Airbus Faces Probe into Compliance Irregularities

It has been reported that Airbus of Toulouse, France, faces legal difficulties regarding its failure to notify U.S. authorities about the use of outside sales agents to broker defense equipment and services deals; this presents a compliance lapse and could lead to financial penalties and perhaps a criminal investigation.

According to The Guardian of London, the problems stem from the use of so-called “commercial agents” who act as intermediaries in “difficult” territories where they sometimes assist large companies in securing contracts. In some cases these intermediaries act as legitimate consultants on technical matters, while in other cases they are really nothing more than individuals who know whom to bribe for a government contract. This kind of action is contrary to Part 130 of U.S. International Traffic in Arms Regulations (ITAR) concerning political contributions, fees, and commissions involved in the export of military equipment.

Airbus’ Chief Financial Officer Harald Wilhelm briefed reporters on October 31 regarding these legal issues. He would not speculate on the company’s potential financial or criminal exposure. Both the U.S. State Department and the Justice Department are looking into the matter.

Failure to comply with regulations can lead to large penalties. Airbus engine manufacturer, Rolls-Royce Holdings PLC , recently agreed to settle allegations of corruption to the tune of an $800 million dollar penalty. Because Rolls-Royce agreed to the settlement, the company avoided prosecution.

The compliance lapses at Airbus came to light during an internal review and were first reported at the end of 2016. After discovering irregularities in certain foreign transactions, Airbus came forward to report the problems it had found. The company’s hope is that by self-reporting, the penalties might be less punitive.

Suzanne DeCuir, Global Trade Expertise

U.S. Based Paper Company Settles with OFAC on Sanctions Violations

White Birch Investment, LLC, a paper company headquartered in Greenwich, CT, recently reached an agreement settling a case brought by the Office of Foreign Asset Control (OFAC). White Birch’s Canadian subsidiary was facing possible civil liability for three alleged violations of the Sudanese Sanctions Regulations, 31 C.F.R. part 538 (SSR). White Birch USA was accused of facilitating the sale and shipment of 543 metric tons of paper of Canadian origin valued at approximately $354,000. According to OFAC, White Birch USA and its Canadian subsidiary were “actively involved in discussing, arranging, and executing the export transactions to Sudan.” OFAC concluded that White Birch USA did not voluntarily self-disclose these apparent violations; however, it was determined that these violations constituted a non-egregious case. These transactions date back to between April and December of 2013.

This settlement underscores how critical it is that U.S. companies put processes in place to effectively wall off their U.S. operations and staff interactions to prevent violation of OFAC’s regulations. This is especially important for U.S. companies with overseas affiliates who may be transacting business involving sanctioned territories; such territories currently include Iran, North Korea, Cuba, Syrian and the Crimea area of Ukraine.

Suzanne DeCuir, Global Trade Expertise, October 23, 2017

Update: H.R. 3551: C-TPAT Reauthorization Bill

On September 25, 2017, the House Homeland Security Committee favorably reported a bill concerning C-TPAT to the House of Representatives. This bill, H.R. 3551, would reauthorize the Customs Trade Partnership Against Terrorism program (C -TPAT) which has not been reauthorized in its 11-year history. The bill was introduced by Rep. Martha McSally of Arizona. If passed, a number of changes will be put in place reflecting current global security concerns and trade conditions.

Some of the changes that the bill calls for are as follows:

1. Each C-TPAT participant must designate a company employee (not a contractor or third-party) to hold the participant accountable for managing participation in the program.

2. The bill would require CBP (in consultation with industry) to review the C-TPAT minimum security criteria at least every two years, making updates as needed.

3. CBP would be required to put in place additional security procedures for certain categories of participants, individual participants, and specific entities in order to focus closely on security vulnerabilities.

4. The bill would extend eligibility to participate in C-TPAT to exporters, importers, freight forwarders, customs brokers, air carriers, ocean carriers, land carriers, and contract logistics providers.

5. The bill establishes C-TPAT as the authorized economic operator program to grant CBP the latitude and flexibility to improve and expand its trusted trader program as needed.

Suzanne DeCuir, Global Trade Expertise

Transition to New ACE System Begins July 8, 2017

U.S. Customs and Border Protection (CBP) announced that July 8, 2017 is the effective date for the transition to the new electronic CBP authorized system for entry filings.  This transition had been delay repeatedly, but it is finally ready for implementation, and all electronic drawback, duty deferral entries and entry summary filings will need to be processed using this system.  ACE will be used for all flagging of entries as well. The old system, ACS, will no longer be a CBP-authorized EDI (Electronic Data Interchange) system after the transition.

Additional information about the Automated Commercial Environment (ACE) is available on the CBP website and includes the types of entries that will be supported by ACE, along with details related to filing protests, drawbacks, duty deferrals, reconciliations, liquidations, and other filings. 

In December of 2016, CBP described in detail that changes that will affect reconciliation; these can be found on the first CBP site listed under sources, below.  Two important changes pertain to flagging of entries and the filing of reconciliation entries.  Under the new system, blanket flagging will be eliminated. Where filing of reconciliation entries is concerned, importers and their brokers will no long be able to submit entries using CD/ROMs or paper.  The type 09 reconciliation entry using ACE is to be used even though the entries being reconciled were not initially filed using ACE.  “Entry by entry” or “aggregate” reconciliation entries will still be accepted. 

NAFTA Renegotiation

On May 18, 2017, Robert Lighthizer, the recently confirmed United States Trade Representative (USTR), notified Congress of the Administration’s intentions to renegotiate the North American Free Trade Agreement (NAFTA). This notification, required by section 105(a)(1)(A) of the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, started the 90-day period in which the Administration must wait before beginning the renegotiation. This period ends on August 16, 2017, after which the Administration may begin negotiations. During this period, the USTR shall conduct both Congressional and public hearings in order to better clarify the intentions of the renegotiation. Notification from the public to testify and written testimony must be submitted by June 12, 2017.

No changes shall take effect until after the 90-day period, so importers and exporters should continue with business as usual. However, they should also note that significant changes might occur after that time period. The Office Of The United States Trade Representative has released a preliminary list of objectives about which they are seeking public comments. These objectives are presented with the goal of modernizing the NAFTA to better reflect a modern U.S. economy. These objectives include, among others, a reexamination of remaining tariffs and non- tariff barriers, changes in the treatment of digital goods, and changes to rules of origin procedures. A full list of objectives can be found here.

GTE will continue to monitor the specific objectives and changes of the renegotiation. If you have any questions or desire a consultation as to how these changes may affect your organization please contact us.

Recent U.S/China Trade Agreements and Upcoming Infrastructure Projects

On May 11, 2017, the New York Times reported that China and the United States have come to an agreement on a set of trade deals covering such areas as beef and poultry, electronic payment services, and natural gas. Some of the positions the U.S. has agreed to are said to be compromises to positions taken by the Obama administration. There remain, however, large issues to grapple with, and these may complicate relations between the two trading partners.

Some of the agreements are primarily updates to previous agreements reached under the Obama administration. For instance, for a decade, China has not accepted U.S. imports of beef due to concerns about mad cow disease. Beginning July 16th, China will allow these imports. Similarly, the U.S. has for years refused to accept Chinese imports of certain poultry products due to fears of Salmonella and bird flu, but following the recent trade agreement, the U.S. will began accepting cooked poultry imports. Other deadlines and agreements include plans to streamline the U.S.’s application to ship bioengineered seeds to China, and to allow U.S. financial institutions to offer electronic payment services in China, and for China to accept natural gas from the United States. The terms of the deals were announced on Thursday, May 11, 2017.

The Trump administration also decided to send a representative to participate in a May 14th forum in Beijing regarding President Xi Jinping’s international investment initiative called “One Belt, One Road.” Sending a top U.S. official, Matthew Pottinger, to participate signifies a step toward a more conciliatory approach following President Trump’s pre-election hardline stance toward trade relations with China.

During the May 14 forum, China’s large global infrastructure plans were discussed. China currently has projects underway in a number of countries with struggling economies and poor infrastructure, including Pakistan, Afghanistan, Kazakhstan, Uzbekistan, Kenya, and Laos. China is aggressively moving forward building roads, ports, and power plants. They are ramping up to spend as much as a trillion dollars, with the stated goal of keeping the Chinese economy going now that large domestic projects are behind them and they remain on pace to produce significantly more steel and cement than they can use in China.

There is a concern in the international community that a vast network of infrastructure projects and the debts created in participating countries will serve to tie these nations more closely to China politically as well as economically. There is a secondary concern that China will not be increasing its imports significantly.

“Tell us what we [the West] are going to get out of this,” said the past chairman of the American Chamber of Commerce in China, lawyer James Zimmerman. “It’s a nonstarter if it’s all about bringing Chinese goods to Europe, or if it’s all one way.” Matthew Pottinger, the Trump administration’s senior director for Asia at the National Security Council, said at the May 14th conference that China should provide transparency regarding the bidding for contracts, so that non-state owned companies have a fair chance to earn contracts.

United States-based companies such as General Electric and Honeywell are already talking about measures they might take to earn some of this future business. This would mean moving some manufacturing over to China; both companies said they are investigating this. Such a move is not in line with the stated goals of the Trump administration, however.

Trump Signs Two New Executive Orders on Trade

The New York Times and the Wall Street Journal reported that on March 31, 2017, President Donald Trump signed two executive orders aimed at reducing the trade deficit.

The first order directs the Commerce Department to put together a report within 90 days that will examine the factors contributing to the trade deficit. The second aims to increase the collection of duties by ensuring a more aggressive collection process.

Commenting on the first order, Commerce Secretary Wilbur Ross said the report will seek to identify “every form of trade abuse and every non-reciprocal practice that now contributes to the U.S. trade deficit.” The report will take a close look at countries with which the U.S. runs a substantial trade deficit, such as China, Germany, Mexico, and Japan. Factors such as currency misalignment, flouting of trade rules, ineffective trade agreements, and lax enforcement will be given special scrutiny.

Regarding the second order, the White House National Trade Council Director Peter Navarro explained that it is aimed at rectifying a longstanding problem of insufficient collection of anti- dumping and countervailing duties at U.S. ports of entries. There is concern that, since 2000, as much as $3 billion in duties have gone unpaid. Trump’s order will compel the Department of Homeland Security to take the necessary legal steps to ensure those tariffs are paid.

ZTE Agrees to $892 Million Fine and Plead Guilty for Violating US Sanctions

ZTE, a Chinese telecommunications giant, reached a settlement with the U.S. Justice Department, which comes at the end of a 5-year investigation into a series of shipments ZTE has made to Iran in violation of US sanctions. Per the settlement, ZTE will plead guilty and pay the DOJ $430 million, with a fine of $287 million and a criminal forfeiture of $143.5 million. The total dollar figure may ultimately rise to as much as 1.19 billion depending upon whether or not the firm violates the terms of the settlement agreement with BIS (US Department of Commerce’s Bureau of Industry and Security).

According to the Justice Department, ZTE obtained components manufactured in the U.S. that are on the Department of Commerce’s Commerce Control List, incorporated those items into its own equipment, and subsequently shipped the finished products to customers in Iran. In addition, the Justice Department charges that the company continued to ship these items while the investigation was ongoing. Apparently the items were used to fulfill contract projects ZTE had in Iran to install cellular and landline network infrastructure. (The Commerce Department also reports that ZTE shipped controlled items to North Korea as well.)

U.S. Attorney John R. Parker for the Northern District of Texas stated that, “ZTE Corporation then went to great lengths to devise elaborate, corporate-wide schemes to hide its illegal conduct, including lying to its own lawyers.” As much as $32 million dollar’s worth of equipment was shipped to Iran between January 2010 and January 2016; the company was also able to obtain hundreds of millions of dollars in contracts with Iran, the Commerce Department said in a recent press release.

The plea agreement still requires court approval, but if approved, it would subject ZTE to a probationary period of three years during which the firm would be under the eye of an independent compliance monitor as well as a seven-year suspended denial of export privileges, which could be activated if there are further violations. The Justice Department reported that the criminal fine in this case is the largest ever levied in an IEEPA (International Emergency Economic Powers Act) prosecution.

Google Ordered to Turn Over Foreign Emails

Reuters reported that on February 3, 2017, Federal Magistrate Judge Thomas J. Rueter in Philadelphia handed down an opinion ordering Google to comply with a search warrant to provide emails stored outside the United States. Judge Rueter’s decision is at odds with the U.S. Court of Appeals for the 2nd Circuit’s Microsoft Ireland Warrant case which was recently turned down for a rehearing.

According to Judge Rueter’s decision, electronically transferring data from a server in a foreign country to Google’s data center in California did not constitute a “seizure” because there was no meaningful interference with the account holder’s possessory interest in the user data.

The case pertains to two Stored Communication Act (SCA) warrants served on Google regarding the contents of emails. Google did submit emails that it knows were stored in the United States, but refused to provide emails that could be stored outside the country. Apparently, Google routinely breaks up emails and stores them within a network of servers outside the U.S. The company maintains it does not always know where certain emails might be located, and so declined to provide them under the Second Circuit’s Microsoft case.

Back in July of 2016, advocates such as the ACLU and the U.S. Chamber of Commerce had been pleased with the ruling in the Microsoft case (which said the company could not be forced to turn over documents stored on a server in Dublin, Ireland.) Now, eight months later, Rueter’s ruling orders Google to comply with the search warrant it received.

Many technology companies now consider the Stored Communication Act (SCA), a federal law dating to 1986, to be outdated.

Attorney General Sally Q. Yates Discusses New DOJ Individual Accountability Website

On November 30, 2016, Attorney General Sally Q. Yates spoke at the Annual International Conference on Foreign Corrupt Practices Act.  In her remarks, she clarified the goals of the Justice Department in holding individuals and corporations accountable for their actions.

During her address, she discussed the so-called Yates Memo of September 2015 and reiterated the fact that it was never the intention of the Justice Department to merely increase the number of prosecutions each year by some arbitrary percentage.  Rather, Yates explained, “our goal was to develop and institutionalize mechanisms to ensure that, across the department, we consistently investigate and prosecute corporate cases as effectively as possible.”  To this end, she outlined three areas of focus:  1) corporations will only receive credit for cooperating if they willingly provide information regarding the individuals who have made the decision to knowingly violate the law; 2) department lawyers will pursue civil penalties as well as criminal penalties against wrongdoers, whether or not these individuals have the means to pay penalties; and 3) the Justice Department is going to treat companies who voluntarily self-disclose differently from those companies who only begin cooperating once their wrongdoing has been discovered by the Justice Department.

She acknowledged that,until recently, companies have lacked incentive to self-disclose because of the perception, which Yates admitted was based somewhat in fact, that there was little to be gained by self-disclosing.  Now, however, due to changes made last year to the Filip Factors, the question of whether self-disclosure occurred will make a key difference in how companies are treated.

Yates also announced the creation of a new website pertaining to these issues at https://www.justice.gov/dag/individual-accountability.

A full transcript of Yates’ remarks can be found here:  https://www.justice.gov/opa/speech/deputy-attorney-general-sally-q-yates-delivers-remarks-33rd-annual-international

 

Suzanne DeCuir, Global Trade Expertise

December 16, 2016

DEVELOPMENTS IN COMPLIANCE ENFORCEMENT

On August 15, 2016, the GAO (US Government Accountability Office) released a report that was critical of CBP’s handling of antidumping and countervailing duty orders, detailing the failure of CBP to collect roughly 2.3 billion in duties between 2001 and 2014.  In the report, the GAO stated the CBP “missed opportunities to identify and mitigate nonpayment risk.”  The trade community expects to see enforcement efforts increase in light of the fact that this report has a high profile and was delivered to the Senate Finance Committee.

Also released recently were CBP’s interim regulations, called “Investigation of Claims of Evasion of Antidumping and Countervailing Duties.”  These regulations took effect on Monday, August 22 and outline the process for CBP’s investigation of claims of AD/CVD order evasion. The new regulations were mandated by section 421 of the Trade Facilitation and Trade Enforcement Act of 2015 which became law earlier in 2016.  The current e-allegation system will continue to be in place, but the new system is designed to have advantages over that system; the procedures laid out include detailed steps for initiating, carrying out, and completing investigations.  This comprehensive process for investigating can be used by other government agencies as well as private parties.

CPB Announces One-Day Grace Period This Month

CPB has been working to make a transition to all electronic filing of protests to ACT, the Automated Commercial Environment.  A series of notices lays out some of the guidelines and deadlines, and on August 8th, CBP announced the addition of a one-day grace period; CBP stated that it will accept protests filed in the ACE Portal past the required due date.  Beginning on August 27th, all Protests must be filed in the ACE Portal.  The transition from ACS to ACE will occur on August 29th, 2016, and since the ACS will be down on August 28th for the cutover, CBP will allow any protest due on August 28th to be filed in the ACE Portal on August 29th. 

A complete summary of the transition dates and necessary steps for using the new system is available at CBP at: https://www.cbp.gov/trade/automated/news/protest 

Consequences of Non-Compliance – Lacey Act Enforcement

One particular area where U.S. companies have failed to comply with stringent import laws, knowingly or unknowingly, involves wildlife and natural products. The Lacey Act, 16 U.S.C. 3371, is one of the primary federal statutes employed to combat the illicit trafficking of products within these categories. Initially enacted to protect animal species, the Act was amended in 2008 to more broadly include plant species. Specifically, the Act now prohibits the U.S. importation of illegally-harvested timber, meaning it is unlawful to trade in any plant that is taken, possessed, transported or sold in violation of the laws of any U.S. state, Indian Tribe, or any foreign law that protects plants. The Lacey Act does not impose U.S. law on other countries. “Illegally sourced” is defined by the content of a sovereign nation’s own laws. In addition, it is unlawful to falsify or submit falsified documents, accounts or records of any plant covered by the Lacey Act.

Violations of the Lacey Act carry serious penalties for companies and individuals. In addition to civil fines and forfeiture of goods, criminal penalties may also attach to the companies and individuals found to have knowingly violated the Act. A misdemeanor violation of the Lacey Act is punishable by up to one year in prison and a fine of $200,000.00 for companies and $100,000.00 for an individual. Felony culpability is punishable by up to five years in prison and a $500,000.00 fine per violation for a company and $250,000.00 for an individual.

Two Lacey Act enforcement agreements that demonstrate the severity of violations and highlight the importance of companies having compliance infrastructure that properly functions to avoid such violations are the Gibson Guitar Corporation Settlement and the Lumber Liquidators Settlement.

Gibson Guitar Corporation (“Gibson”) came under federal scrutiny not once but twice, first in 2009 and again in 2011 for violations of the Lacey Act. Gibson is headquartered in Nashville, Tennessee and manufactures a variety of musical instruments, most notably guitars. The violations involved parts of the guitar called fretboards. The imports at issue were orders of Madagascar ebony fingerboards (used to make fretboards) from a supplier called T.N. GMBH (“TN”), located in Hamburg, Germany. Gibson failed to verify that TN was sourcing its wood legally from Madagascar, and it turned out that it was illegally sourced. In addition, Gibson knowingly ignored red flags that the wood TN was providing was illegally obtained. For example, TN’s failed to provide documentation to Gibson evidencing that the ebony sourced from Madagascar was harvested lawfully. Madagascar law states that all ebony harvested after a specific date was illegal unless it was considered “finished wood” or had received “exceptional authority” from the government.

In addition, prior to purchasing the wood, Gibson had sent a specialist to Madagascar to assess the potential for supporting sustainable forestry. During his investigation, the specialist obtained the Madagascar Order regarding the particularities about finished and unfinished wood and in his report highlighted that this would be an issue for Gibson. Despite this knowledge, Gibson continued to purchase wood from TN.

These violations resulted in the finding of a Lacey Act misdemeanor violation with a fine of $300,000.00 plus a $50,000.00 community service payment to the National Fish and Wildlife Foundation. In addition to the monetary fines, Gibson also was required to strengthen its compliance program.

Gibson established a new compliance program that clearly stated the objectives of maintaining compliance with relevant laws and in particular the Lacey Act. The new program provided the history and applicable penalties for the Lacey Act, listed the due care standard that it would apply to its processes to assure compliance with applicable law, and then listed the internal checks and balances that would be implemented to demonstrate the satisfaction of this duty. The compliance program also stressed Gibson’s commitment to developing policies and procedures for the procurement of wood and for verifying that all necessary foreign licenses and/or certifications are obtained prior to approval of a purchase. The compliance program listed resources to obtain current applicable law and stated a commitment to an annual audit of its wood purchasing processes, a commitment to training its employees, and plans for retaining adequate records.

The compliance program created by Gibson emphasizes the necessary steps required under the Lacey Act to specifically detail the unique company processes and procedures created to effectuate compliance and satisfy reasonable care in conducting imports.

The second settlement involved Lumber Liquidators (“LL”). LL is a Virginia-based flooring retailer that was sentenced to pay a total of $13.15 million for five counts of Lacey Act violations. The fines included 7.8 million in criminal fines, $969,175.00 in criminal forfeitures, $1.23 million in community service payments, and 3.15 million in civil forfeitures. They were also sentenced to a five-year probationary term during which they were to create an Environmental Compliance Plan and engage an outside accounting and environmental consulting firm. The $13.5 million dollar penalty constitutes the largest financial penalty ever for illegal trafficking in timber under the Lacey Act.

The retailer pleaded guilty to one felony count of importing goods through false statements and four misdemeanor violations of the Lacey Act. The charges stated that Lumber Liquidators was using timber that was illegally logged in Far East Russia and had submitted false Lacey Act declarations that obfuscated the true species and the source of the timber. Although, LL had a compliance program in place that identified this activity, it ignored the red flags and continued to purchase the timber.

LL imports wood flooring from China and distributes it throughout the U.S. However, the timber used to manufacture the flooring in China was harvested from different countries, two of which were Far East Russia and Myanmar. LL had a compliance program at the time of the violations and, in fact, employees were aware that some of the wood was harvested from Far East Russia and posed a significant compliance risk. In addition, LL had also been conducting employee training discussing the compliance risk of Far East Russia. But despite this information, LL continued to import wood coming from Far East Russia and Myanmar. Thus, although the compliance program was in place, LL failed to uphold the policies in its manual. In addition, LL also submitted inaccurate information on Lacey Act documentation required upon importation.

What these examples illustrate is that the enforcement of U.S. Customs laws, and in particular the Lacey Act, has significant monetary and functional consequences. There is a strict duty to comply imposed on the party conducting the international trade and the responsibility to develop processes to comply with U.S. Customs laws is imposed on both the business and individual level. The penalties go far beyond mere monetary fines, and include forfeitures, corporate governance and operational restrictions.

Furthermore, having a compliance program alone does not protect against violations or mitigate penalties. Compliance programs will be judged on their actual application to relevant internal processes, the effectiveness of their implementation, and their actual capacity to successfully identify and remedy trade violations. Ultimately, the law imposes a corporate responsibility to educate employees and management who oversee trade functions and instruct them on how to effectively remedy identified violations.

What does this mean for the US business? Investing resources into developing a compliance program and implementation is an upfront cost that is absolutely necessary and indirectly required to avoid the significant consequences of violating US Customs laws.

Amber M. Johns, Global Trade Expertise Intern

Chinese Pharmaceutical Company Agrees to $12.8 Million Fine

According to the U.S. Securities and Exchange Commission (SEC), this February, SciClone Pharmaceuticals Inc. agreed to pay $12.8 million to settle the investigation into potential violations of the Foreign Corrupt Practices Act. Allegations stretch back to at least 2007, and include multiple instances of bribery in exchange for sales made to Chinese clients. Under the terms of the agreement, SciClone does not admit or deny any wrongdoing.

The details included in the SEC’s press release of February 4, 2016 point to numerous instances of SciClone’s offering lavish gifts, trips, and entertainment and then booking such expenses as legitimate business dealings. For instance, in April of 2010, SPIL (a wholly owned subsidiary of SciClone) sponsored Chinese health care professionals to attend a seminar in Japan pertaining to its principal drug, Zadaxin. Only half a day appeared to be devoted to educational activities; the rest of the 6-day trip involved visiting Mt. Fuji and other tourist locations. The SEC detailed numerous instances of travel and outings hosted by SPIL and designed to lure state health care employees to purchase the company’s pharmaceuticals and devices.

Included in the terms of the agreement are provisions that SciClone make a number of changes to improve its internal accounting controls and prevent the recurrence of any similar violations. SciClone has agreed to hire a compliance officer and create an internal audit department and compliance department; undertake a comprehensive review of the policies and procedures pertaining to employee travel; reduce the number of third party suppliers who provide travel and event planning services, and provide anti- corruption training to its own employees as well as to vendors.

SciClone is best known for its Hepatitis B treatment Zadaxin; its shares rose 16% to $9.47 following the news of the settlement agreement.

Suzanne DeCuir, Global Trade Expertise

Rejection of Deferred-Prosecution Agreement Debated

Attorneys for the US government and Fokker Technology Holding BV, a Dutch aerospace company, appeared before federal appeals judges on September 11, 2015 to argue that a judge should not have the leeway to reject the deferred prosecution agreement between the company and DOJ. In February of this year, US District Judge Richard Leon rejected the $21 million dollar agreement the government had reached with Fokker, saying that it was too lenient and “grossly disproportionate to the gravity of Fokker Services’ conduct in a post 9/11 world.”

Fokker allegedly violated US law more than 1000 times shipping aircraft parts to Burma, Iran, and Sudan. Fokker admitted to wrongdoing and agreed to pay what the company felt were reasonable fees. The company also agreed to an 18-month deferred-prosecution agreement and to strengthen compliance policies. Back in February, however, Judge Richard Leon refused to go along with the agreement between Fokker and the Department of Justice.

At this stage, the issue goes beyond the particulars of this case and concerns whether or not Judge Leon should have the latitude to disapprove of settlements such as these in which the Justice Department agrees to defer corporate prosecution and ultimately drop charges, as long as the company admits wrongdoing, agrees to pay a fine, and complies with certain conditions to avoid future wrongdoing.

Arguments before the three-judge appeals panel took place Friday, Sept. 11, only a day after the US DOJ announced their intention to take a harder line against white-collar crime, including increasing focus on holding senior executives responsible when laws are broken.

Lawyers for the DOJ and Fokker, allies in the appeal, argued that Leon had committed a “clear and undisputable” error. Lawyer Adam Unikowsky defended Judge Leon’s actions, saying Congress gave judges the discretion to decide whether or not a prosecution agreement is too lenient or not. A decision is expected sometime in the next few months.

Suzanne DeCuir, Global Trade Expertise

Chicago-based Company Fined for Sanction Violations

John Bean Technologies has agreed to pay approximately $400,000 in fines for violating US sanctions against Iran. The Chicago-based company designs, manufactures, and services airport equipment and food processing systems. According to the US Department of the Treasury, the company sold goods to a Chinese company in April of 2009. Details about the case were contained in a penalty notice from the Treasury’s Office of Foreign Assets: the products were said to have been shipped via the Iranian state shipping line on a blocked vessel traveling from Spain to China; accompanying trade paperwork related to the shipment was sent to a US bank for payment based on a letter of credit. Allegedly, the Iranian shipping line (IRISL) has links to that nation’s military and many of its ships have been blocked despite the practice of changing flags often to avoid detection.

The OFAC notice indicated that John Bean Technologies has been cooperative and its company spokesperson said that action was taken as soon as the matter arose. In fact, the spokesperson explained that the company informed OFAC about the alleged violations.

According to the Wall Street Journal, “the penalty notice said John Bean, after the U.S. bank declined to advise the letter of credit, presented documents related to the shipment to a Spanish bank in May 2009 to receive payment. And, it said, John Bean reimbursed a Spanish unit for charges paid to its freight forwarder for the shipping services rendered by the Iranian shipping line and to the Spanish bank for fees associated with negotiating the letter of credit.”

Suzanne DeCuir, Global Trade Expertise July 2, 2015

Source: Wall Street Journal, June 19, 2015 

Mistaken Importer of Record Held Liable for Duties After Liquidation

Lifestyle Furniture has been pursuing two separate federal court cases in an effort to avoid paying antidumping duties, which are being assessed because it was incorrectly listed as the importer of record on an entry.  According to CBP ruling HQ H157616, Lifestyle Furniture was listed as the importer of record for an entry to Puerto Rico in 2005 and is liable for antidumping duties of in the amount of 216.01% for wooden bedroom furniture from China.  

According to Lifestyle, Starcorp, the Chinese exporter, was supposed to be listed as the importer of record, but the customs broker listed Lifestyle Furniture by mistake.  Starcorp hired C.H. Robinson as its broker, but entries subject to antidumping duties were not eligible for remote filing under national permits.  Therefore, C.H. Robinson brought in Nestor Reyes, a local Puerto Rican customs broker to file entry.  Reyes had power of attorney (POA) for Starcorp, but not for Lifestyle.  Reyes proceeded to file the entry, but listed Lifestyle as the importer of record in error.  Both C.H. Robinson and Reyes have admitted fault in this error, but claim no responsibility for the duties owed.

Although Lifestyle protested paying the antidumping duties due to error, CBP advised that Lifestyle is liable because it is the parties’ responsibility to determine who will be listed as importer of record.  Because Lifestyle is actually an eligible importer of record as the consignee, CBP is not responsible to determine which eligible party to accept entry from.  While CBP sent a notice of liquidation to Lifestyle one month prior to liquidation, Lifestyle stated that it was not notified until receiving the final bill of liquidation, arguing it was not given time to correct the entry.  CBP held that it is the responsibility of the importer to maintain processes of checking entries to ensure that all entries with their name as importer of record are correct if they do not want to be held liable for errors, such as these.  Furthermore, Lifestyle, nor CBP can go after Starcorp for the duties owed because it has gone out of business.   

Lifestyle Furniture has now filed a lawsuit against CBP regarding its initial protest in the Court of International Trade, as well as seeking a ruling against both Reyes and C.H. Robinson in the district court of North Carolina.  At this time, neither case has been heard before the courts.

Aaron Ambrite, Extern, Global Trade Expertise

Supreme Court Denies to Hear Trek Leather Case

On May 26, 2015, the Supreme Court denied a petition to hear an appeal of Trek Leather, firmly establishing the lower court’s decision to hold corporate officers and employees of companies listed as the importer of record liable for customs violations.  The denial comes amidst a long list of other cases denied without explanation or comments.  The Supreme Court’s denial effectively lets stand the U.S. Court of Appeals decision finding that Harish Shadadpuri is personally liable for the corporation’s failure to declare assists on entry documentation. 

Although Shadadpuri was not listed as the importer of record, the U.S. Court of Appeals found him personally liable because he introduced goods into the United States by providing invoices that did not report assists provided to the manufacturer.  The court found that the transmission of the inaccurate invoices to the customs broker amounted to the “introduction” of the merchandise into United States commerce under 19 USC 1592.  Shadadpuri argued that he could not be held personally liable for a corporate importer of record unless he was found to have personally “aided and abetted” the violation, but, ultimately, the court sided with the government.

The decision has garnered significant criticism from importers and their representing bodies as the judgment is expected to dramatically expand the scope of liability for corporate executives, compliance officers, and other employees involved in daily import transactions or transmissions.  One such representing body, the American Association of Exporters and Importers (AAEI), filed a brief in support of Shadadpuri stating that the court’s decision has effectively lowered the government’s burden of proof for finding a natural person liable for customs violations by eliminating the requirement for the court to prove fraudulent intent. Further, AAEI feels that the term “introduce” has been wrongly reinterpreted to include “all activities to bring goods to the threshold of the process of entry,” so that, in effect, “every negligent entry by a corporate importer of record will always be accompanied by a negligent introduction.”  AAEI is concerned that this court decision will increase the trade industry’s risk and cost of doing business due to subjecting import compliance managers to massive penalties.  Some employees may not wish to work in jobs associated with higher personal risk of liability, or employees might seek additional compensation for their duties.  Further, AAEI suggested that some importers might choose to allow foreign suppliers to act as non-resident importers of record in order to have import transactions handled outside the reach of US jurisdiction.

Importers anxiously awaiting a Supreme Court hearing on Trek Leather are likely to be disappointed by the denial as the decision will have definite repercussions for the trade community.  Importers will surely continue to watch other cases to determine how far the court will take the Trek Leather case in applying it to other importers.   

Aaron Ambrite, Extern, Global Trade Expertise

Congress Introduces Retroactive GSP Renewal Bill

On April 16, 2015, Senate Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) along with House Ways and Means Chairman Paul Ryan (R-WI) and Ranking Member Sander Levin (D-MI) introduced legislations to renew the Generalized System of Preferences (GSP) and other preference programs, such as the African Growth and Opportunity Act (AGOA).

The GSP program, which expired on July 31, 2013, reduces tariffs on imports from over 130 countries in an effort to promote economic growth in the developing world. The new legislation, if passed, would renew the GSP through December 31, 2017 and apply retroactively to provide refunds for eligible products imported while the program was expired. Currently, American companies have paid over $1 billion in import tariffs since the programs expiration.

Dan Anthony, Executive Director of the Coalition for GSP, stated that “by refunding tariffs paid and extending the program through 2017, Congress would give companies the ability to make long-term sourcing decisions – to the benefit of both suppliers in developing countries and their workers at home.”

Additionally, the new legislation will give the administration new flexibility to suspend or selectively limit the benefits of participating countries, rather than solely being empowered to completely withdraw all benefits. The bill gives the administration the power to initiate an out-of-cycle review of beneficiary countries to determine continual progress in meeting the eligibility criteria. By giving the administration this additional flexibility and power, the legislation attempts to prevent countries from receiving benefits from the preference programs while imposing unfair limits on American imports.

Aaron Ambrite, Extern, Global Trade Expertise 

CBP to Make C-TPAT Available to Exporters May 17, 2015

Customs and Border Protection (CBP) will make the Customs-Trade Partnership Against Terrorism (C-TPAT) available to exporters starting May 17, 2015. According to CBP, potential benefits of being a C-TPAT-certified exporter will include prioritized export shipments, global security partnerships, heightened facilitation from mutually-recognized customs partners, access to C-TPAT sponsored security seminars, and reduced examinations of shipments.

According to CBP, “any person or company who, as the principal party in interest in the export transaction, has the power and responsibility for determining and controlling the sending of the items out of the United States” and satisfies the additional eligibility requirements can now apply to become C-TPAT certified as an “export-only” organization. Among the list of eligibility requirements are the following chief components: the exporter must be actively exporting and maintain an office based in the United States, maintain a documented export security program meeting all the C-TAPT criteria, and have a good compliance record in accordance with requirements.

The new availability to export-only companies follows one day after CBP’s Phase II deployment for the C-TPAT portal. The deployment will restructure the security profile function into individual line items, streamline applications to U.S. partnership programs, add functionality, and meet DHS mandated requirements. The new design will give users greater flexibility and security in maintaining and updating their accounts.

Aaron Ambrite, Extern, Global Trade Expertise