On December 1, 2014, the U.S. Department of Justice (DOJ) filed suit at the Court of International Trade seeking over $1.5 million in penalties against two Quebecois companies for misclassifying numerous import entries of softwood lumber as hardwood lumber between May 2002 and August 2003.
The Complaint was filed against Produits Forestiers Forexam and Scierie Nord-Sud Inc. (collectively, Forexam), both of Ste-Foy, Quebec City, Quebec, Canada and both owned and controlled by the same individual. The DOJ alleges that beginning on May 23, 2002, the day after the U.S. Department of Commerce published notice of the imposition of antidumping and countervailing duty orders on Canadian softwood lumber imports in the Federal Register, Forexam began entering Canadian softwood lumber into the United States misclassified as hardwood lumber, entering a total of 165 misclassified shipments over the next sixteen months. In total, Forexam is alleged to have entered almost $4 million ($3,871,265) worth of merchandise through misclassification, avoiding the need to pay nearly $1 million ($880,573.65) in antidumping and countervailing duty deposits on these entries.
Although the imported softwood lumber was classified as hardwood lumber upon entry, packing lists accompanying some of the entries allegedly “identified the merchandise as ‘softwood lumber’ or ‘SPF’ (meaning ‘spruce, pine [or] fir’ which are softwood species).” The DOJ further alleges that U.S. Customs and Border Protection (CBP) confirmed with two of the United States consignees of the shipments that the consignees “had ordered softwood lumber from Forexam and [were] invoiced for softwood lumber by Forexam.”
Following interviews with the owner and controller of the two companies, CBP issued penalty notices alleging violations of law “at the culpability level of fraud and in the alternative, at the level of gross negligence or negligence . . . .” Under 19 U.S.C. § 1592 different levels of penalties can be imposed depending on the level of culpability. For fraud, the maximum penalty under 19 U.S.C. § 1592(c)(1) is “an amount not to exceed the domestic value of the merchandise,” which in this instance would have been $3.87 million. For gross negligence, the maximum penalty under 19 U.S.C. § 1592(c)(2)(B), if the act did not affect the assessment of duties, is “40 percent of the dutiable value of the merchandise” (here, $1.55 million). For negligence, the maximum penalty under 19 U.S.C. § 1592(c)(3)(B), if the act did not affect the assessment of duties, is “20 percent of the dutiable value of the merchandise” (here, $0.77 million). The DOJ’s complaint asks for a maximum penalty calculated to be 40 percent of the domestic value of the merchandise or, in the alternative, a maximum penalty calculated to be 20 percent of the domestic value of the merchandise.Appraisal worksheets accompany the DOJ’s complaint summarizing the entry numbers, dates, tariff numbers, entry ports, and entered values involved in the 165 entries at issue made between May 2002 and August 2003. These appraisal worksheets are dated April 29, 2008, nearly six years after the first entries were made. A review of corporate registrations in Canada indicates that the two defendant companies at issue in the suit (Les Produits Forestiers Forexam and Scierie Nord-Sud Inc.) may have ceased existing around the time that the appraisal worksheets were compiled. Corporations Canada reports that the company Les Produits Forestiers Forexam Ltee. – originally incorporated in 1994 – was dissolved in August 2008. Another company was registered with Corporations Canada in April 2008 as “6945139 CANADA Inc.” before changing its name to Forexam Lumber Sales Inc. in June 2008. Separately, Quebec’s Enterprise Register indicates that a company named Scierie Nord-Sud Inc. was dissolved in May 2008.
The lawsuit, along with several other cases recently filed by the DOJ at the Court of International Trade, reflect an increased focus on addressing widespread fraudulent evasion of trade remedies. In this case, had the importer of record entered the softwood lumber accurately and made the cash deposits required under the respective antidumping and countervailing duty orders, those deposits would have been refunded consistent with the terms of the Softwood Lumber Agreement reached in 2006. However, because the importer of record allegedly elected to evade the cash deposit requirement by misclassifying merchandise upon entry, the U.S. government now seeks a judgment for over $1.5 million in penalties regarding these imports.