Double Invoicing Is Fraud, Not 'Simple Negligence,' Importer Argues

A government claim that an importer failed to exercise “reasonable care” is not enough for an actual charge of negligence under the customs penalty statute, that importer said Feb. 23 before the Court of International Trade (U.S. v. Katana Racing d/b/a Wheel & Tire Distributors, CIT # 19-00125).

Even if the court did find the government's allegations were detailed enough to form the basis for a penalty action, the alleged violation would be fraud rather than simple negligence, the importer, Katana Racing, said. It said the government is trying to “boot-strap itself into the much lower burden of proof” required in simple negligence cases and that the court should “resoundingly reject” that “bare-faced attempt.”

Katana argues it had relied on a broken government promise when it waived the statute of limitations for charges that it ducked more than $5 million of unpaid duties -- duties actually owed by another entity fraudulently using Katana’s name, it claimed.

Katana’s primary argument, however, is that the U.S. failed to state a claim upon which relief can be granted in its case. The importer claimed the government fails to actually name Katana as the party culpable for the unpaid duties; its complaint “never identifies the act(s) or omission(s) committed by Katana constituting the violation,” which Katana described as fatal defects because the government “is required to plead and prove one or more violations … according to the level of culpability alleged by Customs and the appropriate burden of proof.”

“The Court of Appeals has found that the level of culpability -- wholly absent from either duty demand or Complaint in this action -- must be identified administratively by CBP, not in this Court by the Justice Department,” Katana said.

Despite what DOJ said, the government’s allegation in its complaint that Katana failed to “exercise ‘reasonable care’” was not an allegation about Katana’s level of culpability because “the government’s own publications indicate that all culpability levels of a 19 U.S.C. § 1592(a) violation -- negligence, gross negligence and fraud -- reflect a failure to use ‘reasonable care,’” the importer said. In other words, it argued “reasonable care” statutorily applies to all levels of culpability and cannot alone be used to identify only one.

The U.S. Court of Appeals for the Federal Circuit has ruled that the various culpability levels laid out in the code “make out different and distinct violations of the statute,” Katana said. Therefore, the government also failed in its claim to actually name a violation, it said.

Even if the government can show it is charging Katana with negligence, as DOJ said in its motion for judgment, that charge, “double invoicing,” has only ever been tried before as fraud, the importer said.

“We are at a loss (and expect Plaintiff would be, as well), to understand how one can ‘negligently’ double invoice,” it said.

Katana also argued that the government failed to exhaust its administrative remedies by investigating the matter further when the importer first alerted it about the double invoicing.