, that only criminalizes the bribe giver, trade fraud law allows prosecutors to investigative and prosecute both

– Supply side: foreign manufacturers, shippers, importers, brokers, and agents

– Demand side: buyers, distributors, packers, wholesale manufacturers, retailers, and industrial end-users

• Our prediction: Increased criminal enforcement of trade and customs law – not just civil or administrative enforcement



Vast Enforcement Options

• Antidumping duties and countervailing duties

• Intellectual property theft

• Counterfeiting activities

• Violations involving country-of-origin markings, product substitutions, and product labeling violations

• Food fraud

• Forced, child, or abusive overseas labor practices

• Many more



Close Look at Food Fraud: Case Study



Honey Case Study: ADD

• October 2000: DOC investigated whether Chinese honey was being sold in USA below fair market value

• December 2001: DOC determined that Chinese honey was being sold at artificially low prices and causing injury to domestic industry

• U.S. Response: DOC imposed steep industry-wide, default ADD on Chinese honey



Motive

• Between 2001 and mid-2007, ADD reached 221% of honey’s declared value

$1.00 of honey = $2.21 in dumping duties

• From mid-2007, to present, ADD between $2.06 and $2.63 per net kilogram of honey



Result

• Prior to 2001, USA imported 58.7 million pounds of Chinese honey

• In 2010, Chinese-declared honey imported into USA totaled a mere 1.75 million pounds

• Net Result = FRAUD

No other world supply for honey

Saw overnight spikes in honey from “Malaysia”, “Indonesia”, and “Taiwan”



Illegally “Transshipped”

• Chinese honey imported into USA through third countries and mislabeled and declared as originating from third country



Related Country-of-Origin Schemes

• Illegally Misdeclared #1: Chinese honey imported into USA as originating from country other than China, even if not transshipped

• Illegally Misdeclared #2: Chinese honey imported into USA as a product other than honey, including molasses, fructose, rice syrup, glucose syrup, honey syrup, and apple juice concentrate



“New Shipper” Scheme

• Formation of new “front” company to fraudulently obtain reduced individualized anti-dumping duty-exempt rate from DOC• Fake arms-length transactions

• Fake and false submissions to DOC

• Formation of five-member “club” or “cartel” to illegally import Chinese honey as Chinese honey without paying ADDs – illegal pipeline of Chinese honey into USA

• Obtained preliminary individualized anti-dumping duty deposit rate of zero percent, but law enforcement STOPPED the scheme



Largest Customs, Trade, Food Fraud in USA History

• Criminal Arrests 6

• Indictments / Informations – People 19

• Convictions – People 9 (all guilty pleas)

• Indictments – Companies 8

• Convictions – Companies 2 + other companies out of business

• Foreign Fugitives 10

Germany, China, Canada

• Fines / Restitution Imposed – People $32,567,770

• Fines / Restitution Imposed – Companies $3 million

• ADD and HAF Allegedly Evaded $260 million

• Honey Seized 4,500-plus drums



FOOD PRODUCTS:

China Italy Canada & China Vietnam China, India,Thailand & Vietnam

NON-FOOD PRODUCTS – Predominantly China:

Foreign Products Subject to ADD – Examples


QUESTIONS?

[email protected]


Documents

TRADE CUSTOMS FRAUD Presidential Pulse … from country other than China, ... China Italy Canada & China Vietnam ... TRADE CUSTOMS FRAUD_Presidential Pulse Strategy Summit_May 25