Customs claims brought against freight forwarders have always been part of the tapestry of issues handled and covered by the TT Club. However, by way of alert, there has been a noticeable increase in claims involving the evasion of Anti-Dumping Duty ('ADD'). Most seem to result from investigations made by the European Anti-Fraud Office (known as 'OLAF', from its French name Office de Lutte Anti-Fraude).

The TT Club is aware of three OLAF investigations in particular which appear to have impacted on freight forwarders recently in relation to bicycles, silicone metal and solar panels.

By way of a reminder, ADD is a protectionist tariff that a state (and in this case a group of states, the European Union) imposes on foreign imports that it believes are priced below fair market value. The EU has imposed ADD measures on numerous products from various countries. Some examples of recent EU ADD measures involve filament fibre glass products from China, rainbow trout from Turkey, and ductile cast iron pipes from India.

"In order to evade duties, certain exporters/importers may deliberately resort to concealing the true origin of the cargo at the point of importation"

Unfortunately, in order to evade these high duties, certain exporters/importers may deliberately resort to concealing the true origin of the cargo at the point of importation, either by obtaining false certificates of origin or by misleading the relevant authorities into issuing genuine certificates of origin for goods which do not in fact originate in their country.

Case example - Bicycles from Sri Lanka

In 2005, the EU increased the rate of ADD on the imports of bicycles originating in China to 48.5% of the value of the goods (up from 30.6%). Conversely, bicycles imported into the EU from Sri Lanka had a preferential rate of duty of GSP + 0%. In 2010, OLAF was made aware of potential evasion of ADD and customs duties on bicycles that were being imported from (and declared as originating from) Sri Lanka, but which were suspected to originate from China.

OLAF investigated these imports and found that the bicycles in fact originated in China. It transpired that Chinese investors had created companies in Sri Lanka to import the Chinese bicycles, carry out some minimal assembly, and then obtain certificates of origin from the Sri Lankan authorities, in order for the bicycles to be imported into the EU with Sri Lankan origin.

As a result of the investigation, OLAF came to the conclusion that since 2008, approximately EUR25.7 million of customs duties and ADD had been evaded. The three EU Member States most affected by this fraud were the UK (with EUR20 million worth of evaded duties), France and Belgium. It was also concluded that an additional EUR20million worth of these duties had also been evaded before 2008. The Member States are now charged with recovering as much of these evaded duties as possible.

Unfortunately, the customs authorities of some of the Member States have taken joint action against the importers and against the freight forwarders (who had acted as 'indirect declarants' of the bicycles), demanding payment of all the evaded customs duties. This is regardless of the fact that the freight forwarders did not have, nor could they have had, any knowledge of the true origin of the goods. In many cases, the actual importer has disappeared or is not responding, which leaves the freight forwarder as the only viable target for the customs authorities.

"In many cases, the actual importer has disappeared or is not responding, which leaves the freight forwarder as the only viable target for the customs authorities"

Other cases of customs duty/ADD evasion and misdeclared origin

There are two other significant instances of suspected fraudulent evasion of customs duty/ADD under investigation regarding imports into the EU, being:

• Solar panels originating in China, but declared as Indian and/or Taiwanese
• Silicone metal originating in China, but declared as Taiwanese

In both these cases, freight forwarders are again facing very large claims from the customs authorities, with no or very little likelihood of recovery from their customers.

Minimising risk - 'Know Your Customer'

Once a customs investigation has been concluded and a claim has been made, there is little a freight forwarder can do to mitigate the risk after the event, other than appointing an experienced customs specialist to defend the claim.

"However, freight forwarders can act in advance to help avoid such risks and provide mitigating circumstances in defence of a potential future customs claim"

However, freight forwarders can act in advance to help avoid such risks and provide mitigating circumstances in defence of a potential future customs claim.

The contractual side.

• Ensure you act as a 'direct representative' (ie. as agent for your customer) rather than an 'indirect representative'
• Always carry out detailed due diligence before accepting instructions, including solvency checks and validation of VAT or similar fiscal registration numbers. This should be done periodically on existing customers but particularly for new customers

Operational procedures.

• Ensure your staff are aware of current market conditions and report any unusual trading patterns.
• Check with your national freight forwarding association who are likely to be aware of current customs issues.
• Check current ADD measures on the government's website (eg. for the UK)
• Maintain and retain written records of the instructions given by your customers. Ensure that you have copies of all relevant documents pertaining to the import, such as sales invoices etc

Protective actions.

• If you become aware that a customs authority is investigating a particular class of goods, take additional precautions if you continue to act on behalf of any customer in relation such goods (eg. direct declarant status, additional due diligence and, perhaps, request bank guarantees)
• If you are notified of a claim in respect of certain goods, consider whether you can exercise a lien over any current goods you hold for your customer
• Check your insurance policy to ensure whether and to what extent you may have cover for any customs claims, including the costs of investigation and defence.

We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.

We look forward to hearing from you.

Peregrine Storrs-Fox

Risk Management Director, TT Club