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CBPs Operation Mirage Sparks Crackdown on China & FTA Textile Imports Prepared for: The Los Angeles Customs Brokers & Freight Forwarders Association By:

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Presentation on theme: "CBPs Operation Mirage Sparks Crackdown on China & FTA Textile Imports Prepared for: The Los Angeles Customs Brokers & Freight Forwarders Association By:"— Presentation transcript:

1 CBPs Operation Mirage Sparks Crackdown on China & FTA Textile Imports Prepared for: The Los Angeles Customs Brokers & Freight Forwarders Association By: Michelle Rodenborn Law Offices of Michelle Rodenborn July 22, 2010 Whats In Store with CBPs Big, New Gun: TESA, H.R. 5393?

2 Law Offices of Michelle Rodenborn2 2 Operation Mirage 2009 Special Enforcement Initiative on China Undervaluation: began with 800 textile importers settled on a targeted group of 176 importers in Los Angeles and New York. Findings: gross undervaluation of goods, by as much as 300 to 500%; Phantom "importers of record" that could not be found hidden by layers of front men; Multiple invoice schemes; Customs Brokers who did not know the IORs identities; and 90 IORs who did not have the right to make entry.

3 Law Offices of Michelle Rodenborn3 Enforcement Linchpin: The Right to Make Entry 19 USC 1484 (a)(2)(B) provides that only an importer of record has the right to make entry of goods. Importer of record is defined as the owner or purchaser of the goods, or, when designated by the owner, a licensed customs broker. Owner or purchaser is in turn defined as including: any party with a financial interest in a transaction; including the actual owner or purchaser of the goods. May also be a buying or selling agent, a person or firm who imports on consignment, or under loan or lease, or for repair, alteration or further fabrication, etc.

4 Law Offices of Michelle Rodenborn4 4 Buck Stops with IOR Corresponding to that right to make entry, it is the importer of record who will be held liable for all Customs-related aspects of the import transaction. The IOR is the party to exercise Reasonable Care. Customs will deal with the Mirages by: Refusing and rejecting entries where they cant track down the identity of the IOR; Throwing out the phony IORs transaction value; and Having the LDP/DDP purchaser make entry; and Using the LDP/DDPs purchase price as the dutiable value.

5 Law Offices of Michelle Rodenborn5 Enforcement Tool: Existing Civil and Criminal Statutes CBP is willing to use weapons in its current arsenal: Under the commercial fraud statute, § 592: CBP will use the aiding and abetting language to target LDP/DDP purchasers. Under the federal criminal code, Title18, CBP may use: §1001whichprovides for fines and 5 year prison terms for engaging in fraudulent schemes, representations, or writings; and §1002 which provides the same for possession of false papers to defraud the United States.

6 Law Offices of Michelle Rodenborn6 (Copied from Janet Labudas Slide for California Fashion Association) Doing Business Using DDP/LDP Dont!!!!! But If You Insist… Make a Surprise Visit to the IoRs Address Does it Exist? Is Anyone There? Is It Virtual Office Space? Do They Know Details about the Transaction? How Many Layers Are in the Transaction.

7 Law Offices of Michelle Rodenborn7 (Copied from Janet Labudas Slide for California Fashion Association) Doing Business Using DDP/LDP Ask for and Review the Customs Entry: – Does the Information on the Entry Match Your Purchase Order? – Description? – Quantity? – Value? Who Is the Broker? Has the Broker Met the Importer of Record? Who is Orchestrating the Transaction? Importer? Freight Forwarder?

8 Law Offices of Michelle Rodenborn8 FTA/Trade Preference Verification and Enforcement In 2009 CBPs Textile Production Verification Team: Found 45% of Factories were non-compliant on FTA/Trade Preference claims; 51% non-compliant re Short Supply claims. CBP going forward: Continued TPVT visits; Port verifications; Special ops; Scrutiny of yarn/fabric affidavits; Blanket certificates are not supported; Scrutiny of records that establish origin in the US/region. Vigorous focus on CAFTA.

9 The Textile Enforcement and Security Act of 2010 TESA, H.R. 5393, introduced May 25, 2010 A Bill to provide U.S. Customs and Border Protection with authority to more aggressively enforce trade laws relating to textile or apparel articles… CBP to ensure that seizures, detentions, special operations, and TPVTs remain the primary focus of its textile enforcement. Law Offices of Michelle Rodenborn9

10 10 TESA Highlight: Seizure & Forfeiture Authority Expanded TESA provides authority to seize and forfeit where: 1.a trade preference has been claimed, and the goods are: misdescribed on entry as to country of origin; or the IOR does not verify actual country of origin; and Its for purposes of avoiding a duty or other obligation to the U.S. Government. 2.False Physical Address Information is Given. The IOR provides a false physical address, or The IOR does not have the right to make entry under 19 USC 1484 (a)(2)(B).

11 Law Offices of Michelle Rodenborn11Law Offices of Michelle Rodenborn11Law Offices of Michelle Rodenborn11 Use of Amounts from Fines, Penalties, Forfeitures Under H.R. 5393, Monies Obtained from Fines, Penalties & Forfeitures Would be Used: to pay for expenses directly related to textile import investigations and enforcement proceedings, civil or criminal; and for a snitch reward program: 20% of any fine, penalty or forfeiture amount up to $20,000 To any person furnishing information leading to an arrest, conviction, civil penalty assessment, or forfeiture of property.

12 Law Offices of Michelle Rodenborn12 TESA Affidavit Requirement TESA Amends 19 USC 1484 (a) to Require: An Affidavit containing 6 elements: 1.The physical address of the manufacturer. 2.The contact person's name and complete contact information. 3.A description of the articles, such as fiber content, yarn content, fabric type. 4.The purchase order or invoice number issued for the sale with quantities included. 5.The date of sale or shipment of the articles. 6.If available, the container number and bill of lading number for the articles delivered to the customer.

13 TESA Bonding Requirement Law Offices of Michelle Rodenborn13Law Offices of Michelle Rodenborn13 TESA Amends 19 USC 1623 (b) to Add: A provision requiring the amount of the bond for the importation of textile or apparel articles to include amounts equal to any duties, fees, and penalties estimated to be payable on such articles based on a risk assessment of the importer. Will apply to entries made 180 days after enactment of TESA.

14 Person under 592 Redefined Law Offices of Michelle Rodenborn14Law Offices of Michelle Rodenborn14 TESA Amends 19 USC 1592 (a) (1) to Read: Without regard to whether the U.S. is or may be deprived of all or a portion of any lawful duty, tax, or fee thereby, no producer, manufacturer, supplier, seller, importer, exporter, or other person by fraud, gross negligence, or negligence (A) may enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the U.S.

15 Electronic Preference Verification System Law Offices of Michelle Rodenborn15Law Offices of Michelle Rodenborn15 TESA Establishes: An electronic Preference Verification System Will track textile or apparel articles imported or exported under free trade agreements. Confidentiality of information is assured by coding the information so that only CBP & OTEXA can access it. Congresss sense is stated that this system should be established in future FTAs as a priority.

16 Law Offices of Michelle Rodenborn16 TESA Highlight: Rein in Non-Resident Importers of Textiles Declaration Program: N-R IORs must declare that: they have secured a bond (19 USC 1623 (b)(5); and established a Power of Attorney. Information: N-R IORs must: Identify a resident agent in the state of port of entry to accept service of process; Certify that the resident agent has assets in the US to cover loss of revenue that exceeds the bond, or for any civil penalties levied by the federal government. Include on commercial invoice full contact info for each person involved in the transaction: trading house, freight forwarder, and ultimate purchaser

17 Law Offices of Michelle Rodenborn17 TESA Highlight: Civil and/or Criminal Penalties For a knowing violation of the Non-Resident IOR Declaration Program: civil penalties of not more than $50,000 per violation; the violator is also subject to civil/criminal penalties under any other customs law, including: seizure and forfeiture under the customs laws, or prosecution under the federal criminal code, Title18: §1001provides for fines and 5 year prison terms for engaging in fraudulent schemes, representations, or writings; and §1002 provides the same for possession of false papers to defraud the United States.

18 Law Offices of Michelle Rodenborn18Law Offices of Michelle Rodenborn18 Another Role for Department of Justice TESA establishes within the DOJ the: Office of Textile and Apparel Trade Enforcement It adds more jobs for lawyers! Its function is to carry out all enforcement functions on relevant enforcement cases: Those that are referred by DHS, and Relate to the enforcement of laws regarding the importation of textile or apparel articles.

19 Law Offices of Michelle Rodenborn19Law Offices of Michelle Rodenborn19 Guiding Principles for Customs Brokers 1.Anyone can sue anybody over anything and probably will. (And its corollary truth: Litigation is a synonym for nightmare.)

20 Law Offices of Michelle Rodenborn20Law Offices of Michelle Rodenborn20 Guiding Principles for Customs Brokers 1.Taking things lightly causes great difficulty. (Lao Tzu, the Tao Te Ching)

21 Law Offices of Michelle Rodenborn21Law Offices of Michelle Rodenborn21 Guiding Principles for Customs Brokers 1.Its always darkest after a Customs audit begins, so Do the difficult things while they are easy and do the great things while they are small. (Lao Tzu again)

22 Law Offices of Michelle Rodenborn22 Questions? Please Contact Michelle Rodenborn LAW OFFICES OF MICHELLE RODENBORN 444 W. Ocean Boulevard, Suite 800 LONG BEACH, CALIFORNIA (562) FAX (562) Please check out our web site!!


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