Wednesday, October 15, 2008

Another Notice Case

Western Power Sports is one of those cases that just stinks of underlying policy issues. The gist is that Customs asked the importer to verify the origin of apparel it had imported. In response, the importer produced “delivery records, employee time cards, and other production-related documents.” After reviewing the documents, Customs found they failed to substantiate the origin claim and issued the dreaded Notice of Redeliver. Western Power protested and Customs and Border Protection denied the protest apparently stating that the documentation was falsified.

In the Court of International Trade, Western Power claimed that the general denial of the protest without specifically listing the reasons for the rejection violated constitutional and administrative law rights.

According to the Court, the constitution only requires that the agency alert the interested party to the issue and provide a reasonable opportunity for the interested party to object. Since the protest denial stated that documentation did not substantiate the claimed origin, the notice alerted Western Power to the issue at hand. Further, the protest denial alerted Western Power to the availability of judicial review in the CIT. Thus, everything was constitutionally kosher (which is a phrase I like better than “constitutional muster”).

Regarding administrative law rules, Western Power argued that Customs is required to provide a rationale for its decision. This follows, in part, from CBP regulation 174.30, which says that a protest denial shall include “a statement of the reasons for the denial . . . .” The Court held that the blanket statement that the documents did not support the claim is sufficient for this purpose.

OK, I get that as a legal determination. Here’s the problem: has CBP advanced the ball in any way that facilitates legitimate trade? Let’s assume that some of the documents were falsified. There is no reason to doubt that. It is probably safe to say that the importer is not responsible for that fraud. If Customs worked with the importer to help it understand what was wrong with the documents and to spot false paperwork, Customs would be facilitating future compliance. Also, the importer might be able to cure the defects (although that seems likely in the case of fake rather than missing documents).

But Customs has a legitimate reason not to do that. If importers know how to spot false documents, then they might also know how to make better false documents. That, of course, would make it much harder for Customs to engage in necessary enforcement activity. Customs, therefore, has grounds to just say, “Sorry, fake documents.”

Does this approach lead to bigger issued? Does it lend credibility to the feeling that Customs wants to play Gotcha with legitimate importers? I don’t believe that is true, but it makes it look that way.

So, I ask you, should Customs be running seminars entitled “Spotting false business records for textile importers?” If not, it sounds like a business opportunity for somebody.

2 comments:

Anonymous said...

I find fault with the premise that our default supposition should be that of the importer's innocence. If true, then you are correct in that Customs should continue its obligation to facilitate legitimate trade. An honest company, however, does its homework and researches its suppliers.

The importer is almost unfailingly complicit when these types of dual documents are used. And these companies have no reservations in challenging adverse determinations against their false documents because the government does not have the resources to verify overseas production (ICE did not and will not take this kind of case, leaving CBP to its own devices). Attempts at informed compliance in these instances do not lead to future compliance as you suggest; it acknowledges Customs' inability to successfully prosecute violators, notifies them of possible investigative action, and emboldens them to open shell companies to import with or otherwise brazenly continue defrauding the government. Hiding behind the facilitation of legitimate trade and complaining that Customs is playing "gotcha" is always a nice route to take when you know the government can't prove your culpability.

Anonymous said...

This is a bad decision. CBP provides no guidance to the international trade community, and no incentive to U.S. importers, to facilitate legitimate trade, by its basic philosophy of "we don't have to explain to you anything" similar to the overused "national security" secrecy defense in OFAC cases.