U.S. Customs and Border Protection recently initiated an action before the U.S. Court of International Trade (“CIT”) to recover civil penalties and unpaid taxes from two companies that imported cigarette rolling papers, smoking pipes, and pipe screens from China. U.S. Customs alleged that Green Planet, Inc. and Token Group LLC, both located 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 they filed with U.S. Customs.
According to U.S. Customs, between June 2010 and 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 time of entry. U.S. Customs alleged Green Planet and Token Group filed import entry declarations that contained material false statements and/or omissions and 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 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 time of entry.
It is not clear why Green Planet and Token Group did not pay the duties owed on their imported Chinese 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 and smoking related products have ambiguous or uncertain classification, particularly as new products are developing. Regardless of intent, Green Planet’s and Token Group’s failure to properly file accurate Customs entry declarations was deemed to be negligence warranting a Customs penalty action.
This case demonstrates how U.S. Customs will pursue penalty actions regardless of how small the amount of duties owed. I mention this because we often hear otherwise from our customs clients, many of whom wrongly believe there is some minimum safe haven out there. There is no minimum amount Customs considers necessary to pursue a penalty action against importers and because the penalty is double the amount that should have been collected at time of entry, underreporting can be very costly. If you are an importer and make any material false statement or omission on your entry declaration, you risk a substantial Customs penalty action.
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 may mitigate potential penalty actions and it can limit your exposure to just the amount of outstanding duties owed.
Importers need to ensure their import declarations are filed accurately. Though customs brokers file Customs entry documents on behalf of importers, they are only agents of the importers and the importer bears ultimate responsibility for any Customs entry declaration. In fast developing industries (like cannabis), importers need to be especially mindful to make sure their imported products are correctly declared to Customs so as to avoid penalties.
3-25-2024 UPDATE: Though this post relates to cases from nearly a decade ago, everything I said in this post remains true today.
