(Bloomberg) -- The Biden administration has launched a new initiative to crack down on smugglers at US borders and ports. The concern isn’t drugs or counterfeit goods, though; it’s a refrigerant that’s also a dangerous greenhouse gas.
The US Environmental Protection Agency (EPA), Customs and Border Protection (CBP) and other agencies are arming themselves with new weapons — like AI tools that can pick out suspicious shipments — and rethinking ways of teaming up to combat the threat.
“We’re deploying our enforcement authorities in ways we never have before to combat climate change,” said David Uhlmann, head of EPA’s enforcement division. In early September the agency issued an enforcement alert to spotlight the problem.
The US has experienced a smuggling epidemic like this before, with HFCs’ predecessors. When dozens of nations agreed in the 1990s to ban chlorofluorocarbons (CFCs), one of the most unwelcome outcomes was the formation of a black market for people who wanted to keep using the refrigerants. The market grew so fast that, by mid-decade, $500 million of CFCs were being illegally traded each year, according to the United Nations Environment Program.
Now, the Biden administration is attempting to disrupt an eerily similar pattern from playing out as a phase-out of HFCs leads to a burgeoning black market. So far, the results of the crackdown have been striking. Since the start of fiscal year 2024, the Biden administration has stopped roughly 25 illegal shipments of hydrofluorocarbons (HFCs), according to an EPA spokesman. Those shipments account for more than 211,000 metric tons of carbon dioxide, the equivalent of 50,000 gas-powered vehicles driving for a year.
But those numbers also indicate that the HFC smuggling sector is already enormous, since the amount of intercepted shipments is only a fraction of what sneaks through, according to Richie Kaur, a super pollutant reduction advocate at the Natural Resources Defense Council.
Deep cuts drive demand
HFCs — which are mostly used as refrigerants in supermarkets, restaurants, residential buildings and cars — are extremely potent greenhouse gasses that can’t be brought into the US without special allowances from the EPA.
The 2019 American Innovation and Manufacturing (AIM) Act mandates the phase-down of domestic HFC production and consumption by 85% by 2036. The EPA took a major step toward that goal in January when it ratcheted down the amount of HFCs permitted in the US to 60% of baseline levels.
But those cuts have driven demand among business owners and consumers who fear they may have to spend thousands of dollars switching out refrigeration equipment.
A handful of cases over the last few months highlight the wide range of actors who try to smuggle HFCs into the US.
In January, the EPA settled with geothermal power company Open Mountain Energy — a subsidiary of a large Chinese company, Kaishan Group — which had allegedly tried to bring more 44,000 pounds of HFCs into the country.
Two months later, the EPA settled with electrochemicals company Resonac America Inc. for $416,000, the largest penalty in the agency’s history for illegally importing HFCs.
Then, in April, the agency filed a complaint against USA Wholesale, Inc. for trying to smuggle 34,480 pounds of HFCs through California. That filing was the first administrative complaint under the AIM Act, which gives the EPA new powers to crack down on the production and use of HFCs.
The Biden administration made its first arrest under the law in March, charging a man in San Diego with smuggling HFCs allegedly bought in Mexico into the US. The indictment said Michael Hart concealed the refrigerants under a tarp and tools, then sold them on sites like Facebook Marketplace. The EPA has completed nine civil settlements linked to HFC importation in fiscal 2024, according to the agency.
Retrofitting old equipment to run on a new refrigerant typically requires expensive upgrades and new parts that aren’t optimized for cooling capacity, energy efficiency and durability, said Stephen Andersen, director of research at the Institute for Governance and Sustainable Development.
Making matters worse, it’s fairly easy to sneak HFCs across the border, according to trade experts. Smugglers typically rely on simple methods like relabeling tanks of HFCs; falsely indicating on an import document that an HFC shipment is only passing through the US on its way to another country; or hiding the relatively small containers somewhere aboard a vast ship.
“Inspections are so minimal,” said Michael Ford, a veteran trade specialist and owner of Tradebridge Consulting. “Customs isn’t physically opening the containers. There’s no way they can.”
And once a shipment of HFCs is inside US borders, it can easily slip into the stream of commerce — one reason it’s so hard to gauge how much is being smuggled into the nation and what effect those contraband products are having on prices of legitimate HFCs.
“There’s really no way to tell a legal pound of HFC from an illegal pound of HFC,” Kaur said. “We don’t have a handle on the size of the black market because we don’t know what we’re not catching.”
Prices of HFCs vary in part because there are so many different kinds, but one of the most common variants, known as R-134A, is available in a 30-pound tank for $489 at Lowe’s Pro Supply. The same size tank can be found for between $300 and $350 at specialized retailers like Refrigerant Depot, or as low as $52 on Craigslist. It’s legal to sell HFCs in the US as long as the manufacturer or importer have EPA allowances to make them or bring them into the country.
That’s why it’s critical to catch shipments at or before they reach the border, trade experts agree.
Enforcement agencies are trying to get better at the kinds of old-fashioned tactics they’ve always relied on, many of which were first learned during the CFC ban.
One strategy that continues to play a central role is the development of human sources on the ground to tip off customs agents about what’s coming their way, according to both Uhlmann and AnnMarie Highsmith, executive assistant commissioner at CBP’s Office of Trade. But they aren’t the only tools being used.
New weapons
“The victory is not the seizure,” said Highsmith. “If we’re enforcing at the port of entry, we’ve already lost. The goal of our enforcement efforts is to stop these crimes from being committed in the first place, as well as the harm they cause to the environment, local and global communities, and the economy.”
To bolster their ability to do that, federal agencies are busily developing new artificial intelligence tools. Uhlmann, like all the federal officials interviewed for this report, declined to provide granular details about what the government is working on in order not to tip off bad actors. But he did say the EPA is exploring ways that AI can “analyze the enormous quantity of data that is available to the agency and allow us to more quickly identify targets for enforcement and compliance assurance activities.”
Similarly, Highsmith said her agency is developing modern tools to quickly process large volumes of data and make targeting decisions earlier in the shipping process. The agency tries to scan shipments quickly to keep commercial trade flowing freely, but an enormous volume of imports flood the nation’s ports of entry every day.
One of the primary ways AI can help catch smugglers is by looking beyond the regular paperwork shippers must file — which essentially declares what’s in their containers — and peering into databases owned by intelligence agencies, local law enforcement or even other nations to spot potential bad actors, said Andrew Farrelly, the former director of targeting programs at CBP’s National Targeting Center.
“A lot of CBP targeting is about making the unknown known,” said Farrelly, now CEO of CT Strategies, a consulting firm specializing in border and supply chain issues.
Some red flags could include brand new companies with no shipping history, companies with some nexus to nations known to produce HFCs, companies created or led by individuals with criminal histories, or shipments of products that could have HFCs embedded within them, Farrelly said.
Highsmith confirmed that CBP is trying to modernize its systems to ingest information from supply chain providers who may not be known quantities, then ferret out inconsistencies and “unanticipated, unexpected bad guys.”
The agency is also investing in the development of digital supply chain technologies, which could enhance officials’ ability to trace and verify the origin, composition and environmental impact of many types of products, Highsmith said.
Other efforts are aimed at knitting regulatory and law enforcement agencies together in new ways. For example, CBP is testing software standards for global interoperability so federal agencies can send and receive secure, verifiable data with trade entities in real time, bridging data silos in the global supply chain, Highsmith said.
Separately, CBP is working on ways to encourage shippers to voluntarily provide information at an earlier stage.
The result of these efforts is that CBP and other federal agencies “will have more information earlier in the supply chain, which better equips us to facilitate legitimate, lawful trade and to prevent illegal activities” such as smuggling, Highsmith said.
Emphasis on proven strategies
Various efforts are also underway to bring together agencies that haven’t always worked together to crack down on smuggling. The Biden administration formed an interagency task force in September 2021 specifically to stop the illegal HFC trade, knitting together the EPA, CBP, and the Departments of Defense, Justice and State.
CBP is already skilled at identifying bad actors, detecting trends and patterns in importing and exporting behavior, and keying in on things that “aren’t quite right” and may need further review, said Susan Thomas, the agency’s executive director of cargo and conveyance security.
But the task force lets the other agencies share what they know about importers and exporters with each other — in the process sharpening targeting across the board, said Highsmith.
Some of those new collaborations are extending to non-governmental organizations, foreign customs agencies and the World Customs Organization, according to Highsmith.
Another old-fashioned technique the Biden administration is using is an active, visible presence of enforcement personnel at ports and border crossings, Uhlmann said.
Still, some critics of the Biden administration say even more needs to be done to get tough on HFC smugglers.
“Transnational criminal networks know CBP can’t possibly inspect all cargo that comes through the ports, especially seaports, and they take advantage of that,” said Representative Mark Green, the Republican chair of the House Homeland Security Committee.
For that reason, the White House “should be putting increased pressure on China to force changes in behavior and stop flooding our ports with these illicit goods,” Green said.
He also said small shipments with a declared value of less than $800 — known as de minimis shipments — are far less scrutinized, creating a potential vulnerability. De minimis shipments have more than doubled over the last five years, Green said, which hurts the competitiveness of American business and contributes to human rights abuses abroad.
To fix those problems, Green advocated for the Secure the Border Act, a Republican-backed bill that would increase the number of CBP officers who can target suspicious shipments, shippers and consignees.
Uhlmann said he expects HFCs smuggling to surge, but eventually drop off, as “people will get with the program" — the same way they did with CFCs.
Until then, he cautions that people shouldn’t expect federal authorities to catch every smuggler, because perfect performance in that line of business is impossible.
“There are illegal shipments of HFCs that will evade detection at the border,” Uhlmann said. “It’s simply not possible to stop all unlawful importation of HFCs, for the same reason that it’s impossible to stop all illegal efforts to introduce fentanyl into the country and to smuggle guns and other contraband into the country.”
--With assistance from Marie Monteleone.
©2024 Bloomberg L.P.
