Limitations Periods for Penalties

In United States v. Zhe "John" Liu, the defendant was accused of a running a scheme to avoid antidumping duties on wire hangers from China by transshipping them through other countries and incorrectly stating the country of origin. The government is seeking to impose a penalty of just under $1 million, which is the domestic value of the merchandise. The defendant moved to dismiss the complaint arguing that it is barred by the statute of limitation and that Mr. Liu is not a proper defendant because he did not import the goods.

Let's pause for a moment. First, the fact that this penalty is the domestic value of the merchandise may seem odd. It is not. The complaint asserts that the violation occurred as a result of negligence. Under 19 USC 1592, the penalty for negligence is usually up to twice the loss of revenue, which will usually be much less than the entered value of the merchandise. However, the statute says that when the violation results from negligence, the penalty can be the lesser of the domestic value or two times the loss of revenue. In this case, the antidumping duty rate was approximately 186%. According to the Court, the loss of revenue was $556,808. Two times that would exceed the value of the merchandise, which is why the penalty is based on the domestic value rather than the loss of revenue. 

It is also a warning to importers of goods subject to antidumping duties. If things go bad, they can go seriously bad, but not worse than the domestic value of the goods (assuming a civil matter and negligence).

Second, note that the penalty is not based on the entered value; it is domestic value. There is a difference. Importers mays assume CBP has made an error when the penalty claim exceeds the entered value. "Domestic value" is not defined in the statute. Court cases have determined that it means the retail value of the merchandise or "the price at which the merchandise or similar merchandise was freely offered for sale in the ordinary course of trade." That is very likely to be the entered value plus duties, taxes, and fees, plus costs incurred in the U.S., plus a profit. 

Back to the actual issue in this case.

The statute of limitations in a negligence case is five-years from the date of the alleged violation. 19 USC 1621. The complaint asserts that the violations occurred on entry. In an effort to show that the United States was too late to assert the claim, defendant argued that the negligence occurred before the first entry, when it "allegedly" cause or caused to be formed the company that imported the goods. The Court shut this down. According to the Court, the violation occurs when the merchandise enters the customs territory of the United States. That makes sense in that one might set up all of the legal entities necessary to negligently import merchandise and never get around to making an entry. To hold the government to a statute of limitation that starts to run before the entry or other document containing the material false statement or omission does not make sense. It is like holding someone liable for "prenegligence" in a civil version of Minority Report. 

Photo by Hadija on Unsplash


The complaint also asserts a penalty based on Mr. Liu aiding and abetting a violation by others. Raising a similar argument, Liu claims that any behavior that constitutes aiding or abetting would have occurred prior to entry. The problem for this argument is that to be liable, one must "aid or abet" a violation and the violation does not occur until the entry. "Ergo, the statute of limitations for aiding and abetting violations of § 1592(a)(1)(B) due to negligence begins to run on the date of entry."

Finally, Liu argued that he should not be subject to a penalty because he was not the importer. This is a non-starter in the world after Trek Leather. On its face, section 1592 applies to any person who violates the statute. That applies to corporate officers of the importer and other individuals who were somehow involved in the importation that relied on a material false statement or omission. In this case, the complaint alleged facts indicating that Liu controlled and directed the operations the importer. That is sufficient to allow the claim to go forward. 

The Court denied Liu's motion to dismiss. 

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