It’s a growing phenomenon that all importers must beware: What federal agencies regulating trade once considered strictly mistakes warranting no more than a civil penalty have become criminal violations.
Take this example: If a company imports goods subject to the Food and Drug Administration’s jurisdiction, the importer will hold those goods until the FDA approves their release. If the company fails to do so, it’s liable for liquidated damages amounting to three times the product’s value (in reality, the claim caps at the amount of the importer’s bond).
The question then arises: What if the importer fails to keep a number of these shipments intact until the FDA approves their release? Until recently, that importer had lots of liquidated damages headaches, but not much more.
Now a 2-year-old case that is just wrapping up promises to change the landscape in a major way.
The case, which started in March 2011, involved six shipments of cheese, butter and bread from Central America. The FDA determined it wanted to inspect the shipments because of concerns about E. coli, Staphylococcus aureus and Salmonella, and the importer’s history. The importer, Naver Trading, refused to disclose their location.
As a result, Naver and its principals, Yuri and Anneri Izurieta, were indicted and convicted of violations of 18 U.S.C. Section 545 (smuggling goods into the U.S.) and 18 U.S.C. Section 371 (conspiracy to commit an offense against the U.S. or to defraud the U.S.) based on violations of the relevant FDA and Customs laws and regulations. Count 1 was the conspiracy count. Counts 2 through 7 charged failure “to redeliver, export, and destroy with FDA supervision” five shipments. Count 3 included an allegation the Izurietas had failed to “hold and make available for examination” one shipment, a violation of Customs laws.
A jury trial resulted in conviction, which the appellate court overturned. In addition to the actual outcome, it’s interesting that the appellate court looked carefully at each regulation and law the government said had been violated and decided that, although the regulations allowed for civil liability, they did not support criminal liability because of how they were worded.
So, the good news is these convictions were overturned. The bad news is the court gave the FDA a blueprint to follow that allows it to convict others, but only if other laws and regulations are cited. So, for example, 18 U.S.C. Section 545 is the statute covering smuggling goods into the U.S. “contrary to law,” but 18 U.S.C. Section 554 holds that smuggling for exports occurs when any item is exported “contrary to any law or regulation.”
When Naver and the Izurietas were charged, the statutes relied upon were 371 and 545. The evidence presented at trial, however, supported only the 545 claim. Because 545 deals only with acts “contrary to law,” the government had to establish that regulations are equivalent to laws in order to win a criminal conviction. At the same time, the court conceded, laws such as 18 U.S.C. Section 549 and 21 U.S.C. Sections 331(a) and 333(a) could have been relied upon successfully.
The first deals with removing goods from Customs custody and carries with it imprisonment and fines. 21 U.S.C. Section 331(a) covers the prohibited act of introducing into commerce any adulterated or misbranded food, and defendants conceded the adulteration as part of the agreed-upon facts. 21 U.S.C. Section 333(a) makes violation of Section 331 subject to punishment by fine or imprisonment. So, if you take these three provisions together, prosecutors get the jackpot of a criminal conviction.
In the case under review, the only violation alleged was the failure to hold “redeliver, export and destroy under FDA supervision” or “failure to hold and make available for examination.” As such, the convictions were vacated because the statutes and regulations relied upon did not carry with them criminal penalties.
The original appellate opinion was issued on Feb. 22. The prosecutors asked for and received time to seek a rehearing, but the related petition was never filed. As such, the opinion was entered as a judgment on April 23. On May 3, the record was returned to the district court. The question now is, what will the Justice Department do next?
Because of the criminal protection against double jeopardy, it’s questionable whether the defendants can be retried on different charges based on the same facts or crimes, but whether that happens or not, importers of FDA-regulated products would be wise to remember that flunking the attitude test by failing to meet basic importing rules and procedures is now potentially far more significant than just paying liquidated damages.
Susan Kohn Ross is an international trade attorney with Mitchell Silberberg & Knupp in Los Angeles. Contact her at firstname.lastname@example.org.