Personal Liability for Corporate Import Violations Would Hurt Compliance, Says AAEI
Corporate officers should not be liable for penalties for negligent misstatements on their companies’ entry documentation, said the American Association of Exporters and Importers (AAEI) in a legal brief submitted to the U.S. Court of Appeals for the Federal Circuit May 9. The court, in an en banc review, is considering the issue of whether the owner and president of Trek Leather should pay penalties for negligence under Section 592 of the Tariff Act for his company’s failure to list assists on entry documentation. AAEI says doing so would be contrary to the law’s intent, run afoul of corporate limited liability protections, and have grave consequences for the importing community and the government’s efforts at promoting compliance.
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
“Any interpretation of [19 USC 1592] that disregards the liability limitations ordinarily accorded to corporate entities would have immensely negative consequences for the importing community, and would impede Congress’ legislative goal of promoting importer self-regulation using ‘reasonable care’ within a regulatory environment of ‘informed compliance,’” said the brief written by AAEI’s lawyer, John Peterson of Neville Peterson.
CAFC Revisiting Corporate Officer Liability for Customs Violations
The case revolves around the question of whether Hadish Shahdadpuri should pay over $500,000 in penalties for a negligent violation of 19 USC 1592 related to his company’s omission of assists. CAFC found he should not, because only the importer of record (in this case, Trek Leather) has the responsibility to exercise reasonable care to avoid penalties for negligence (see 13073025). Corporate officers can only be held liable for Section 592 violations if they aid and abet their corporation’s fraud, it said. A court can also decide the facts of a case warrant “piercing the corporate veil” and exposing corporate officers to liability. But Section 592 does not automatically make corporate officers liable for negligent acts they undertake on behalf their corporations, said CAFC.
CAFC recently decided it would revisit the issue, this time with the full 11 judge court deciding the case (see 14030601). In its request for rehearing, the government said the decision would provide “a roadmap for importers to negligently violate the customs laws; one individual can transact the same importing business using multiple shell companies as importers of record, allowing evasion of personal liability for duties and penalties in all but the most egregious situations, it had said.” Another company owned by Shadadpuri had previously been found by CBP to omit assists from entry documentation.
Personal Liability Would Destroy Culture of Reasonable Care, Says AAEI
In its amicus brief, AAEI said that only the importer of record can normally be held liable for Section 592 penalties. When a corporate importer of record is involved, that would not completely insulate its corporate officers from any liability. They can still be liable if they aid and abet fraud, or a court can find that a corporate owner abused the corporation to violate the law, and hold the owner liable for payment of any penalties. But nothing in the history Section 592 shows Congress intended to “deprive importers of the ordinary liability limitations granted to those who transact business in the corporate form,” said AAEI.
Doing away with corporate liable protections for importers would have “adverse consequences on AAEI’s members, the importing community, and the government itself,” said AAEI. Talented managers would not want to serve in corporate customs compliance jobs if they placed their personal assets at risk. They would instead want jobs where they “would not be the company’s ‘designated felon,’” said AAEI. And many firms would stop importing in order to avoid liability, instead choosing to rely on their suppliers as foreign non-resident importers of record. But most seriously, imposing direct personal liability would undercut efforts to promote a culture of reasonable care. Given the massive volumes of trade, that culture is necessary for effective revenue collection and security efforts. “For this Court to ‘paint a bulls eye’ on that culture, and those who toil in it, by imposing enhanced personal liability for corporate acts, would lead to a weakening, and even a partial dismantling, of that culture,” said AAEI.