Small business owners and import compliance personnel received a pointed reminder last month on the importance of being scrupulously accurate on import documents. In a September 16 en banc decision, U.S. v. Trek Leather (Slip. Op. No. 2011-1527), the United States Court of Appeals for the Federal Circuit (CAFC) held Trek’s owner, Harish Shadadpuri, liable for gross negligence in violation of the 19 U.S.C. § 1592(a)(1) prohibition against entering or introducing any merchandise into U.S. commerce by means of material false statements.

Shadadpuri was president and sole shareholder of Trek, and shipped men’s suits to the U.S. using the company as the importer of record. He employed a customs broker rather than personally filling out and submitting the required entry documents to U.S. Customs and Border Protection (CBP). However, the commercial invoices that Shadadpuri provided to the customs broker understated the value of the suits because they did not include the cost of the fabric assists that had been given to the overseas manufacturer.

Shadadpuri admitted that he knew the cost of the fabric assists should be included in the customs declaration, and did not dispute that he was negligent in failing to provide information about them to his customs broker. However, he appears to have believed that because he was not the importer of record, he did not personally enter the suits into U.S. commerce and could only be held liable under the aiding and abetting provision of subparagraph B of 19 U.S.C. § 1592(a)(1). That, he said, would require a showing that he had intent or certain knowledge that the customs broker would undervalue the suits, which was not made.

goods into us commerce

The CAFC, however, noted that the government only alleged a direct violation of 19 U.S.C. § 1592(a)(1)(A), and examined Shadadpuri’s liability in light of that subparagraph. Ignoring the question of whether Shadadpuri “entered” the suits into U.S. commerce, the court focused on whether he “introduced” them. Beginning its analysis with a century-old Supreme Court case, U.S. v. 25 Packages of Panama Hats, 231 U.S. 358 (1913), the CAFC reasoned that “introduce” had been added to the language of the statute precisely to close a loophole and expand its reach beyond the mere act of filing a customs declaration.

The CAFC concluded that Shadadpuri’s actions “introduced” the suits into U.S. commerce, holding that

the term covers actions that bring goods to the threshold of the process of entry by moving goods into CBP custody in the United States and providing critical documents (such as invoices indicating value) for use in the filing of papers for a contemplated release into United States commerce even if no release ever occurs.

The CAFC emphasized that Shadadpuri was liable for the violation on a personal level, not because of his status as a “prominent officer or owner” of Trek. It also invoked the common law of agency to state that “an agent who actually commits a tort is generally liable for the tort along with the principal, even though the agent was acting for the principal.”

The CAFC did go on to note that this rule is especially applied to corporate officers, so ordinary employees who handle paperwork related to import documentation may be unlikely to run afoul of 19 U.S.C. § 1592(a)(1). Still, it’s not yet clear what approach to enforcement the CPB will take, and it would be best for everyone who works in this area to err on the side of caution. Managerial-level employees are most likely to be exposed to personal liability, and business owners and corporate officers can now be quite sure that they are.