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February 19, 2010 

U.S. Customs Broker Sentenced to 24 Months in Prison for Defrauding Importer

An unusual criminal case involving a customs broker illustrates the need for U.S. importers to be vigilant in exercising oversight over the activity of their customs brokers.

Earlier this week a New York-based customs broker was sentenced to 24 months in prison, three years of supervised release and ordered to pay nearly $1.2 million in restitution for defrauding an importer of medical equipment by submitting false customs documents that indicated that the importer owed customs duties on goods that were actually duty free.

According to the Justice Department, the customs broker, who had served as the importer's broker since 1980, continued to invoice the importer for customs duties over a seven year period even though the U.S. duty rate had decreased on  imported medical equipment from 5.5% to duty free.

To show that the invoices were legitimate, the customs broker sent the importer falsified customs forms that indicated the amount of duty owed on the medical equipment. As a result, the importer reimbursed the customs broker for duties that the broker never paid, in amounts ranging from $1,000 to $9,000 per customs entry. By the time the importer discovered the problem seven years later the broker had defrauded the importer out of almost $1.2 million.

Under U.S. law, a conviction of a customs broker of a crime involving the importation of merchandise or arising out of the conduct of customs business is grounds for revocation of a customs broker license. As a result, assuming that this case is not overturned on appeal, the defendant's customs broker's license will be revoked by U.S. Customs and Border Protection.

While this type of activity by a customs broker is extremely rare (customs brokers must undergo an extensive background check before they receive their broker's license), this situation could have been easily avoided had the importer audited the customs entries to verify that the amount of duties and fees shown on the invoices and documents provided by the broker was consistent with the applicable duty rate shown on the Harmonized Tariff Schedule of the United States.

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This is a remarkable story. I have heard of many situations where the customs broker takes money from its client importer by receiving money from the importer intended for U.S. Customs, and keeping that money. This is the first time I have heard of a customs broker creating a customs duty for a duty free product to steal from its client importer. Well written. Thanks for bringing to our attention.

Thanks Peter. Yes, this certainly is an unusual and unfortunate case. As we know, the vast majority of customs brokers are professional and ethical.

--Doug

I know of a case at JFK where a small customs brokerage cleared motorcycles for two wealthy foreign tourists, then immediately moved their motorcycles into a private warehouse. The brokerage then proceeded to defraud the tourists by claiming exhorbitant fees of various kinds on the mocked up "invoice," while refusing to inform the tourists where the motorcycles were housed.

Ballsy as these people were - and there were several in on this ruse including the owner/manager - they continued until the tourists paid in cash, claiming this was standard procedure for personal items.

So, although "most" or "many" brokers are honest and ethical, we should all be aware there are some that are not, just like in any industry.

Another interesting case involving a customs broker gone bad. Thanks for sharing.

--Doug

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