Importing cannabis into the United States is illegal since cannabis is a Schedule I controlled substance. But it’s not necessarily illegal to import smoking accessories into the United States, such as (pipes, grinders, rolling papers, etc.) so long as you’re not violating federal paraphernalia laws. Even though marijuana legalization is sweeping the U.S. and people are consuming cannabis in all shapes and forms, importers of smokers accessories still have to abide by all federal importation laws. Based on the large number of calls and emails we get from such importers with products being held up by U.S. Customs at the border, far too many do not realize this. For this reason, I asked Adams Lee, one of our firm’s international trade and customs lawyers, to write the below post with me.
U.S. Customs and Border Protection recently initiated an action before the U.S. Court of International Trade (“CIT”) to recover approximately $500,000 in civil penalties and unpaid taxes from two companies that imported cigarette rolling papers, mini hookahs, smoking pipes, and pipe screens from China. U.S. Customs alleged that Green Planet, Inc. and Token Group, LLC, both at the same address in Riverside, California, had imported various smoking products from China without including the correct amount of duties owed on the import entry declarations filed with Customs.
According to Customs, between June 2010 through February 2013, Green Planet made four entries (with an entered value of $407,308.71) and Token Group made five entries (with an entered value of $1,412,456.73) of imported products from China, but failed to pay Customs over $200,000 in applicable duties that should have been declared at the time of entry. U.S. Customs alleged that Green Planet and Token Group filed import entry declarations that contained material false statements and/or omissions and that their failure to exercise reasonable care in submitting information to Customs constituted negligence in violation of 19 U.S.C §1592(a).
After the entries had been made, Green Planet and Token Group (or their surety companies) paid Customs almost all of the outstanding duties that should have been paid. Though Green Planet and Token Group together now owed less than $30,000 in outstanding duties, Customs still decided to seek penalties of $432,975.86 against them for their having negligently filed material false statements on their Customs entry declarations. For negligent filing of entry declarations, Customs is entitled to collect civil penalties equal to twice the lawful duty amount that should have been collected at the time of entry.
It is not clear why Green Planet and Token Group did not pay the duties owed on their imported Chinese rolling papers and smoking products. Perhaps they sought to cheat Customs and purposefully tried to avoid paying lawful duties. Or perhaps they had a legitimate basis to claim the products should have been declared under a duty free tariff heading. Numerous cannabis related products have ambiguous or uncertain classification, particularly as new products are developing. Regardless of their intent, Green Planet’s and Token Group’s failure to properly file true and accurate Customs entry declarations was deemed to be negligence warranting the initiation of a Customs penalty action.
This case demonstrates how Customs will pursue penalty actions regardless of how small the amount of duties owed. We mention this because we often hear otherwise from our customs clients, many of whom wrongly believe there is some sort of minimum safe haven amount Customs will ignore. If you are an importer that makes any material false statement or omission on your entry declaration, you are at risk of a substantial Customs penalty action. Because the penalty for negligent Customs declarations is double the amount that should have been collected at the time of entry, under-reporting can have costly consequences.
If you catch your mistake on your customs entry declaration before Customs initiates a penalty action, you can make a prior disclosure to Customs of your error. This will help mitigate potential penalty actions, and could limit your exposure just to the amount of outstanding duties owed.
Importers need to take care to ensure that their import declarations are filed accurately. Although customs brokers file Customs entry documents on behalf of importers, they are only agents of the importers who bear ultimate responsibility for any Customs entry declaration. In fast developing industries (like cannabis), importers need to be especially mindful of the Customs reporting challenges to make sure their imported products are correctly declared to Customs so as to avoid potentially penalties.
Bottom Line: Let’s get real here. New President. New Republican Administration. Not China friendly. Not import friendly. Not cannabis friendly. If you do not realize that customs is going to be cracking down doubly hard on cannabis-related imports going forward, you are living in an alternate universe. What this means in this universe is that you need to handle everything related to customs right the first time and if you don’t you need to fix it quickly and appropriately.