In a rare en banc ruling, the U.S. Court of Appeals for the Federal Circuit has held that the president and sole shareholder of a corporation may be held personally liable for submitting false documents to U.S. Customs and Border Protection (“Customs”) on behalf the corporation.
In United States v. Trek Leather, No. 2011-1227 (Fed. Cir. Sep. 16, 2014) the court unanimously reversed the earlier ruling of a three-judge panel that held that in the absence of intentional fraud, civil liability for submitting false information to Customs in connection with the importation of merchandise was limited to the “importer of record,” a term of art that refers to the entity that files the entry documents with Customs. Trek Leather was the importer of record and the company president and sole shareholder argued that he could not be held personally liable for the submission of documents that undervalued the merchandise. The court disagreed and held that the applicable statute was not limited to those who “enter” merchandise, but applies more broadly to any “person” who “introduces or attempts to introduce” merchandise into the commerce of the United States. The court found that the actions of the company president, which included determining which company would import the merchandise and providing invoices that he knew understated the value of the goods to the company’s customs broker for the purpose of completing the entry filings, were sufficient to establish liability. The court specifically ruled that liability did not depend upon piercing the corporate veil. Rather, the court held that the company’s president’s conduct established direct liability under the statute.
The statute in question, 19 U.S.C. § 1592(a), establishes civil penalties for submitting false documents to customs through fraud, gross negligence or negligence, but the liability in this case was premised only on gross negligence, not fraud. The court’s holding in Trek Leather has the potential to vastly expand liability under this statute by allowing Customs to impose penalties directly on officers or employees of companies involved in preparing false or incomplete customs documentation even in the absence of intentional fraud. The court’s reasoning is not limited only to corporate officers or to instances involving small, closely held entities where one individual largely embodies the corporation. Rather, the new liability potentially applies to any company employee who through gross negligence or negligence prepares or furnishes false documents for use in a customs entry transaction.
It is unclear at this point how this decision will affect Customs’ enforcement actions, and we expect future litigation may clarify how this rule will apply to larger companies with many employees. This decision underscores the importance, however, of having a strong customs compliance program and of making sure that all employees involved in import transactions are aware of basic customs requirements regarding proper valuation, marking, and classification of imported goods.
If you have any questions regarding the Trek Leather decision, or regarding customs compliance issues generally, please contact Will Planert, Brady Mills, Donald Cameron or Julie Mendoza.