Articles Posted in Customs Fraud

GateHouse Media data analysts say Chinese importers are misclassifying of products to the US by changing product codes to avoid the higher tariffs. In particular, the analysis reveals nearly a dozen Chinese imports — including woven fabrics, furniture mounts and lamps are being misclassified. The findings correspond with the information provided during interviews with at least 20 traders, brokers, economics researchers and former and current government officials that offer a rare peek into how easy it is for some companies to avoid Trump’s new duties.

To date, the United States has imposed additional tariffs on some $250 billion in Chinese products. China has responded with tariffs of its own, affecting some $110 billion of U.S. goods .

Every type of product shipped to the United States bears its own 10-digit classification code, known as the Harmonized Tariff Schedule code, or HTS. Dried black pepper is 0904.11.00.20, for example; dried white pepper is 0904.11.00.30.

Individuals who are citizens of any country inside or outside the United States, who have information concerning fraudulent billing, foreign bribes, securities fraud, tax evasion or military contract fraud may become whistleblowers under U.S. laws and may be eligible for rewards for revealing the fraud.  For example, in May of this year, a former orthopedic surgeon from Brazil received an award of $4.5 million for information which he rendered to the Securities & Exchange Commission regarding violations of the U.S. Foreign Corrupt Practices Act involving bribes to public officials in Brazil and Mexico to obtain business. Under the SEC rules, whistleblowers are entitled to between 10% and 30% of the monetary recovery when it exceeds more than $1 million.Zimmer Biomet Settlement

Perhaps the most famous international whistleblower to date to receive an award in the U.S. for revealing fraud is Dinesh Thakur, a chemical engineer who worked for a Pharmaceutical manufacturer in India called Ranbaxy. Mr. Thakur revealed that the company falsified essential data about the safety of Ranbaxy drugs and he reported this to the U.S. FDA. Based on this information and a detailed investigation, the company pleaded guilty to criminal felony charges and paid $500 million in fines and settlements. Mr. Thaur eventually received $48.6 million for his role in revealing this fraud.

In a separate case, the U.S. Government criminally prosecuted and obtained more than $1 million from British defense contractor ECL Solutions Limited, Inc. (“ECL”) thanks to the help of whistleblower Todd Mihajlovic from the United Kingdom. Mr. Mihajlovic, a former employee of ECL, reported that ECL hid the fact that the steel racking systems it sold to the U.S. military were made in China. This deception enabled ECL to pass off its shelving product as compliant with the Buy American Act and Trade Agreements Act when, in fact, it was using prohibited Chinese steel.

trade warAccording to a report released earlier this month, U.S. companies are increasingly shifting imports from China to countries like Vietnam, South Korea, Mexico, and Taiwan, in an effort to avoid the high tariffs imposed on Chinese purchases during the current trade war.

With the current trade war waged on China, President Donald Trump has imposed tariffs of up to 25% on the purchase of Chinese products. This dramatically increases the overall costs that U.S. companies are looking to spend, causing them to search for new alternatives. According to S&P Global Market Intelligence, the number of containerized freight imported from China fell 6.4% in the first corner. In order to avoid paying the high tariffs, U.S. companies have rerouted the majority of their purchases to less expensive countries. However, many companies also chose to order mass purchases from China ahead of the tariff increases in an effort to stockpile their products.

Many of the companies choosing to reroute their imports are associated with the furniture industry, but these are not the only markets struggling to avoid tariffs. While large furniture retailers, like Home Depot and Target, decreased Chinese imports by up to 13.5%, appliance retailers like Samsung and LG were also part of a major shift in Chinese imports.

consumer-product-safety-300x200After knowingly importing and selling defective dehumidifiers since 2012, executives Simon Chu and Charley Loh have been charged with failure to furnish information under the Consumer Product Safety Act (CPSA), as well as committing fraud against the U.S. Consumer Product Safety Commission (CPSC). The defendants were also charged with conspiracy to commit wire fraud. As the first criminal prosecution for the failure to furnish information under the Consumer Product Safety Act, this indictment shows the growing resolve of the U.S. government to combat corporate fraud of all forms.

According to the indictment, Chu and Loh imported the dehumidifiers from China and sold them out of companies that remained unnamed in the indictment. In 2012, the executives received a video from a consumer that showed the dehumidifier catching on fire. To follow-up with the claims of the video, Chu and Loh had the plastic components of their dehumidifiers tested, which confirmed that the parts used could easily catch on fire due to their non-compliance with safety standards.

However, these issues were not initially reported to the U.S. Consumer Product Safety Commission in an effort to avoid a recall, which would result in costly fees for the executives. After inconsistent reports regarding the safety of the dehumidifiers, the CPSC eventually ordered a massive recall for the dehumidifiers sold by Chu and Loh, as well as other Chinese imported dehumidifiers. In total, the recall involved 2.2 million dehumidifiers in September of 2013.

food and customs fraudAccording to a new study by Oceana, a large portion of the fish consumers purchase are mislabeled. In fact, during their study, Ocean found that 21% of the species they tested were mislabeled, and were often substituted by a cheaper or endangered species to the desired fish. Surprisingly, large grocery store chains were less guilty of this mislabeling compared to smaller markets and restaurants. While this study may come as a shock, it is not the first time that fish fraud of this nature has been investigated.

The conservation group, Oceana, has been testing seafood for nine years, and previous studies have resulted in similar reports. Beth Lowell, the deputy vice president of Oceana stated, every time we do a study, we think, ‘maybe we will no longer see a problem,’ but we keep finding it, and we know it’s having an impact on our oceans,”. Given the results of subsequent fish studies, Oceana hopes that the government with increase its regulations on seafood entering the United States. However, previous attempts have not offered much improvement.

In 2014, the US Government Task Force on Combating Illegal, Unreported and Unregulated Fishing and Seafood Fraud was created. Based on the suggestions and finding of this task force, eventually the Seafood Important Monitoring Program was set in place in 2018. Also known as SIMP, this program enforces the reporting of thirteen fish species when caught, including popular species like red snapper, swordfish, tuna, and king crab. Yet, fish fraud remains a prevalent problem.

fake honeyHoney producers in western Canada have been showing concern for the way the Canadian Food Inspection Agency chooses to address increasing incidences involving fake honey. Producers believe that the current mainstream way of testing is failing to detect certain types of fake honey, and so a British Columbia beekeeper has spent $1 million in an effort to create a new form of testing that they are urging the government to make use of.

The current system the CFIA has in place to indicate whether the honey passing through them is adulterated or not is a standard test that involved a stable isotope ratio analysis that looks for C-4 sugars. This C-4 test is highly effective in detecting honey that has been altered by corn syrup but misses the mark when it comes to more creative variations such as those that use rice syrup.

This situation with fake honey has caused a major hit on the industry in Canada. The United States, one of Canada’s biggest markets, is treating Canadian honey the same as cheaper honey from places like Ukraine, which is putting a major dent in the honey industry. Also, honey sales from Australia have dropped by seven percent after a major incident with fraudulent honey.

pure-collection-300x200Pure Collection, a UK fashion retailer, committed customs fraud resulting in the evasion of routine tax duties. A case that was first brought to the attention of authorities in 2014, has finally reached a 900K settlement thanks to the False Claims Act and one brave whistleblower.

Former Employee Blows the Whistle

Andrew Patrick, a former employee of the luxury retailer, blew the whistle on a practice giving the company an unfair advantage over other retailers. The simple practice of “splitting” large packages being shipped to the US into multiple, smaller packages, avoids triggering customs duties. Patrick says he was specifically trained to do this and alleges this was a commonplace company policy between 2010 and 2017.

fraud-300x188A Civil War Era Law Puts Customs Fraud in The Spotlight

The False Claims Act is shining a light on customs fraud and reshaping lawsuits around the country. Whistleblower attorneys are expecting to see an uptick in the customs fraud cases they handle related to importing goods, according to the Wall Street Journal.

Last year, a U.S. appeals-court ruling made room for more whistleblower lawsuits related to the Civil War-era law known as the False Claims Act. The Supreme Court backed the appeals court, agreeing it has broader implications.