False HTS Classification Defense

Experienced Legal Counsel for Importers, Exporters, and Customs Brokers Accused of Falsifying Harmonized Tariff Schedule (HTS) Codes to Pay Lower Duty Rates

Importers are required to pay all applicable customs duties under the Harmonized Tariff Schedule (HTS). Consistently choosing the correct HTS code is critical for effectively managing federal compliance, and choosing incorrect codes can expose importers to significant civil or criminal penalties. If you are being accused of choosing the wrong HTS code, our experienced federal defense lawyers can help.

John W. Sellers — **Attorney John Sellers**
International Trade Team Lead
Former DOJ Trial Attorney

**Glenn Karabeika**
International Trade Team
Former HSI Special Agent

Under federal law, importers have several compliance obligations related to the government’s regulation of international trade. Among these is the obligation to choose the correct Harmonized Tariff Schedule (HTS) code for imported products. Since choosing the wrong HTS code can lead to underpayment of import duties, federal authorities take this aspect of customs compliance seriously, and failing to choose the correct classification can lead to high-stakes scrutiny from US Customs and Border Protection (CBP) and other government agencies.

We Defend Importers, Exporters, and Customs Brokers Accused of Evading Antidumping and Countervailing Duties Through False HTS Classifications

Our lawyers defend US importers and customs brokers accused of customs violations involving HTS classifications and federal import duties. We defend foreign exporters in these cases as well. These accusations can lead to serious penalties under US customs laws, so an informed, strategic, and proactive defense is essential.

Federal law requires all parties to exercise reasonable care when choosing the right HTS code (or HTSUS code) for an imported product. The onus is on importers, exporters, and licensed customs brokers to do what is necessary to comply with the law. Ignorance is not an excuse for choosing the wrong code; and, when parties choose the incorrect classification, the resultant failure to pay the correct duties can have serious consequences.

Allegations of Customs Fraud Can Lead To Significant Financial Exposure Under the False Claims Act (FCA)

Along with CBP penalties, allegations of choosing the wrong tariff code can also lead to enforcement under the federal False Claims Act (FCA). The FCA prohibits the submission of “false or fraudulent claims” to the federal government—and this includes claims related to the customs duties owed on imported merchandise. If an importer or another party uses an incorrect tariff code to reduce the duties owed (or to obtain duty-free treatment), this can be classified as a “false or fraudulent claim” under the FCA.

Many importers and other parties have faced FCA investigations related to allegations of failing to provide an accurate classification under the HTS standardized system in recent years. When accused of failing to make a proper classification resulting in unpaid duties, parties targeted under the FCA can face either civil or criminal penalties depending on the circumstances involved. While errors due to negligence (or gross negligence) generally only warrant civil enforcement, cases involving intentional HTS fraud when importing goods from overseas can lead to criminal prosecution by the US Department of Justice (DOJ).

HTS Classification Fraud Can Also Lead to Other Serious Allegations

While facing prosecution under the FCA is a significant concern, it is not the only concern associated with facing allegations of HTS classification fraud. In these cases, targeted parties can also face allegations such as:

Making false statements to customs officials
Engaging in other forms of fraud to obtain customs clearance and facilitate illicit customs entries
Engaging in unfair trade practices that disadvantage US manufacturers

Additionally, when conducting investigations focused on HTS classification fraud, federal authorities will often probe other forms of customs fraud. Manifest fraud, misrepresenting a product’s country of origin, importing products subject to import prohibitions or restrictions, misrepresenting products as similar products with different HTS codes, and various other forms of fraud can lead to the imposition of back duties and other penalties as well.

Why Choose Oberheiden PC for False HTS Classification Defense?

At Oberheiden PC, we have extensive experience defending US and foreign clients in international trade matters domestically and abroad. As a result, we know that one small mistake can have serious consequences—and we know that avoiding these consequences requires an informed, strategic, and proactive defense. If you need defense counsel for a false HTS classification investigation or law enforcement proceeding, here is what we can provide:

Deep Insights Based on Prior Experience – With our extensive experience in cross-border law enforcement matters, we are able to offer deep insights in light of the specific circumstances at hand. For example, we can explain what it means if a shipment arrives with a commercial invoice with an incorrect HTS code, and we can help you make an informed decision about whether a prior disclosure is warranted.
Representation for Matters Involving All Federal Authorities – Along with handling CBP investigations and enforcement matters involving the DOJ, we handle matters involving the US International Trade Commission (ITC) and other federal authorities as well. As a result, we can provide comprehensive defense representation, and we can develop and execute a cohesive defense strategy that takes into account all pertinent risks.
Practical Defense Strategies Based on Prior Rulings – We provide advice based on our knowledge of prior rulings in similar cases. For example, previous cases have made clear that intent is crucial for substantiating tariff evasion charges, and legal ambiguity in HTS code descriptions can favor defendants in criminal cases. If a favorable outcome is supported by precedent in your case, we can seek to use this precedent to your advantage.
A Custom-Tailored Approach Based on the Facts At Hand – While maintaining robust compliance documentation can help with HTS classification defense, when companies don’t have this documentation available, a different tactic is required. We take a custom-tailored approach to every case we handle that focuses on the realities and practicalities of the specific facts at hand.
A Focus on Avoiding Unnecessary Consequences – HTS classification errors can result in liability for up to five years of back duties. They can also lead to civil or criminal liability under the False Claims Act; and, in some cases, they can have other criminal implications as well. In every case we handle, we focus on mitigating our client’s liability to the fullest extent possible.

FAQs: Defending Against Allegations of Harmonized Tariff Schedule (HTS) Fraud

What are the consequences of choosing the wrong Harmonized Tariff Schedule (HTS) code?

The consequences of choosing the wrong 10-digit product classification number from the Harmonized Tariff Schedule (HTS) can be significant. Not only can importers and other parties face liability for any unpaid (or underpaid) duties owed—including antidumping and countervailing duties—but they can also face additional liability under the False Claims Act (FCA) and other federal statutes. In cases involving allegations of intentional fraud, targeted entities and individuals can face federal criminal charges as well.

What if a customs broker doesn’t provide a binding ruling or CROSS reference?

If a customs broker does not provide an importer with a binding ruling from CPB or a Customs Rulings Online Search System (CROSS) reference, this can be a sign that the customs broker simply guessed at the proper product classification. Since importers are solely responsible for their compliance, this generally is not a defense to customs fraud involving false HTS classifications.

Is reliance on an automated classification tool a valid defense to allegations of false HTS coding?

While relying on an automated classification tool can help enhance accuracy and minimize mistakes, reliance on software is not a defense to noncompliance with federal law. If you relied on your company’s software in good faith, this could help with avoiding criminal exposure, but your company could still be fully liable for the consequences of engaging in false HTS coding.

If I made an HTS coding error, should I make a prior disclosure?

While making a timely prior disclosure can help mitigate the severe penalties for HTS misclassifications, it is critical to make sure this is the right approach under the circumstances at hand. With this in mind, if you are considering a prior disclosure, we strongly recommend consulting with experienced legal counsel before you decide to voluntarily disclose an HTS coding error to the federal government.

What if I disagree with the government’s HTS classification?

If you disagree with the government’s HTS classification of an imported product, you can file a formal administrative protest to contest the customs penalties that the government is seeking to impose. Our lawyers handle these cases as well, and we can help you make an informed decision about whether an administrative protest is warranted. If the government’s classification is correct, we can help you make an informed decision about how to proceed in this scenario as well.

Speak with a False HTS Classification Defense Lawyer at Oberheiden PC

If you would like to speak with a false HTS classification defense lawyer at Oberheiden PC, we strongly encourage you to get in touch. Once you do, we will arrange for you to speak with one of our senior lawyers in confidence as soon as possible. To schedule an appointment, call us at 888-680-1745 or inquire online today.

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