The U.S. Court of Appeals for the Federal Circuit has ruled in a new en banc decision that individuals employed by importers, or corporations that are not the “importer of record,” may be liable under civil penalty laws because of their role in introducing articles into U.S. commerce. This decision represents an important increase in the risk faced by individuals working for importing companies and other firms in the global supply chain.
On 16 September the Federal Circuit held in an en banc decision inU.S. v. Trek Leather, Inc. and Harish Shadadpuri that an individual who was grossly negligent in furnishing value information to a customs broker could be held personally liable for customs penalties, even though that individual was not the importer of record. The Federal Circuit decision overturned a three-judge Federal Circuit panel, which had previously said that the individual could only be held personally liable for fraud or if the “corporate veil” were pierced to reach him as an individual.
The Federal Circuit’s decision makes clear that individual employees may “introduce” goods into U.S. commerce by taking action that results in the goods coming into the United States and by “providing critical documents (such as invoices for indicating value) for use in the filing of papers for a contemplated release into United States commerce.”
- The potential implications of this new decision are vast. For example, import managers, compliance personnel, and others involved in determining the value, classification, and origin of imported products or providing entry information are potentially subject to personal liability under the customs civil penalty statute for providing false information or omitting material facts to customs through negligence or intentional fraud. This personal liability is in addition to the liability traditionally faced by importers of record.
- Sellers, brokers, and others involved in global supply chains are potentially subject to liability for negligent or fraudulent false information or material omissions.
Customs and other law enforcement agencies now have a powerful tool to aid in the investigation of civil penalty violations. Individual employees and other companies involved in the import process for supply chains are potential targets of enforcement actions. Customs has long argued that actors other than the importer of record may be responsible for customs violations. With this en banc decision by the Federal Circuit, customs now has the enforcement tools it has sought.
Further, customs procedures not resulting in immediate entries for consumption may also be covered under the civil penalty statute as a result of the Trek Leather decision. Warehouse entries, in-bond entries, and foreign trade zone admissions, for example, long thought to be outside the scope of the civil penalty statute (19 U.S.C. § 1592) could be viewed as leading to the introduction of goods into U.S. commerce and thus subject to a § 1592 case.
Customs civil penalty actions are not the only tools available to the government. An increasing number of cases under the False Claims Act, 31 U.S.C. § 3729, involve customs violations. For example, if an importer underpays duties by declaring incorrect values, classifications, or countries of origin, the False Claims Act provides a remedy for the U.S. government to collect treble damages. In addition, private individuals may bring suit in the name of the United States for such violations (known as qui tam actions).
Customs’ enforcement actions in light of Trek Leather are uncertain. Any case with such major implications may be limited by future court decisions. However, prudence and careful planning will be more important than ever for importers, their supply chain partners, and employees. We recommend that companies ensure they have in place, and continue to maintain, strong import compliance controls and procedures that guard against negligence involving the company’s import declarations. In particular, regular internal review and post-entry testing of selected entries can help reduce the risk of errors and remedy declarations to customs.