Commercial Fraud

Question 1

Contract (sales contract)

Answer 1

a) Importer contacts or asks manufacturer if they can make a certain product.
b) Manufacturer sets the price.
c. ) Contracts will normally be written in English, even if it involves fraudulent schemes. Most contracts will specify either U.S. Dollars or Euros for payments.

Question 2

Steps in Importation Process

Answer 2

Step 1: Manufacturer/shipper makes and delivers goods that are imported into the United States.
Step 2: Carrier files the manifest and delivers goods.
Step 3: Importer files the entry
Step 4: CBP examines and releases goods.
Step 5: Importer files entry summary
Step 6: CBP reviews and accepts documentation and duty at liquidation (final computation of duties, taxes, and feeds due).

Question 3

Steps in Importation Process

Answer 3

Step 1: Manufacturer/shipper makes and delivers goods that are imported into the United States.
Step 2: Carrier files the manifest and delivers goods.
Step 3: Importer files the entry
Step 4: CBP examines and releases goods.
Step 5: Importer files entry summary
Step 6: CBP reviews and accepts documentation and duty at liquidation (final computation of duties, taxes, and feeds due).

Question 4

Purchase orders:

Answer 4

a) Importer tells manufacturer how many products desired to purchase.
b) Price is usually indicated in the purchase order and in what currency.
c) Identify buyer and seller
c) Commodity prices and specifications
d) Shipping and terms of sale

Question 5

Invoices

Answer 5

a) Price actually paid or payable (PAPP)/compared to entry
b) Commodity specifications – manufacturer produces the merchandise
c) Invoice and other control numbers
d) Look for Real Invoices compared to Customs Invoices (created to deceive CBP and circumvent the import process.)

Question 6

Supplier delivers goods to the carrier

Answer 6

1) Importer contacts a freight forwarder and a customs broker.
2) These two entities arrange for the foreign freight forwarder to pick up the merchandise and send it to the U.S.

Question 7

Import Specialist***

Answer 7

• reviews shipments/entries to determine classifications and values of merch
• Determines the rates of duty’s and liquid damage.

Question 8

Introduction

Answer 8

is less than what is required to “make entry” but merely arriving at the port
(i.e., in territorial waters) is only an attempted introduction. The term
“Entry” is a complete series of acts necessary to get a permit to pass the
goods into U.S. commerce.

Question 9

Smuggling/Clandestine Introduction

Answer 9

(a) Bringing on shore or carrying from the shore (in a way that is contrary to law) goods, wares, or merchandise, for which duty has not been paid or accounted for (when the obligation to pay duty exists or arises) or
(b) Bringing on shore or carrying from the shore (in a way that is contrary to law) goods, wares, or merchandise of which the importation or, exportation, is prohibited.

Question 10

Invoiced

Answer 10

• means that the item should have been reported to customs (i.e., customs must be made aware that the item is being introduced). In this sense,
• This phrase requires commercial and non-commercial importers to declare and enter (report) merchandise

Question 11

Willfully

Answer 11

Proof defendant acted with knowledge that his conduct violated the law. Act done by mistake of fact is not willful.

Question 12

intent to defraud

Answer 12

“Intent to defraud” means intent to deceive or cheat the United States vs. an honest, good faith belief in the truth of the specific misrepresentations.

Example: trying to avoid duty fees = intent to defraud
Smuggling in rotten shrimp = not intent to defraud because they are willing to pay the duty fees.

Question 13

Intellectual Property terms defined

Answer 13

1. Copyright – Protects original works of authorship.
2. Trademark – Protects words/names/symbols used by a person to identify and distinguish unique products.
3. Trade Secret – Protects any formula, pattern, device or compilation of information, whether tangible or intangible, used in a business
4. Patent – Protects original inventions.

Question 14

Greg Murphy packed medicines (controlled substances) into televisions, placed the televisions into a shipping container, and then, delivered the container to the port of entry. He declared the invoiced televisions, but made no mention of the medicines. His goal was to not have to pay duties on the medicines. What crime did Greg commit?

a. 18 U.S.C § 545 – Receiving, Concealing, etc., Merchandise Imported
Contrary to Law
b. 18 U.S.C. § 545 – Smuggling or Clandestine Introduction
c. 18 U.S.C. § 549 – Cargo theft
d. 31 U.S.C. § 5332 – Bulk cash smuggling

Answer 14

B

Question 15

Hector is an importer of fine gold jewelry from Honduras. He knows from
previous importations of gold jewelry made in Honduras that the duty rate is the same as the duty rate of imported gold jewelry from other nations, but he also knows that he has to have a document certifying the jewelry’s origin if made in Honduras. He does not have such a certificate, so decides to tell customs in entry documentation that the jewelry was made in Panama. With what crime can we charge in this case?

a. 18 U.S.C. § 545 – Importation Contrary to Law
b. 18 U.S.C § 545 – Receiving, Concealing, etc., Merchandise Imported
Contrary to Law – Paragraph 2/Crime 2
c. 18 U.S.C. § 549 – Cargo theft
d. 19 U.S.C. § 1499 – Misclassification

Answer 15

A

Question 16

Best Computers imports counterfeit Dell computers into the U.S. After importing the counterfeit computers, Best has Handy Haulers move the computers from the port of entry to the Best warehouse in Compton, California. Handy is well aware that Best imports counterfeit computers, but ships the computers after importation anyway. With what crime can we charge Handy Haulers in this case?

a. 18 U.S.C. § 545 – Importation Contrary to Law – Paragraph 2/Crime 1
b. 18 U.S.C § 545 – Receiving, Concealing, Buying, Selling, Merchandise,
or facilitating the transportation of Merchandise after it has been Imported Contrary to Law – Paragraph 2/Crime 2
c. 18 U.S.C. § 549 – Cargo theft
d. 19 U.S.C. § 1592 – Enter merchandise by way of material false statement

Answer 16

B

Question 17

Johnson and Johnson unlawfully acquires a formula from Gentex for
manufacturing a Gentex weight loss pill.

Answer 17

Trade Secret

Question 18

Importer of Record

Answer 18

The legal responsible party for all customs entries and is required to pay the duties owed.

The importer has 15 calendar days after the goods arrived to file the
“Entry.”

Question 19

Customs broker

Answer 19

Assists the importer of record by filling the proper documents with CBP. Customs Brokers are required to have a Power of Attorney on file for all Importers.

Question 20

Trade Fraud

Answer 20

primary focus and intent is to import, distribute, and sell prohibited and/or restricted merchandise

Question 21

Revenue fraud

Answer 21

the primary focus and intent is to affect the U.S. government’s ability to collect duties and taxes (revenue laws)

Example: Misdescribing goods – silk trousers have 7.1% duty; cotton trousers have 16.6% duty

Question 22

Prohibited merchandise

Answer 22

products considered harmful or inherently dangerous, for example, counterfeit and substandard pharmaceuticals, unsafe toys, counterfeit merchandise, etc.

Example: Counterfeit pharmaceuticals, firearms, adulterated cosmetics, agricultural products, or stolen merchandise

Question 23

Restricted Merchandise

Answer 23

products that are subject to certain restrictions imposed and administered by other government agencies, international treaties, and agreements

Example: Products from endangered animals such as rhinoceros horn or elephant ivory, cultural artifacts, and wood from the Brazilian rain forest

Question 24

Commercial Fraud

Answer 24

Efforts to evade duties, circumvent trade laws, or introduce merchandise into US contrary to law.
Through smuggling schemes such as:
- Misrepresentation, misclassification, valuation schemes, fraudulent country-of-origin claims, commingling of goods
- Diverting shipments from their authorized destination.

Question 25

Types of Commercial Fraud

Answer 25

• Revenue Fraud
• Trade Fraud (prohibited and restricted merch)
• Civil statutes are primarily a CBP function.
• Intellectual property rights (IPR) provide the creator an exclusive right over the use of and financial benefit from his/her product for a certain period of time.

Question 26

Impact of commercial fraud

Answer 26

Endanger public health and safety
Present a national security threat
Harm the U.S. economy
Support criminal organizations

Question 27

Import specialists

Answer 27

1) Classifications and values
2) Ensure/measure compliance of the entry summary
3) Fix final appraisal, classification, rate of duty and assess liquidated damages
4) Liquidation/reconciliation of entry summary
5) Specific knowledge on products and industries

Question 28

CBP Officers

Answer 28

1) Document review
2) Cargo examination, for country of origin marking on merchandise, contents of shipment, and contraband
3) Input of examination results
4) Referral of violations
5) Issue of marking notices

Question 29

Regulatory auditors

Answer 29

1) Forensic accountants conducting compliance assessment audits
2) Trace financial transactions
3) Quantify importers’ assets in criminal investigations
4) Verify importer’s ability to pay civil penalties (19 USC § 1592)
5) Referral of violations

Question 30

Office of Chief Counsel

Answer 30

1) Resource for the application of legal issues such as CBP regulations, court cases, and administrative rulings
2) Review of criminal and civil commercial fraud cases
3) Assistance in presentation of criminal commercial fraud cases to the AUSA

Question 31

Forfeitures (FP&F) Officers

Answer 31

1) Serve as custodians of seized property
2) Instrumental in coordination, custody, transportation of merchandise seized by HSI
3) Coordinate with FP&F prior to execution of a search warrant or enforcement operation that might yield large amounts of seized property

Question 32

Entry Specialist

Answer 32

1) Finalizes payments and reconciles entries after they have been filed.
* don’t pick this on the test*

Question 33

Automated Commercial Environment (ACE)

Answer 33

– commercial trade processing system

1) Used by international traders to provide all information needed by federal agencies for the importation of cargo
2) Includes manifests, cargo release, finance, and compliance data

Question 34

Automated Targeting System (ATS)

Answer 34

1) Uses ACE information to increase enforcement of high-risk shipments and facilitate low-risk shipments
2) HSI Special Agents should request access to systems such as ATS Imports and ATS Exports.

Question 35

Immediate Transportation (IT)

Answer 35

allows cargo to be transported from an arriving port, without payment of duties, to another U.S. port for official entry into U.S. commerce, a bonded warehouse, or Foreign Trade Zone (FTZ)

Example: Goods arriving at Los Angeles and moving in-bond to a FTZ in Kansas City.

Question 36

Transportation and Exportation (T&E)

Answer 36

Covers merchandise “in transit” through the U.S. and exported through a U.S. port different from the port where it arrived without payment of duties.

Example: Goods arriving at Los Angeles and moving in-bond to Laredo, Texas, for exportation to Mexico.

Question 37

Immediate Exportation (IE)

Answer 37

covers cargo that arrives at a U.S. port but is immediately exported from that same port without payment of duties.

Example: Goods arriving at Miami International Airport are immediately exported from Miami to Montreal, Canada

Question 38

In-bond transportation

Answer 38

• CBP tracks goods through the system of in-bond transportation, bonded warehouses, and foreign trade zones
• In-bond transportation facilitates flow of trade by allowing importers and shipping agents, covered by a CBP approved bond, to choose the ports at which cargo is officially entered into U.S. commerce and/or exported from the U.S. to another country.
• Bonded warehouses are used to store goods until introduction into the U.S. or export out of the U.S. (for example, ships’ supplies).
• Shipments may be transported to and stored temporarily at a Foreign Trade Zone in the U.S.
• FTZ is not a “U.S. destination” so that goods within it are not subject to U.S. duties.

Question 39

In bond

Answer 39

1. Immediate transport
2. Transport and export in transit
3. Immediate export