Last week, several individuals involved in a multi-year scheme to fraudulently misclassify imported Chinese magnesium powder were handed prison sentences by a federal judge. The defendants, William Nehill and Gregory Magness, pled guilty in the scheme several years ago. Magness has been given an 18-month prison sentence, while Nehill will serve 90 days; both Nehill and Magness have been ordered to pay slightly more than $6 million dollars apiece in restitution. Gregory Magness’ son, Justin, was also sentenced last week, receiving a year’s probation and an order to pay a small sum in restitution.
The defendants’ scheme involved adding chunks of aluminum to drums of Chinese magnesium powder, which is subject to antidumping duties of up to 305 percent. The defendants then classified the merchandise as a re-agent subject to a standard 5 percent tariff. The aluminum chunks were removed post-importation, and the imported product was sold as magnesium powder, including for use in military flares that were sold to the U.S. Department of Defense.
The government has increased both criminal and civil prosecutions of antidumping and countervailing duty evasion schemes in recent years, with prison sentences, fines, and multi-million dollar restitution orders being handed down in cases involving products such as honey, aluminum extrusions, and dyes for printing inks. Collection lawsuits filed by U.S. Customs and Border Protection involving the evasion of trade remedies duties have skyrocketed since 2010, when an investigation by Senator Ron Wyden (D-OR) revealed how easy it is to find companies in East Asia willing to assist in evading duties for Chinese products.
For many years, trade remedies evasion largely flew under the radar. But evasion schemes have become bigger and bolder, resulting not only in lost duties but the importation of adulterated and possibly dangerous products (such as antibiotic-laden Chinese honey). As such, the U.S. government has taken steps to increase its vigilance. As such, importers should think twice if business partners or contacts approach them with potential methods for “avoiding” duties. While importers may dislike duties, they might dislike prison even more.