Underinvoicing At The Request Of Foreign Importers?

By Margaret M. Gatti, Esquire
4 September 1997
All Rights reserved

Underinvoicing occurs when a foreign importer asks a U.S. exporter to enter an artificially low value on the commercial invoice and to supply a second invoice apart from the shipment for the difference between the commercial invoice value and the true transaction value. Foreign importers make underinvoicing requests for the purpose of achieving lower import duties and lower import taxes in the importing country.

Here are 5 good reasons why you should not comply with underinvoicing requests:

1)Unless you prepare your own Shippers Export Declaration (SED) and show the true transaction value on the SED for your export, your freight forwarder will automatically report the artificially low commercial value on the SED. Reporting an incorrect export value on a SED is a violation of U.S. export regulations. Such violation subjects a U.S. exporter to monetary fines and other penalties.

2) Your chances of being caught by US Customs in the act of underinvoicing have increased dramatically. U.S. Customs has intensified its export enforcement efforts by implementing the Outbound Compliance Program which entered the Enforced Compliance Phase on July 1, 1997.

3)Many importing countries have established comparable value systems for imports. If the entered value on an import is less than the comparable value for that import: (a) the entered goods may be confiscated by Customs in the importing country, which could cause you payment problems, especially if you are operating on an open account or collection basis; and/or (b) you as an exporter may be black listed by the importing country which could severely impact your future shipments to the importing country.

4)Many importing countries have Customs laws which consider underinvoicing to be a violation of the country's import law. If you comply with an importer. s request for under- invoicing, you may be considered a co-conspirator and could be subject to penalties and/or imprisonment in the importing country, if the country can exercise jurisdiction over you.

5)Transport insurance is based on commercial invoice value. If you underinvoice and your goods are damaged or lost, your insurance claim on the value of the goods will be based on the artificially low value shown on the commercial invoice.

To avoid these problems, you are well advised to review the invoicing practices of your export sales staff without delay and to make your refusal to comply with underinvoicing requests clear to all staff involved in exports.