Damian Williams, the United States Attorney for the Southern District of New York, AnnMarie R. Highsmith, Executive Assistant Commissioner for U.S. Customs and Border Protection’s (“CBP”) Office of Trade, and Francis Russo, Director of CBP Field Operations New York, announced today that the United States has filed and settled a civil lawsuit against International Vitamins Corporation (“IVC”), a United States-based company that imports and sells vitamins and nutritional supplements from China. The settlement resolves claims that, for years, IVC defrauded the United States by misclassifying more than 30 of its products under the Harmonized Tariff Schedule (“HTS”) in order to avoid paying customs duties and by failing to pay back duties owed to the United States even after IVC finally corrected its longstanding misclassifications.
Under the settlement agreement approved by U.S. District Judge Mary Kay Vyskocil, IVC will pay $22,865,055 to the United States. As part of the settlement agreement, IVC also made admissions regarding its conduct. IVC admitted that, between 2015 and 2019, it utilized HTS classifications for 32 products it imported from China (the “Covered Products”) that carried duty-free rates, even though those products, if accurately classified, would have been subject to the payment of duties. IVC also admitted that even after it retained a consultant in 2018 who informed IVC that it had been misclassifying the Covered Products, IVC did not implement the correct classifications for over nine months and never remitted duties that it had underpaid to the United States because of its misclassification of the Covered Products.
U.S. Attorney Damian Williams said: “IVC engaged in a fraudulent scheme to avoid customs duties owed to the United States by misclassifying many of its products as duty-free when importing them from China. Worse yet, IVC made no effort to right its wrongs even after acknowledging internally that it had underpaid millions of dollars of duties owed. This Office is committed to combatting customs fraud by holding companies accountable when they attempt to avoid paying what they owe when importing goods from abroad.”
CBP Executive Assistant Commissioner AnnMarie R. Highsmith said: “This case reflects a pattern of behavior in which this company knowingly misclassified imported merchandise to avoid paying duties. They did so despite clear prior rulings by CBP on the correct classification for this specific type of product. Their failure to adhere to the customs laws, which are designed to protect U.S. revenue and U.S. consumers, will cost the company more than $22.8 million under the terms of a civil settlement with the United States. The dedication of the men and women of the CBP Office of Trade, the Office of Chief Counsel New York, and the United States Attorney’s Office to protect a fair and competitive trade environment is vital to facilitating lawful trade.”
CBP Director of Field Operations Francis Russo said: “U.S. Customs and Border Protection provided the critical link to an ongoing investigation into an attempt to circumvent payment of proper duties. This case serves as a great example of collaborative law enforcement efforts to uncover and dismantle enterprises that seek to defraud the United States government for personal gain while causing economic harm to their competitors.”
As alleged in the Complaint filed in Manhattan federal court:
From January 1, 2015, through September 13, 2019 (the “Covered Period”), IVC made thousands of entries of the Covered Products (consisting of raw and bulk vitamins and nutritional supplements) into the United States from China while materially misreporting to CBP the duty rates applicable to those products under the HTS. IVC knowingly submitted or caused its customs brokers to submit entry documents to CBP that contained false classifications of the Covered Products in order to avoid paying duties owed and failed to remit underpaid duties even after IVC confirmed that the classifications it had used were incorrect.
IVC utilized inaccurate HTS classifications for the Covered Products despite receiving repeated notices from CBP informing IVC that the classifications it had been using for similar goods were erroneous. After continuing to use the incorrect HTS classifications for more than three years, IVC retained a consultant to analyze the propriety of its classifications. Even after the consultant confirmed that IVC had been misclassifying the Covered Products under the HTS, IVC persisted in using its incorrect classifications for these goods for over nine months. Throughout, IVC provided the incorrect classifications to its customs brokers, knowing that they would rely on those classifications when preparing documents to be submitted to CBP on IVC’s behalf.
When IVC finally adopted the correct classifications for the Covered Products, IVC made no effort to pay back the duties that it had long owed to the United States because of its pervasive misclassifications. As a result, IVC underpaid millions of dollars of duties owed to CBP for its imports.
In the settlement agreement, IVC admitted, acknowledged, and accepted responsibility for the following conduct:
- During the Covered Period, IVC’s customs brokers used information provided by IVC to prepare and submit customs entry summaries to CBP relating to imports of the Covered Products. IVC knew that its customs brokers would rely on the information it provided when classifying the Covered Products and preparing the entry summaries to be submitted to CBP.
- During the Covered Period, IVC provided its customs brokers with HTS classifications for the Covered Products that applied to medicaments and vitamins and that would incur no duties. The Covered Products should have been classified as food preparations subject to the payment of duties. IVC continued providing its customs brokers with these inaccurate HTS classifications even after CBP issued Notices of Action to IVC in 2016 and 2017 regarding classification errors made by IVC for similar non-Covered Products, namely, incorrectly classifying the similar non-Covered Products as duty-free when the correct classifications were for food preparations subject to duties.
- In the fall of 2018, IVC retained a consultant to review the HTS classifications IVC was using for all of the products IVC was then importing into the United States, including the Covered Products. After analyzing the 134 products, the consultant provided IVC with the correct HTS classifications for each of the Covered Products. The corrected codes carried higher duty rates than the HTS classifications IVC was using at the time. As a result, IVC had underpaid duties on the Covered Products.
- IVC did not implement the corrected codes for the Covered Products that were imported into the United States on entry documentation submitted to CBP until around September 13, 2019. Soon after, an IVC executive explained his view “that as each item is reviewed and corrected,” IVC had “a very strong go forward but the clean up is tough.” IVC never remitted the duties it had underpaid for the Covered Products, apart from in response to several discrete Notices of Action.
- As a result, IVC, through its customs brokers, misclassified the Covered Products on entry documents filed with CBP and, throughout the Covered Period, routinely underpaid customs duties on the Covered Products.
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In connection with the filing of the lawsuit and settlement, the Government joined a whistleblower lawsuit that had been previously filed under seal pursuant to the False Claims Act.
Mr. Williams thanked CBP for its investigative efforts and ongoing support and assistance with the case.
This case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorney Zachary Bannon is in charge of the case.