August 17, 2017
The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
RE: Continued Failure to Collect Appropriate Duties, Penalties, and Interest
Dear President Trump:
The Project On Government Oversight (POGO) is an independent nonprofit that investigates and exposes corruption and other misconduct in order to achieve a more effective, accountable, open, and ethical federal government. In our efforts to further this mission, we want to bring to your attention the potentially massive loss of revenue resulting from mismanagement at U.S. Customs and Border Protection (CBP). CBP may be losing billions of dollars due to its unwillingness to collect the required duties, penalties, and interest from non-compliant importers, many of whom are located in China and other foreign countries.
Based on your stated commitments to eliminate waste and fraud in government spending, protect American workers and businesses, and make sure the U.S. gets the most out of its trade deals, we believe the following information will be of great interest to you.
This is not the first time POGO has raised this issue, however. In May 2016, POGO sent a letter to Department of Homeland Security Inspector General (DHS IG) John Roth describing how CBP was losing millions of dollars each year solely from lax enforcement of importation laws. While we were only able to provide the specific example of watch imports, POGO found evidence that suggests such revenue collection issues may also affect the collection of textile, apparel, computer part, and jewelry imports. The DHS IG’s office responded, stating that the Government Accountability Office (GAO) had already begun work on the issues we raised, and that the IG’s office was working closely with them.
The GAO recently released a report that touches upon those issues, but it does not directly address the problems we highlighted. The report seems to accept at face value the success of CBP’s programs to ensure trade compliance, but it does not perform any substantive reviews of their effectiveness (except for citing a lack of performance targets and failure to meet legally required staffing levels). Furthermore, the GAO report does not address any of the concerns in Sen. Charles Grassley’s (R-IA) 2009 letter to DHS about management failures at CBP, and it glosses over some key indicators of problems.
Most disturbingly, the report states that CBP assessed over $237 million dollars in penalties in fiscal year 2015, yet only collected $3.5 million in penalties in that same period. While GAO acknowledges that penalties take time to collect, there is no indication that the assessment of penalties in 2015 was an aberration. It appears CBP routinely assesses hundreds of millions of dollars in penalties each year, but only collects around 1-2 percent of that. Additionally, the word “interest” is never mentioned in the report, and, as we discussed in our 2016 letter, CBP’s failure to collect interest from non-compliant importers not only results in lost revenue for the government, it also puts compliant importers at a financial disadvantage and American jobs at risk.
Clearly, the problem of weak revenue collection enforcement needs to be addressed. CBP keeps terrorists and their weapons out of the United States while facilitating lawful international travel and trade. It is also one of the largest revenue producers for the government: in fiscal year 2016 alone, it processed more than $2.4 trillion in trade and collected more than $44 billion in revenue. CBP sends all the duty, tax, and fee revenues it collects to various general fund accounts maintained by the Departments of Treasury and Agriculture, and the Army Corps of Engineers. Treasury further distributes the revenues to federal agencies in accordance with various laws and regulations. CBP handles revenue obtained from fines, penalties, and interest in the same manner. Thus, CBP’s failure to collect revenue could result in anything from less funding for government agencies to an increase in the federal deficit.
POGO believes that your stated intention to focus on the elimination of waste, fraud, and abuse in the federal government aligns closely with a careful study of the issues we raised in our May 2016 letter. We have attached that letter and urge you to closely investigate this loss of revenue at CBP.
Thank you for your time and consideration of this matter.
Letter from the Project On Government Oversight to the Department of Homeland Security Inspector General regarding lost revenue, dated May 10, 2016.
Department of Homeland Security Inspector General John Roth
Customs and Border Protection Acting Commissioner Kevin K. McAleenan
Senate Committee on Homeland Security & Government Affairs Chairman Ron Johnson and Ranking Member Claire McCaskill
House Committee on Homeland Security Chairman Michael McCaul and Ranking Member Bennie Thompson
Senate Committee on Finance Chairman Orin Hatch and Ranking Member Ron Wyden
Senate Committee on Finance’s Subcommittee on International Trade, Customs, and Global Competitiveness Chairman John Cornyn and Ranking Member Robert P. Casey, Jr.
Senator Charles Grassley
 Project On Government Oversight, POGO’s Letter to Homeland Security Inspector General To Address Long-standing Revenue Collection Issues at Customs and Border Protection, May 10, 2016. http://www.pogoarchives.org/m/ga/pogo_ltr_dhs_cbp_revenue_collection_20160510.pdf
 “Through Customs own investigations . . . it has become increasingly clear that a large number of importers are deliberately undervaluing textile and apparel imports from China.” National Council of Textile Organizations, Enforcing America’s Trade Laws in the Face of Customs Fraud and Duty Evasion, May 5, 2011. https://www.finance.senate.gov/imo/media/doc/74204.pdf (Downloaded July 8, 2017); “A number of recent [False Claims Act] lawsuits have alleged that importers fraudulently undervalued goods in order to reduce ad valorem duties . . . [:] United States ex rel. Tu v. Kuo, 3:12-cv-04166 (N.D. Ca.) . . . computer cables; women’s apparel . . . United States ex rel. Krigstein v. Siouni and Zarr Corporation, 1:11-cv-04247 (S.D.N.Y.); jewelry . . . United States ex rel. Karlin v. Noble Jewelry, 1:08-cv-07826 (S.D.N.Y.).” Kirsten Mayer and Timothy Cahill, “False Claims Act Enforcement of Customs Duties—Emerging Trends,” International Trade Reporter, Vol. 31, Issue 41, October 16, 2014, p. 1. https://www.ropesgray.com/~/media/Files/articles/2014/October/International-Trade-Reporter.ashx (Downloaded July 8, 2017)
 Government Accountability Office, Improved Planning Needed to Strengthen Trade Enforcement, June 2017. http://www.gao.gov/assets/690/685215.pdf (Downloaded August 1, 2017) (Hereinafter “GAO’s Trade Enforcement Report”)
 Letter from Charles E. Grassley, Ranking Member of the Committee on Finance, to the Honorable Janet A. Napolitano, Secretary of the Department of Homeland Security, about CBP revenue collection issues, November 3, 2009.
 GAO’s Trade Enforcement Report, Report p. 32, pdf p. 38.
 Customs and Border Protection, Performance and Accountability Report: Fiscal Year 2016, Report p. 78, pdf p. 82. https://www.cbp.gov/sites/default/files/assets/documents/2017-Mar/FY-2016-CBP-PAR-508C.pdf (Downloaded June 17, 2017)
 Customs and Border Protection, Performance and Accountability Report: Fiscal Year 2014, Report p. 89, pdf p. 93. http://www.cbp.gov/sites/default/files/documents/CBP_DHS_2014%20PAR_508C.PDF (Downloaded June 17, 2017) CBP transfers the remaining revenue, generally less than 1 percent of revenues collected, directly to other federal agencies, the government of Puerto Rico, and the U.S. Virgin Islands.
 CBP PAR 2014, Report p. 89, pdf p. 93.
 CBP PAR 2014, Report p. 94, pdf p. 97. Non-entity revenue includes fines and penalties, and is distributed substantially the same as other revenue.