Originally published in the November 2015 Journal of Commerce on-line

Many trade associations are grappling with declining membership likely contributed to by the absence of pressing issues grabbing industry-wide attention, despite export reform and the ACE roll-out. A quite different phenomenon continues to expand – the criminalization of civil violations. Two recent cases are reminders of this expanding effort by enforcement agencies and federal prosecutors.

In 2013, we had United States v. Yuri Izurieta and Anneri Izurieta. These individuals and their company were indicted and convicted in Florida. The allegations were conspiracy to unlawfully import goods in violation of 18 U.S.C § 545 and 18 U.S.C. § 371. The corporation did not appeal, only the individuals. The Eleventh Circuit Court of Appeals vacated the individual convictions on the grounds the statutes on which the government relied did not include criminal sanctions. It is worth keeping in mind that other statutes would have carrier such consequences, but they would have been misdemeanors only.

The Izureitas’ company imported cheese, butter and bread from Central America which were contaminated with E. coli, Staphylococcus aureus and Salmonella. FDA refused admission and Customs issued redelivery notices. When FDA wanted to inspect the goods, the Izureitas refused to provide locations, underdeclared goods which were imported, failed to be redeliver, export or destroy, and otherwise generally failed to cooperate with the FDA.

During oral argument, the appellate court raised the question of whether the statutes on which the case relied carried with them criminal penalties. As traders know, 21 U.S.C. § 381(a) and 19 C.F.R. § 141.113(c) are the basis for FDA and CBP’s redelivery activities. 19 C.F.R § 141.113(c) allows Customs to impose a fine of three times value for any goods which are not timely redelivered or exported. 21 U.S.C. § 381(a) provides that goods may be conditionally released to the importer pending FDA release and the procedures for recall, examination and so on. The cited law and regulation are framed as civil fines; nothing is said about criminal consequences. There is a similar civil framework to 19 U.S.C. § § 1499 and 1623. 21 U.S.C. § 381(q)(6) does address certain criminal activities, but none of them relate to the allegations in this case – the failure to hold, redeliver, export and/or destroy the imported goods. Put another way, the court held the law and regulations cited warn of civil consequences only.

To reach its decision, the appellate court looked at the situation from the perspective of whether the plain language of the law or regulation violated fully informed a possible violator that a criminal sanction could result from the specific behavior. Due process requires fair warning of the consequences of one’s behavior. In the end, the court vacated the convictions on the grounds the statutes relied upon by the government did not provide that fair warning.

In a similar vein, we have United States v. John L. Yates, which was heard November 5 at the U.S. Supreme Court. Mr. Yates was the captain of a commercial fishing boat in the waters off Florida. He was catching red grouper. Under federal law, the fish must be at least 20” in size, anything smaller must be thrown back. A state fishing official was empowered to enforce federal laws, stopped the boat to inspect the catch, measured and found certain fish were undersized, ordered them held in a box and ordered the boat back to shore. By the time the boat got to shore, instead of 72 fish, only 69 could be found and the ones present were miraculously slightly larger. One issue of great debate between Mr. Yates and the fishery official was how the measurements were made. According to federal law, the process of measuring is to result in the greatest overall length. The fishery official admitted he did not follow that requirement.

The fact these three (3) fish were apparently thrown overboard led to a conviction under the anti-shredding provisions of Sarbanes-Oxley (SOX). Mr. Yates was also convicted of destroying evidence to impede a federal investigation, but it is the Section 1519 SOX violation which has attracted significant attention. 18 U.S.C. § 1519 bars anyone who “knowingly alters, destroys, mutilates, conceals, covers-up, falsifies, or makes a false entry in any record, document or tangible object…” The question presented by this case is whether a fish is a tangible object as envisioned by SOX. The issue here strikes the same theme as in Izurieta – would a potential violator know from reading the statute that his behavior could trigger criminal consequences? The trial court convicted Yates. The appellate court concurred. How the Supreme Court ultimately decides is expected to go a long way to either upholding such creative actions by enforcers, or if you listen to many legal scholars, overzealous prosecutors will be reined in.

It is reasonable to conclude this criminalizing of civil activities phenomenon is the result of many factors, including being a consequence of the financial crisis with its criticism of Justice for failing to prosecute and convict any noteworthy individuals; this has led to federal prosecutors looking for individual liability with greater frequency, but also to seek laws which create the potential for longer prison sentences. Another noteworthy factor is with the retirement of many experienced CBP and HSI staff, both agencies are struggling to rebuild the expertise needed to bring successful and significant trade fraud cases; as a result, many importers and exporters are lax in their declarations and record keeping, leading to greater frequency of bad behavior where the government wants a stiffer consequences. Where does your company fall in that spectrum?