CBP Can't Pursue Unpaid Duties From Identity Theft Victim Due to Statute of Limitations, CIT Says

The Court of International Trade dismissed a case brought by the U.S. government seeking the collection of over $5.7 million in unpaid duties from Katana Racing on passenger vehicle and light truck tires from China. In a March 28 opinion, Judge Thomas Aquilino granted Katana's motion to dismiss based on an expired statute of limitations. The judge ruled that Katana was allowed to revoke an earlier statute of limitations waiver and concluded that without the waiver, any action by CBP is barred by the passage of time (United States v. Katana Racing Inc., d/b/a Wheel & Tire Distributors, CIT #19-00125).

The case involves 386 entries of tires between 2009 and 2012 that Katana claims were the result of identity theft. The company said suppliers or "individuals taking advantage of them" used identifying information to falsely declare Katana as the importer of record on hundreds of entries. "The papers and extrinsic evidence indicate that" CBP used "the entirety of its federal power to 'go after' the named defendant -- not only as to certain 'admitted' (and for purposes of this motion irrelevant) 'irregularities' but to demand as well all the 'unpaid duties' from the defendant alone, rather than exert any effort (none is apparent among the papers) to detect and pursue the person(s) actually responsible for those unpaid duties."

Following the 2009 imposition of safeguard tariffs on tires from China, Katana says it was persuaded by Chinese suppliers to enter into a delivered duty paid (DDP) contract, which obligated the suppliers with all necessary legal compliance including the payment of import duties. Katana proceeded without suspicion until 2012, when CBP’s Regulatory Audit Division at the Port of Seattle contacted Katana in order to conduct a “Quick Response Audit” on 61 entries. After internally investigating, Katana theorized that it had been the victim of fraud and notified CBP via a voluntary prior disclosure.

The "assumption that voluntary disclosure was the right vehicle for addressing that problem was incorrect, as it is not a suitable mechanism to report 'identity theft' on entry" and the regulation is written in "a way that the person who makes a voluntary disclosure is to be inferred responsible," Aquilino said. It also seems clear that "the government is relying entirely on defendant’s attempt at voluntary disclosure as an admission against interest and as the only basis upon which to hold the defendant responsible for making the United States Treasury whole for unpaid duties."

In April 2013, CBP issued a report finding that duties had been underpaid on the 61 entries in the aggregate amount of $792,053 but included notes on the cooperation of Katana, including that Katana “stated that it did not direct the importation of these goods.” In May 2014, Katana executed a two-year waiver of the statute of limitations period in response to CBP’s request. In 2016, CBP issued a revised duty demand, requesting payment of a revenue loss of $5.7 million. Katana submitted another waiver of the statute of limitations, good through July 15, 2019, so that "Katana might obtain the benefits of the orderly continuation and conclusion of any administrative proceeding."

CBP said in 2019 that it would be preparing a Section 1592(d) duty demand, and with just 25 days remaining in the waived limitations period, issued a summary demand for payment of duties. In response, Katana revoked its 2016 waiver of the statute of limitations, saying that the waiver had been procured under “false pretenses” and that CBP hadn't intended to conclude an administrative proceeding.

Aquilino upheld "Katana's reasonable justification for its revocation," citing "CBP’s apparent recalcitrance in specifying to the defendant the actual §1592(a) violation it committed" and noting that CBP had previously "acknowledged Katana’s DDP agreement ... [which] absolved it of the problems caused by those who actually inflicted injury on the Treasury through misuse of defendant’s name." Katana had only granted the waiver after CBP told the importer it would consider the identity theft, and was justified in revoking it when it became apparent the agency would fail to do so.

CBP's demands for payment of the unpaid duties were also lacking, the trade court said, which also supported its decision to dismiss. "The record herein supports the conclusion that the defendant does not bear responsibility for the unpaid duties that the plaintiff seeks," Aquilino said. "... The law does not excuse CBP from failing to provide the precise reasons for holding a defendant 'responsible' for paying its §1592(d) duty demand in its complaint, which has not been articulated in the one at bar beyond alleging that the defendant was the 'importer of record,' and omitting any indication of the fact that defendant was [the victim of identity theft]. Merely stating that the defendant was the 'importer of record' does not suffice in the circumstances of this action."