Two China-based clothing manufacturers, Motives Far East and Motives China Limited, and their affiliated US importer, Motives, Incorporated (collectively “Motives”), agreed to pay nearly $13.4 million for engaging in a double invoicing scheme designed to defraud the United States out of millions of dollars in customs duties, according to US Immigration and Customs Enforcement's Homeland Security Investigations directorate, and US Customs and Border Protection.
Motives holds itself out as the largest clothing exporter out of Asia, with offices, factories and joint ventures in China, Vietnam and Cambodia. The company regularly imports apparel into the United States sometimes through their affiliated US importer, Motives, Incorporated, who also imports on behalf of other apparel wholesalers. The government's complaint alleges that from approximately 2009 through 2013, Motives, whether acting as the manufacturer, importer of record or ultimate consignee, conspired to underpay customs duties through a double invoicing scheme.
Pursuant to the scheme, Motives used two sets of invoices: one that undervalued the garments and was presented to CBP for calculation of the duty amounts owed; and a second, sometimes called “debit notes” or “cost sheets”, that reflected the actual (higher) value of the garments that was paid by Motives to the wholesalers. By declaring the lower invoice value on entry documents filed with CBP, Motives made false representations about the value of the imported merchandise and underpaid duties based on those false representations. For example, according to the Complaint, in an email dated June 2, 2009, between Motives Far East and an importer, the importer instructed Motives Far East to deduct a flat $2.50 per garment from the invoice submitted to Customs. Motives would then be paid the additional $2.5 though a debit note.
The company admitted to and accepted responsibility for under-reporting the value of its imported merchandise and agreed to pay nearly $13.4 million to the United States under the False Claims Act. The allegations were first brought to the attention of the government by a whistle-blower, who filed a lawsuit under the False Claims Act.
This case serves as a reminder that the False Claims Act is being increasingly used by whistle-blowers to bring customs violations, especially relating to the valuation of merchandise, to the government’s attention.
This case also serves as a warning to importers to be diligent about their suppliers’ invoicing practices:
- Be skeptical of suppliers offering to “help” keep duties low.
- Ensure that suppliers are sending the same invoice to the “payment” department as they are sending with the shipment for entry purposes by routinely verifying payment records against shipment records.
- Thoroughly investigate any indications of double invoicing.