STICKER SHOCK: Confusing 'made in' labels, launching federal fraud probe

BOSTON — 25 Investigates started digging weeks ago into a whistleblower’s tip about surge protectors sold in the Boston area and across the country.  We told U.S. Customs and Border Protection about concerns the maker could be using stickers to try to avoid paying tariffs on products made in China.

As a result, Customs launched an investigation.  Boston 25 News Anchor and Investigative Reporter Kerry Kavanaugh learned the surge protectors could pose a safety risk.

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

A tipster first shared a cell phone video of stickers that said “Made in Philippines” over blacked out printing that said “Made in China” on surge protectors.  25 Investigates went to stores in Taunton, Norwood, Avon and West Roxbury and found stickers that said “Made in Philippines” and “Made in Taiwan” covering up the “Made in China” printed on the packaging and some actual surge protectors made by the U.S. company Cyber Power.

INVESTIGATING TARIFF EVASION

Director Yando said that could be a big problem.  "Because that sticker can be peeled back, and you can still see that other country of origin, it is not acceptable," Yando said. 
Our sister TV stations in Atlanta, Pittsburgh, Charlotte, Memphis, Jacksonville and Orlando found similar products.   We shipped the surge protectors to Director Yando in Atlanta to see for himself.  
 "At face value it does to me. It does look like an attempt at duty evasion,"  Yando said.

Babson economics professor Kent Jones told 25 Investigates, he couldn't say for certain this is a case of tariff dodging, but the practice is common.

“This is part of the deceit that comes with discriminatory tariffs,” Professor Jones said.

These types of surge protectors were subject to a 10% tariff at the beginning of the year. That tariff jumped to 25% in May.

“A 25% tariff will eliminate pretty much all of the profit that you would get for most companies,” Professor Jones said, adding typically the cost of tariff dodging is passed on to the consumer, so you would pay more for the same products.

POTENTIAL SAFETY CONCERNS

Professor Jones raised another issue to 25 Investigates about safety.
"When one sort of fraud takes place, you're not sure if other sorts of fraud are taking place," Jones said. "For example, are the goods being certified for safety reasons."

When asked if he would be comfortable buying these products, Yando said “Uh, no I would not.”

Customs is working closely with the Consumer Product Safety Commission.  “Some unscrupulous companies will counterfeit that Underwriters Laboratories label and the electronic product could be made with substandard components that could cause a fire,” said Yando. CPSC said it has not opened an investigation, but “will monitor this product for any indication of a potential safety hazard.”

COMPANY’S RESPONSE

Cyber Power emailed this statement:

"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.  More broadly, it is our intent to use caution and to comply with all US customs requirements when importing products manufactured in other countries.  
We began shifting the manufacturing of some products from China to the Philippines in the fourth quarter of 2018. At that time, we still had a supply of packaging that showed the country of origin as China. Rather than discard the printed packaging, we decided to save costs and be environmentally responsible by re-labeling the existing package with the new country of origin information. To do so, we used a two-step process by first crossing out the existing "Made in China" printing and then re-labeling the package with the "Made in Philippines" label.
In the case of the one package that did not have a label shown in the image you provided, we can only speculate that the label must have been removed somehow. At no time did we mean to confuse or deceive our customers, partners, or the public."

But Cyber Power did not explain why some of the actual products said “Made in China” or why some products had “Made in Taiwan” stickers.

ONGOING FEDERAL INVESTIGATION

Customs has requested more information from Cyber Power and the factories where the surge protectors are made and could send investigators to visit them.

Companies caught evading tariffs could face criminal or civil prosecution. “So, we’ve seen prison, prison time for company officials, a five-year prison sentence we’ve seen.  We’ve seen monetary penalties,” said Yando.

The products in question were purchased at Home Depot Stores.  Home Depot issued this statement: “We require all our vendors to follow applicable laws and regulations.”

Customs said both Home Depot and Cyber Power are cooperating.

Customs said its investigation into whether this is tariff evasion could take anywhere from a month to about six months.  25 Investigates will keep following it and report the outcome.

If you see a possible case of customs fraud, CBP would like you to use the information on these websites:

https://eallegations.cbp.gov/Home/Index2
FAQ- https://www.cbp.gov/trade/e-allegations/faqs

Cox Media Group