Fraud soars as exporters try to ship more to US
East German steel is stamped as a product of West Germany to receive lower tariffs. Sweaters woven in the People's Republic of China are relabeled ``Made in Japan'' to bypass textile quotas.
Computer chips - semiconductors - worth hundreds of thousands of dollars are declared worth several hundred dollars to circumvent a United States-Japanese antidumping agreement.
Such cases of customs fraud are soaring. So far, according to the US Customs Service, major cases under active investigation are up 34 percent compared with the last fiscal year. Over the past four years, criminal convictions are up 300 percent.
Fraud involving textiles is so active that the Customs Service seized more goods in the first six months of the 1987 fiscal year than it seized all of last year. One manufacturer of designer jeans has been notified it will be fined more than $150 million for understating the value its imports.
``It's clear customs violations are as commonplace as compliance,'' says Rep. John Dingell (D) of Michigan.
Customs commissioner William von Raab says, ``We don't know if fraud is up, or we are just catching more people.''
One reason that the service is catching more cheats is because of more sophisticated methods. Recently, Customs used wiretaps to catch a New York importer of counterfeit designer watches.
The surge in fraud cases, says Representative Dingell, raises serious questions about whether US trading partners, many of them in Asia, are interested in honoring trade pacts to cut down on such fraud.
``It's clear some of them don't try very hard,'' says Dingell, who chairs the Energy and Commerce Committee. The trade bill working its way through the House provides for tougher penalties against importers who constantly violate the law.
The rise in customs fraud comes during an annual battle over the Customs budget. According to Dingell, the White House has asked to cut 2,000 customs inspectors to save $150 million. As in past years, Dingell indicated, the House will ignore such spending cuts.
The budget battle comes when Customs is spending more time trying to catch cheats. Mr. von Raab says the service spent 41 percent more time last year in such activities.
At hearings Thursday before the Energy and Commerce Committee's Oversight and Investigations Subcommittee, customs inspectors from around the country described some of the frauds involving products ranging from gasoline to textiles.
Houston inspector Irby Ferguson reports a significant rise in fraud involving imported steel flanges, which are used to hold oil pipes together. These imports illegally are called domestic products after they clear customs. Because American-made flanges are considered stronger, they bring in prices as high as 5 to 40 percent above the price of imported flanges.
One company, Maas Flanges Corporation, bought steel made in East Germany that was marked as a product of West Germany to reduce the US tariffs. After clearing customs, the German markings were ground off and the steel was sold as domestically produced. Maas agreed to pay $200,000 in civil fines and $5,000 in criminal fines.
Still more cases are pending on another $100 million worth of steel. Garland Ruiz, a New Orleans customs inspector, says textile and footwear fraud is widespread. In one recent survey of shipments through a Gulf of Mexico coast port, Customs found that 44 percent of the shoes were ``misdescribed,'' resulting in a $200,000 loss in duties. Mr. Ruiz says these shoes were imported by an East Coast distributor but sent to a gulf port because the importer realized the port was understaffed and the shoes were unlikely to be examined.
Importers also cheat widely on textile imports. Von Raab says Eagle Eye Ltd., an importer, conspired to import sweaters and other garments labeled ``Made in Japan'' from Hong Kong and the People's Republic of China. The company hoped to avoid quotas on such imports.
In a new case of textile fraud to circumvent the quotas, Customs has uncovered forged textile visas from the People's Republic of China, von Raab says. The visas are necessary to export textiles to the US. The case is being investigated.
Some of the fraudulent goods are safety hazards. At the hearing, inspectors showed fake ``Cabbage Patch dolls'' that were flammable, and food that included banned substances such as rhinocerous horn. In one ongoing case, von Raab said Customs had discovered imported steel bolts that do not meet US strength standards. Such bolts are used in buildings, bridges, and nuclear power plants.