Ford Motors Hit with $20 Million Penalty
Aug. 3, 2005
In two separate opinions captioned as United States v. Ford Motor Company and dated July 20 and July 21, 2005, the U.S. Court of International Trade assessed civil penalties against Ford Motor Company in the amount of $3,000,000.00 and $17,151,923.60, respectively, for falsely declaring the value of import entries and for failing to thereafter notify Customs that the prices declared at entry were not final.
In case 02-00106, Customs alleged that Ford fraudulently, grossly negligently, or negligently made material false statements and/or omissions in connection with the entry of automotive tooling dies and equipment in 1989. Specifically, Customs claimed that the entered values of the automotive tooling dies were false and that Ford failed to notify Customs "at once" that the prices reflected on purchase orders were not final.
Ford claimed that it furnished true and correct information regarding the purchase price of the dies because the price it reported was the only price known at the time of entry. Ford additionally argued that its provisional value policy whereby it would mark the prices on entry documents as non-final, was adequate notice to Customs that the price was not final.
The court disagreed with Ford and found that it violated its reporting duty by failing to notify Customs of engineering changes in automotive dies which affected the final price of the dies, and by failing to notify Customs that the price listed on the entry documents was not the full and final price of the dies. The court also found that Ford failed to notify Customs "at once" that the prices declared were not true and correct.
The court’s analysis highlights an importer’s obligation to report to Customs any element of dutiable value not established at the time of entry and the importance of implementing and following internal compliance mechanisms: "Ford should have had control mechanisms in place to ensure that its provisional value policy was being implemented or used properly. Without any control mechanisms, Ford’s behavior exhibits an indifference to whether its provisional value policy was being implemented or not defeating its purpose." The court concluded that such indifference amounted to gross negligence, warranting the imposition of civil penalties in the amount of nearly four times the duties of which the United States was deprived.
In calculating the amount of the penalty for gross negligence, the court cited thirteen factors relating to deterrence and public policy, including, the defendant’s good faith effort to comply, history of previous violations, and the seriousness of the offense, among others. In assessing the $3,000,000.00 penalty, the court highlighted Ford’s "indifference to whether its minimal procedures were carried out correctly"
In case 02-00116, Customs alleged that Ford grossly negligently, or negligently made material false statements and/or omissions in connection with the entry of vehicles and vehicle components between 1987-1992. Ford argued that it met its statutory declaration obligations or that alternatively it exercised reasonable care.
The court held that Ford acted negligently in failing to notify Customs that the transaction values in entry documents were not final in that they did not contain the value of tooling assists or the value of lump sum payments Ford was obligated to make to its suppliers after entry. The court also found that Ford failed to fulfill its obligation to notify Customs "at once" that the prices stated upon entry were not true and correct, and that Ford could have avoided liability by complying with its Reconciliation Agreement with Customs, but failed to do so.
The court employed the same factors in calculating the amount of the civil penalty and assessed the maximum statutory penalty for negligence of two times the amount of duties of which the United States was deprived.
These court cases hold that having comprehensive, fully functioning set of internal controls for customs compliance is a required business practice for importers. Importers should be alert to recognize the following points regarding their internal customs compliance controls:
- Having these controls does not necessarily relieve an importer of a negligence or gross negligence claim by CBP if the controls are not actually being followed. In these cases, the purchasing function in the company failed to inform the compliance managers of the pricing changes. Human error was not a defense to a penalty lawsuit by Customs.
- Maintaining the required internal controls so they fully function is a continuing obligation of an importer, and importers should engage in regular self-auditing by experienced customs compliance personnel who work outside the day-to-day customs activities and management, or have an outside expert periodically audit the internal procedures.
- An importer is required to report changes in information declared on the entry "at once" following discovery of the information. Prior disclosures or other action should be considered immediately after detecting errors or violations.
- Customs special agents and Customs auditors are law enforcement officials. Importers in inquiries involving agents or auditors should consider seeking the involvement of specialized legal counsel.
- The internal procedures should include a method for addressing CF-28 Customs inquiries.