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Are Corporate Officers and Shareholders personally responsible for a company’s customs violations?

That question will be addressed this year by US Court of Appeals for the Federal Circuit (CAFC) in the case of Trek Leather Inc. et al. v. United States.

The customs violation at issue is Trek’s failure to include “assists” in the form of fabric provided free of charge to the apparel manufacturer in the entry declared to US Customs & Border Protection (“CBP”). By not including the cost of fabric in the value declared to CBP, Trek underpaid customs duties. Trek was the importer of record for all relevant import transactions, but also implicated was Trek’s president and sole shareholder, Mr. Harish Shadadpuri. Crucial to the issue was the fact that Mr. Shadadpuri had previously been involved in an identical penalty case as a shareholder in another, related company.

The U.S. Court of International Trade (CIT) found Mr. Shadadpuri and Trek “jointly and severally” liable for intentionally understating the value of the imported men’s suits, assessing $534,420 in civil penalties and $45,245 for the unpaid duties.

On July 30, 2013, the US Court of Appeals for the Federal Circuit (CAFC) reversed the CIT with respect to Mr. Shadadpuri’s liability, holding that corporate officers of companies that are merchandise importers of record cannot be held personally liable under 19 U.S.C. § 1592, unless the government either:

  • Pierces the corporate veil and proves the individual at issue was in fact the importer of record.
  • Proves the individual committed fraud, under Section 1592(a)(1)(A).
  • Proves the individual aided or abetted fraud by the importer of record, under Section 1592(a)(1)(B).

However, the CAFC recently ordered an en banc hearing to reconsider the question of personal liability. In doing so, the Court vacated the opinion of July 30, 2013 and reinstated Mr. Shadadpuri’s original appeal of the CIT decision.

The Court asked the parties to address the following issues in the new hearing:

  1. What is the meaning of “person” in 19 U.S.C. 1592(a), and how do other provisions of Title 19 affect this inquiry?
  2. If corporate officers or shareholders qualify as “persons” under 1592(a), can they be held personally liable for duties and penalties imposed under 1592 (c)(2) and (3)? If so, under what circumstances?
  3. What is the scope of “negligence” and “gross negligence” in 1592(a) and what is the relevant duty? How do other statutory provisions of Title 19 affect this inquiry?

The CAFC’s decision will substantially affect CBP’s enforcement posture for years to come. In the interim, Corporate Importers may wish to consider providing indemnification agreements to Directors, Officers and Key Employees to minimize potential personal liability for actions taken in their corporate capacity that result in customs violations.

For additional information please contact the MIQ Global Trade Management Team.

Nothing in this message is intended to constitute legal advice.  For such advice, you should consult with a qualified attorney.