The most mundane things in the world could be the subject of anti-dumping cases — catfish, honey, plastic bags, mattress innersprings, even coat hangers. In June 2011, U.S. importers were slapped with $13 million in fines, and a Mexican factory owner received a nearly three-year jail sentence for conspiracy to evade anti-dumping duties on Chinese-made coat hangers.
It was a simple scheme. The hangers arrived at a U.S. port and moved in-bond to a factory in Tijuana. Workers packed them in boxes labeled “Made in Mexico” and shipped them back across the border.
Immigration and Customs Enforcement, which investigated the case, found that U.S. importers knowingly took part in the scheme, Washington attorney Melanie Frank said. And now ICE and Customs and Border Protection are stepping up their investigations; importers may unexpectedly find themselves under scrutiny.
“It used to be that they would find a serious, bright-line case to prosecute. This is where we’ve started to see a change,” Frank said. “Now the U.S. government is being proactive to investigate potential fraud coming from China.” The government currently sees China as the largest source of anti-dumping fraud cases.
The government’s strategy, Frank said, is to find foreign manufacturers that appear willing to violate country-of-origin rules. That usually means they will ship products subject to anti-dumping or countervailing duties — or, AD/CVD in gov-speak — through an intermediary country to the U.S. so the origin can be obscured.
“Customs and ICE target a handful of industries, and they find out which manufacturers are willing to falsify country of origin. Then they go after all the importers who buy from those companies,” Frank said. Importers that didn’t exercise the reasonable care required by law suddenly may find themselves caught in the net.
“We’re seeing that the companies that get wrapped up in these nets go from small to very large,” Frank said. “Some big companies that would never have intended to commit fraud are being pulled into these investigations.”
Anti-dumping cases tend to cluster around a relatively small number of commodities. Those goods may be low-value, mundane things, but they’re cheap to make, so they can undercut the price of the same U.S.-made product.
One of Customs’ priority trade issues since 2003 has been increasing the collection of anti-dumping duties, said Michael Walsh, director of the agency’s AD/CVD revenue program. He said that more than 97 percent of importers who enter goods subject to anti-dumping duties declare they owe the additional duty. They’re not targets of a fraud investigation, but keeping track of the cases over the five years it takes to liquidate the entries is a paperwork burden he would like to alleviate.
Walsh said the agency has to look at the circumstances surrounding an importer that has found itself under suspicion of evading anti-dumping duties.
“What would be their culpability? Is someone intentionally seeking to avoid AD/CVD because they are looking for an economic advantage for themselves?” Walsh said. “Or are they unaware of the process? They haven’t been looking at the Federal Register notices, or all the information that CBP publishes about which items are subject or not subject to an anti-dumping order.
“I’d like to think that our efforts encourage more compliance, when we highlight the enforcement activities to demonstrate the consequences of evading the law,” Walsh said.
Sometimes companies have done everything they can to verify their goods are legal, but they still get caught, Los Angeles attorney Susan Kohn Ross said. Customs considers the amount of due diligence a company does a mitigating factor in assessing penalties.
“If you’re a large importer and you have the controls in place, you’ve done your due diligence, and you still get caught, Customs is likely to be far more lenient,” she said. “The difficulty is the little guys who don’t have all those resources. Typically, they have to pay astronomical fines.”
The best solution may be for companies to be cautious. “If the deal is too good to be true, you shouldn’t take it, because there’s something wrong with it,” Ross said. “There’s a certain degree of due diligence that everyone should go through each time they go into a transaction.”
Frank counsels her clients to cooperate with authorities as soon as they get a notice they’re under investigation, but she says there are steps they can take beforehand to avoid being caught in the net, such as screening suppliers to verify where the goods are being produced.
“We’re upfront that we’re here to be cooperative; what can we do? We’ve even volunteered information before it’s asked,” Frank said. “I think a lot of companies are very afraid to be open with the government, but I’ve found that being cooperative goes a long way.”