Federal prosecutors in New York announced the settlement of a lawsuit relating to a scheme to evade import duties. The case involved an investigation by U.S. Immigration and Customs Enforcement (ICE) Homeland Security Investigations (HSI) New York, and U.S. Customs and Border Protection (CBP) regarding an importer’s undervaluation of apparel to pay less duties than were really owed.
However, the settlement reached was brought under False Claims Acts – not with the importer, but its customer Notations, Inc., a Pennsylvania womenswear wholesaler. They settled civil fraud claims and agreed to pay $1 million. In addition,
Notations also has agreed to implement a written compliance policy which will include measures to educate its employees on identifying red flags for fraud in import transactions, to monitor the conduct of its business partners who act as importers of overseas goods and to report all potentially fraudulent conduct to CBP.
Notations, prior to doing business with the supplier, generally had served as its own importer for garments that it sourced from overseas. Customs compliance was ensured in Free on Board or FOB type transactions. When Notations began doing business with this supplier, the Incoterm used was switched to DDP (Delivered Duty Paid) in the purchase agreements. This meant that its suppliers had responsibility for taking care of customs entry and duties payment, while Notations simply paid an all-in purchase price.
After switching to DDP arrangements, it was alleged that Notations deliberately turned a blind eye to whether its suppliers were cheating on duties obligations. Notations did nothing to stop—or alert CBP to—this illegal conduct. Notations employees testified that they did not believe it was their job to do so.
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