Broker's Duty When the Client Pressures for an Undervalued Invoice
A long-standing client asks the broker to declare a shipment of textiles at 40% below the supplier's actual invoice price, explaining that the supplier will issue a second, lower invoice 'for customs' and that the difference will be settled by wire to a third-country account. The client says other brokers in the market do this routinely and that refusing will cost the broker the account. The true invoice is 250,000 USD; the client wants 150,000 USD declared. The goods are subject to a 20% duty and to a quota that is monitored by declared value. The broker has not yet lodged the declaration. The client offers to sign a letter 'authorizing' the broker to use the lower invoice.
1. What must the broker do, and does the client's authorization letter change anything?
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The broker must refuse to lodge a declaration based on a false invoice. Declaring a value known to be below the true transaction value is a false declaration and exposes the broker and the client to administrative penalties and, depending on the law, criminal liability. The client's authorization letter changes nothing: a client cannot authorize a broker to violate the law, and the letter is itself evidence of intent to under-declare. The broker should decline the instruction in writing, state the legal basis, and retain the true invoice and the client's request as part of the file.
2. What are the consequences of the undervaluation beyond the duty difference?
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The duty difference is 20% of 100,000 USD, i.e., 20,000 USD, but the exposure is broader. Because the quota is monitored by declared value, the under-declaration also distorts the quota record and may constitute a separate violation of the trade regime. The broker faces professional discipline, possible suspension of the license, and loss of the right to practice, in addition to penalties. The client faces penalties calculated on the duty evaded, possible seizure of the goods, and, where the conduct is intentional, referral for criminal prosecution.
3. How should the broker handle the relationship and the account?
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The broker should decline the engagement for this shipment, document the refusal, and consider whether to continue the account at all, since a client who asks for a false declaration once is likely to do so again. The broker should not accept the 'other brokers do it' argument as a justification; market practice does not create a defense. If the broker continues the relationship, it should be on the express condition that all future declarations use true transaction values, confirmed in writing, and the broker should retain that confirmation. Losing the account is preferable to losing the license.