Willful Blindness: Hear No Evil, See No Evil, Speak No Evil

Last week a client called with an interesting query. One of their customers had changed names six times in the past year. The company changed name three times in the first five months of 2017 alone! The goods were not contraband, correct duties were being paid, and accounts receivable and payables were up to date.  Nevertheless, my client wanted to know if I smelled something funny, as they did. The only answer was an obvious “yes”.  Something strange is going on if your client has to change names every two months, regardless of whether the goods appear to be accurately described and valued to Customs and you, and regardless of whether they are subject to any unusual import restrictions.

Similarly, a freight forwarding client of ours called to ask whether there was any problem with it filing shipper export declarations (SEDs) using the shipper’s information, even though the values seemed incredibly low. The forwarder had no way of knowing if the goods were undervalued, and if they were it would never know what the actual value should be. But the forwarder wanted to be safe and avoid misstatements, which was another case of a responsible intermediary making sure that it was acting within the parameters of the law.

In both cases, my answer was to stop doing business with the importer and exporter. There is a general principle in law prohibiting what is known as “self blinding”. You can’t say to someone with a shipment to Dubai, “I don’t want to know where these goods are really going!” or “Don’t tell me anything I shouldn’t know, but I’ve never seen a Mercedes at a price like that!”.

To refuse to acknowledge the obvious creates a legal implication of fraud by the party which wishes to be blinded. It’s not illegal to be unaware of the value of cargo. Forwarders are shipping intermediaries, not sellers of merchandise, so how should they know what something is worth? What if a person comes to you with new 2017 Mercedes 550 SEL and shows you an invoice with a value of $21,000?  The $90,000 discount should raise a red flag.

46 C.F.R. § 515.31, among other regulations, prevents any FMC-licensed shipping intermediary from making any “false statement”. Failure to comply, that is, willfully making a false statement which you either “knew or should have known was false can bring penalties of tens of thousands of dollars. Similarly, a Customs Broker is licensed by the Bureau of Customs and Border Protection to provide “a valuable service to importers”. It has been held repeatedly that the broker is in breach of its duty as a licensee when it enables an importers’ conduct which violates Customs’ regulations. The penalty to a Customs Broker for irresponsible management of its Customs brokerage business is minimum of $30,000 per event.  Who needs that?

The two entities mentioned above are excellent examples of firms exercising their legal and ethical obligations. But beside the avoidance of legal problems, there is a business advantage to this behavior.  There is no question that conducting your business on an ethical basis at all times will cause it to grow consistently year by year.  Your staff, your customers, your vendors and the industry as a whole will respect and recommend you.  At the same time, there is no question that if you start to make (even the smallest) exceptions to what you believe are proper ethical canons, you will fall into a trap whereby your reputation will suffer and long-term your business will fail to prosper.  Doors fly open when the ethical businessman approaches, and close tightly before those with unethical reputations. So act ethically, use common sense, respect your license obligations, and if you don’t know how to proceed in a given circumstance, feel free to call us for a short discussion of your obligations.

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