Customs fraud – whereby dishonest U.S. importers lie to federal authorities about important characteristics of the goods they are bringing into the U.S. -- is used to avoid the matrix of federal laws and regulations designed to provide Americans with safe food, safe products and a cleaner environment. Because this matrix equally applies to domestic products, and the costs of compliance are significant, fraudulently-entered imports that avoid those costs enjoy a significant, if illegal, competitive advantage over compliant imports and U.S. goods. Further, customs fraud is difficult to detect, and the government has had limited success in criminally prosecuting such fraud under the traditional false statement and obstruction of justice statutes.

The Department of Justice has recently begun prosecuting customs fraud under a relatively new obstruction-of-justice statute included in the Sarbanes-Oxley Act of 2002 to address DOJ’s problems in prosecuting document destruction cases related to Enron’s collapse. Congress intended that this statue – 18 U.S.C. § 1519 -- would be applied broadly to a wide range of obstruction cases without the technical limitations the courts had read into existing obstruction statutes. Further, Section 1519 includes a penalty of 20 years in prison per violation – much greater than the prison terms under existing statutes.

For example, in a recent criminal complaint (United States v. Chavez), DOJ accused the president of the San Diego Customs Brokers Association of fraudulently avoiding $10 million in customs duties on imported goods his company had promised to re-export “in bond” to Mexico, but instead resold within the United States. The imports were entered through the Port of Long Beach in 60 shipments over one year and comprised over $100 million in Chinese textiles, Indian and German cigarettes, and food products from Mexico – including prickly pear tainted with Salmonella Agona, and snack foods adulterated with a prohibited dye. The customs broker and his eight alleged co-conspirators each faces up to 20 years in prison under each of the 53 counts in the criminal complaint that are based on Section 1519, for a maximum possible sentence of 1,060 years.

This article discusses customs fraud, false statement prosecutions and DOJ’s move to use Sarbanes-Oxley Section 1519 violations to trigger obstruction of justice charges.

DOJ Is Prosecuting Customs Fraud Through Sarbanes-Oxley’s Obstruction of Justice Statute