Friday, October 02, 2015

Duped "Importer" Liable for Customs Fraud

There have been several recent cases at the Court of International Trade that merit discussion. Two, in particular, are primarily of interest to lawyers. They show the truth of the old adage that bad facts make bad law.

The first is United States v. Jeanette Pacheco. In this case, the United States of America is pursuing Ms. Pacheco to the tune of $2.6 million for her "role" in a customs fraud scheme. The "scheme" went like this: A licensed customs broker named Dionicio Bustamante approached Pacheco in a nightclub. He offered her a way to make some fast cash and gave her $200 to sign a customs power of attorney. It is not clear that Pacheco had any additional contact with Bustamante thereafter.

After that, Bustamante began making entry of dried peppers, declaring the value to be $0.11 per kilogram. It turns out that a legally correct value was $3.75 per kilogram. When Customs and Border Protection queried Pacheco about the value, she failed to respond. To complicate matters, the FDA declared the peppers adulterated, refused entry, and demanded redelivery. Pacheco failed to redeliver the peppers to Customs and Border Protection. That resulted in a liquidated damages claim of $184 thousand.

CBP issued penalty and pre-penalty notices to Pacheco. Eventually, the government sued her to collect the penalty and she failed to respond. In this decision, the Court of International Trade imposed a default judgment on Pacheco.

Pacheco's failure to appear in Court acts as an admission of liability. But, the Court of International Trade must still determine the amount of the penalty to be imposed. In doing so, the Court noted that "by providing her identity to Bustamente for $200 so that he could conduct customs business on his own behalf, Pacheco aided and abetted his fraud upon Customs." That emphasis is mine. The Court also noted that as the principal in the relationship, Pacheco can be held liable for the acts of the agent, meaning the broker Bustamente.

Given that, the Court looked at the circumstances to determine the amount of the penalty to be imposed. The Court found some aggravating factors including failing to respond to a request for records and the fact that the importations threatened the public health and safety. Also, although it is not clear when it happened, it appears that Pacheco lied to Customs about whether the peppers were hers. On all of these facts, the Court imposed a penalty in the full amount requested by Customs: $2,651,312.

I hate this case. Not because it is wrong, but because it is probably right. Pacheco did so many things wrong here that she basically sealed her fate. But, there is another story that can be told. It appears that Pacheco made the very stupid choice of signing a power of attorney without any understanding of what that means. She did so for a quick $200, which ended up costing her (at least on paper) $2.6 million.

But, was she really the principal in this transaction? She was legally, because she signed the POA allowing Bustamante to make entry on her behalf. But, it also does not appear that she had any knowledge of the importations, she did not decide to undervalue the goods, she did not know the goods were adulterated. When she "lied" to Customs that the goods were not hers, I suspect she had no idea that the goods were being imported in her name. The peppers probably were not hers as far as she was concerned. As far as I can tell, she did not order them, did not pay for them, and did not take delivery of them.

I'm not even sure she was the principal. In agency law, the agent works for the principal. Here, the agent was working entirely for himself (or so it appears). He duped her into signing the document and then used her identity to make fraudulent imports. I don't see why that is not a mitigating circumstance. My assumption is that Bustamante is the subject of his own penalty case and may even be subject to criminal prosecution. I don't know what happened to him.

This is a bad set of facts. Obviously, Pacheco should never have signed the POA. She should have responded to CBP. She should have responded to the penalty notices. She should have thrown Bustamante under the first bus she could find. But, despite all those mistakes, what we seem to have is identity theft with the victim now on the hook for $2.6 million. While that is probably legally correct, that seems wrong.


Anonymous said...

To me, the facts are murky, and this puts the decision on shaky ground. A Customs import bond is needed for a Customs entry. Did Pacheco actually obtain an IOR Customs bond for these entries; or did she already have one? Did the broker use Pacheco's Customs bond or the broker's bond for the entries? Did Pacheco actually buy and sell the peppers? The decision states that "she provided him with a power of attorney to allow him to use her name to conduct customs business on his own behalf" and that "Pacheco procured a bond at a significantly lower amount, entered the merchandise and sold it for consumption in the U.S." It would appear that Pacheco did not buy or sell the peppers, and the broker's conduct was on "his own behalf." It is unclear if Pacheco was involved in securing a bond and whether her bond was used or not. Criminal conduct can break the link between principal and agent, and the judge should have put the Government to the test and develop those facts, at a minimum, in applying the penalty guidelines. In addition, no mention is made of judicial Complex Machine factors. Bad[ly developed] facts make bad[ly applied] law.

Larry said...

International Trade Today reported on October 1 that Customs is "aware" of the apparent involvement of the broker in this situation. However, citing agency regulations, Customs refused to comment on whether it is taking action against the broker. Keep in mind, that whether the broker is punished is somewhat separate from my concern that the punishment assessed against the individual is too high given her role compared to the role of the broker.

prophet of doom said...

I just saw your comment on this case. I have many problems with the decision. The 8th Amendment to the U.S. Constitution provides that excessive fines shall not be imposed and that any fine must have a degree of proportionality to the offense. This case has, in fact, been applied to U.S. Customs when certain parts of the currency seizure laws were struck down by the U.S. Supreme Court. In this case I think that the penalty is disproportionate to the penalty. Grossly disproportionate.

But that's not the biggest problem. Federal Judges are supposed to apply the law fairly and avoid gross mis-carriages of justice. In other words, just because the United States asked for the relief, it does not mean that the Court should award the relief. In fact, other CIT Judges have rejected penalty cases in which the defendant defaults and refused to simply "approve" the decision. It is hard to fathom why this happened in this case. This claim is so over the top that the Court should have had grave concerns.

And, for course, to add "insult to injury", the broker at issue went to the CIT and convinced the Court to re-issue this opinion to remove their name.