Trade Fraud: The ‘Wild New Frontier of White Collar Crime’

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container ship

A huge container ship sails under the bridge from Savannah, Georgia into South Carolina with cargo imported from the far east. Photo by Tom Driggers via Flickr

Federal prosecutions of shady importers have increased 900 percent over the past 16 years, but officials can barely cope with a swelling volume of trade fraud that costs the government millions of dollars in lost revenue and endangers consumer safety, according to a study in the Oregon Review of International Law.

“Countries’ borders are too vast, the volume of imports too great, global customs inspections too porous, and law enforcement resources too few for effective monitoring or deterrence,” the study said.

After compiling a database of trade fraud cases between 2000 and 2016, the authors examined 47 criminal and civil cases involving hundreds of defendants, ranging from “mom and pop” businesses to large conglomerates who had been prosecuted by the Department of Justice.

See also: Enforcement Can’t Stop Fake Chinese Drugs: Report

They concluded that the only way to tame what they described as the “wild, new frontier of white-collar crime” was to develop interagency teams that focused on bringing cases under the False Claims Act, a law enacted enacted in 1863 at the height of the Civil War to combat suppliers of fraudulent goods to the Union Army—and amended several times since.

“For many crimes, criminal prosecution is the only way to protect the public from perpetrators,” said wrote the authors. “However, for white-collar frauds against the government, this is not true.

“The FCA’s stiff penalties, treble damages and heightened mens rea requirement carry a big bang for the buck and can deter future wrongdoing effectively.”

Taking note of the fierce contemporary debate between free trade advocates and protectionists, the authors said both sides should be able to agree that import fraud must be “aggressively pursued.”

“No one has the right to lie about what they are bringing into a country,” they wrote.

According to the study authors, Pamela Bucy Pierson of the University of Alabama School of Law and a former Assistant U.S. Attorney, and Benjamin Patterson Buey, an attorney with white-collar law firm Frohsin, Barger & Walthall, the primary motivation for unscrupulous importers was avoiding taxes. But in the process, they facilitated the purchase of goods that endangered the health of whoever bought them.

One example in the cases they examined was an importer who claimed to sell flounder and grouper that that was in fact “Vietnamese catfish laced with prohibited antibiotics.”

While the study conceded that it was impossible to completely isolate and block the flow of adulterated drugs, food or fake goods in an economy that imports some $2.71 trillion worth of products annually , they called on the Department of Justice to adopt a more pro-active strategy to “enhance” the effectiveness of FCA prosecutions.

Their recommendations included:

  1. Team up with other federal agencies responsible for border security and trade, such as Customs and Border Protection, Homeland Security, and the Commerce Department, to create an inter-agency task force devoted to fighting trade fraud;
  2. Hire and train dedicated U.S. Attorneys to specialize in investigating trade fraud;
  3. Enhance the transparency of international shipping records by developing a centralized repository to facilitate the investigation of fraud allegations by informers;
  4. Make information about trade fraud cases more readily available to the public and investigators by creating central databases similar to those created for Medicare fraud.

Noting that increased inspections alone wouldn’t address the scope of the problem, the authors said curbing dishonest trade required the use of sophisticated techniques such as “forensic accounting to trace monetary transactions, grants of immunity to obtain testimony, analysis of paper trails, piercing of fictitious organizations, and dissecting layers of fraudulent transactions.”

The study said fraudulent imports can cost American jobs, citing the example of a family-run lighting business forced to cut its staff after a competitor bought cheap lighting in China, falsified the country of origin, and avoided paying import duties—enabling him to undercut prices.

The impact of the FCA on healthcare is illustrative. Until the FCA was amended in 1987 to stiffen penalties and widen its scope, few cases of health care fraud were successfully prosecuted. But by 2016, there were 501 such cases, and nearly $2.5 billion realized in recoveries, the authors said.

“The FCA’s effectiveness is due, in large part, to the public-private partnership it creates between individuals, qui tam relators, (insider informants who reveal fraudulent practices) and the U.S. Department of Justice,” the study said.

Such insiders are crucial to unearthing some of the world’s most complex transactions.

“While all white-collar crime is difficult to detect, trade fraud is harder,” the authors said. “(It) is hidden in layers of organizations, concealed in byzantine electronic communications, and obscured by money laundering.”

A full copy of the study can be downloaded here.

TCR News Intern John Ramsey assisted in the preparation of this summary. Readers’ comments are welcome.

One thought on “Trade Fraud: The ‘Wild New Frontier of White Collar Crime’

  1. Pingback: Study offers ideas to combat growth of trade fraud – Aidala

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