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Temped to Hide / Undervalue Cross Border Purchases ?

Posted by on in Trade Law
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A recent decision in the Federal Court ends up being a real good lesson for (mostly) all of the bad things that Canadian's can face when tempted to either non-report or undervalue their purchased goods when returning to Canada from abroad - all in the pursuit of saving a few dollars in duties or GST/HST. Indeed, what the CBSA was able to do to ferret out the non-reporting and under-valuation may be surprising to the average Canadian, and the facts of the case itself are probably a good heads up on what can face an importer when lying about his or her purchases.

What the CBSA Found and Did - In the case (Pounall vs. CBSA), a man was returning to Canada after purchasing a used BMW in California:

  • At the border, the importer reported the purchase of the used car but declared its value at $12,250, some $5,500 less than the intial agreed purchase price with the vendor of $17,750.The importer contended that the vendor reduced the selling price of the car because of damage to the vehicle from an intervening vandalism.
  • CBSA searched the car on entry and found a bill of sale for $12,250, and a purchase agreement which provided for payment of $17,750 (e.g., a deposit of $6,500 with a provision to pay an additional $11,250).
  • CBSA then searched the importer's cell phone and found text messages indicating that the Applicant had paid the vendor $6,500 in cash and $11,250 by wire transfer.
  • CBSA then proceeded to seize the car, and over $2,600 of additional goods that appeared to have been purchased in the US, but not reported (new tires, a new hood bought to address the vandalism, and new window tinting).
  • Under Canadian law, these goods became "forfeit" to the Crown (meaning that ownership of the goods was effectively confiscated by the federal government).Because CBSA administratively sets "terms of release" whereby it will release the forfeiture back to the importer on payment of a monetary sum, the importer was offered the following terms of release, if signing a declaration admitting the essential facts described above:

- The under-reporting of the car value was determined to be a Level 3 violation, and CBSA set terms of release at $2,988.40 (55% of undeclared difference in value between $17,750 and $12,250).

- The under-reporting of the other goods was determined to be a Level 2 violation, and CBSA set terms of release at $1,057.05 (40% of undeclared value).

Perhaps surprising for most Canadians, all of these actions were upheld by the Federal Court as proper applications of Canadian law.

Challenging Seizures, Ascertained Forfeitures & AMPS - From a legal perspective, and for those trying to challenge these sorts of seizures, the Federal Court decision is interesting on another front. The Federal Court emphasized its numerous prior decisions indicating that difference between challenging (1) a finding of a "contravention" under section 131 of the Customs Act (i.e., which relates to an importer's non-compliance that leads to the issuance of administrative monetary penalties, or in more serious cases, seizures or ascertained forfeitures), and (2) the imposition of the "penalty" under section 133 of the Customs Act in respect of that same contravention. In the former instance, findings of "contravention" under section 131 of the Customs Act must be challenged by way of an action in the Federal Court, usually tied to a 90 day time limit. In the latter, a challenge of the "penalty amount" can only be made by way of an application for judicial review, usually tied to a 30 day time limit: see Mohawk Council of Akwesasne v Canada, 2012 FC 1442, and Nguyen v Canada, 2009 FC 724).

This distinction was originally made in Nguyen as follows (at paragraph 20):

No such statutory right of appeal exists with respect to Ministerial decisions taken under s. 133 of the Act. Section 133 of the Act provides that where the Minister finds under s. 131 of the Act that a contravention of the Act has occurred, the Minister may impose a penalty or other applicable remedial action such as the return of goods on receipt of an amount of money. Accordingly, a determination made pursuant s. 133 of the Act may often be dependent on a finding of a contravention of the Act. Nevertheless, the two decisions are separate and distinct, and must be challenged separately. The determination made pursuant to s. 131 of the Act in respect of a contravention of s. 12 of the Act may only be appealed by way of an action to this Court. Meanwhile, a determination made pursuant s. 133 of the Act regarding the release of the goods may be challenged only by way of an application for judicial review in accordance with s. 18.1 of the Federal Courts Act, R.S.C., 1985, c. F-7.

Take-Away Points - Legally decisions of the CBSA in these sorts of situation are incredibly difficult and expensive to challenge. Worst yes, in practice, importers found in these circumstances are usually then denied special status (e.g., having Nexus Cards revoked), and are generally subjected to a period of mandatory secondary screening, which can be as important from the inconvenience point of view as the monetary terms of settlement required to recoup one's goods.

Lastly, this particular importer may have gotten off lightly from a Customs perspective, as importers found in similar situations are often charged criminally with various offences under the Customs Act. Indeed, Canada has a word for bringing goods into Canada without properly reporting them, and that word is "smuggling" -- which is an offence under section 153 of the Customs Act.

The lesson here ? Be scrupulous about reporting everything you have purchased abroad, including its proper value. And where things go awry, get a good lawyer !



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