CBP Uses a Three- Part Process to Detect and Deter AD/CV Duty Evasion

CBP detects and deters AD/CV duty evasion through a three-part process  that involves (1) identifying potential cases of evasion, (2) attempting to  verify if evasion is occurring, and (3) taking enforcement action. These include, but are not limited to, the following:  targeting additional shipments made by the importer of record and  conducting further data analysis to look for other anomalies that may  be evidence of evasion; requesting that the importer provide further information, such as  product invoices and other documents that can help CBP understand  the transactions involved in producing and importing a good and  ascertain if evasion occurred; sending referrals to ICE to initiate criminal investigations and gather  evidence of evasion from foreign countries, such as by visiting  production facilities overseas and collecting customs documents from  foreign counterparts; performing cargo exams to inspect shipments arriving at ports of  collecting samples of products potentially brought in through evasion  and conducting laboratory analysis of these samples to attempt to  identify their true country of origin and other technical details that can  help CBP determine if the products should be subject to AD/CV  duties; and auditing importers suspected of evading AD/CV duties by collecting  company records (such as purchase orders, shipping documents, and  payment records) and examining them for discrepancies. In cases where CBP is able to verify evasion, its options for taking  enforcement action to deter evasion include (1) pursuing the collection of  evaded duties, (2) imposing civil penalties, (3) conducting seizures, and  (4) referring cases to ICE for criminal investigation. From fiscal years 2007 to  2011, CBP assessed 252 civil penalties totaling about $208 million  against 237 importers that evaded AD/CV duties. External Obstacles and Gaps in Information Sharing Hamper CBP Efforts to Address Evasion

Two types of factors affect CBP’s efforts to detect and deter AD/CV duty  evasion. First, CBP faces several external challenges in attempting to  gather conclusive evidence of evasion and deter parties from evading  duties. These challenges include (1) the inherent difficulty of verifying  evasion conducted through clandestine means; (2) limited access to  evidence of evasion located in foreign countries; (3) the highly specific  and sometimes complex nature of products subject to AD/CV duties;   (4) the ease of becoming an importer of record, which evaders can  exploit; and (5) the limited circumstances under which CBP can seize  goods brought in through evasion. CBP has encouraged the use of higher bonding requirements, called  single transaction bonds (STB), to protect AD/CV duty revenue from the  risk of evasion; however, it has not ensured that a port requiring an STB  shares this information with other ports in case an importer withdraws its  shipment and attempts to make entry at another port to avoid the STB. CBP Has Made Some Performance Management Improvements but Does Not Systematically Track or Report on Its Efforts to Detect and Deter Evasion

While CBP has improved its performance measures for addressing  AD/CV duty evasion and enhanced its monitoring of STBs, it does not  systematically track or report key outcome information that CBP  leadership and Congress could use to assess and improve CBP’s efforts  to detect and deter AD/CV duty evasion. First, CBP cannot readily  produce key data on AD/CV duty evasion, such as the number of  confirmed cases of evasion, which it could use to better inform and  manage its efforts. Second, CBP does not consistently track or report on  the outcomes of allegations of evasion it receives from third parties. Specifically, as we reported in March 2011, the Government  Performance and Results Modernization Act of 2010 underscores the  importance of ensuring that performance information will be both useful  and used in decision making. Without improved tracking and reporting,  agency leadership, Congress, and industry stakeholders will continue to  have insufficient information with which to oversee and evaluate CBP’s  efforts. In commenting on a draft of this report, the Department of Homeland  Security concurred with our recommendations addressed to the  department that CBP (1) create a policy and a mechanism for information  sharing among ports regarding the use of higher bond requirements and  (2) develop and implement a plan to track and report systematically  instances of AD/CV duty evasion and the results of CBP’s enforcement  actions. CBP needs  information from Commerce on when final court decisions are reached to  help enable the agency to better plan its workload and help mitigate the  administrative burden it faces in processing AD/CV duties—an effort that  diminishes the resources it has available to address evasion. To assess the extent to which CBP tracks and reports on its efforts to  detect and deter AD/CV duty evasion, we reviewed CBP annual plans  that identify its performance measures for addressing AD/CV duty  evasion; documents that show CBP’s performance against these  measures; CBP testimony and videos publicizing successful efforts to  address evasion; a CBP report to Congress on fiscal year 2010 efforts to  enforce AD/CV duties; and a report by the Department of Homeland  Security Inspector General on CBP’s bonding process, including its use  and tracking of single transaction bonds.
Why GAO Did This Study

The United States imposes AD/CV duties to remedy unfair foreign trade practices, such as unfairly low prices or subsidies that cause injury to domestic industries. Examples of products subject to AD/CV duties include honey from China and certain steel products from South Korea. Importers that seek to avoid paying appropriate AD/CV duties may employ methods of evasion such as illegally transshipping an import through a third country to disguise its true country of origin or falsifying the value of an import to reduce the amount of duties owed, among others. AD/CV duty evasion can harm U.S. companies and reduces U.S. revenues. CBP, within the Department of Homeland Security, leads efforts to detect and deter AD/CV duty evasion.
GAO was asked to examine (1) how CBP detects and deters AD/CV duty evasion, (2) factors that affect CBPs efforts, and (3) the extent to which CBP tracks and reports on its efforts. To address these objectives, GAO reviewed CBP data and documents; met with government and private sector representatives in Washington, D.C.; and conducted fieldwork at three domestic ports.

What GAO Found

U.S. Customs and Border Protection (CBP) detects and deters evasion of antidumping and countervailing (AD/CV) duties through a three-part process that involves (1) identifying potential cases of evasion, (2) attempting to verify if evasion is occurring, and (3) taking enforcement action. To identify potential cases of evasion, CBP targets suspicious import activity, analyzes trends in import data, and follows up on allegations from external sources. If CBP identifies a potential case of evasion, it can use various techniques to attempt to verify whether evasion is occurring, such as asking importers for further information, auditing the records of importers suspected of evasion, and inspecting shipments arriving at ports of entry. If CBP is able to verify evasion, its options for taking enforcement action include (1) pursuing the collection of evaded duties, (2) imposing civil penalties, (3) conducting seizures, and (4) referring cases for criminal investigation. For example, between fiscal years 2007 to 2011, CBP assessed civil penalties totaling about $208 million against importers evading AD/CV duties.
Two types of factors affect CBPs efforts to detect and deter AD/CV duty evasion. First, CBP faces several external challenges in attempting to gather conclusive evidence of evasion and take enforcement action against parties evading duties. These challenges include (1) the inherent difficulty of verifying evasion conducted through clandestine means; (2) limited access to evidence of evasion located in foreign countries; (3) the highly specific and sometimes complex nature of products subject to AD/CV duties; (4) the ease of becoming an importer of record, which evaders can exploit; and (5) the limited circumstances under which CBP can seize goods evading AD/CV duties. Second, gaps in information sharing also affect CBP efforts. Although communication between CBP and the Department of Commerce (Commerce) has improved, CBP lacks information from Commerce that would enable it to better plan its workload and help mitigate the administrative burden it faces in processing AD/CV dutiesan effort that diminishes its resources available to address evasion. Additionally, CBP has encouraged the use of larger bond amounts to protect AD/CV duty revenue from the risk of evasion, but CBP has neither a policy nor a mechanism in place for a port requiring a larger bond to share this information with other ports in case an importer withdraws its shipment and attempts to make entry at another port to avoid the higher bond amount.
While CBP has made some performance management improvements, it does not systematically track or report key outcome information that CBP leadership and Congress could use to assess and improve CBPs efforts to deter and detect AC/CV duty evasion. First, CBP cannot readily produce key data, such as the number of confirmed cases of evasion, which it could use to better inform and manage its efforts. Second, CBP does not consistently track or report on the outcomes of allegations of evasion it receives from third parties. As GAO reported in March 2011, the Government Performance and Results Modernization Act of 2010 underscores the importance of ensuring that performance information will be both useful and used in decision making. Without improved tracking and reporting, agency leadership, Congress, and industry stakeholders will continue to have little information with which to oversee and evaluate CBPs efforts to detect and deter evasion of AD/CV duties..

What GAO Recommends

To enhance CBPs efforts to address AD/CV duty evasion and facilitate oversight of these efforts, GAO makes several recommendations, including that CBP create a policy and a mechanism for information sharing among ports regarding the use of higher bond amounts and develop and implement a plan to track and report on these efforts. CBP and the Department of Commerce generally concurred with GAOs recommendations.