What is customs fraud?
Customs fraud is any fraudulent practice that attempts to reduce the duties (or duties or taxes) levied on goods imported into the United States from abroad.
CBP officers can only inspect a small percentage of shipments entering the country each day. The country's customs system relies on allowing importers to accurately identify the type, value and country of origin of the goods they import, and pay import duties as required by law. From fiscal 1993 to 2018, CBP attempted to collect about 65,000 unpaid tariff bills totaling $4.5 billion, according to a 2019 CBP study.
Not only do dishonest importers defraud the U.S. government of hundreds of millions of dollars in revenue, but these companies can and do gain a significant unfair pricing advantage over competitors who obey the law and pay the correct import duties on similar goods.
Common types of customs fraud
Valuation Fraud
The most common type of customs fraud involves understating the dutiable value of imported goods. Importers must declare the value of imported goods on entry documents, including Entry Summary Form 7501. They are also usually required to provide copies of invoices from unrelated third parties to determine the "transaction value" of the relevant imports.
Underestimation schemes often involve falsified or falsified invoices, or failure to disclose required components of the transaction value, such as "auxiliaries" - materials provided by the buyer for use in the manufacturing process. Schemes also often involve submitting invoices that claim to be from unrelated third parties but are actually from affiliates or accomplices in tax evasion schemes.
Country of Origin Fraud
Another broad category of customs fraud involves falsifying the "country of origin" of imported goods. Violators commit "country of origin" fraud by mislabeling goods or transshipping goods through a third country to make it appear as if they came from a country with a lower applicable Harmonized Tariff Schedule (HTS) rate or with no import quota for the goods in question. Country of origin fraud is also used to evade anti-dumping and countervailing (ADD or CVD) duties. This type of fraud often involves deceptive practices such as repackaging, relabeling, and mixing items from other sources to hide the true origin.
Tariff Misclassification Fraud
Another major type of customs fraud involves the improper use of HTS tariff rate classifications.
Structured
Structuring occurs when an importer divides a shipment into multiple shipments of lower value. Customs law includes a minimal exception whereby imports below a certain value are not subject to customs duties. By dividing larger shipments into many parts, importers can fraudulently claim that the shipment is under the quota to avoid tariffs.
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