US importers have long been subject to civil penalties for violating US trade law. However, with the recent indictment of 11 individuals and 6 corporations for allegedly conspiring to illegally import goods into the United States, the US government may be signaling a sea-change in its enforcement strategy by subjecting trade law violators to severe criminal penalties as well.
In September 2010, the US government employed a fairly recent, but rarely used, criminal obstruction provision to indict corporate executives of foreign and domestic corporations for their participation in an alleged scheme to evade nearly $80 million in antidumping duties on honey imported from China. In United States v. Alexander Wolff, et al., the US Department of Justice (DOJ) charged 11 corporate executives and six corporations in a wide-ranging, 44-count indictment, which included a charge that the defendants obstructed justice in violation of 18 U.S.C. §1519 as a result of their destruction of various records before they knew they were the subject or target of any investigation into their alleged conduct. This obstruction statute is part of a provision of the Sarbanes-Oxley Act of 2002. To date, the section has resulted in few prosecutions. DOJ’s use of this statute in an antidumping duty circumvention case marks a new tactic in the enforcement of US trade law that importers should monitor carefully.
Obstruction Under Section 1519
Titled “Destruction, Alteration, or Falsification of Records in Federal Investigations and Bankruptcy,” Section 1519 provides in part:
Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, … any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States…or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.
This language departs from traditional obstruction statutes that require the existence of a pending federal investigation or judicial proceeding. The tactical advantage in charging this statute is that the government may not have to prove that a defendant undertook his obstructive act with the intent to affect a particular government proceeding. Thus, under Section 1519, falsifying, mishandling, or obstructing access to any record, at any time, could well invite criminal prosecution if that record relates to the “investigation or proper administration of any matter within the jurisdiction of any department or any agency.” (emphasis added).
The indictment in Wolff suggests that the US government believes that the defendants coordinated efforts to circumvent US antidumping duties on honey from China. Antidumping duties are imposed by the US government when it determines, through an investigation requested by competing US producers, that imports are being sold at less-than-fair-value in the United States, and that these sales are threatening to cause, or are in fact causing, material injury to the US industry. An antidumping duty order has been in place on imports of honey from China since 2001, with antidumping duties as high as 221 percent.
The defendants in Wolff are accused of transshipping Chinese-origin honey through third countries before exporting it to the United States. When the honey arrived in the United States, it allegedly was declared to US customs authorities as non-Chinese origin and, thus, not subject to the antidumping order. The Wolff defendants also allegedly imported honey falsely labeled as “organic” when, the indictment alleges, the honey contained antibiotics and sugar.
The specific actions that led to the Section 1519 obstruction charges against the Wolff defendants include: falsifying US Customs entry forms and sales documentation; seeking out customers that do not adequately test the products they purchase; and instructing alleged co-conspirators to not write emails about their activities and to delete documents and emails in case the US Department of Commerce visits their offices.
A New Approach in Trade Enforcement
Wolff represents a break from the way the US Government has traditionally enforced its trade laws in several respects.
First, for the most part, importers who evade antidumping duties or other trade regulations typically pay a civil penalty and do not face criminal prosecution. For instance, 19 U.S.C. § 1592 subjects importers to monetary penalty if, through fraud, gross negligence, or negligence, they submit documents or data to US customs authorities that contain materially false information or omit material information. The amount of the penalty varies depending on whether the importer acted by fraud, gross negligence, or negligence.
Second, Section 1519 is not a trade-specific criminal statute. Another criminal statue, 18 U.S.C. § 542, although not commonly used, does include sanctions for presenting false information to US Customs officers, as well as penalties of a maximum of two years imprisonment, a fine, or both, for each violation involving importation or attempted importation. In contrast, Section 1519, which provides a potential 20 year maximum penalty, is much broader in scope. It is not limited to import transactions or even trade violations, and most importers likely are not even aware of its existence.
Finally, the potential criminal penalty facing the Wolff defendants under Section 1519 is much more severe than the criminal sanctions usually faced by importers: a maximum of 20 years instead of only two years. If Wolff becomes the model for trade enforcement cases, importers will confront much steeper consequences for trade violations prosecuted under Section 1519.
Whether the approach taken in Wolff and the use of Section 1519 marks the beginning of a new method of enforcing US trade laws remains to be seen. In the meantime, however, importers should carefully review their compliance with US antidumping duty orders and other trade laws to avoid any future civil or criminal liability.