Pennsylvania Companies Pay $3 Million in Customs Fraud Case

The customs process for businesses is a more extensive version of what international travelers have to do upon arriving back to their home country. Customs forms can feel like a nuisance, but the federal government requires them to ensure that anything entering the country is correctly accounted for and appropriately taxed.

As such, businesses that import their products are subject to tariffs. They are also required to submit claims to the U.S. government stating the contents, size and quantity of the products. Refusal to do so constitutes a False Claims Act violation. In a recent showcase of this type of FCA violation, the Department of Justice has settled with four Pennsylvania-based manufacturing companies for allegedly committing $3 million worth of customs fraud.

For businesses that source products internationally, customs obligations are extremely important to get right. To navigate these procedures, many businesses use customs brokers or hire internal personnel who specialize in this process to ensure that all imports and exports are compliant.

Ameri-Source settles False Claims Act lawsuit

Ameri-Source International Inc. is a Pennsylvania-based company that specializes in synthetic graphite electrodes, materials used to fuel furnaces in steel and iron manufacturing. These column-shaped materials are typically 16 inches in diameter.

On February 22nd, 2016, Ameri-Source, two of its sister companies and affiliated company SMC Machining, LLC settled allegations of False Claims Act violations. Two of the individuals responsible for these companies, Ajay Goel and Thomas Diener, also pled guilty to two counts of smuggling goods into the country.

The government’s lawsuit alleged that Ameri-Source violated antidumping duties, the taxes imposed on imported products whose value is below fair market standards. In this case, the defendants imported materials from China at far below fair market value, which would have required them to pay significant taxes to make up the cost discrepancy.

Ameri-Source was accused of misrepresenting its imports by claiming the products were a different size than they truly were, and thus failing to pay the corresponding $2,137,429 in antidumping duties. The companies will pay back that amount to the government as part of their settlement, in addition to a $250,000 criminal fine for the smuggling charges.

These types of duties are imposed so that companies who import from foreign countries aren’t receiving an unfair advantage over companies that manufacture their products domestically.

Although it is often individuals who report fraud, it was a business that blew the whistle on these customs fraud allegations. Graphite Electrode Sales Inc. reported information about the falsified customs documents and as a result will receive an award of approximately $480,000.

The cost of import fraud

February’s case isn’t the first time the government has cracked down on import fraud. In 2012, a $100 million customs fraud scheme was revealed in San Diego, California.

A very coordinated fraud ring schemed to defraud the government by falsely claiming that certain imports were en route to other countries and not at their final destination. Businesses are subject to import taxes only when products are entering the “commerce” of the United States, so by claiming that their products weren’t, the fraud orchestrators evaded applicable taxes.

Instead of moving the goods, which included foreign-made clothing and cigarettes, to another country, the defendants had them covertly sent to warehouses within California.

One of the people who orchestrated this scheme was at that time President of the San Diego Customs Broker Association. Chavez and many of his customers who participated in the scheme benefited financially from not having to pay import taxes on these wholesale goods.

Export fraud carries similar consequences

Any product going in or out of the United States has to be properly declared. Even when the exporter is a valued businessperson, he or she can be prosecuted for improperly representing goods.

In February 2016, a prominent manufacturer of halal foods was convicted for falsifying product details during the export of beef products. The Midamar owner, William Aossey Jr., has been sentenced to two years in prison and fined $60,000.

The charges were filed because 22 shipments of halal foods sent to Malaysia from the U.S. did not adhere to Malaysian halal standards, and Midamar lied about this on customs documents.

The beef products had actually been processed in a non-halal slaughterhouse in Minnesota, but Aossey encouraged Midamar employees to write the name of a halal-compliant slaughterhouse on the packaging. The falsified shipments were worth $740,000 altogether.

Correct import and export practices

Sometimes businesses create and participate in customs fraud schemes in order to cut corners and save money, but when they do so, it’s at the taxpayers’ expense.

It’s important for any business to stay up-to-date on the import and export regulations that pertain to its products. The government is not especially interested in prosecuting minor errors, but any deliberate scheme to falsify claims can, as these cases demonstrate, be prosecuted. Learn more about tariff and duty fraud here.