CIT Rules Importation of Undervalued Produce Constituted Fraud
In U.S. v. Inn Foods, Inc., the Court of International Trade ruled on remand from the Court of Appeals for the Federal Circuit that entries filed by Inn Foods covering imported frozen Mexican produce from 1987 to 1990 were undervalued, and these actions constituted a fraudulent violation under 19 USC 1592. (See U.S. v. Inn Foods, Inc., CAFC 04-1035.
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Since Inn Foods acknowledged that the dutiable values used for entry were erroneous and agreed that the loss of revenue was $624,602.55 plus interest, the central question for this court to determine was the level of culpability of Inn Foods (i.e.,fraud, gross negligence or negligence) and the penalty that should be imposed.
Inn Foods, along with Seaveg (a shell company used to facilitate sales to certain purchasers in the U.S.), contracted with six Mexican growers, initially paying them seventy percent of the estimated U.S. market selling prices. These values were to be invoiced by the Mexican growers, and used by Inn Foods, to make entry into the U.S. The final purchase prices paid to the Mexican growers were to be determined after the eventual sale of the produce in the U.S., and after Inn Foods made adjustments to those values to account for actual selling prices, as well as costs incurred in the U.S. (i.e., packing, brokerage, storage, and inspection).
The CIT stated that to prove a fraudulent violation of 19 USC 1592 had occurred, there must be clear and convincing evidence that (1) merchandise was imported into the U.S. by means of false statements, acts, or omissions; and (2) these actions were committed with intent to defraud the government of revenue.
The CIT stated that Inn Foods never disputed presenting false invoices, and that Customs demonstrated from documentary evidence introduced during the case that these invoices showed undervalued selling prices that resulted in a loss of revenue to the government. In addition, Inn Foods entered these undervalued shipments over a three year period, with a clear intention to conceal their true values. As a result, the CIT ruled that Inn Foods' actions were voluntary and intentional, finding them to have fraudulently introduced merchandise in violation of 19 USC 1592.
Although the CIT could have imposed a civil penalty equal to the full domestic value of the falsely entered merchandise of $15,319,513.35, it took into consideration that these violations occurred many years ago, and since that period, Inn Foods has properly reflected the values on their imported merchandise. With these factors in mind, the CIT imposed a reduced penalty of $7.5 million.
(See ITT's Online Archives or 09/20/04 news, 04092025, for BP summary of decision by the CAFC that the Government's litigation filing was timely.)
CIT Slip Op. 07-142 (dated 09/25/07) available at:http://www.cit.uscourts.gov/slip_op/Slip_op07/Slip%20Op.07-142.pdf
http://www.cit.uscourts.gov/clip