Wednesday, February 04, 2015

Ruling of the Week 2015.5: Inadvertent Identity Hijacking

Usually, I am happy and proud to work with my counterparts at Customs and Border Protection. The good people there tend to do their jobs in an intelligent and professional manner. But then there is HQ H157616 (Sept. 22, 2014). [Update: It appears there is an error in the numbering of this Ruling. My prior link went to a different ruling. Try this one instead.]

The facts here are simple. A customs broker filed an entry listing Lifestyle Enterprise Inc. as the importer of record. The subsequent Entry Summary also listed Lifestyle as the IOR and used Lifestyle's importer number. This was an error. Lifestyle was the domestic buyer and was supposed to be the consignee, not the importer. The seller, a company called Starcorp Furniture Inc. was supported to be the importer. The broker had no power of attorney authorizing it to act on behalf of Lifestyle. These facts seem to be undisputed.

Also undisputed is that the merchandise involved was wooden bedroom furniture from China. If you are a trade professional, you just said "Oh, crap" or something more colorful. Wooden bedroom furniture from China is subject to antidumping duties of 216%. That is a difficult cost variance for the domestic purchaser to absorb.

Five years after the entry (which was suspended due to the dumping case), Customs issued a Notice of Action stating that it would liquidate the entry and assess antidumping duties against Lifestyle. After liquidation, Lifestyle filed a timely protest saying, essentially, "Hey, we were not supposed to be the importer and the broker had no right to name us as such! Leave us alone."

The ruling is short and to the point. Lifestyle was the purchaser of the merchandise and, therefore, had the right to make entry. In other words, it could have been the importer. Implied by that is the premise that Customs had no way to know that Lifestyle was not properly named as the importer. Furthermore, Lifestyle had five years in which to correct the entry prior to liquidation. Instead, it took no action until it received the Notice of Action from Customs and Border Protection.

On those facts, Customs said it cannot resolve the dispute between the parties as to which of the two companies was supposed to be the importer of record. As far as CBP is concerned, either is an appropriate importer and Lifestyle was listed as such on the documents. Customs, therefore, liquidated the entry properly.

That is a tidy answer for Customs but creates a terrible mess for the parties based on what is without question an entry that was filed illegally. Without a power of attorney, the broker had no right to bind Lifestyle to be the importer of record. While Lifestyle clearly has a cause of action against the broker, it still needs to pay this assessment, even if just to get into the Court of International Trade.

Why is Starcorp off the hook here? We don't know a lot of the background, some of which might be very important to the outcome. But, it seems clear that Starcorp could have been the IOR. It has a POA with the broker and most likely a bond with a surety. We know that Customs could pursue an enforcement case against Starcorp to collect these unpaid antidumping duties because, while it did not make entry, it "introduced" the merchandise into the U.S. See, Everything ever written about Trek Leather. So CBP was not without recourse against Starcorp, the party that anticipated having the liability.

It is possible that Starcorp has abandoned the U.S. and has no assets. Also, it would appear that because Starcorp was not listed as the importer, there would be no claim against the surety.

What about the broker? It illegally filed an entry without a proper Power of Attorney. It might be subject to a penalty as well. The amount of that penalty is probably capped at $30,000, which is certainly much less than the amount of the dumping duties, but that is apparently what Congress wants.

This is not really a case where two companies were equally able to act as importer of record through the customs broker that filed the entry. Only Starcorp designated the broker. Since brokers are required to have written powers of attorney, there should be no basis on which to argue that apparent authority is enough to bind Lifestyle to be the importer. This is not a situation in which CBP cannot differentiate between two equally possible importers. Lifestyle could not have made this entry and it seems unduly harsh to hold it responsible for actions it never authorized. Rather than be a culpable party, Lifestyle is the victim of what is probably inadvertent or negligent identity hijacking.

What does this tell importers? It is a stark reminder of the importance of monitoring your entry activity. If your company has a customs importer of record number, periodically monitor the entry activity to identify entries incorrectly made on your behalf. Look for brokers you did not authorize, ports you don't typically use, manufacturer ID numbers that don't seem familiar, and other indicators of unauthorized activity. remember to cancel POA's with brokers you no longer need. If you find anything like amiss, act quickly. Lifestyle compounded its problem by sitting on its opportunity to correct the entry (or have the broker correct it).

Learn from that mistake.


Anonymous said...

Talk about identity theft, Customs posted the wrong ruling and/or re-used the same ruling number.

Larry said...

Yes, I noticed that. There do appear to be two rulings with the same number. You want the one from September of 2014.

Anonymous said...

Agree. Your hyperlink should be to the 2014 ruling: