By Shawna Karajic, Export Solutions Inc.

In 1789 Benjamin Franklin wrote in a letter to Jean-Baptiste Le Roy, “… in this world nothing can be said to be certain, except death and taxes”. Nothing rings truer than when you are trying to import merchandise from another country. If you don’t get all the elements correct for an import entry, you might be coughing up some additional duties (taxes) to U.S. Customs.

There are several elements on a commercial invoice for imports that needs to be accurate, but in this blog, I am going to focus on value.

Why does your value need to be accurate?

Valuation is an important part of your import entry. So much so, that U.S. Customs has several Informed Compliance Publications relating to value, determining value, how commissions get factored into value, and proper deductions. These publications are listed below.

Your value needs to be accurate as this is how the duties and taxes are determined based on your classification. For example, if you were importing men’s knitted wool sweaters classified under 6110.11.0015, your duty rate would be 16% of the total transaction value. Let’s say that the unit price for the sweater was $150 and you were importing 2000 of them. Your total transaction value would be $300,000. So, if you take your transaction value times the duty percentage, the duty you would be paying for this shipment would be $48,000, plus any additional fees, such as merchandise processing fee.   That is A LOT of duty (taxes) to be paid. So, you decide that you are going to doctor the invoice to have the item value be $15 instead of $150 after you receive it from your supplier, so you don’t have to pay as much to US Customs when the shipment comes in. Now, your total transaction value is $30,000 and your duty rate would be $4,800. Sounds better, right? However, this could get you into big trouble.

What kind of trouble could you get in for reporting an incorrect value?

Recently, there were a few companies that found out what kind of trouble they could get into for misrepresenting the value of their shipments. In both cases below, they were brought forward by whistleblowers.

Case 1:

In this case, there were two Milwaukee area electrical companies that shared a principal place of business, Precision Cable Assemblies, Inc (PCA) and Global Engineered Products, Inc (GEP). Both companies were importing goods from China. Their supplier in China would send them the invoice as an electronic spreadsheet. It was alleged that these companies had submitted false commercial invoices to U.S. Customs (CBP) and had significantly undervalued their goods which resulted in the incorrect duties and taxes being paid. From 2016 to November 2021, PCA and GEP falsified their invoices by altering the values on the electronic spreadsheet by as much as 70% and then provided those invoices to their customs broker for import clearance. The customs broker unknowingly submitted these false invoices to CBP. In doing so, both companies avoided paying millions of dollars in duties on the imported goods, especially after the increase in duties from China in 2018. GEP had initially paid CBP approximately $4.2 million in duties that were lost from this scheme. PCA and GEP paid another $6 million dollars to fully resolve their liability for the alleged evasion of duties, including potential liability under the False Claims Act.

Case 2:

 Between Jan. 1, 2015 and Dec. 31, 2022, women’s apparel importer Alexis had violated the False Claims Act by misreporting the value of their imported apparel. In doing so, they underpaid the total amount of duties and taxes that they owed. In addition to the falsification of values, the company also admitted that they failed to apportion to value of assists, identified classification errors, and found and corrected other entry documentation issues associated with their sales-related documentation and port of entry codes. The company acknowledged and accepted the responsibility for the errors. They also fully cooperated with the Department of Justice’s (DOJ) investigation, worked with trade counsel to implement a robust set of internal and external procedures and corrective actions. They also proved that they were seeking the highest level of import compliance as a corporate goal. In the end, they settled the lawsuit and had to pay a total of $7.7 million dollars of underpaid customs duties and taxes.

How do you make sure this doesn’t happen to you?

As an importer, it is your responsibility to make sure that all the information that is being reported to CBP is as correct and accurate as possible. This is part of doing your due diligence. You can’t rely on your suppliers or your customs brokers to provide you with the correct classification. If your customs broker is filing the import entry on your behalf, make sure that you are receiving the entry packet, which should include the CF7501, CF3461, commercial invoice(s), certificate of origin, bill of lading and any other documentation that supports your entry. You should audit the entries to ensure that all the information is correct and if there was a mistake then take the necessary steps to correct the entry. Those might be having your customs broker file a post summary correction if the entry hasn’t liquidated yet, or if it has, then you would need to file a protest (CF19) with CBP. One thing that most importers might not think about is having a robust import compliance program. This would provide the necessary documentation of policies and procedures that you, as an importer, would follow to make sure that you are staying compliant with all of the CBP regulations.

Do you need help with setting up an import compliance program or maybe evening auditing your import entries?  Schedule a no-charge consultation with one of our team members today.

Shawna Karajic is a Senior Consultant for Export Solutions -- a full-service consulting firm specializing in U.S. import and export regulations.