Navigating Customs: Fake Invoices and the First Sale Valuation Method

Navigating U.S. Customs and Border Protection (CBP) regulations can be complex, particularly when it comes to valuation methods like the "First Sale for Export" pricing. Recently, a client approached us with a troubling question: Would there be any issues where a fake invoice was issued to support the declaration made on a U.S. Customs entry?

Essentially, this case involved an importer interested in benefitting from what is commonly referred to as the "First Sale" or "First Sale for Export" price which is a sale involving an:

1. importer

2. middleman (at least one), and

3. manufacturer

The First Sale Valuation Method allows importers to declare the value of their imported goods based on the sale from the manufacturer to the middleman, rather than the final sale from the middleman to the importer. This method can result in lower customs duties, offering significant savings. However, it’s not without its challenges.

For unrelated parties, one of the main issues is that the middleman must disclose their cost to the manufacturer and reveal the manufacturer’s identity to the importer. Understandably, middlemen are often reluctant to share this information, fearing that the importer may bypass them and deal directly with the manufacturer. This temptation to conceal information might lead some to consider the illegal route of creating fake invoices.

Where the parties are related, the challenge shifts to proving that the transaction occurred at arm’s length. U.S. Customs requires a higher standard of proof in these cases, and failure to adequately prepare can complicate matters further.  [NOTE – this issue often arises during a customs audit wherein the assessment of potential penalties hangs over an importer’s head…]

While the allure of reduced customs duties through the First Sale Valuation Method is strong, the use of fake invoices is never a solution. Instead, importers and middlemen should explore legal avenues to minimize duties. Sometimes, middlemen serve not just as resellers but also as agents or service providers, which could open doors to non-dutiable services and legitimate savings.

If you’re searching for ways to save on the amount being paid in customs duties, with some exploration, there may be available solutions to existing or new ventures.  Our firm can guide you through compliant strategies that protect your business from the risks associated with fraudulent practices.

Have questions? Give our office a call today at (917) 546-6997, we would be happy to speak with you.

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