Compliance Officers Can Face Individual Liability for Corporate Importation Violations

Corporate officers and shareholders take note: personal liability for unpaid duties may result from material misrepresentations on import documentation even when the importer of record is a corporate entity. The corporate veil shielding individuals from civil liability affords no protection in such situations.

In fact, the possibility of civil penalties levied against the individual for corporate import violations has been the status quo since last September, when the Court of Appeals for the Federal Circuit, in its en banc opinion in U.S. v. Trek Leather Inc. and Harish Shadadpuri defined those “introducing” goods into U.S. commerce under 19 U.S.C. § 1592(a)(1) broadly to include persons such as the corporate officers and shareholders of the company listed as the importer of record. This rendered import managers, compliance officers, and business owners vulnerable to suits by the government seeking civil penalties for customs breaches. The court unanimously held Mr. Shadadpuri, the only shareholder and president of Trek Leather Inc., personally liable for failing to include the value of fabric assists in the price actually paid or payable for 72 men’s suits. The opinion stated that he acted in a grossly negligence manner when he provided invoices that materially undervalued the suits to the customs broker that ultimately submitted the necessary entry documentation. In affirming a judgment against Mr. Shadadpuri  for nearly $50,000 in unpaid duties and over half a million dollars in penalties, the court made clear that its decision was not based on his status as an officer of Trek Leather Inc. and did not require a “piercing of the corporate veil.” Instead, he was simply being held directly accountable for conduct found to be in violation of the prohibitions found in 19 U.S.C. § 1592.

On May 26, the Supreme Court announced that it would not review the September decision, solidifying the verdict and sending a clear message to the import community that individuals can be personally penalized for negligently misrepresenting the value of merchandise on importation documentation even if they are not listed as the importer of record. The recent announcement underscores the need for internal checks geared towards identifying and correcting inadvertent errors that could ultimately result in business-ending corporate and personal fines.

A written import protocol included as part of your company’s overall compliance program, including standardized import checklists and proper record keeping provisions, coupled with periodic audits and position-specific import training for employees and officers alike, is vital to any business involved in the commercial importation of goods, especially those growing SME’s for whom six-figure fines could prove disastrous. Devoting sufficient time, effort, and funds into developing and maintaining such a program on the front end will help your company avoid inadvertent violations and the debilitating fines that often accompany them in the long term. Additionally, properly documented compliance efforts may help to mitigate penalties in the event a violation does occur.