CBP Testifies on Bonds & Jump Teams to Stop AD/CV Fraud, Evasion

Schemes Include Illegal Transshipment, Undervaluation, Misclassification, Etc.

According to CBP, AD/CV circumvention involves variety of schemes including:

• Illegal transshipment - the manipulation of documents and shipping logistics to disguise the true country of origin of a product.
• Undervaluation -- the intentional falsification of documents and declarations to reduce the amount of AD/CVD duty a company must pay.
• Failure to manifest (i.e., smuggling) - when a company does not declare goods on its entry documents in order to avoid paying AD/CVD duties.
• Misclassification - improperly declaring goods with the proper duty classification, or mis-describing the goods to avoid suspicion of dumping.
• Other schemes -- including taking advantage of loopholes related to administrative reviews, product engineering to fall outside the scope of a case, employing shell companies as a primary means of avoiding payment, or the use of foreign businesses outside the reach of CBP authorities.

CBP Discusses Methods, Progress in AD/CV Enforcement

CBP said that it is constantly developing new approaches to AD/CVD enforcement to meet the challenges posed by complex AD/CVD circumvention schemes, including:

• STB guidance - directing its staff to develop internal guidance to ensure that Single Transaction Bonds are required whenever CBP suspects that a risk of revenue loss exists.
• Information sharing - reviewing its trade secrets statute and regulations to find ways that will allow CBP to release information to petitioners to make its process more transparent.
• “Jump teams” - Exploring ways to have the same authority CBP has for textile and apparel enforcement to have its teams (Textile Production Verification Teams, also known as “jump teams”) conduct visits to ensure that goods are actually produced in the country claimed as the country of origin. (CBP has been exploring the possibility of production verification visits with the U.S. Trade Representative.)
• ID circumvention - working with U.S. industry, Immigration and Customs Enforcement (ICE) and international partners to develop new sources of information to identify AD/CVD circumvention.
• Add’l info, more tools - exploring options that will give CBP additional information and new tools to protect U.S. revenue and identify those who would use the system for illicit gains.

CBP Also Working to Tighten New Shipper Requirements, Clarify Broker Role

CBP testified that it is undertaking additional activities, including:

• Transshipment & new shippers - working with the Department of Commerce on release of information that will help verify the legitimacy of goods suspected of transshipment and to tighten the “new shipper” requirements;
• Broker’s role - clarifying the responsibility of customs brokers in the requirements for valid powers of attorney (POA) to ensure the legitimacy of importers³; and
• Task force - working with the Department of Justice to develop a task force to concentrate resources on the most complex cases just as it has with Intellectual Property Rights.

In Last 2 Yrs, CBP Conducted 215 AD/CV Related Audits, 10 Nat’l Operations

CBP states that it carries out its AD/CVD enforcement by targeting circumvention at the national and port level. In the last two years, 10 AD/CVD-focused national operations and several local operations have been completed. Additionally, in the last five years, CBP has conducted 215 AD/CVD related audits and has recommended $42.2 million in recoveries to the Department of Commerce.

10% of 4,000 e-Allegations Are AD/CV Related

In 2008, CBP created an online referral process called e-Allegations and CBP has received more than 4,000 commercial allegations via e-Allegations, with nearly 10% being AD/CVD-related.

5 Chinese Commodities Represent 85% of Uncollected AD/CV Duties

According to CBP, 85% of the uncollected AD/CV duties over the past several years are from five commodities from China -- wooden bedroom furniture, honey, crawfish, mushrooms, and fresh garlic, representing $878 million of the $1 billion in uncollected duties over the past five years.

Commerce Says ACE AD/CV Functionality Improves Agency Communication

According to the Commerce Department, the AD/CVD portion of the Automated Commercial Environment (ACE), which went live in February 2010, allows for more efficient communication between CBP and Commerce in the implementation of AD/CV duty rates.

(See ITT's Online Archives or 02/16/10 news, 10021605, for BP summary on CBP’s deployment of ACE Entry Summary, Accounts and Revenue (ESAR) III capabilities for AD/CV entries, etc.)

ICE Has Initiated 391 Cases, Made 28 Criminal Arrests, 161 Seizures

Since 2006, ICE has initiated 391 cases based on allegations of fraud regarding AD/CVD orders, which to date have resulted in 28 criminal arrests, 86 indictments and 39 convictions. As part of these cases, ICE and CBP have made 161 seizures of goods with a domestic value of over $16 million.

ICE said that it has investigated a wide range of commodities including honey, saccharin, citric acid, lined paper products, pasta, polyethylene bags, shrimp, catfish, crayfish, garlic, steel, magnesium, pencils, wooden bedroom furniture, wire clothing hangers, ball bearings and nails.

Subcommittee Chairman Highly Critical of CBP’s Enforcement

During the hearing, Subcommittee Chairman Wyden (D) characterized CBP as treating AD/CV duty evasion allegations like “junk mail.” Wyden said that it takes CBP nearly a year to ask its sister agencies for investigatory help when it is needed, and when it does get help, it doesn’t follow up to make sure the allegations have been handled. When questioned, Administration witnesses, including CBP, acknowledged that it can take years for investigations to be completed.

Wyden noted that in September 2010, CBP Commissioner Bersin characterized the AD/CV enforcement effort as incomprehensible and disgraceful and which results, not from a lack of resources, but because of the structure of the enforcement scheme.

AD/CV Enforcement Legislation Introduced in Senate and House

Chairman Wyden announced that he plans to improve and reintroduce legislation in the Senate to address the problem of AD/CV duty order evasion soon. (In 2010, Senator Wyden and co-sponsors Snowe (R), and Schumer (D) introduced S. 3725, the Enforcing Orders and Reducing Circumvention and Evasion Act of 2010, or ENFORCE Act. According to Wyden, the Senate will soon be in a position to move such legislation.)

Sources add that Representative Sanchez (D) is expected to introduce similar legislation in the 112th Congress. (In 2010, Representative Sanchez and co-sponsors Jones (R) and Ortiz (D) introduced a House version of an ENFORCE Act (H.R. 6549). Note the 2010 House and Senate bills were different.)

(See ITT’s Online Archives or 09/14/10 news, 10091417, for BP summary of the 2010 Senate ENFORCE Act. See ITT’s Online Archives or 12/22/10 news, 10122225, for BP summary of 2010 House ENFORCE Act.)

¹Al Gina, Assistant Commissioner for CBP’s Office of International Trade.

²The Senate Finance Committee’s Subcommittee on International Trade, Customs, and Global Competitiveness.

³See ITT’s Online Archives or 04/15/11 news, 11041523, for BP summary of CBP’s recent presentation on the evolving role of brokers, including better vetting of clients prior to executing a power of attorney.