Reference no: EM131049129

Case 31.2

FACTS Between 1987 and 1990, Inn Foods, Inc., imported frozen produce from six Mexican growers who agreed to issue invoices that understated the value of the produce. For each understated invoice, Inn Foods sent an order confirmation that estimated the produce's actual market value. Inn Foods later remitted the difference to the growers. Through this doubleinvoicing system, Inn Foods under valued its purchases by approximately $3.5 million and paid lower tariff taxes as a result. During an investigation by U.S. Customs and Border Protection, Inn Foods' accounting supervisor denied the existence of the double invoices. The federal government filed an action in the U.S. Court of International Trade against Inn Foods. The court held the defendant liable for fraud and assessed the amount of the unpaid taxes-$624,602.55-plus an additional penalty of $7.5 million. Inn Foods appealed, claiming that it had acted negligently, not fraudulently.

ISSUE Does an importer's use of a double-invoicing system constitute proof of an intent to defraud the government of import duties?

DECISION Yes. The U.S. Court of Appeals for the Federal Circuit affirmed the lower court's judgment.

REASON The court reasoned that the evidence showed Inn Foods "knowingly entered goods by means of a material false statement." Each grower sent Inn Foods a copy of an undervalued invoice. The company knew that these invoices were "grossly undervalued and false"-the growers set out the details of the specific undervaluation in correspondence to Inn Foods. On receipt, Inn Foods adjusted the prices to reflect their true estimated value. The company entered the higher amount into its accounting system, sent a confirmation to the grower with the higher price, and paid the grower based on the confirmed price. But Inn Foods knew the false invoices would be used to import goods into the United States. The company used the undervalued invoices to declare the value of the produce to U.S. Customs and Border Protection for import. Moreover, Inn Foods concealed the existence of the double invoices during the government's investigation.

FOR CRITICAL ANALYSIS-Ethical Consideration After Inn Foods learned of the investigation, the company included a disclaimer on some shipments stating that the declared value "is strictly for customs clearance" while the company determines the "true transaction value." Does this disclaimer legally or ethically absolve the importer of intent to defraud?