Commerce Takes A More Aggressive Stance On Fraud by Jef Denning

by King & Spalding

In the March 2011 edition edition of the Trade and Manufacturing Alert, we reported on the decision by the United States Court of Appeals for the Federal Circuit in Home Products Int’l v. United States, 633 F.3d 1369 (2011), which held that the Department of Commerce must, when reviewing imports covered by antidumping duty orders, consider newly discovered evidence of material fraud even if the evidence is first presented after the official administrative record is closed or if the matter is on appeal in a federal court. Although credible evidence of fraud typically is difficult to obtain and often is not discovered until late in a case, the Home Products decision has had a major positive effect on U.S. producers’ efforts to combat fraud in trade cases. Two recent cases illustrate this point.

During the 2007-2008 administrative review of imports covered by the antidumping duty order on pure magnesium from China, a Commerce team conducting an on-site verification of a Chinese producer discovered that company officials were fabricating accounting records the company was using to support the producer’s false claims concerning production costs. In a dramatic sequence of events, the Commerce team observed the producer’s accountants throwing boxes of records out of an office window in an attempt to evade discovery of fraudulent information. Had Commerce unknowingly accepted the information as accurate, the false claims would have caused deeply understated dumping margins for a trading company’s U.S. sales of the producer’s goods. The official Commerce verification report documenting the fraud also provided clear evidence that the producer and its trading company had successfully used the same fraudulent scheme during Commerce’s 2006-2007 review of U.S. sales. By the time that report was released, however, the record in the 2006-2007 review had closed and Commerce’s final determination was on appeal on other grounds. Because the report demonstrated that the trading company’s 2006-2007 dumping margins were materially understated, the U.S. petitioner attempted to persuade Commerce to consider the evidence of fraud detailed in its 2007-2008 verification report during the ongoing appeal. Commerce refused, saying the record was closed.

The Home Products decision, issued while the 2006-2007 appeal was ongoing, prohibited Commerce from refusing to consider the evidence of fraud. As a result, Commerce found that all of the producer’s crucial cost of production information was unreliable. After rejecting that cost information, the trading company’s dumping margin increased from 0.63 percent to 111.73 percent. The antidumping duty assessment on $2.6 million in U.S. imports grew from $160 thousand to $2.9 million.

A similar outcome occurred in the 2008-2009 review; the same trading company’s margins went from 0.08 percent to 111.73 percent and its antidumping duty assessment grew to over $111 million.

These cases show that U.S. industries can now expect Commerce and the federal courts to aggressively respond to credible allegations of fraud. Fraud is often very difficult to uncover, but the Home Products and the magnesium cases give petitioners in trade cases a solid basis for deciding to devote valuable resources toward proving fraud by foreign competitors.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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