In the Courts

The Izurietas were charged, in relevant part, with failure to “redeliver, export and destroy with FDA supervision” five shipments as well as “failing to hold and make available for examination” one shipment in violation of 18 U.S. ' 545. After a jury found the defendants guilty of all allegations, the defendants appealed to the Eleventh Circuit. On appeal, the court raised sua sponte a question as to whether a crime was sufficiently charged such as to confer subject matter jurisdiction on the district court.

The charges were based on violation of a Customs regulation requiring the importer to “redeliver, export and destroy” adulterated goods upon FDA demand. The court pointed out that the typical remedy for such offense would be a civil penalty of liquidated damages amounting to three times the value of the goods, under 19 C.F.R. ' 141.113(c)(3). There is currently a split among the circuit courts of appeal as to under what context 18 U.S.C. ' 545, also known as the smuggling statute, could be violated by violation of Customs regulations.

This statute criminalizes fraudulently or knowingly importing goods into the United States, or engaging in other dealings involving such goods knowing that they have been imported, “contrary to the law.” Id. at 1180. The Ninth Circuit has held that violations of regulations are included within the prohibitions of this statute only if there is a statute that specifies that the violation at issue is a crime. Id. (citing United States v. Alghazouli, F.3d 1179, 1187 (9th Cir.2008)). However, under Fourth Circuit precedent, the statute criminalizes regulatory violations where such regulations “hav[e] the force and effect of law.” Id. at 1181 (citing United States v. Mitchell, 39 F.3d 465, 470 (4th Cir. 1994)). The Eleventh Circuit ultimately adopted the Fourth Circuit interpretation in principal, citing similar binding precedent from the former Fifth Circuit.

The interpretations adopted by the Eleventh and Fourth Circuits require application of relatively complicated tests. The Fourth Circuit has adopted a test first set forth by the Supreme Court in Chrysler Corp. v. Brown, which considered whether disclosure by an agency is “authorized by law” if permitted by an agency's regulations. Id. (citing Chrysler, 441 U.S. 281, 295'96, 99 S.Ct. 1705, 60 L.Ed.2d 208 (1979)). Under this test, the court must consider whether the regulations at issue are “'substantive' or 'legislative-type' rules, as opposed to “'interpretive rules, general statements of policy, or rules of agency organization, procedure or practice.'” Id.

Citing the rule of lenity, the Eleventh Circuit adopted a somewhat modified version of the Chrysler test, wherein the court must also consider whether the “text or history of the regulation creates a strong perception that a violation of the regulation will give rise to civil remedies only.” Id. at 1182.

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The court found that the regulation at issue, 19 C.F.R. ' 141.113(c), satisfied the Chrysler test. Id. at 1183. The court noted, however, that none of the statutes under which this regulation was promulgated specifically established criminal liability for failure to comply. Id. Thus, under the Ninth Circuit test, the regulation would fail to be an appropriate basis for criminal conviction under the smuggling statute.

Applying the Eleventh Circuit's modified test, the court pointed out that the regulation at issue primarily “acts to establish the general contractual terms between Customs and the importer regarding temporary release and storage of the imported goods.” Id. at 1183. The Eleventh Circuit ultimately held that “[t]he regulation fails to qualify as a 'law' for purposes of criminal liability ' because th[e] law is civil only, and in particular reflects contractual requirements.” Id. at 1183-84. Notably, the court cited the fact that the comments issued during promulgation of the regulation indicated that liability would be strictly civil and monetary. Holding, therefore, that the regulation at issue was not appropriately construed as a “law” such that violation could trigger criminal liability under the smuggling statute, the court vacated the defendants' convictions.

In the Courts and Business Crimes Hotline were written by Associate Editors Jamie A. Schafer and Matthew J. Alexander, respectively. Both are Associates at Kirkland & Ellis, LLP, Washington, DC.

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Customs Violations May Result in Criminal Conviction

On Feb. 22, 2013, the United States Court of Appeals for the Eleventh Circuit overturned the criminal convictions of food importers Yuri and Anneri Izurieta under 18 U.S.C. ' 545, known as the smuggling statute. United States v. Izurieta , 70 F. 3d. 1176 (2013). The Izurietas' convictions were based on violations of regulations enforced by Customs and Border Protection (Customs) which required the Izurietas to redeliver to Customs and destroy certain goods found in screening by the Food and Drug Administration (FDA) to be contaminated with E. coli, Staphylococcus aureus and/or Salmonella.

U.S. importation procedures require that all importation of food items undergo rigorous screening procedures involving screening of food products by Customs and the FDA. Id. at 1178. For practical reason, importers are permitted to take possession of such goods (for instance, to facilitate appropriate storage) pending the result of tests administered by the FDA. Under applicable regulations, the goods must be made available for further inspection upon demand and, ultimately, the importer may be ordered to “redeliver” the goods to Customs for exportation or supervised destruction if the goods are found to be “adulterated.” Id.

The Izurietas were charged, in relevant part, with failure to “redeliver, export and destroy with FDA supervision” five shipments as well as “failing to hold and make available for examination” one shipment in violation of 18 U.S. ' 545. After a jury found the defendants guilty of all allegations, the defendants appealed to the Eleventh Circuit. On appeal, the court raised sua sponte a question as to whether a crime was sufficiently charged such as to confer subject matter jurisdiction on the district court.

The charges were based on violation of a Customs regulation requiring the importer to “redeliver, export and destroy” adulterated goods upon FDA demand. The court pointed out that the typical remedy for such offense would be a civil penalty of liquidated damages amounting to three times the value of the goods, under 19 C.F.R. ' 141.113(c)(3). There is currently a split among the circuit courts of appeal as to under what context 18 U.S.C. ' 545, also known as the smuggling statute, could be violated by violation of Customs regulations.

This statute criminalizes fraudulently or knowingly importing goods into the United States, or engaging in other dealings involving such goods knowing that they have been imported, “contrary to the law.” Id. at 1180. The Ninth Circuit has held that violations of regulations are included within the prohibitions of this statute only if there is a statute that specifies that the violation at issue is a crime. Id. (citing United States v. Alghazouli, F.3d 1179, 1187 (9th Cir.2008)). However, under Fourth Circuit precedent, the statute criminalizes regulatory violations where such regulations “hav[e] the force and effect of law.” Id . at 1181 (citing United States v. Mitchell , 39 F.3d 465, 470 (4th Cir. 1994)). The Eleventh Circuit ultimately adopted the Fourth Circuit interpretation in principal, citing similar binding precedent from the former Fifth Circuit.

The interpretations adopted by the Eleventh and Fourth Circuits require application of relatively complicated tests. The Fourth Circuit has adopted a test first set forth by the Supreme Court in Chrysler Corp. v. Brown, which considered whether disclosure by an agency is “authorized by law” if permitted by an agency's regulations. Id. (citing Chrysler, 441 U.S. 281, 295'96, 99 S.Ct. 1705, 60 L.Ed.2d 208 (1979)). Under this test, the court must consider whether the regulations at issue are “'substantive' or 'legislative-type' rules, as opposed to “'interpretive rules, general statements of policy, or rules of agency organization, procedure or practice.'” Id.

Citing the rule of lenity, the Eleventh Circuit adopted a somewhat modified version of the Chrysler test, wherein the court must also consider whether the “text or history of the regulation creates a strong perception that a violation of the regulation will give rise to civil remedies only.” Id. at 1182.

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The court found that the regulation at issue, 19 C.F.R. ' 141.113(c), satisfied the Chrysler test. Id. at 1183. The court noted, however, that none of the statutes under which this regulation was promulgated specifically established criminal liability for failure to comply. Id. Thus, under the Ninth Circuit test, the regulation would fail to be an appropriate basis for criminal conviction under the smuggling statute.

Applying the Eleventh Circuit's modified test, the court pointed out that the regulation at issue primarily “acts to establish the general contractual terms between Customs and the importer regarding temporary release and storage of the imported goods.” Id. at 1183. The Eleventh Circuit ultimately held that “[t]he regulation fails to qualify as a 'law' for purposes of criminal liability ' because th[e] law is civil only, and in particular reflects contractual requirements.” Id. at 1183-84. Notably, the court cited the fact that the comments issued during promulgation of the regulation indicated that liability would be strictly civil and monetary. Holding, therefore, that the regulation at issue was not appropriately construed as a “law” such that violation could trigger criminal liability under the smuggling statute, the court vacated the defendants' convictions.

In the Courts and Business Crimes Hotline were written by Associate Editors Jamie A. Schafer and Matthew J. Alexander, respectively. Both are Associates at Kirkland & Ellis, LLP, Washington, DC.

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