June 26, 2007

IN-BOND MERCHANDISE DIVERSION SMUGGLING

The in-bond system allows merchandise not intended for entry into U.S. commerce to transit the Unites States. In-bond movements allowed under U.S. law are valuable to the trade community since they help alleviate port congestion and facilitate trade by allowing importers to move cargo more efficiently. Merchandise may move without duties or taxes being paid because it is moving under a bond that provides for liquidated damages if the conditions of the bond are not met. 

In-bond movements are as follows: Immediate Transportation, which allows freight to move to an inland port of the importer’s choosing for final Customs clearance and payment of duties and/or taxes; Immediate Export, which allows freight to be exported from the same port where it arrived; and Transportation and Exportation, which allows cargo to move to another U.S. port prior to export.  When conducted properly, in-bond transactions facilitate trade by allowing the use of U.S. infrastructure for the transportation of goods to foreign markets or to another US port.

However, the in-bond system has also been exploited.  In-bond merchandise can be diverted into the United States, which can result in the smuggling of restricted or high duty items and merchandise limited by quota and visa. This practice can endanger the public health, hurt the U.S. economy, restrict the competitiveness of the United States in the global market and possibly finance the illegal activities of organized crime and terrorist organizations.

Importers engage in illegal activities, including in-bond diversion, in order to smuggle a wide variety of merchandise into the United States, including:

• Textiles and wearing apparel, to avoid quotas on these items.


• Cigarettes, clothing and liquor, in order to evade the duties and/or taxes on these items.


• Imported items that pose a threat to U.S. consumers and/or the environment and would not be allowed in the United States.


• Certain imports that require the payment of duties in order to help domestic producers fairly compete against foreign suppliers.


• Counterfeit goods that are “knockoffs” of trademarked and copyrighted products covered by intellectual property rights (IPR). Estimates by industry and trade associations indicate U.S. businesses lose as much as $250 billion annually to counterfeiting and piracy. 

U.S. Immigration and Customs Enforcement (ICE) investigates all trade-related crimes, including IPR violations, illegal textiles transshipment, illegal importation of counterfeit and restricted pharmaceuticals, tobacco smuggling, circumvention of international trade agreements and importer and broker non-compliance. During fiscal year 2006, the department's U.S. Customs and Border Protection (CBP) and ICE components made more than 14,000 seizures of counterfeit goods worth more than $155 million. That is a 67 percent increase from the year before. ICE investigations resulted in 219 arrests, 134 indictments and 170 convictions in IPR violations.

Examples of ICE investigations into in-bond diversion smuggling include:

• In Texas, ICE targeted customs house broker Rosa E. Garcia, who arranged and coordinated the diversion of in-bond shipments of wearing apparel from Laredo, Texas, to Los Angeles.  Garcia diverted the shipments by filing in-bond documents indicating the goods had been exported to Mexico, when they, in fact, had been shipped to California. Garcia and co-conspirator Jorge A. Gutierrez were subsequently indicted, arrested and pleaded guilty. Garcia was sentenced to serve a term of 18 months in prison and three years probation and was fined $3,000. Gutierrez was sentenced to serve eight months in prison and three years probation and was fined $1,500.


• ICE agents in Nogales, Ariz., investigated the illegal importation of counterfeit Nike athletic shoes that were entering the United States through a sophisticated in-bond diversion scheme.  An undercover ICE agent, posing as a CBP officer, received $25,000 in bribe payments to divert six in-bond containers of counterfeit Nike Air Jordan athletic shoes, destined for Mexico, into the United States. As a result of this investigation, in July 2006, El Paso and Nogales ICE agents arrested Mark Elias, Manuel Flores, Juan Carlos Martinez-Esquer, Sau Kuen Chan and Wei Tung Lam. They were charged with attempting to smuggle 81 containers of counterfeit Nike athletic shoes and designer clothing, with an estimated retail price of $69.8 million. A sixth member of the conspiracy, identified as Peng Liu, is currently a fugitive. By June 2007, all five of the charged subjects had pleaded guilty to trafficking in counterfeit goods and conspiracy to bribe a public official. They are expected to receive sentences of five years in federal prison and fines of $250,000. 

To address the in-bond challenge, ICE partners with CBP to target high-risk commodities such as textiles, tobacco and liquor for intensive inspection and surveillance. CBP and ICE work together through the Commercial Enforcement Analysis and Response (CEAR) process to ensure that suspected significant commercial violations receive priority at the port level and that appropriate actions are undertaken by both agencies. 

In addition, ICE and CBP have jointly implemented special enforcement operations, such as Operation Security Bond, which targets the illegal use of the in-bond system to smuggle merchandise. These in-bond investigations and programs also include violations related to bonded warehouses, Foreign Trade Zones and customs brokers.

ICE and CBP also field Fraud Investigation Strike Teams (FISTs) that target fraud within Foreign Trade Zones and customs bonded warehouses. During fiscal year 2006, FIST operations were conducted in Chicago, Atlanta and San Francisco and other locations. These operations have resulted in increased detection of commercial fraud violations and the identification and removal of undocumented aliens with unauthorized access to secure areas.

ICE is also in discussions with CBP to develop new initiatives that will expand the United States’ ability to detect and prevent the use of the in-bond system by smugglers.

U.S. Immigration and Customs Enforcement (ICE) was established in March 2003 as the largest investigative arm of the Department of Homeland Security. ICE is comprised of five integrated divisions that form a 21st century law enforcement agency with broad responsibilities for a number of key homeland security priorities.