To guard against unfairly priced and government-subsidized imports from foreign countries, the United States uses antidumping and countervailing (AD/CV) duties. Countervailing duties occurs when foreign governments subsidize manufacturers that export goods to the United States through tax breaks and government financing. These heavily subsidized industries are then able to sell the goods at prices below the cost of production in the United States, prices that domestic manufacturers cannot compete with. To combat this, the U.S. government will impose an AD/CV duty upon importation on goods found to be unfairly priced. These duties essentially balance out the subsidies that the foreign companies receive and account for the cost of production, potentially exceeding 300 percent of the value of the goods.

However, the U.S. government has had difficulty collecting on these AD/CV duties due to foreign companies going to great lengths to evade them. As of 2015, the U.S. government has lost $2.3 billion in uncollected AD/CV duties. Further, these foreign exporters use several methods to avoid paying the duty that potentially violate the False Claims Act (FCA).

One of the most common methods is the misclassification of imports. A party violates the FCA when they fraudulently misrepresent the nature or physical characteristics of imported goods in order to pay a lower duty than is owed. This violation typically involves a misrepresentation on the imported shipment’s bill of lading, which is the document that identifies the goods to Customs and Border Protection (CBP) and allows Customs to determine the duties owed. For example, an AD/CV duty might apply different rates to certain components of imported goods. Foreign companies mislabel these components in order to avoid paying the duty.

“Country of origin” fraud is another way companies violate the FCA by evading duties. Certain AD/CV duties only apply to goods from certain countries. “Country of origin” fraud occurs when smugglers fraudulently claim that imported goods are from a different country than they actually are because goods from the claimed country are taxed at a lower duty rate. This usually involves shipping products to a third country and manipulating the statement of origin, invoice, or bill of lading to state that the goods originated in that third country. Many southeast Asian countries such as Malaysia, Thailand, Indonesia, Philippines, India, Vietnam and Taiwan have been identified as major third country shipping fraud hubs.

The third way companies violate the FCA in attempting to avoid AD/CV duties is by undervaluing the goods they import. Most duties are calculated on an “Ad valorem” basis, meaning that the amount of the tariff owed is a percentage of the value of the goods imported. Smugglers can manipulate the calculation to pay a lesser duty than actually owed by falsely claiming that the goods are worth less than they actually are. Some companies do this by simply understating the weight of the goods. Others engage in “double invoicing,” where companies only report a portion of the price of the goods to Customs, and then pay the remainder of the price to suppliers once the goods have been imported.

The Trump Administration says it is attempting to crack down on customs and trade fraud. On March 31 of this year, President Trump issued two executive orders directing the Attorney General to “ensure that Federal prosecutors accord a high priority to prosecuting significant offenses related to violations of trade laws,” and directing the Secretary of Homeland Security, through the Commissioner of Customs and Border Protection, to “develop and implement a strategy and plan for combating violations of United States trade and customs laws.”

Specifically, the Executive Order directs the Secretary of Homeland Security to develop a system that would require certain importers to post bond as security for any potential duties before allowing them to import to the United States. As its plan is implemented, this Executive Order could lead to increased criminal prosecution and qui tam actions involving antidumping and countervailing duties.

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