Minnesota company being investigated for tariff evasion after Channel 9 investigation

Minnesota company being investigated for tariff evasion after Channel 9 investigation

CHARLOTTE, N.C. — Customs and Border Protection is investigating a Minnesota company for possible tariff evasion after a Channel 9 and Cox Media Group investigation revealed discrepancies regarding imported surge protectors.

A Channel 9 viewer alerted reporter Joe Bruno to CyberPower Systems surge protectors being sold in local Home Depots with discrepancies regarding the country of origin. Similar products were discovered by Cox Media Group stations in Atlanta, Boston, Jacksonville, Memphis and Pittsburgh.

Packaging for the CyberPower Systems surge protectors purchased by Channel 9 and Cox Media Group had "Made in Philippines" and "Made in Taiwan" stickers covering other wording that said "Made in China." In some cases, the "Made in China" print had been blacked out with a permanent marker.

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The country of origin discrepancies were not just on the product packaging. Channel 9 discovered new labels placed over "Made in China" on the surge protectors themselves. In most of those cases, the new stickers said "Made in Philippines." Some of the stickers required a knife to peel back. Other stickers covered up a "Made in China" marking that appeared to be scratched out.

Last year, the U.S. government issued a tariff of 25 percent on hundreds of categories of products imported from China, including surge protectors. Imported from any other country, there is no tariff.

As a result, some companies have moved their operations out of China. Others, according to experts, have simply looked for ways to evade those tariffs.

Winthrop University international business professor Alex Perri said if this is tariff evasion, it is not a strong effort.

"Honestly, a pretty pathetic attempt to mask an obvious fraud," Perri said.

Perri describes country of origin rules as being very strict and said it will be relatively easy for CBP to investigate this situation.

"I don't see how you can hide it," Perri said. "Unless you are engaging in enormous fraud which might be more expensive than what you are saving."

Channel 9 took the surge protectors to U.S. Customs and Border Protection's office in Atlanta.

Director of Field Operations Donald Yando said at face value, this case appears to be possible tariff evasion and that CBP has launched an investigation.

"It does look like an attempt at duty evasion," Yando said.

Yando said the country of origin label changes are not appropriate, since the original country of origin marking is not completely obliterated. According to Yando, the country of origin designation is determined by where the components that make up that product come from. Yando says if 35 percent or more of the value of the components come from that country, the country can identify itself as the country of origin.

"We appreciate you bringing this product to us because it now is resulting in an investigation into that company to try to determine why were those stickers placed on that product to show a different country of origin," Yando said.

The investigation could take several months and will involve reaching out to CyberPower and the company's manufacturing facilities. Yando said CyberPower Systems is cooperating with the investigation.

Attempts of tariff evasion are common, according to Yando. “It’s not a new practice. Some unscrupulous parties might try to give us false information to avoid paying higher duty rates," he said. "It’s something we see on a regular basis. It’s part of our job, something to look for."

Penalties for tariff evasion are high. According to Yando, companies caught purposely evading duties can face criminal and civil action.

"We’ve seen prison time for company officials, a five-year prison sentence we’ve seen," Yando said. “We’ve seen monetary penalties.”

A spokesperson for CyberPower Systems declined multiple requests for an on-camera or phone interview. The company also declined to answer more than a dozen questions via email.

"We take compliance with all applicable laws seriously, including laws related to country of origin labeling and disclosure, and our practice is to appropriately and permanently label our products and packaging accurately and clearly," Tim Madsen, spokesman for CyberPower Systems, wrote in an email. "More broadly, it is our intent to use caution and to comply with all U.S. customs requirements when importing products manufactured in other countries."

Madsen said the company started shifting manufacturing of some products from China to the Philippines in the fourth quarter of 2018. He said the company still had packaging that showed China as the country of origin and rather than throwing it away, they reused it.

"We decided to save costs and be environmentally responsible by relabeling the existing package with the new country of origin information," Madsen said. "To do so, we used a two-step process by first crossing out the existing ‘Made in China’ printing and then relabeling the package with the ‘Made in Philippines’ label."

Madsen did not answer follow-up questions about packages with "Made in Taiwan" labels covering "Made in China." Madsen also didn't respond to questions about changes to the country of origin on the surge protectors themselves.

Channel 9 purchased the surge protectors in Charlotte-area Home Depot stores.

"We require all our vendors to follow applicable laws and regulations," Margaret Watters Smith, a spokesperson for The Home Depot, said.

In an interview with Channel 9, Yando said after seeing the discrepancies, he would not be comfortable purchasing the surge protectors in question from CyberPower.

Customs and Border Protection is working with the Consumer Product Safety Commission. CPSC has not opened an investigation, but is monitoring the product for any indication of a potential safety hazard.