I am a lawyer who represents whistleblowers trying to stop customs fraud.
I have several blog entries about the ways that importers and customs
brokers attempt to defraud the United States Customs and cheat U.S. citizens
by not paying the customs duties they owe to the United States Government.
Today I want to focus on an area that is very vulnerable to fraud: the
special system that Congress has developed for “beneficiary developing
countries” or BDC’s. According to a statute passed by Congress,
the President is allowed to designate certain, third world countries that
need help with their economies. In an effort to bolster the economies
of these countries, manufacturers importing goods from these countries
into our country are allowed to pay a greatly reduced customs duty, and
sometimes the duty is eliminated altogether.
Of course, as with any other privilege, some unscrupulous importers may
be tempted to cheat the system. These importers may try to pretend that
their goods have come in from a beneficiary developing country just so
they can avoid paying the taxes, even when the goods really came straight
from a country that does not qualify under the program. When importers
commit fraud by making false claims about the country of origin of the
goods, a whistleblower can bring a customs False Claims Act whistleblower
lawsuit to stop the fraud and make the company committing the fraud pay
what it owed in the first place.
In order to answer the main question – are the goods really coming
from a GSP country? — the regulations ask two basic, sub-questions:
(1) are the goods being imported directly from a GSP country?; and (2)
are the goods actually made in or coming from the GSP country, or are
they really just being routed through the GSP country?
To be eligible for GSP status, a company’s goods must be “imported
directly” into the United States. The phrase “imported directly”
is defined in
19 C.F.R. 10.175.
To be eligible for GSP status, shipments have to meet all four requirements
(1) The shipments “remained under the control of the customs authority
of the intermediate country;”
(2) The shipments “did not enter into the commerce of the intermediate
country except for the purpose of sale other than at retail;”
(3) “The port director is satisfied that the importation results
from the original commercial transaction between the importer and the
producer or the latter’s sales agent;” and,
(4) The shipments “were not subjected to operations other than loading
and unloading, and other activities necessary to preserve the articles
in good condition.”
Because some importers might be tempted to abuse the system, U.S. Customs
has ruled that any violation of these four rules makes a shipment ineligible
for beneficiary developing country (“BDC”) status.
Goods can “enter the commerce” of a country for several different
reasons. For example, if an importer repackages goods, they enter into
the commerce of a country. Merchandise also will enter into the stream
of commerce if it is processed or subdivided into lots. Customs has disapproved
GSP status twice where the importer had taken inventory of the finished
goods through the computer system to reflect stock, done ‘quality
assurance’ involving inspection of the goods, prepared the purchase
order and other shipping documents, and possibly repacked and prepared
the goods for shipment to the U.S.” See