CAFC Upholds $7.5 Million 1592 Penalty for Double Invoicing Scheme
In Inn Foods, Inc. v. U.S., the Court of Appeals for the Federal Circuit affirmed the Court of International Trade's ruling that Inn Foods was liable for monetary penalties under 19 USC 1592(a) and unpaid duties under 1592(d) on imports of frozen vegetables that were entered using fraudulent values.
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Inn Foods, along with Seaveg Ltd. (a shell company used to facilitate sales to certain purchasers in the U.S.), contracted with six Mexican growers, in which a double invoicing scheme was used to undervalue the actual prices paid to the Mexican growers. These false values were used to make entry into the U.S.
On appeal, Inn Foods did not dispute that they used false documents to enter their imports, but contended that they acted without fraudulent intent. However, the CAFC agreed with the CIT, affirming its finding that the double-invoicing scheme performed by Inn Foods was done knowingly and with fraudulent intent.
Inn Foods then contended that even if fraud were established concerning its entries before April 17, 1989, the inclusion of a disclaimer after that date, stating that the values being used for entry were strictly for customs clearance, should prove that Inn Foods was not attempting to defraud Customs after that date.
The CAFC dismissed this argument, ruling that invoices used in the fraudulent value scheme continued after that date, even though Inn Foods possessed both the true invoices and the false invoices, with no attempt to correct those values.
Inn Foods also argued that they should not be liable for unpaid duties on entries where Seaveg was the actual importer of record. The CAFC sustained the CIT's determination that Inn Foods knowingly aided and abetted in the fraudulent entry of the frozen vegetables. As a result, Inn Foods was responsible for paying any of the duty lost due to the fraud.
In conclusion, the CAFC affirmed the CIT's decision that Inn Foods must pay the civil penalty of $7.5 million on imports of frozen vegetables that were fraudulently undervalued, as well as the unpaid Customs duties of $624,602.55 which resulted from this undervaluation entered by Inn Foods and its sister company, Seaveg, Ltd.
(See ITT's Online Archives or 10/30/07 news, 07103030, for BP summary of the decision by the CIT Slip Op. 07-142.)
CAFC decision 08-1118 (dated 03/27/09) available at http://www.cafc.uscourts.gov/opinions/08-1118.pdf