The White House announcement of new trade tariffs on products from China including washing machines and solar energy cells may result in efforts to evade those tariffs in ways recently seen in furniture, honey and steel products from China. In those instances, duties imposed by the United States for “dumping” products into the US market at low prices, resulted in a series of schemes by Chinese product manufacturers to evade the tariffs and duties imposed. These schemes including “trans shipping” products to other no tariff nations such as Taiwan and Malaysia and re-labeling the products to hide the true countries of origin in order to evade our tariffs. In the case of Chinese steel, one manufacturer shipped the steel to Mexico where a factory had been built in a mountain hideaway and where the steel was reformed into new products, re-labeled and trucked into the United States evading the customs tariffs.
This summer, Customs and Border Protection (CBP) officials engaged in investigations and prosecutions to collect millions of dollars in unpaid anti-dumping penalties after it was revealed that Chinese companies hid the source of exports to the United States by shipping through other countries. In addition, there has been a spike in whistleblower cases filed under the False Claims Act (FCA) resulting in investigations and settlements through the Department of Justice and United States Attorneys Offices in which the customs schemes were the bases for the cases. The investigations and whistleblower cases revealed a clear pattern of shipments from China through Thailand to evade duties on various products including wire hangers and other products.
In addition, honey originating in China has been shipped to a second tariff free countries, where the pollen has been removed to make it more difficult to determine the country of origin. Then the barrels are re-marked shipped to the United States from the second country in order to evade the dumping tariffs.In one case, contaminated Chinese honey contaminated with chloramphenicol and other illegal antibiotics, which are dangerous to humans, was shipped to Canada and then to a warehouse in Houston Texas where it was sold to Jelly maker J.M. Smuckers and national baker Sara Lee. Before the FDA learned that the Chinese honey was tainted, Smuckers had sold 12,040 cases to Ritz Carlton Hotels. Over the past 18 months, the U.S. imported 208 million pounds of honey, 60 percent from Asian countries including the laundering points for Chinese honey including 45 million pounds from India alone.
In addition, China has evaded tariffs in the sale of shrimp to the U.S. The CBP has reported that three producers of Chinese shrimp exported the produced which was claimed to be Indonesian to evade the payment of antidumping duties. Indonesian officials were cooperative in providing information to the US and said they were aware that a great deal of Chinese shrimp was imported into Indonesia.
All of these activities have economically harmed U.S. businesses.
This month there were a few major whistleblower cases relating to schemes by Chinese manufacturers and their U.S. counterparts to evade customs duties, which had been under investigation by the Department of Justice which resulted in settlements. One case resulting in settlements of $29 million to date, involved bedroom furniture made in China and Z Gallerie which paid $15 million, and Bassett Mirrors Inc. which paid $10.5 million. Other defendants who have not settled, include retailers Macy’s and Neiman Marcus. The whistleblower’s lawyer said that his client discovered that Z Gallerie and Bassett Mirror Co appeared to be misclassifying the imported bedroom furniture as living room, hall or bath furniture to evade the 216 percent duty. However the items imported did include bedroom furniture. The lawsuits against Macy’s and Neiman Marcus have not been resolved yet.
There are scores more examples of schemes used by Chinese makers to evade the duties including imported garments from China in which the invoices were falsified.
One phenominon that is now consistently revealing the global schemes to evade the U.S. Tariff are the whistleblowers who are advancing False Claims Act cases are frequently U.S. manufacturers or distributors who find out about the mis-classifications or trans-shipping. In the case of the steel sent to Mexico, an American steel maker heard about the mountain factory and actually hired a special aerial photographer to fly over the factory and to track the trucks shipping the re-packaged steel moving over the border into the U.S. The whistleblowers coming forward are, in many cases the U.S. businesses that learn about the illegal activities of the Chinese companies to sell products here without paying the tariffs and duties.
Jeffrey Newman represents whistleblowers including in cases of customs and duties fraud nation-wide. www.jeffreynewmanlaw.com 1-800-682-7157