Fashion Intel & Analysis
The following update was prepared by John Pellegrini, USFIA Customs Counsel, McGuireWoods LLP.
The Department of Justice announced a recent settlement in a False Claims Act case that involves a DDP purchaser and its knowledge of the violation of the customs laws by its DDP supplier. The settlement requires that the defendant, an apparel wholesaler to major chains, pay $325,000 in damages.
The settlement resulted from a complaint lodged by a whistle blower.
The crux of the complaint is that the wholesaler had direct knowledge that the garments were under valued at entry. The direct knowledge is said to be based on the fact that the wholesaler made supplemental payments against debit notes and/or cost sheets. The payments did not appear on the commercial invoices that the DDP vendor submitted to CBP. It was nothing more than garden variety “double invoicing”.
The settlement agreement indicates that the DDP purchaser actually reviewed the vendor's customs filings. The documents included the entered values. Thus, in addition to the indirect knowledge that it made payments over and above the price on the commercial invoice, the wholesaler had direct evidence that the entered values were understated. Further, the DDP vendor attempted to bribe the wholesaler’s compliance manager to look the other way. The bribe was not accepted but the wholesaler continued to purchase merchandise from the DDP vendor and failed to advise CBP of the obvious and ongoing fraud.
This settlement flows from earlier settlements. The earlier settlements were based upon claims by the same whistleblower who was a former employee of one of the DDP purchasers caught up in the scheme.
As a reminder, companies who buy on the DDP terms must exercise a reasonable degree of due diligence. This should include reviewing customs filings certified by the broker. Generally, DDP vendors are not willing to disclose entered values. That is understandable. Nevertheless, DDP purchasers cannot claim ignorance of customs fraud when the prices are too good to be true.
The Trump Administration is getting pushback for the proposal to remove GSP (Generalized System of Preferences) duty-free benefits from India. The Administration could take action any time after May 4th, and today both the co-chairs of the Senate India Caucus and a group of industry associations, including USFIA, wrote to the U.S. Trade Representative asking for a delay.
Senators John Cornyn (R-TX) and Mark Warner (D-VA) wrote to USTR Robert Lighthizer asking for a delay of at least thirty days so that negotiations to resolve the trade tensions can be held after the Indian elections (which will end on May 23rd).
The 25 industry associations writing to Lighthizer have a similar message -- although we ask for a sixty-day delay in any action by the Administration. Let USFIA know if you have any questions.
Yesterday, the Mexican Chamber of Deputies approved labor reform legislation that is part of the requirements for implementation of the U.S.-Mexico-Canada Agreement (USMCA). The legislation now goes to the Mexican Senate. This is a positive step since U.S. Congressional Democrats have taken the position they will not vote to approve USMCA until Mexico meets the labor commitments.
USTR Lighthizer will be meeting on Monday with a delegation led by the Japanese Economic Minister, Toshimitsu Motegi. This marks the beginning of negotiations for a Free Trade Agreement between the U.S. and Japan. The U.S. is hoping for a quick agreement to open up the Japanese market to U.S. agriculture exports, and the Japanese have said they intend to negotiate the same terms as under TPP.
On the U.S. Customs and Border Protection (CBP) operational update call yesterday afternoon, Executive Assistant Commissioner Todd Owen said the peak wait times continue in the cargo environment and CBP anticipates that delays will increase since next week is Holy Week and traditionally there is a significant jump in the volume of border crossings.
Looking ahead, the Administration believes it is unlikely that migrant crossings will lessen and CBP will continue to support border patrol, says Owen. If the redeployment of the original 545 officers exceeds the initial 30 days, the next step will be to pull officers from airports, seaports, and northern borders, an update from the initial announcement last week that anticipated solely pulling from airports. CBP anticipates pulling 100 officers from airports and sending 40 to El Paso and 60 to Laredo this Sunday, April 14. The impact of this redeployment on airports should be minimal and will hopefully mitigate wait times at the border. The next wave would be pulling approximately 125 officers and should take place around April 28. If the crisis continues into May there will be a third wave of officers pulled.
An unknown variable at this time, the U.S. Department of Homeland Security (DHS) put out a request for volunteers across the department and received over one hundred individuals willing to help. Border Patrol is assessing how those volunteers can be used. CBP is hoping this effort will allow additional CBP officers to return to the ports of entry. Expect another CBP update next Thursday.