Source: http://www.fuerstlaw.com/wp/index.php/category/customs-import-trade-law/
Timestamp: 2013-12-12 09:11:09
Document Index: 595728206

Matched Legal Cases: ['§ 545', '§ 545', '§ 141', '§ 545', '§ 141', '§ 545', '§ 545', '§ 545', '§ 545', '§ 141', '§ 113', '§ 30', '§ 122', '§ 113', '§2601', '§2602', '§ 2609', 'in fine', 'in fine', 'art 766']

Customs, Import & Trade Law | Fuerst Ittleman
Archive for the ‘Customs, Import & Trade Law’ Category
Fuerst Ittleman David and Joseph, PL will continue to watch for developments in the implementation of the new Iranian sanctions program with a keen eye. For more information regarding the Iranian Sanctions Program, the Iranian Transaction Regulations, OFAC and for strategies on maintaining compliance with federal regulations, please contact us at 305-350-5690 or contact@fuerstlaw.com.
Posted in AML-BSA, Customs, Import & Trade Law | No Comments »
Announcing the Fuerst Ittleman David & Joseph Mini-Blog
This week, Fuerst Ittleman David & Joseph is launching a Mini Blog, which will be submitted to its readers on a weekly basis. Unlike its usual Blog, which will continue to be updated here, the Mini Blog will allow FIDJ to communicate with its readers in a short and to-the-point style, delivering critical news updates with just enough commentary to explain why the updates are critical. We believe that this Mini Blog will be a valuable resource for our readers, and will allow subscribers to stay up to date on issues affecting all of our practice areas, including Tax & Tax Litigation, Food Drug & Cosmetic Law, Complex Litigation, Customs Import & Trade Law, White Collar Criminal Defense, Anti-Money Laundering, Healthcare Law, and Wealth & Estate Planning. Additionally, subscribers may sign up to receive only the content relevant to their interests on a subject-by-subject basis. As always, please feel free to reach out to us with comments regarding our content or suggestions regarding how we may better keep you up to date.
Here is a sampling of what you can expect to receive in our Mini Blog:
On May 28, 2013, the Alcohol and Tobacco Tax and Trade Bureau (TTB) issued guidelines for voluntary “serving facts statements” that alcoholic beverage manufacturers may include on their packaging. A copy of TTB’s press release can be read here. The serving facts statements are similar to the nutrition panels currently found on non-alcoholic foods and beverages. According to the rule, serving facts statements will include: 1) the serving size; 2) the number of servings per container; 3) the number of calories; and 4) the number of grams of carbohydrates, protein, and fat preserving. In addition, serving fact statements may also include the percentage of alcohol by volume and a statement of the fluid ounces of pure ethyl alcohol per serving. TTB is providing the interim guidance on the use of voluntary serving facts statements on labels and in advertisements pending the completion of rulemaking on the matter. A copy of the TTB Ruling can be read here.
A new bill in the U.S. House of Representatives, the Medicare Audit Improvement Act of 2013, seeks to amend title XVIII of the Social Security Act to improve operations of recovery auditors under the Medicare integrity program and to increase transparency and accuracy in audits conducted by contractors. A few proposals include limiting the amount of additional document requests, imposing financial penalties on auditors whose payment denials are overturned on appeal and publishing auditor denials and appeals outcomes.
In related news, the Department of Health and Human Services c/o the Centers for Medicare and Medicaid Services (“CMS”) is proposing to increase the maximum reward for reporting Medicare fraud from “10 percent of the overpayments recovered in the case or $1,000, whichever is less, to 15 percent of the final amount collected applied to the first $66,000,000…” In case you don’t have a calculator handy, that’s a change from $1,000 to a potential maximum windfall of $9,900,000. It’s safe to assume that the number of whistleblower reports of alleged Medicare fraud are going to skyrocket. As the saying goes, you miss 100% of the shots you don’t take.
As decided by the United States Court of Appeals for the Eleventh Circuit, HIPAA preempts Florida’s broad medical records disclosure law pertaining to a decedent’s medical records. In Opis Management Resources, LLC v. Secretary of Florida Agency for Health Care Administration, No. 12-12593 (11th Cir. Apr. l 9, 2013), the 11th Circuit Court of Appeals ruled that Florida’s broad medical records disclosure law did not sufficiently protect the privacy of a decedent’s medical records. The Court noted that Florida allows for “sweeping disclosures, making a deceased resident’s protected health information available to a spouse or other enumerated party upon request, without any need for authorization, for any conceivable reason, and without regard to the authority of the individual making the request to act in a deceased resident’s stead.” In contrast, HIPAA only permits the disclosure of a decedent’s protected health information to a “personal representative” or other identified persons “who were involved in the individual’s care or payment for health care prior to the individual’s death” to the extent the disclosed information is “relevant to such person’s involvement”.
On May 29, 2013, the New York Times reported that the Swiss Government will allow Swiss Banks to provide information to the U.S. Government in exchange for assurances that Swiss banks would only be subject to fines and not be indicted in an American criminal case. Per the New York Times,
The New York Times article reports that: But [Ms. Widemer-Schlumpf (Switzerland's finance minister)] said the Swiss government would not make any payments as part of the agreement. Sources briefed on the matter say the total fines could eventually total $7 billion to $10 billion, and that to ease any financial pressure on the banks, the Swiss government might advance the sums and then seek reimbursement…. Ms. Widmer-Schlumpf said the government would work with Parliament to quickly pass a new law that would allow Swiss banks to accept the terms of the United States offer, but said the onus would be on individual banks to decide whether to participate.
This appears to be the beginning of the end of Swiss bank secrecy. If the Swiss relent to the U.S., the European Union will be next in line to obtain the same concession.
Our thoughts on the United States government’s attack on Mt. Gox can be read here, and Bitcoin continues to remain a hot topic all across the internet; see here, here, and here. Another virtual currency, Liberty Reserve, has also made a splash since being shut down by the Feds last week in what many have described as the largest money laundering scheme of all time; see here for details of the takedown, as well as the following articles describing the initial bits of fallout from the Liberty Reserve takedown: online anonymity, anti-money laundering compliance,Barclays Bank involvement, and the not guilty pleas entered by Liberty Reserve’s proprietors on Thursday. We will keep our eyes on these two cases as the fallout continues.
Posted in AML-BSA, Corporate & Business Law, Customs, Import & Trade Law, Estate Planning, FDA, General, Health Care, Litigation, News, Tax, Wealth Preservation, White Collar Defense | No Comments »
Customs Sharing Hard Times with Importers and Travelers
Sequestration budget cuts only add to CBP’s focus on increasing revenues.
While much has been made in the press about the effect of the sequestration on U.S. Customs and Border Protection (CBP), with experts and even CBP officials anticipating longer lines at immigration check-points and longer times to clear cargo, the sequestration is only another thorn in the budgetary side of CBP. And CBP seems to want to share that pain with importers and travelers alike.
While CBP’s official mission statement discusses such noble (and critical) roles as guarding our nation’s borders and protecting us against terrorists and instruments of terror, it also mentions “ fostering our Nation’s economic security through lawful international trade and travel.” What do these words mean? Money.
Many people do not realize that the second act of the 1st Congress of the United States, passed on July 4, 1789, authorized the collection of duties and tariffs on imports. Twenty-seven days later, the fifth act of that first Congress established the progenitor of CBP to collect those duties. Congress created Customs (CBP) even before the Bill of Rights.
The reason for this Congressional urgency was money. In 1789, the nation desperately needed to pay the costs of the Revolutionary War. In fact, since 1789, with the exception of temporary taxes and bonds to fund little government projects like the War of 1812 and the Civil War, the sole source of revenue for the U.S. Government was customs duties. This was true for the first 124 years of our nation’s existence, up until the passage of the Sixteenth Amendment in 1913, which established the income tax systems we know today.
With collecting money so firmly rooted in its DNA, it stands to reason that when economic times get hard for CBP, it returns to its roots and its mission of “economic security.” And now with the sequestration, times are hard for CBP.
Sequestration Squeezes the Agency
Under current sequestration provisions, CBP will have to cut $754 Million, or roughly 6.5% of its budget. The Agency reports that an immediate consequence will be deep cuts in overtime pay for its CBP officers and staff. These cuts, combined with 12-14 day furloughs, means that fewer inspectors will be available at immigration checkpoints, and fewer officers will be available to clear incoming cargo. In addition, we can expect to see longer processing times for bonded-activity applications (like bonded warehouses and container freight stations) and for adjudications of protests and fines, penalty and forfeiture cases.
But these proposed and hypothesized cuts only tell half of the story.
As budgetary times have become harder for the Agency and perhaps in anticipation of the sequestration, we have seen a significant trend in those CBP fines, penalty and forfeiture cases as well as in its adjudication of rulings affecting duties and tariffs. The bottom line is that CBP is looking for more money from its enforcement measures.
Take offers-in-compromise, for example. In penalty cases, if an importer is unable to pay a proposed or levied penalty, the importer can make an offer-in-compromise to the Agency. The importer offers to pay a percentage of the penalty, and usually provides documentation (tax, sales, and banking records) describing the financial straits that render the importer unable to pay the full amount. In years gone by, depending on the circumstances, CBP has been willing to accept pennies on the dollar, often approving offers for 5% – 25% of the original penalty amount.
Recently, however, we have seen offers as high as 50% and 67% of a penalty amount refused by CBP, even though the importer in each case provided documentation that it has steadily lost money in each of the prior three years and didn’t have enough money in the bank to cover the full amount of the penalties. When pressed for additional information on these rejected offers, CBP sources confirmed that the Agency is seeking higher revenues these days. This same mindset explains the trends we have seen in recent months of reduced mitigation of liquidated damages and claims for higher initial penalties than would have been previously expected.
At the same time, we are seeing increased enforcement and revenue collection efforts across a variety of avenues. More and more CBP officers are screening both incoming and outgoing travelers for currency and monetary instrument reporting compliance. Also, the Agency has been challenged by Congress to better enforce antidumping and countervailing duty collection.
The bottom line for importers and travelers for CBP’s budget woes is this: it will take longer to get you and your products into the United States, and if you break any laws, the penalties will be higher and the levels of possible forgiveness will be lower. And if the current negotiations on the sequestration are any indication, we should expect this new status quo for the foreseeable future.
Decision holds interesting repercussions for trade violations and penalty amounts
On February 22, 2013, the U.S. Court of Appeals for the Eleventh Circuit vacated the smuggling and conspiracy convictions of two importers of allegedly tainted cheese products in the case of United States of America v. Yuri Izurieta and Anneri Izurieta (Case No. 11-13585). The decision created a circuit split over the scope of U.S. Customs and Border Protection (CBP) import bond regulations, yet also raised the possibility of a new line of attacks against CBP import penalties and liquidated damages.
With the highly respected U.S. Court of International Trade Judge Jane A. Restrani sitting with the 11th Circuit by special designation, a three-member panel found that a certain class of U.S. import regulations are civil rather than criminal in nature. Therefore, the criminal convictions of the husband and wife failed for lack of subject matter jurisdiction.
The case focused on the actions of the Izurietas and their Miami-based company, Naver Trading, Corp. Over several years, the company imported several large shipments of cheese and other dairy products into the United States. The shipments were “conditionally released” upon importation, that is, CBP and the U.S. Food and Drug Administration (FDA) allowed the shipments to move to Naver’s warehouse, but ordered the merchandise to be held at the warehouse pending further review and testing by the FDA. When the FDA tests came back indicating that the products were contaminated with Salmonella, E. coli and Staphylococcus aureus, the FDA ordered the products to be either destroyed or re-exported under the supervision of CBP. The Izurietas failed to do so, however, and admitted that almost 5,000 kilograms of imported cheese that contained both E. coli and Staphylococcus aureus had been sold into the United States.
The FDA Office of Criminal Investigation, aided by special agents from U.S. Immigration and Customs Enforcement (ICE) investigated and referred the case for criminal prosecution to the U.S. Department of Justice. The Izurietas were tried, convicted, and sentenced in June 2011.
The defendants appealed to the 11th Circuit arguing violations of their Sixth Amendment rights to confront witnesses, improper statements made by the prosecutor over the course of trial, and faulty calculations underlying their sentences. The Appeals Court, however, saw a different issue in the case, which it raised sua sponte.
Six of the seven counts in the original indictment against the Izurietas alleged violation of 18 U.S.C. § 545, which is the statute barring smuggling into the United States. The operative language of the statute reads:
Whoever fraudulently or knowingly imports or brings into the United States, any merchandise contrary to law, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of such merchandise after importation, knowing the same to have been imported or brought into the United States contrary to law. . .
Shall be fined under this title or imprisoned not more than 20 years, or both. (18 U.S.C. § 545 (emphasis added).)
In this case, the “law” alleged to have been violated was a CBP regulation governing the conditional release of food, drug, device, cosmetic and tobacco products. Section 141.113 of Title 19, Code of Federal Regulations, allows for the conditional release of such products; however, subsection (c)(3) requires:
If FDA refuses admission of a food, drug, device, cosmetic, or tobacco product into the United States, or if any notice of sampling or other request is not complied with, FDA will communicate that fact to the CBP port director who will demand the redelivery of the product to CBP custody. … [A] failure to comply with a demand for redelivery made under this paragraph (c) will result in the assessment of liquidated damages equal to three times the value of the merchandise involved[.] (19 C.F.R. § 141.113 (c)(3).)
The court held that the regulation at issue “sets forth the terms of the contract between the importer and Customs by delineating the obligations of the importer upon conditional release and the damages for a breach of those contractual obligations.” When the Izurietas breached their contract with the Customs, the court held that criminal charges could not arise because “that law is civil only, and in particular reflects contractual requirements.” The court went on to state, “While some regulations may fall under the criminal prohibitions of 18 U.S.C. § 545, the text of 19 C.F.R. § 141.113(c) along with the comments issued during its promulgation certainly indicate to the average person that liability is strictly civil and monetary, capped at most at three times the value of the merchandise secured by bond, and is not aimed at punishment.”
Having found that only civil, contractual violations occurred, the 11th Circuit vacated the criminal convictions of the Izurietas under the smuggling charges, and vacated the accompanying conspiracy charge noting, “The indictment was sufficiently unclear as to whether any crime was charged such that the average person could easily read [the conspiracy count] as actually charging only a conspiracy to commit non-criminal acts.”
“We disagree with the conclusion of our sister circuit …”
The Izurieta case is noteworthy in many respects, not least of which is that the court’s opinion sets up a split among the Circuits regarding the interpretation of the “contrary to law” provision of 18 U.S.C. § 545.
The 11th Circuit panel referred to a Ninth Circuit case in which that court adopted a relatively narrow interpretation of the smuggling statute. The court in United States v. Alghazouli, 517 F.3d 1179 (9th Cir. 2008), decided that regulations are included within the definition of a “law” for purposes of 18 U.S.C. § 545 only if there is a statute (a “law”) that specifies that violation of that regulation is a crime. Alghazouli, 517 F.3d at 1187.
The court in Izurieta also took notice of a Fourth Circuit case, United States v. Mitchell, 39 F.3d 465 (4th Cir. 1994). In Mitchell, the court adopted a more expansive reading of 18 U.S.C. § 545, stating, “[i]t has been established in a variety of contexts that properly promulgated, substantive agency regulations have the ‘force and effect of law.’” Mitchell, 39 F.3d at 468 (citing Chrysler Corp. v. Brown, 441 U.S. 281, 295-96 (1979)). The 4th Circuit then went on to apply a three-prong test (under Chrysler) to determine whether the regulation at issue in Mitchell had the “the force and effect of law.”
Finally, the Eleventh Circuit gave a nod to the First Circuit, which addressed this issue in United States v. Place, 693 F.3d 219 (1st Cir. 2012). The Izurieta court noted, however, “Because the appellant in [Place] made only an “all-or- nothing” argument that no regulations could be included within the scope of “law” under 18 U.S.C. § 545, the First Circuit decided not to address ‘this delicate point.’” Place, 693 F.3d at 228 n. 12.
Examining the sum of these precedents and calling to mind the deliberations of Goldilocks in the three bears’ house that day, the 11th Circuit decided in Izurieta to reject both the narrow reading of the 9th Circuit and the “sweeping result” which would occur from the “breadth of the Fourth Circuit’s three-prong approach, derived from a non-criminal context.” Instead the court decided – correctly, in our opinion – to examine the true nature of the regulation and opt for lenity, or kindness, “especially where a regulation giving rise to what would appear to be civil remedies is said to be converted into a criminal law.”
Important Ramifications for International Trade Enforcement Measures
In addition to the circuit split, the Izurieta case potentially opens the door for a new line of attacks on Customs’ and other regulatory agencies’ fines, penalties, and liquidated damages. In calling the CBP regulation “civil only” and contractual in nature, the question arises as to the applicability of the tenets of contract law to such governmental regulations.
The CBP regulation at issue in this case (19 C.F.R. § 141.113) is similar in language and intent to many other CBP and other government agency regulations. CBP regulations for import bonds under 19 C.F.R. § 113.62, et seq., has provisions such as “(a) Agreement to Pay Duties, Taxes, and Charges,” (f) Agreement for Examination of Merchandise,” and “(m) Consequence of default.” All of these provisions are very civil and very contractual in nature. In fact, most of the regulatory provisions for which CBP assesses “liquidated damages” – for violations of bond provisions, failure to files timely export information (15 C.F.R. § 30.24), violation of airport security regulations (19 C.F.R. § 122.181, et seq.) and violation of CBP-bonded warehouse and other customs-bonded facilities (Treasury Decision 99-29 and multiple regulations) – are decidedly civil and contractual in nature.
Thanks to Izurieta, it can now be argued by importers and others in the trade community in the Eleventh Circuit that violation of any of these types of civil, contractual regulations cannot result in criminal prosecution. Yet more interestingly, if these regulations are civil and contractual in nature would contract law provisions apply to the liquidated damages, fines and penalties that result from these provisions?
For example, if an importer enters incoming merchandise by filing entry documents with CBP, but is late in paying the duties that are due on that merchandise, the importer can be cited with a violation of the import bond provision (19 C.F.R. §§ 113.62(l)(4), and 113.62(a)(1)) and can be assessed liquidated damages in an amount of double the unpaid duties. In light of Izurieta, we would have to now ask, are these civil damages reasonable?
In a 2009 decision in the case of Country Inns & Suites By Carlson, Inc. v. Interstate Properties, LLC, 329 Fed. Appx. 220, No. 08-16850 (11th Cir., May 12, 2009), the Eleventh Circuit examined the validity of liquidated damages in a contract dispute arising under Florida law. The court held that the test under Florida law as to when a liquidated damages provision will be upheld should be applied to the case. Under Florida law, liquidated damages are enforceable when:
First, the damages consequent upon a breach must not be readily ascertainable. Second, the sum stipulated to be forfeited must not be so grossly disproportionate to any damages that might reasonably be expected to follow from a breach as to show that the parties could have intended only to induce full performance, rather than to liquidate their damages. (Lefemine v. Baron, 573 So. 2d 326, 328 (Fla. 1991).
In our hypothetical case of the late-paying importer above, CBP may assess liquidated damages of double the unpaid duties even if the duty payment is only one day late. Looking at the second prong of the test from Lefemine, the actual damages to CBP of a late duty payment are, at best, the opportunity costs of that late payment. In most contractual settings, such late payment fees are a small percentage (1% or 1½% per month) of the unpaid amount. In a duty bill of $100,000, however, the liquidated damages could equal to $200,000. Such CBP-levied damages clearly violate the Lefemine test and would be thrown out in a Florida court, and now apparently, in the 11th Circuit as well.
The implications for the potential application of Izurieta are enormous. The Eleventh Circuit includes the major international ports of Miami, Fort Lauderdale, Tampa, Jacksonville, Atlanta, and Savannah to name a few. The ports of the 11th Circuit saw over $150 Billion in imports during 2011, almost 10% of the total in the United States. The liquidated damages, fines and penalties to CBP arising from these ports are similarly great. The question after the holding in United States of America v. Yuri Izurieta and Anneri Izurieta is now whether these monetary damages can now be sustained.
CBP Inspects Almost a Billion Ways to Say “I Love You”
As the last of forgetful but doting husbands, boyfriends, and lovers runs out to buy their special someone flowers on this Valentine’s Day, the inspectors at U.S. Customs and Border Protection (CBP) are breathing a sigh of relief.
Although final numbers for this season are not yet in, during the period of January 1 through February 14, CBP will see the importation of almost 1 billion stems of cut flowers from around the world, mostly from Central and South America. During the 2012 Valentine’s season, CBP processed over 842 million stems, and levels of imports were expected to rise between 7% and 9% this year due to the increasingly healthy U.S. economy. Most of these cut flowers are coming through CBP inspection sites at Miami International Airport, which saw 716.7 million stems (or ~85% of the total imported cut flowers nationally) imported between January 1 and February 14, 2012. The flowers come mostly from Colombia (about 67% of the total), followed by Ecuador, with approximately 23% of the total.
With the flowers coming from these locations, many might assume that CBP is looking for illegal narcotics. And while some drugs are found in shipments, what CBP is really looking for is bugs.
Every year, mixed in among the roses, mixed bouquets, and dianthus (the biggest imports) are invasive, harmful pests such as Tetranychus sp. (mites), Aphididae (Aphids), Agromyzidae (Miner Flies) and Noctuidae (moths). In 2012, CBP intercepted approximately 2,500 shipments infested with these pests. Most often, the shipments are fumigated and the flowers continue on their way. However, some other plants and flowers are intercepted and destroyed at the border. Chrysanthemums, gladiolas, and orange jasmine from Mexico (which carries the Asian citrus psyllid, a dangerous pest that destroys citrus crops), as well as most flowering plants in soil are prohibited from entering the United States altogether.
Were it not CBP’s pest interdiction efforts, the U.S. Department of Agriculture estimates that billions of dollars in damage to U.S. crops, including vegetables, grains, and flowers, could be done by these pests. In addition to bugs, CBP is also on the look-out for diseases. Current CBP interdiction efforts are underway to prevent funguses called “Chrysanthemum White Rust” and “Gladiolus Rust” from entering the U.S. These diseases, if they gained a toe hold in the United States, could severely damage the domestic flower industry.
So as you pass by the flower shop or roadside-stand filled with blooms, remember that CBP inspectors have played their role to ensure that nothing will “bug” your loved one this Valentine’s Day.
Fourth Circuit Court of Appeals Upholds Federal Ban on Trafficking of Certain “Culturally Significant Articles”
On October 22, 2012, the United States Court of Appeals for the 4th Circuit affirmed a Federal District Court decision that a federal ban on the trafficking of certain culturally significant articles was proper and did not unfairly prevent the importation of rare coins from China and Cyprus.
Historically, the United States has taken significant steps to thwart the theft, excavation, and illicit export of culturally significant articles into and out of other countries. In 1970, the United Nations Educational, Scientific, and Cultural Organization (“UNESCO”) held a conference in which it developed an international system to protect countrys culturally significant articles. The Convention on the Means of Prohibiting and Preventing the Illicit Import, Export and Transfer of Ownership of Cultural Property (the “Convention”) was spawned from this conference. The Convention promulgated rules that afforded state parties the ability to request that other signatories to the Convention implement import and export controls to protect the requesting states cultural property from theft and illicit export.
The U.S. Congress subsequently ratified these rules in 1972, and ten years later under President Reagan, domestically implemented the Convention through the Cultural Property Implementation Act (“CPIA”). The CPIA give the U.S. government the authority to place import restrictions on certain articles of cultural property at the request of a Convention signatory. The scope of these restrictions is limited under 19 U.S.C. §2601 to, among other criteria, “archeological or ethnological material of the State Party” that “was first discovered within, and is subject to export control by, the State Party” requesting import restrictions. The authority to determine and list restricted articles initially resided with the President and Secretary of Treasury, but has since been delegated to the Assistant Secretary of State for Educational and Cultural Affairs.
The CPIA provides the following exceptions for articles being imported into the United States that have been determined to be covered by the Act:
the articles are accompanied by formal documentation certifying that the item was lawfully exported;
there is satisfactory evidence that the article was exported from a State Party at least ten years prior to arriving to the United States and the importer owned it for less than one year before it arrived in the United States; or
there is satisfactory evidence that the article was exported from the State Party before the import restrictions took effect.
Also, if the date of export from the State Party is not known, a statement expressing belief that the article meets one of the exemptions may suffice.
In September 1998, Cyprus formally requested the imposition of import restrictions on certain categories of articles that jeopardize the national cultural patrimony of Cyprus. The import restrictions were permitted and further extended to include certain coins of Cypriot origin in 2007. In May 2004, China also made formal requests to the United States for the imposition of import restrictions on categories of Chinese archeological material from the Paleolithic to the Qing Dynasty. The United States also permitted these restrictions and in 2009 extended said restrictions to certain types of Chinese coins.
In April of 2009, after these restrictions had taken effect, the Ancient Coin Collectors Guild (the “Guild”) purchased twenty-three (23) ancient Chinese and Cypriot coins from a London dealer. According to the dealers documentation, the coins were minted in China or Cyprus and each coin had no recorded provenance. The coins were subsequently detained by U.S. Customs and Border Protection (“CBP”) for allegedly violating CPIA and associated regulations. Interestingly enough, rather than attempting to establish that the coins were lawfully admitted under one of CPIAs exceptions, the Guild decided not to provide CBP with any supporting documentation and, in the alternative, waited until forfeiture proceedings were initiated to bring a claim against CBP and the U.S. Department of State in Federal District Court.
What was initially an import/export dispute with CBP quickly turned into a dispute regarding the balance of powers between the different branches of the federal government. In its court filings, the Guild claimed that both CBP and the Department of State acted ultra vires, a Latin phrase that means “beyond the powers” and which has been coined (no pun intended) in the legal context to describe actions where an entity exceeds the authority which it has been expressly granted. The Guild based its ultra vires claims on the fact that both agencies overstepped their authority by not including a more detailed accounting of specific items covered under the CPIA import restrictions in violation of the Administrative Procedures Act (“APA”), and First and Fifth Amendments of the U.S. Constitution.
Unfortunately for the Guild, the Fourth Circuit recognized that it is well settled, with respect to foreign affairs, that the federal judiciary is generally not empowered to second-guess the Executive Branch. The court also found that, with respect to these types of import restrictions, the Executive Branch has broad discretion in negotiating agreements with foreign states under 19 U.S.C. §2602(a). Based upon the broad powers of the Executive and the agencies proper compliance with the APA, the court affirmed the district courts dismissal of the Guilds claims on these arguments.
Additionally, the Fourth Circuit pointed out that Congress had provided administrative procedures through which importers could challenge CPIA seizures and forfeitures under § 2609. In its case, the court ruled that the Guild was not stripped of its due process rights, but rather decided to purposely forego its potential administrative remedies in order to challenge the governments claims and prove that the coins were not subject to forfeiture.
Furthermore, as a legal strategy, it may have been of greater value for the Guild to focus its efforts on trying to prove that the coins were outside of the confines of the CPIA import restrictions. Generally, importers of antiques and culturally significant items are advised to assemble formal documentation of lawful entry prior to import and to complete significant due diligence into their prospective imports origin, age, and chain of custody to avoid possible import violations. The court noted in its opinion that proving the coins are beyond the scope of CPIA in the administrative process may be the Guilds only remaining legal recourse.
Here at FIDJ our attorneys have significant experience in disputing seizures of cultural items, antiques and artifacts. If you believe that your importation of culturally significant or ethnological materials has been improperly seized or may qualify for one of the CPIA exemptions, feel free to contact the Customs and Trade Law practice group at FIDJ.
U.S. Indicts Multiple Companies and 165 Parties Added to the BIS Entity List for Alleged Involvement in Russian Military Procurement Network
On October 3, 2012, two companies and 11 individuals of an alleged Russian military procurement network operating in the United States and Russia were indicted in the U.S. District Court for the Eastern District of New York. The individuals, who work for a Texas-based export company and Russia-based procurement firm, are alleged to have illegally exported high-tech microelectronics to Russian military intelligence agencies. These high-tech microelectronics are subject to U.S. Department of Commerce dual-use export controls due to their potential use in an array of military systems such as radar and surveillance systems, detonation triggers, and weapons guidance systems.
In a coordinated effort, the U.S. Department of Commerce Bureau of Industry and Security (“BIS”) also issued an amendment (found here) to the Export Administration Regulations (“EAR”) to add 165 foreign persons and companies to the Entity List which identifies specific licensing requirements independent of those required under the EAR. These 165 foreign persons and individuals were alleged to have received, transshipped or facilitated the export of microelectronics to Russia and have “been determined by the U.S. government to be acting contrary to the national security or foreign policy interests of the United States.”
The indictment alleges that since October 2008, Alexander Fishenko, the president of the Russia-based procurement firm Apex Systems, LLC (“Apex”), and the Texas-based export company, Arc Electronics, Inc. (“Arc”), along with ten other defendants engaged in a “surreptitious and systematic conspiracy to obtain advanced microelectronics from the U.S. and to export those high-tech goods to Russia, while carefully evading the government licensing system set up to control such exports.”
According to the indictment, Apex functioned as a certified supplier of military equipment for the Russian government. The defendants often provided false end user information in connection with the purchase of goods, concealed their status as exporters, and falsely classified goods as having civilian end uses so as to induce manufacturers and suppliers to sell them the highly sought after microelectronics. Arcs website, for example, falsely claimed to be a traffic light manufacturer when it manufactured no goods and operated exclusively as an exporter. In another instance it is alleged that one of the defendants instructed the Russian procurement company to “make sure that” the end-use certificate indicated “fishing boats, and not fishing/anti-submarine ones” before they start working.
Each individual defendant in the case faces a maximum of 5 years incarceration for the conspiracy charges, 20 years for substantive International Emergency Economic Powers Enhancement Act (“IEEPA”) and Arms Export Control Act (“AECA”) charges, and an additional 20 years for obstruction of justice changes. In addition Fishenko faces a possible additional sentence of 20 years for money-laundering conspiracy charges and an additional 10 years for acting as an unregistered agent of the Russian government. Both Arc and Apex face up to $500,000 in fines for conspiracy counts and $1,000,000 in fines for the substantive IEEPA and AECA counts.
The involvement of Arc, Apex, Fishenko, and the 10 remaining individuals in the alleged Russian military procurement scheme offers proof of suspect activity that has the potential to result in significant incarceration and monetary penalties for these parties. But what about the additional 160+ individuals and companies “ which include suppliers, re-exporters, and transhippers “ which, to their detriment, may have relied on Fishenkos alleged fraud, misclassification of goods, and claims that his exports were for civilian end uses? They now find themselves on the EAR Entity List on the basis of Section 744.11 for acting contrary to the national security or foreign policy interests of the United States. And as such, these individuals and businesses find themselves subject to additional BIS license requirements and limited ability to apply license exceptions for exports and re-exports.
While at this stage there is no way to prove for certain the level of knowledge or active involvement of these 160+ individuals and businesses, we can expect that at least some of them were not fully aware of the nature of Fishenkos business operation and intended Russian military end uses of its high-tech exports.
Exporters, re-exporters, transshippers, and all parties involved in export-related transactions must implement effective export compliance procedures to help insulate themselves from situations such as this, situations in which they can be accountable for their passive involvement in illegal export activities. An effective compliance program and inquiry into products intended end uses prior and throughout the shipment process can provide crucial insight into the legitimacy of an exporters operation.
Furthermore, as set forth in Supplement 1 and 2 of Part 766 of the EAR, an effective compliance program is entitled a high level of consideration with respect to mitigation of actual and suspected violations of the EAR. Exporters, re-exporters, and transhippers are encouraged to complete their due diligence with respect to all of their shipments by implementing proper export controls. While even the most effective export compliance plan may not identify business activity that is a result of fraud or conspiracy (such as in the alleged Russian military procurement network mentioned above), the presence of an established export compliance program may provide BIS sufficient proof of passively involved shipping companies attempts to comply with U.S. export control law. This proof may be just enough to keep unsuspecting businesses off of the Entity List and/or mitigate EAR violation penalties issued by BIS.
Below we have provided some of the guidelines that BIS takes into account when assessing the effectiveness of a companies export compliance program:
Whether the company has performed a meaningful risk analysis of the goods being exported and their intended end use
The existence of a written compliance program that is communicated to others
Whether senior management oversees export compliance program
Whether the company screens customer transactions
An existence of an internal system for reporting export violations
Whether corrective action has been taken in response to export violations
The Customs and Trade Practice at Fuerst Ittleman David & Joseph, PL, has extensive experience in drafting customized export compliance manuals for a wide variety of business types and industry applications. If you want to strengthen your businesss export compliance procedures please feel free to email our offices at contact@fuerstlaw.com or phone 305-350-56909.
Posted in Customs, Import & Trade Law, White Collar Defense | No Comments »
Posted in Customs, Import & Trade Law, FDA, White Collar Defense | No Comments »
CBP Expands its Simplified Entry Program
If you have ever attempted to import merchandise into the United States you are probably aware that there are numerous rules, regulations, forms, and guidelines which must be compiled with and submitted prior to the entry of your goods. For even the most seasoned importer, the task of properly assembling this information for US Customs & Border Protection (“CBP” or “Customs”) can seem confusing and overwhelming. Recognizing these difficulties, Customs has formulated the Trade Transformation Initiative. This initiative focuses on driving down trade costs and promoting trade efficiency. The intended result is a more streamlined and efficient means for importers and brokers to expedite the clearance and review process of their trade goods.
On November 9, 2011, CBP announced the commencement of the initial phase of its Simplified Entry Pilot Program (“SEP Program” or “Program”). Serving as one of CBPs integral trade transformation initiatives, the Program was created to streamline the entry process, enhance cargo security, and reduce transaction costs for trade. This Program offers a direct response to the industrys call for more predictability in the importation process. Under the Programs framework, importers produce an entry data set with 12 required elements and 3 optional elements as opposed to the 27 currently required on the CBP 3461 entry form. Carriers will be required to submit manifest/ ACAS security filings, and importers will submit the SEP Program data set. All of this data will be included in the newly developed commercial trade processing system called the Automated Commercial Environment (“ACE”).
Filing well in advance allows CBP to run all targeting earlier and ensure that transport is not delayed for issues that can be resolved pre-shipment. While in route, CBP can indicate whether the goods are cleared for release or if additional data is required. Because of this, filers can resolve many issues before departure or in transit which results in a more efficient trade transaction. On June 4, 2012 CBP announced that it had received its first Simplified Entry filings at the three pilot ports located in Indianapolis, Chicago, and Atlanta. 9 brokers selected by CBP are currently participating in the Program which is available for Air Mode of Transportation exclusively.
On August 14, 2012, CBP announced its plans to further expand the SEP Program for Air Mode of Transportation. Utilizing a regional expansion approach, the Program has already expanded to include the port of Seattle with San Francisco, Oakland, and Los Angeles to follow soon after. In Mid-September expansion will continue into the south and southeast with the inclusion of Dallas/Ft. Worth, Houston, and Miami followed by northeastern expansion into Newark, New York, and Boston.
CBP plans to further develop the Simplified Entry Pilot program to eventually include functionalities such as the Participating Government Agency Message Set, the Simplified Entry transaction set, Single Transaction Bonds, automatic cancellations and deletions, the Document Image System, and Remote Location Filing. CBP will run the Air Mode Transportation SEP Program until approximately December 31, 2013 and will continue to further develop the Programs functionality until Cargo Release is fully available in the ACE.
The attorneys in the Customs, Import and Trade Law practice group at Fuerst Ittleman David & Joseph, PL will continue to keep abreast of the developments in the Simplified Entry Program. If you are a broker and have any trade concerns or legal issues stemming from the use or implementation of the new Simplified Entry Program, feel free to contact us at 305-350-5690 or contact@fuerstlaw.com.
You are currently browsing the archives for the Customs, Import & Trade Law category.