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“When competition is cheating on tariffs this makes it very difficult,” he said.
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Ram Radhakrishnan, CEO of US-based freight forwarder Silq, said he’s lost smaller customers who’ve received offers to deliver $1,000 worth of goods for $1,200 all in. But when the duties alone should cost another $1,000, that’s possible only because someone didn’t pay their dues, he said.
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“I don’t blame them,” Radhakrishnan said. “They are competing against somebody who is doing the same thing.”
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Phantom importers
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One way to avoid tariffs is through a mechanism called Delivered Duty Paid. Under that system the overseas seller handles everything — shipping, customs clearance and, when things are done by the book, even the tariffs.
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While DDP isn’t necessarily fraudulent, the promise of low hassle shipping appeals to American buyers facing an increasingly costly and complex tariff regime. The crime comes when those tasked with bringing goods through customs deliberately underreport their value or otherwise misclassify them to get a favorable tariff rate. Buyers don’t necessarily know any law has been broken.
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Fraudsters combine that process with the use of shell companies or non-resident entities as the importer of record. If the authorities eventually do come knocking, they’ll often find a fake address or phone number listed for a shell firm that’s already been been shuttered.
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“If you want to commit fraud, this is how you would do it,” said Carrie Owens, who recently left the Department of Homeland Security’s intelligence office and previously led the Enforcement Operations Division at US Customs and Border Protection. “You would take on the liability, put it onto a shell company, who then you can run away from very easily and start a new one up.”
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Owens, now a partner at the law firm Kelley Drye & Warren, said these shell companies are such a problem because they proliferate rapidly and appear to authorities as any other domestic business, making them hard to detect. Entities can be set up overnight with modest bonds, often by Chinese suppliers in league with aggressive freight forwarders, she said.
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Compounding the problem, the Department of Homeland Security, which oversees both CBP and ICE, has redirected resources and staffing from several units responsible for investigating global trade crimes to immigration enforcement efforts, according to a US official familiar with current DHS operations, who requested anonymity for fear of retaliation.
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The official website of the division in charge of the units, Global Trade and Investigations, was archived between last October and January, according to public web records. The DHS didn’t respond to requests for comment.
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Catching up
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The US stands nearly alone among advanced economies in allowing non-resident companies to act as official importers even if they have no meaningful physical presence in the country.
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Washington isn’t blind to the problem. The non-resident importer program, designed to streamline imports for integrated industries like automobiles along the US-Canada border, is one of several trade policies under increasing scrutiny. One bipartisan proposal would increase the US assets required for foreign importers, enough to cover potential tariff liabilities. But the bill, introduced early last year, hasn’t advanced.
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Another bill introduced earlier this month would scrap the so called “first sale” rule that allows importers to value their goods based on the sale price when they first left the factory, which critics say creates more opportunity for under-reporting.
English (US)