Federal Court Finds All Violations of Customs Regulations Can Be Criminal Smuggling

All willful or knowing violations of customs regulations on importation are criminal smuggling violations punishable by up to 20 years in prison, the New Mexico U.S. District Court said in a decision issued May 20. Wading into a circuit split that has developed on the issue, the district court held that, though 18 U.S.C. 545 defines smuggling as the knowing or willful importation of “any merchandise contrary to law,” all regulations qualify as laws for the criminal smuggling statute’s purposes.

The case centers on several New Mexico-based importers of Native American-style jewelry. Under 19 CFR 134.43(c), imported Native American-style jewelry must be “indelibly marked with the country of origin by cutting, die-sinking, engraving, stamping, or some other permanent method.” The importers brought in the jewelry unmarked, and passed it off as Zuni and Apache-made jewelry when they sold it to consumers.

The importers moved to dismiss the smuggling charges that were brought by the government, which also alleged violations of laws against misrepresentation of Native American-produced goods that were not addressed in the court’s opinion. They said the country of origin regulation for Native American jewelry carries only civil liability, and is not a “law” that when knowingly violated constitutes smuggling.

Three different federal appeals courts have slightly different opinions on the applicability of smuggling charges to regulatory violations. The 4th Circuit in Richmond takes the strictest approach. In a decision issued in 1994, that court of appeals held that regulations are laws, and when knowingly violated can be punished as smuggling, as long as those regulations have “the force and effect of law.”

On the other hand, the San Francisco-based 9th Circuit in 2008 ruled that laws can include regulations for the smuggling statute’s purposes, but only when the law specifies that a violation of that regulation constitutes a crime. A key point in its interpretation was that the statute on smuggling goods for export at 18 U.S.C. 554 criminalizes knowingly exporting contrary to any “law or regulation,” as opposed to just “law” in the import smuggling provision.

Finally, the 11th Circuit in Atlanta most recently threw its hat in the ring with a 2013 decision that agreed with the 4th Circuit’s holding that regulations are generally laws, but said the law is ambiguous and so, under the “principle of lenity,” regulatory violations should not be criminalized by the smuggling statute where there is a “strong perception that a violation of the regulation will give rise to civil remedies only. “

The district court went even a step further than the 4th Circuit’s interpretation and found all regulations are laws for the purpose of smuggling under 18 U.S.C. 545. The Denver-based 10th U.S. Circuit Court of Appeals, which has jurisdiction over New Mexico, hasn’t yet ruled on the issue.

When the smuggling statute was enacted in its original form in 1866, “the ordinary meaning of law encompassed regulations as well as statutes,” the district court said. Dictionaries from the time say a regulation is a form of law. Over the years, Congress could have limited the language of the smuggling law to refer only to statutes, but did not do so despite otherwise updating the language several times, most recently in 2005, it said.

“The Court concludes that the statute's plain meaning at the time of enactment unambiguously indicates that ‘law’ for 18 U.S.C. 545's purposes is an unqualified term that encompasses all statutes and agency-promulgated regulations,” the district court said.

Nor did Congress specify that it intended to “restrict ‘law’ to Customs-related laws, or to criminal regulations, or even to regulations with the force and effect of law,” the district court said, rejecting the limitations imposed by all three federal appeals courts that have ruled on the issue. The purpose of the law on smuggling was to create “criminal liability for the willful or knowing violation of civil or criminal statutes or regulations,” it said.

The difference in language between the export and import smuggling statutes doesn’t matter for the purposes of the import smuggling provision, which was enacted well over a hundred years before its export counterpart. The language set by Congress in the export smuggling statute, which covers “laws and regulations,” does not have any bearing on what Congress meant over a century earlier, the district court said.

Finding the violations of the country of origin marking regulation at 19 CFR 134 potentially covered by the criminal statute on smuggling, the New Mexico U.S. District Court declined to dismiss that portion of the case.

(U.S. v. Sterling Islands, Inc.; D.N.M. CR 18-4176 JB., dated 05/20/19, Judge Browning)