CIT Rules Apparel Firm to Pay $39K for Error in Origin Statements

The Court of International Trade has ruled in U.S. v. Inner Beauty Int'l (USA) Ltd., that Inner Beauty must pay a civil penalty of $39,549 for filing documents falsely stating that the country of origin of certain entries of women's undergarments was Hong Kong, instead of China. The CIT found Inner Beauty made an inadvertent error and was culpable for negligence because at the time of the entries, such merchandise was subject to an import quota.

Inner Beauty Allegedly Claimed Hong Kong as Origin Instead of China

In 2004, Inner Beauty allegedly made eight entries of women's undergarments which were classified under three subheadings 6212.20.0010 (20%), 6212.10.9020 (16.9%), or 6212.20.0020 (20%) that were subject to an import quota at the time of entry.

The government alleged that Inner Beauty identified the merchandise as a product of Hong Kong when it was actually produced in China. The government argued that these false statements and/or omissions were material because they prevented U.S. Customs and Border Protection from accurately counting the quantities of merchandise under these three subheadings entered into the U.S. from China. At least one of Inner Beauty's entries with a domestic value of $395,493 was admitted into the commerce of the U.S. after the quota filled.

The government alleged that these false statements of origin were the result of gross negligence and sought an award of a civil penalty of $158,197 (40% of the dutiable value of the merchandise), or in the alternative, $79,098 (20% of the dutiable value) for negligence on the part of Inner Beauty. These amounts represent the statutory maximum penalties for gross negligence and negligence, respectively.

CIT Assigned a $39K Civil Penalty Plus Interest for Negligence

The CIT determined it was appropriate to award a $39,549 civil penalty, plus post-judgment interest as provided by law based on Inner Beauty's level of culpability of negligence for filing false origin statements, as explained below:

False origin statements were result of negligence. The CIT concluded that the false statements were "material" within the meaning of Section 592 under the Tariff Act of 1930 (19 USC 1592) because they had the potential to affect the administration by CBP of the quota on imports from China. Under the statute, that much is sufficient to establish Inner Beauty's penalty liability based on negligence.

False statements not result of gross negligence. In this case, the CIT stated that no facts informed it that Inner Beauty was aware of the mistaken origin reference at any of the eight times at which the merchandise was entered. The CIT stated that the incorrect origin references, repeated over eight entries, were inadvertent errors that Inner Beauty failed to discover and bring to their broker's attention. Therefore, Inner Beauty cannot be found culpable for gross negligence.

Penalty below statutory maximum is appropriate. In a letter to CBP from Inner Beauty's principal after the initiation of the administrative penalty proceedings, the principal stated that Inner Beauty's false statements was a "tremendous oversight" and its factory and brokers were subsequently instructed to make clear and indicate the actual shipper and pay particular attention to country of origin. The CIT concluded that some mitigation in the penalty was warranted by the corrective action Inner Beauty claimed to have taken. Therefore, the CIT calculated the appropriate penalty to be one-half of the statutory maximum, i.e., at 10% of the dutiable value of the merchandise, or $39,549, plus post-judgment interest as provided by law.

(Slip Op. 11-148, dated 12/02/11)