and Countervailing Duties Leveraging Trade Remedies, Recent CIT - - PowerPoint PPT Presentation

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Minimizing Risks When Importing Goods Subject to Antidumping and Countervailing Duties

Leveraging Trade Remedies, Recent CIT Decisions and Significant Rules Changes

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific TUESDAY, SEPTEMBER 29, 2015

Damon V. Pike, President, The Pike Law Firm, Decatur, Ga. Alexander H. Schaefer, Counsel, Crowell & Moring, Washington, D.C. P . Lee Smith, King & Spalding, Washington, D.C. Diane A. MacDonald, Baker & McKenzie, Chicago

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MINIMIZING RISKS WHEN IMPORTING GOODS SUBJECT TO ANTIDUMPING AND COUNTERVAILING DUTIES

September 29, 2015

Speakers

– Diane A. MacDonald Baker & McKenzie, Chicago, IL diane.macdonald@bakermckenzie.com – Damon V. Pike The Pike Law Firm, Decatur, GA damon@thepikelawfirm.com – Alexander H. Schaefer Crowell & Moring LLP, Washington, DC aschaefer@crowell.com – P. Lee Smith King & Spalding, Washington, DC lsmith@kslaw.com

6

Trade Remedies Background

– Antidumping Duties:

Additional duties applied to imported merchandise that has been found to be (1) sold at unfairly low prices, and (2) injuring or threatening to injure a U.S. industry

– Countervailing Duties:

Additional duties applied to imported merchandise that has been found to (1) benefit from unlawful government subsidies, and (2) be injuring or threating to injure a U.S. industry.

– The Key: It’s a Retrospective System

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AD/CVD: The Two Layers of Risk

– Layer 1: The “Known Unknown” – Risks identified but not quantified

• Never mind the details – RATES CHANGE! And your deposit at

the time of entry may be VERY different from the ultimate assessment

• Case Study: Wooden Bedroom Furniture

– Layer 2: The “Unknown Unknown” – Latent risk of surprise incorporation into a case

• The recent phenomenon of expanding scope definitions (Case

Study – Aluminum Extrusions)

• The not-so-recent phenomena of circumvention and transshipment

(Case Study – Tapered Roller Bearings)

8

The Risk Amplification Act of 2015

– AD/CVD duty rates for companies that don’t cooperate or are found to be part of the “PRC-wide entity” are already high – over 400% in extrusions (initially)! – Particularly true in cases involving China, which has been the primary AD/CVD target in recent years – Recent legislation has amplified importers’ risks by expanding the Commerce Department’s latitude in calculating adverse rates

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WHAT IS AD/CV DUTY EVASION

– Evasion Refers To Actions That Evade Full Payment Of AD/CV Duties – Entries Subject To AD/CV Duties Are Type 3, Rather Than A Typical Type 1 Entry – Evasion Occurs When An Importer

– Fails To Declare Merchandise In An Entry To Be Subject To AD/CV Duties (Or A Type 3 Entry) And – Fails Pay The Required AD/CV Duty Cash Deposit

– CBP And The U.S. Government In General Have Become Increasingly Concerned With AD/CV Duty Evasion

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THE U.S. GOVT IS CONCERNED

– CBP Has Identified Combating AD/CV Duty Evasion As A Priority Trade Issue – The Government Accountability Office (“GAO”) Reported That From 2007 To 2011, CBP Assessed Penalties For Evading AD/CV Duties Of $208 Million – The GAO Reported That Immigration And Customs Enforcement (“ICE”) Investigations Led To 28 Criminal Arrests, 85 Indictments, And 37 Criminal Convictions During Fiscal Years 2007 Through 2011 – Staff For U.S. Senator Wyden Published A Report Titled “Duty Evasion: Harming U.S. Industry And American Workers” On November 8, 2010

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TYPES OF EVASION SCHEMES

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COMMITTING EVASION PRESENTS SIGNIFICANT RISKS

– Anyone Can Provide Evidence To CBP Through Its E- Allegation Website – CBP Will Conduct A Civil Investigation – CBP Can Include Homeland Security Investigations (“HSI”), Which Is Part Of ICE, For Criminal Investigations – CBP’s Investigations Are Confidential – Tools Used By CBP Can Inform An Importer That It Is Under Investigation

13

HOW CBP INVESTIGATES IMPORTERS

– CBP Conducts Investigations In A Variety Of Ways

– Import Specialist At A Particular Port Of Entry Can Review Entry Documents And Request Action By The Port Director – Nation-Wide Effort At Under The Guidance Of The Centers Of Excellence And Expertise (“CEE”) – Analysis By The National Targeting And Analysis Group – CBP Can Conduct A Regulatory Audit – CBP Lab Analysis Of Merchandise Suspected Of Misclassification – A Joint Investigation With HSI

– Different Types Of Investigations Can Be Conducted In Tandem

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CBP’S TOOLS

– CBP Employs A Number Of Tools To Investigate And Combat Evasion

– Open Containers For Physical Investigation – Issue CF-28s Questionnaires To Importers Suspected Of Evasion – Require An Importer To Demonstrate That It Has The Right To Make Entry – A Financial Interest In The Merchandise – Seizure Of Evading Merchandise – Require Additional Bonding

15

OTHER AGENCIES CAN ASSIST CBP

– Other Agencies Can Assist In Investigating Evasion – Where The Merchandise Is A Foodstuff, The Food & Drug Administration Can Get Involved – Where The Merchandise Is An Agriculture Good, The Department Of Agriculture Can Get Involved – These Agencies Typically Require Additional Safety Certifications That CBP Can Use To Prove Evasion

16

RESULTS OF INVESTIGATIONS

– CBP’s Civil Investigation Can Result In A Determination The Merchandise

– was properly entered and the relevant duties were properly paid; – was not properly entered and require that the importer pay the relevant AD/CV duties; or – was not properly entered and the importer deprived the United States of lawful AD/CV duties by fraud, gross negligence, or

• negligence. 19 U.S.C. 1592. CBP will pursue penalties, with the

assistance of the Justice Department in addition to the AD/CV duties evaded

– Criminal Actions May Be Pursued With The Assistance Of ICE

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CRIMINAL ACTIONS ARE POSSIBLE

– HSI Can Be Used To Conduct A Criminal Action – Evidence From An Investigation Can Be Used In A Civil Proceeding, Criminal Proceeding, Or Both – HSI Agents Use A Variety Of Tools To Investigate Criminal Actions – CBP & ICE Have Concluded Successful Criminal Actions

– Honey; Aluminum Extrusions; Retail Carrier Bags; Wooden Bedroom Furniture

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PRIVATE ACTIONS

– The False Claims Act (“FCA”) Prohibits Submitting False “Claims” To The U.S. Government, Regardless Of Whether Those Claims Are Made Seeking The Payment Of Monies From The Government Or Whether They Relate To A Party’s Obligations To Pay Monies To The Government – The FCA Provides For Treble Damages, Civil Monetary Penalties Up To $11,000 Per False Claim (e.g., Per Customs Entry), And Reasonable Attorneys Fees And Costs – The FCA Allows A Private Party Plaintiff — Called A “Relator” — To File A “Qui Tam” Action On Behalf Of The U.S. Against A Defendant – Relators Generally Recover From 15 To 25 Percent – Joint Investigations By The Justice Dept., ICE, And CBP

19

Contractual Protection?

– Savvy companies try and cover exposure for unforeseen events via contractual terms between buyer and seller. – While a good practice in general and in theory, contractual terms cannot really mitigate risk of ADD/CVD. – First problem: enforcing terms. This is a big challenge everywhere, but especially in China – where most products covered by ADD/CVD originate. – Second problem: when contracts seeks to cover costs of ADD/CVD, this protection is rendered nil because of U.S. rules regarding reimbursement of ADD/CVD.

20

Reimbursement Rules

– Commerce Dept. rules require importer to file statement that it has not been reimbursed by the producer, exporter, seller, etc. for ADD/CVD prior to the liquidation of a covered entry. – If importer fails to file statement, Commerce presumes that reimbursement has occurred. – Result? ADD/CVD amounts are doubled; a $100,000 assessment turns into a $200,000 hit. – Note: statements required for CVD only when merchandise is covered by both ADD and CVD.

21

Better Answer: Due Diligence

– “Doing your homework” up-front is always the best answer. Identify whether a product is subject to ADD/CVD before entering into a purchase order or sales agreement. – Then, if ADD/CVD applies, the contract price can be negotiated to factor in the cost of the potential ADD/CVD – although the exact ADD/CVD rate cannot be known until well after importation. – Proper due diligence also allows the importer to identify other potential suppliers in other countries not covered by ADD/CVD

• rders.

22

Role of the U.S. Customs Broker

– Most importers rely heavily on U.S. Customhouse brokers to properly advise them of the various CBP requirements applicable to their merchandise – including ADD/CVD. – Brokers are agents and not principals; full legal responsibility for declaring ADD rests with the importer of record. – Broker Terms & Conditions limit liability by contract. – Ultimate responsibility determined by whether importer exercised “reasonable care” in declaring information to CBP for import transaction.

23

“Reasonable Care”

– Most errors in failing to report ADD/CVD and deposit estimated duties stem from simple negligence, i.e., a misplaced belief that the broker will inform the importer if a product is subject to ADD/CVD and that if no such information has been provided, no ADD/CVD are due. – A violation is determined to be negligent if it results from an act

• r acts (of commission or omission) done through either the

failure to exercise the degree of reasonable care and confidence expected from the person in the same circumstances in ascertaining the facts or drawing inferences therefrom, in ascertaining the offender’s obligations under the statute, or in communicating information so that it may be understood by the recipient.

24

“Reasonable Care”

– The “Mod Act” set forth specific language to establish a defense

• f reasonable care:

an importer should consider utilization of one or more of the following aids to establish evidence of proper compliance: seeking guidance from the Customs Service through the pre- importation or formal ruling program; consulting with a Customs broker, a Customs consultant, or a public accountant or an attorney; or using in-house employees such as counsel, a Customs administrator, or if valuation is an issue, a corporate controller, who have experience and knowledge of customs laws, regulations, and procedures

25

“Reasonable Care”

– Does hiring a customs broker equal “consulting” with a broker? It depends. – What about hiring an attorney? See United States v. Optrex America, Inc., 560 F. Supp. 2d 1326, 1327 (Ct. Int’l Trade 2008). – Has the importer previously run afoul of CBP’s regulations? Is there a prior record of penalties or excessive Prior Disclosures? – Brokers may have more future liability; see United States v. Horizon Products Int’l, Inc., CIT Slip Op. 15-80 (July 24, 2015).

26

“Reasonable Care”

– This standard applies to “importers.” What about individuals who work for corporate importers (or who themselves are

• wners of the corporate entity)?

– Individuals may also shoulder personal liability for failure to declare ADD/CVD – but not based on “reasonable care”. See United States v. Trek Leather, Inc., 767 F.3d 1288 (Fed. Cir. 2014). – Any individual who enters or introduces (or attempts to enter or introduce) merchandise into the U.S. can be liable if they were negligent or grossly negligent in their acts or omissions.

27

Reasonable Care – U.S. v. Golden Ship Trading Co.:

– “There is a distinct difference between legitimately attempting to verify the entry information and blindly relying on the exporter’s assertions.” – “The exercise of reasonable care may not have guaranteed success, but the failure to attempt any verification undercuts the argument that she would have been unable to determine the truth.”

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Trade Law Violations – Civil Penalties – U.S. v. Trek Leather (2014):

– Sec. 1592 violation: owner Shadadpuri “introduced” the merchandise into US commerce by means of undervaluation within the meaning of 19 U.S.C. § 1592(a)(1)(A) – Statute is broad enough to cover acts beyond filing official “entry” documents – Shadadpuri did everything short of the final step of preparing documents and filing formal entry – Acts come within the language of subparagraph (a)(1)(A) (“no person”); does not require piercing of corporate veil

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Increased Enforcement of Trade Law Violations – Feb., 2011: Court of Appeals for the Federal Circuit:

– Home Products Int’l Inc. v. United States: – Commerce found unreliable and incomplete documentation for country of origin certificates for product inputs in 3rd administrative review – Adverse facts available applied – Also, in 3rd review, Commerce noted that similar certificates

• f origin submitted in 1st and 2nd reviews

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Increased Enforcement of Trade Law Violations

– U.S. petitioner moved to amend its complaint in 2nd review CIT case to open the record to reconsider the evidence of false certifications in the 2nd review – Commerce disagreed; CIT agreed with Commerce – CAFC: Record of 2nd review should be reopened based on evidence found in 3rd review; reexamination proper, even if Commerce made no determination of “fraud”

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Increased Enforcement of Trade Law Violations Honey, Phase I:

– Sept. 2010: 14 individuals and 6 corporations indicted on federal charges of allegedly conspiring to illegally import honey into the U.S. – Scheme was an attempt to evade antidumping duties on honey from China: honey shipped to Thailand or the Philippines and relabeled before being shipped to U.S. – One person pled guilty to conspiring to illegally import Chinese honey to avoid more than $5 million in U.S. anti- dumping duties; sentenced to 30 months in prison

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Increased Enforcement of Trade Law Violations Honey, Phase I:

– Sept. 2010: 14 individuals and 6 corporations investigated for allegedly conspiring to illegally import honey into the U.S. – Scheme was an attempt to evade antidumping duties on honey from China: honey shipped to Thailand or the Philippines and relabeled before being shipped to U.S. – 5 individuals, 2 companies indicted in N.D. IL:

– 2010: 30 months in prison; $5.38M in restitution – 2013: 3 years in prison; $512,852 in restitution – 2013: 3 years in prison; $2.89M in penalties

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Increased Enforcement of Trade Law Violations – Honey case marked first use of provision of Sarbanes- Oxley Act of 2002 in relation to trade laws:

– Sec. 1519: “knowingly alters, destroys, mutilates, conceals, covers up, falsifies, … any record, document, or tangible

• bject 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[.]”

– Criminal prosecution of trade law violation

34

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Increased Enforcement of Trade Law Violations – Sec. 1519 differs from traditional obstruction statutes that require the existence of a pending federal investigation – No need to prove that there was a “pending proceeding” that defendants attempted to obstruct – Penalties: fines, imprisonment not more than 20 years,

• r both

35

Increased Enforcement of Trade Law Violations Honey, Phase II:

– 2013: focus is on US market

– Buying, trading, and processing of illegally-entered honey – Some honey contained unapproved antibiotics – Illegal imports of Chinese honey created a two-tier market – negatively affects legitimate market – Processing filtered out pollen that determined origin – 2 domestic honey-processing companies, 5 individuals charged – Companies entered into DPA and paid fines of $1M and $2M

36

36

Increased Enforcement of Trade Law Violations – Honey, “Phase III”:

– 2013: Class action lawsuit brought on behalf of US honey producers, packers, wholesalers under the RICO and common laws – Fraud, negligent misrepresentation, conspiracy, and wrongful importation and dumping of Chinese honey, which depressed honey price in US market and damaged US businesses

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Increased Enforcement of Trade Law Violations – “Reverse” False Claims Act suits:

– Mushrooms from Chile (2005):

– Mushrooms from Chile shipped to Canada, where they were repackaged as products of Canada and entered US duty-free based

• n NAFTA

– Bank of China was aware of and provided financing for scheme – Competitor uncovered the scheme – Defendant allegedly avoided AD duties of approximately $7.8 million – In settlement, Bank of China paid $5.25 million, and others paid $150,000, $27,500, and $25,000

38

Increased Enforcement of Trade Law Violations – Ink from Japan (2012):

– Japanese-based ink company agreed to pay $45M for failure to pay ADD/CVD

– Misrepresented that Mexico and Japan were countries of origin, rather than China and India – Ink did undergo a finishing operation in Japan and Mexico, but insufficient to confer origin – Whistleblower received nearly $8M

39

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Increased Enforcement of Trade Law Violations – Aluminum Extrusions from China:

– Nov., 2013: DOJ settled with maker of shower enclosures

– Evaded duties on aluminum extrusions from China by transshipping components through Malaysia – $1.1M payment

– Feb., 2015: 3 companies pay total of $3M for transshipping aluminum extrusions (shower doors) through Malaysia

– Sept., 2015: two individuals paid $384,000 and $50,000 in same scheme

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Increased Enforcement of Trade Law Violations – Sept., 2015: sentencing in case involving evasion of antidumping duties (305%) on magnesium powder from China

– Conspiracy to commit money laundering and smuggle – Adulterated the product for lower duty rate – 90 days in prison; 2 years parole; $6.2M fine – 18 months in prison; $6.3M fine (son – probation) – 2 years probation; $60,000 forfeiture and fine

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Increased Enforcement of Trade Law Violations – 2013: New certifications for factual submissions: I am also aware that U.S. law (including, but not limited to, 18 U.S.C. 1001) imposes criminal sanctions on individuals who knowingly and willfully make material false statements to the U.S. Government. – Intended to ensure that parties and counsel are aware of potential consequences for false certifications: referral to appropriate authorities

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