Myers outlines ICE efforts to combat trade fraud
U.S. investigators are targeting foreign trade zones and bonded import warehouses as part of a broader crackdown on customs trade fraud, Julie Myers, assistant secretary for homeland security, said Tuesday.
Speaking in New Orleans at the winter conference of the American Association of Exporters and Importers, Myers said the Immigration and Customs Enforcement agency she helms last year established Fraud Investigations Strike Teams to audit foreign trade zones.
Companies that operate in FTZs are allowed to store and manipulate imported merchandise by doing light manufacturing, repackaging and other added-value work, and avoid paying duty for re-exported goods, or until the products enter U.S. commerce. U.S. Customs and Border Protection requires operators to purchase a bond from an approved surety company that guarantees payment of duties, fees, and penalties to the government if they do not comply with Customs regulations.
ICE specialists visit FTZs and, to a lesser degree, bonded warehouses to make sure operators do not try to move merchandise from a bonded facility to a U.S. customer without paying proper duties, that products meet U.S. safety requirements and that contraband is not smuggled in a shipment for U.S. distribution.
Last year, the teams concentrated compliance reviews in the Chicago, Atlanta and San Francisco regions. Document checks often unearthed other types of violations such as misclassified merchandise and products that have been improperly labeled to avoid duties and quota limits.
Meyers said the 2006 prosecution of a company called Triunfo-Mex resulted in the collection of more than $5 million in criminal fines and penalties. Triunfo-Mex, a producer of condensed milk and instant drink mixes, tried to avoid more than $3.5 million in duties by severely undervaluing its products on customs declarations. The company made 32,000 entries over a three-year period and listed the true import price on the import documents until it began to bump up against quotas established under the North American Free Trade Agreement. Then it dropped the declared price to one-tenth the previous value to avoid higher duties on goods that exceed the quota level.
The criminal fine imposed was one of the largest for a NAFTA violation, Meyers said.
More aggressive enforcement has resulted in increased penalties and the identification of a large number of illegal immigrants with unauthorized access to secure warehouse areas, she said. (For more background on ICE actions in the warehousing industry, see the June 2006 American Shipper, page 62.)
ICE and CBP have also focused since 2003 on abuse of the in-bond transportation system, used to defer duty on cargo moving inland. Under the schemes, shipments from China or other Asian countries are moved by truck or rail to Laredo, Texas, for immediate export to Mexico, but instead are diverted for sale in the United States.
Under Operation Security Bond, ICE agents conduct physical surveillance to make sure that merchandise scheduled to move from a warehouse to Mexico actually crosses the border. Roadblocks are sometimes set up to check the contents of trucks, ICE officials said.
In a separate type of enforcement action in Los Angeles, a freight forwarder named JAS Forwarding was the innocent victim of unscrupulous business partners that diverted clothing from China and Hong Kong to U.S. buyers by filing false in-bond papers stating the goods were simply entering the country en route to Mexico, ICE officials said. Conspirators unloaded the apparel in Los Angeles for distribution to U.S. customers and sent empty containers to Mexico or sent loaded containers around the flagpole and back to a consignee without being exported.
Agents seized 210 containers with a domestic wholesale value of more than $75 million and a street value of more than $200 million, along with millions of dollars property and $18 million from bank accounts from the principals and their U.S. clients, Myers said.
The JAS case is an example of a legitimate business caught up in illegal schemes to defraud the U.S. government or undermine security. In many cases, department stores and other buyers are burned because they pay a higher price for the merchandise under a landed duty paid arrangement that places responsibility for the freight transport and customs payment on the overseas supplier. The U.S. customer does not know that the shipper is not paying the proper duties, and may never see the goods if they are seized by Customs or ICE agents. Sometimes consignees can get their goods from Customs if they are willing to pay the duty — essentially paying twice, an ICE official said on background.
Another area of trade fraud that has drawn significant attention from the Department of Homeland Security is theft of intellectual property, either by selling counterfeit goods or overruns of legitimate merchandise by unscrupulous suppliers.
DHS reported in mid-January that it achieved an 83 percent increase in seizures of counterfeit goods during fiscal year 2006, setting new records as the number and value of seizures continues to increase.
CBP and ICE made more than 14,675 seizures of counterfeit goods in 2006. The seized goods were worth more than $155 million, a 67 percent increase from the previous year.
ICE investigations resulted in 219 arrests, 134 indictments and 170 convictions in intellectual property rights violations, a 71 percent increase.
Myers said DHS is working closely with foreign governments, such as an undercover operation with China, to break up criminal enterprises involved in intellectual piracy.
Another ICE priority is combating trade-based money laundering. Myers summarized details of a case, announced last August, in which ICE helped Brazilian authorities dismantle an operation involving the undervaluation of U.S. exports to Brazil to evade more than $200 million in Brazilian customs duties over a five-year period. Brazilian authorities arrested the directors and owners of several large companies that distributed imported electronics, as well as several federal and state government officials. ICE agents raided two warehouses in Miami and seized $500,000 in goods slated for export to Brazil.
The searches and arrests were the first made as the result of collaboration between Brazilian authorities and ICE through joint teams known as Trade Transparency Units. The U.S. government has set up several of these dedicated units in South America to detect anomalies in international commerce that might indicate trade-based money laundering or other criminal activities. The key to the TTUs is a joint computer database, the Data Analysis and Research Trade Transparency System (DARTS), that facilitates the exchange of export/import data and financial information.
The system 'can accept foreign trade data and securely share U.S. trade data with foreign partners,' Myers said. The teams jointly analyze the shared data to track trade patterns for particular exports.
For example, a rapid spike or huge dip in the price of vanilla beans after a period of stability might indicate an attempt to use legitimate transactions to recycle money to another country, Myers explained.
'We think that this sharing of data has great potential,' she said
Asked what kind of protections there are for sharing export data on U.S. companies, Myers simply said the system had been vetted and approved by administration lawyers. An ICE official explained later that the data used is public export information and less detailed than the type available through PIERS, a private-sector reporting service of commercial cargo declarations.
Meanwhile, the Black Peso Exchange, the largest money-laundering system in the Western Hemisphere, has been a long-time target of the U.S. government.
ICE is also heavily involved in enforcement of export control regulations to prevent U.S. military technology, dual-use items, and components and precursors for weapons of mass destruction from falling into the hands of terrorists or other potential enemies.
Last year, ICE made 144 arrests, obtained 128 indictments and 98 convictions for export licensing violations.
Kal Nelson Aviation Inc., a Sun Valley, Calif. company, paid a $1 million criminal penalty for attempting to illegally export U.S. missile and fighter jet components without a State Department license, according to an August news release. Myers cited a November 2005 conviction of a man who tried to export F-15 and Black Hawk helicopter engines to China without an export license.
Myers emphasized that ICE wants to provide resources and information to international traders for them to avoid being involved in trade fraud scenarios.
She advised companies to protect themselves from becoming unwitting accomplices to narcotics smuggling and other crimes by looking for red flags. Suspicious actions include:
* Payments for outstanding invoices that are made in cash by third parties that have no connection to the underlying transaction.
* Payments for goods with checks not drawn on an account of the entity that purchased the items.
* Wire transfers from unrelated or unknown sources.
On the export side, Myers recommended that shippers:
* Have overseas shipments reviewed by well-trained export specialists.
* Research customers and realize there may be a problem if they want to pay by cash rather than letter of credit for a high-value order, are willing to pay far in excess of market value, or the consignee is a trading company with no connection to the purchaser. The last scenario could indicate the items may be transshipped to a prohibited party.
* Know their employees and make sure they understand the export license requirements.
* Understand the deemed export rules for getting a license to transfer certain types of knowledge to foreign nationals, including company employees.
Myers reminded small and medium business to take advantage of Project Shield America, which includes an outreach component under which ICE personnel will visit companies to provide tips on how to prevent the illegal export of sensitive U.S. munitions, dual-use items and strategic technology to criminals and foreign enemies.
