CIT Says 'Cruzin Cooler' Importer Must Pay More Than $850,000 Penalty for Customs Fraud
An importer must pay nearly $1 million in penalties for customs fraud, after the Court of International Trade on July 9 found the importer knowingly misclassified its entries to save on duty, despite repeated instructions from CBP on the correct classification of the merchandise.
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Bad Lama, owned by Kevin Beal, ignored a pair of informed compliance letters from CBP, as well as a face-to-face visit by CBP officers and two binding CBP rulings, when it continued to misclassify parts for the Cruzin Cooler, including under the duty-free subheading for the finished good, CIT said. Evidence suggested that Bad Lama itself was created as the successor to Cruzin Cooler LLC, also owned by Beal, for the express intent of avoiding CBP scrutiny. Beal reportedly told CBP investigators as much.
Bad Lama’s entries also had misstatements on its CBP Form 7501s, purporting that Bad Lama was not related to the manufacturer of the Cruzin Coolers. In fact, Beal had an ownership in the manufacturing company, and an employee of Bad Lama was on the manufacturer’s payroll.
And when CBP filed suit at CIT after Bad Lama and Cruzin Cooler failed to respond to its penalty notices, Beal and his companies did not appear in court. CIT ruled the defendants in default in July 2019, so CBP only had to establish that the companies’ misconduct was illegal and that the penalty was appropriate.
The loss of revenue to the government from Bad Lama’s violations was only $16,030.11, and from Cruzin Cooler LLC’s earlier violations it was $3,583.16. Finding grossly negligent violations by Cruzin Cooler for its disregard of two informed compliance letters, CBP assessed, and CIT approved, a penalty of $14,332.64, which is four times the loss of revenue.
But as Bad Lama’s violations amounted to fraud -- CIT in particular took Bad Lama’s purported formation to avoid customs scrutiny as evidence of culpability “at the highest level” -- CIT found it liable for penalties equal to the domestic value of the imported goods, or $852,088.45.
Closing with a quote from 1980 U.S. Olympic hockey coach Herb Brooks, CIT Judge Timothy Reif highlighted Bad Lama’s failure to defend itself as a root cause of the substantial penalty it now faces. “Success in litigation, especially within the area of international trade and customs, is far from certain and rests always on the correct application of the pertinent law to the facts presented. Regardless of what the odds may be, all favorable outcomes begin with a defense,” Reif said.
(U.S. v. Cruzin Cooler, LLC; Slip Op. 20-95, CIT # 15-00033, dated 07/09/20, Judge Reif)