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  4. Written testimony of ICE for a Senate Committee on Appropriations, Subcommittee on Homeland Security hearing titled “Strengthening Trade Enforcement to Protect American Enterprise and Grow American Jobs”

Written testimony of ICE Homeland Security Investigations, National Intellectual Property Rights Coordination Center Director Lev Kubiak for a Senate Committee on Appropriations, Subcommittee on Homeland Security hearing titled “Strengthening Trade Enforcement to Protect American Enterprise and Grow American Jobs”

Release Date: July 16, 2014

138 Dirksen Senate Office Building

Introduction: A Strong Tradition of Customs Enforcement

Chairman Landrieu, Ranking Member Coats, and distinguished Members of the Subcommittee:

It is my privilege to testify before you today and discuss U.S. Immigration and Customs Enforcement’s (ICE) approach to combating trade fraud. The growth of international trade is an integral part of our nation’s economic prosperity, and we must ensure we are attuned to the new threats to public safety and national security it may pose.

ICE is the largest investigative component in the Department of Homeland Security (DHS), with an extensive portfolio of enforcement authorities. Notably, ICE’s Homeland Security Investigation’s (HSI) Special Agents possess statutory authority to enforce more than 400 federal laws. Specifically, ICE investigates a wide range of trade fraud, including intellectual property (IP) violations. IP violations and trade fraud pose significant threats to the U.S. economy and the health and safety of the American public.

ICE has a proud legacy of trade fraud enforcement dating to our past as investigators for the former U.S. Customs Service. In 1791, the Secretary of the Treasury authorized employment of special agents to examine the accounts and books of the Collectors of Customs, and in 1879, special agents were employed to detect and prevent fraud of customs revenue. Since those early years, customs employees have worked together to identify and investigate criminals who cheat the U.S. Government by taking its lawful revenue and to protect U.S. citizens and U.S. businesses from illegal imports and unfair competition. With the creation of the DHS by the Homeland Security Act of 2002, customs was split into two agencies, ICE and U.S. Customs and Border Protection (CBP). CBP is now responsible for enabling legitimate trade and enforcing trade laws at the U.S. border and ports of entry. ICE, as DHS’s investigative arm, investigates U.S. importers, companies or other entities that attempt to circumvent lawful trade mechanisms, including payment of required duties. Both agencies continue to work closely together to address new and emerging threats to lawful trade and the effective enforcement of U.S. customs laws in order to protect the American public.

To focus government efforts and enhance government efficiency, ICE leads the National Intellectual Property Rights Coordination Center (the IPR Center), which combats violations of intellectual property rights, specifically trademark counterfeiting and copyright piracy, and other aspects of trade fraud. Now with 21 partners, including other federal agencies, Europol, INTERPOL, and the governments of Mexico and Canada, the IPR Center brings together the full range of legal authorities and law enforcement tools to combat IP violations.

Through the IPR Center’s Commercial Fraud Unit, ICE aggressively pursues commercial fraud violations, including dumping and countervailing duty evasion schemes, pharmaceutical smuggling, tobacco smuggling, and border related trade crimes. ICE enforces U.S. trade laws and international agreements, as well as investigates and aggressively seeks prosecution of non-compliant importers, exporters, manufacturers, brokers, and others who commit trade-related crimes. ICE works in full collaboration with CBP in these efforts, and engages the trade community through an active outreach program.

The IPR Center

U.S. law enforcement agencies have overlapping areas of responsibility and limited resources for enforcing intellectual property laws. Recognizing that collective leverage of resources and expertise is essential to success, the IPR Center was designed to share information and promote a coordinated U.S. government response to IPR enforcement. Since FY 2011, the IPR Center’s budget has grown from $4.3 million to $10.4 million.

The IPR Center includes embedded representation from the following agencies: ICE, CBP; Federal Bureau of Investigation; Food and Drug Administration Office of Criminal Investigations (FDA-OCI); U.S. Department of Commerce’s Office of Intellectual Property Rights; U.S. Patent and Trademark Office; Consumer Product Safety Commission (CPSC); U.S. Department of State’s Office of International Intellectual Property Enforcement; U.S. Postal Inspection Service (USPIS); Defense Criminal Investigative Service; Air Force Office of Special Investigations; U.S. Naval Criminal Investigative Service; General Service Administration’s Office of the Inspector General; U.S. Army Criminal Investigation Command; Defense Logistics Agency; National Aeronautics and Space Administration; the Nuclear Regulatory Commission, Mexican Revenue Service; Royal Canadian Mounted Police; INTERPOL and Europol.

The IPR Center utilizes a multi-layered approach consisting of investigation, interdiction, prosecution, outreach, training, and public education to fight IPR crime. To accomplish this, the IPR Center is organized into three units: the Intellectual Property Unit, the Commercial Fraud Unit and the Global Outreach and Training Unit.

The Intellectual Property (IP) Unit executes the oversight and coordination function for multi-jurisdictional, large-scale intellectual property investigations. This unit proactively targets the sale and distribution of counterfeit, substandard, and tainted products via the Internet and works closely with partner agencies at the IPR Center and both the Department of Justice’s (DOJ) Computer Crimes and Intellectual Property Section and the U.S. Attorney’s Offices nationwide to prosecute IPR violators domestically and internationally. The IP unit is responsible for collaborating IPR Center’s initiatives with our interagency and international partners.

One of the roles of the IP Unit is to analyze and disseminate new leads of alleged IPR criminal violations. In FY 2013, the IPR Center received 8,539 such leads. Of these leads, 2,778 were sent to ICE HSI field offices and IPR Center partner agencies, 37 were sent to non-partner agencies (including state and local police or sheriffs), and 73 leads were referred to industry. The remaining leads were cataloged but either did not contain enough information or did not rise to the level where referral to law enforcement was necessary. If additional information is found that can be combined with the cataloged leads, they will be re-evaluated and referred to the appropriate entity.

The IP Unit also de-conflicts leads received by the IPR Center from its partner agencies, industry, and the public prior to forwarding actionable information to the field or to industry. Investigative case referrals, whether made nationally or locally to particular law enforcement agencies or to the IPR Center, are compared and checked with all partners to determine whether an agency is already investigating the alleged IP violation, which effectively avoids a duplication of effort. When a conflict is identified early in the investigative process, agencies are encouraged to collaborate or consolidate investigative activity. Often large, complex investigations and operations are conducted jointly by partner agencies. IPR Center partner agencies also share information from their investigations that will aid future investigations, such as emerging criminal trends and new infringing technologies. In FY 2013, the IPR Center de-conflicted 111 cases between partner law enforcement agencies, non-partner law enforcement agencies, and private industry.

The Commercial Fraud Unit coordinates investigations focused on illegal imports and exports involving violations of civil and criminal customs laws, including: anti-dumping and countervailing duty evasion, the diversion of merchandise transiting the United States in-bond, illegal textiles, products violating environmental laws, imported items made with forced labor, and fraud associated with U.S. Free Trade Agreements and preferential trade legislation. HSI’s Commercial Fraud Unit coordinates the targeting and investigation of criminals who make false statements on customs documents and have deceptive business practices. ICE and CBP target predatory and unfair trade practices that threaten our economic stability restrict the competitiveness of U.S. industry in world markets, and place at risk the health and safety of the American people. In FY 2013, ICE opened 796 new investigations, made 178 criminal arrests, had 180 indictments coupled with 103 criminal convictions.

The Global Outreach and Training Unit use outreach and training to increase information sharing between the U.S. Government and the public and private sectors. The resulting partnerships are used to educate and to facilitate the exchange of information on current trends, patterns, and methodologies used by criminal organizations. This unit also plays a key role in the IPR Center’s efforts to reduce the demand for counterfeit goods and pirated content by teaching the public about the dangers of counterfeit goods, how to identify fake and illegal content, and what to do when they discover it. The Global Outreach and Trade Unit is the initial point of contact for all potential sources of information, including the private sector, federal, state, local, and foreign law enforcement, as well as the public. The IPR Center coordinates with its partner agencies and appropriate international organizations to conduct training and provide support for anti-counterfeiting efforts with international customs administrations and law enforcement agencies.

The central goal of the IPR Center is to provide a “one stop shop” for law enforcement and industry around the United States and the world related to trade crimes and particularly IP crime. Our outreach is designed to increase support, communication, coordination, and cooperation for our ongoing IPR enforcement initiatives and our critical public health and safety efforts. Since July 2008, the IPR Center has coordinated and conducted 1,794 outreach and training events with approximately 38,000 industry representatives, and 12,400 foreign government officials. This outreach and training has received substantial positive feedback.

In May 2014, with Department of State funding, the IPR Center and HSI Buenos Aires sponsored IP training focused on the health and safety issues related to IP crime and the need for cooperation between agencies, such as customs and police, and between countries, as well. This training included segments on international trade fraud and counterfeit pharmaceutical investigations, with presentations from Pfizer Global Security and Astra Zeneca Global Sales. Case examples were also provided, including a presentation from the IPR Center’s Mexican SAT (Servicio de Administracion Tributaria) representative highlighting the importance of international cooperation and case coordination between neighboring countries to effective IP enforcement. As a result of the training program, Chilean Customs and PDI (Policia de Investigaciones) launched enforcement operations that same week. Both operations resulted in seizures of counterfeit merchandise, including 26,000 pieces of counterfeit makeup kits containing cancer-causing ingredients.

Protecting the U.S. Economy

Illicit cargo and goods are often smuggled into the U.S. through methods similar to those utilized by drug traffickers and human smugglers. Individuals illegally import items by sea, air and land, penetrating U.S. borders with falsely described and/or mislabeled merchandise. Schemes include the exploitation of the in-bond system, transshipping to third countries and falsifying the country of origin, or stealing the identity of a legitimate importer. Criminals may also try to illegally import goods made with forced labor, forced child labor, or prison labor in violation of 19 U.S.C. 1307. Each of these crimes may economically benefit the criminals, but also has a significant impact on American industries that compete with these illegal imports, the U.S. Government which is denied lawful revenue, and the public which may be harmed by substandard goods. ICE works in close cooperation with CBP, other interagency partners, the private sector, and international counterparts to investigate these schemes and to seize for forfeiture those goods entering the United States illegally through our ports.

One example of our interagency cooperation is the National Targeting Center- Investigations (NTC-I). ICE established the NTC-I in December 2013, in collaboration with CBP, to further the shared border security mission. The NTC-I serves as ICE’s central targeting and coordination center and plays a critical role in promoting border security, public safety, and national security through the identification and investigation of transnational criminal organizations and their attempts to undermine DHS’s border security efforts, including trade fraud and intellectual property violations. The cornerstone of the NTC-I is to enhance and support ongoing ICE investigations, provide quality investigative referrals and intelligence to HSI field offices, and expand current collaboration with CBP.

Anti-Dumping and Countervailing Duties

ICE’s Antidumping and Countervailing Duty (AD/CVD) program illustrates how ICE and CBP protect U.S. businesses from unfair trade practices and protect the revenue of the United States. Dumping occurs when importers sell merchandise at less than fair market value, which causes material injury to a domestic industry producing a comparable product. When the U.S. Department of Commerce (Commerce) determines that an imported product is being dumped or benefits from an actionable subsidy and the International Trade Commission finds injury or threat of injury to a U.S. industry, an anti-dumping duty order or countervailing duty order is imposed to offset the dumping or actionable subsidization.

With assistance from CBP and Commerce, HSI agents investigate importers or other entities attempting to circumvent payment of customs duties. Our special agents work closely with CBP officers, import specialists, and regulatory auditors to identify the criminal enterprise that is engaged in the illegal trade practice that is harming legitimate U.S. industry, to recover the legally required tariff revenue owed to the United States, and impose civil and criminal penalties commensurate with the crime and to deter other bad actors. AD/CVD cases are long-term, transnational investigations that require significant coordination between domestic and international offices and with our foreign law enforcement counterparts.

In one recent case called Operation Honeygate, ICE exposed a criminal network responsible for evading $181 million in anti-dumping duties on imported Chinese honey. Several individuals were convicted for their criminal activities and two of the nation’s largest honey suppliers paid millions of dollars in fines. HSI San Juan, working jointly with CBP officers, arrested five individuals and indicted three companies who allegedly participated in a conspiracy to illegally import aluminum extrusions from China transshipped through Malaysia to avoid over $25 million in AD/CVD duties. Four accounts containing approximately $686,000 have been seized and 12 properties have been entered into civil forfeiture proceedings. Currently, HSI is involved in more than 80 investigations relating to open Commerce AD/CVD orders covering commodities such as honey, saccharin, citric acid, tow-behind lawn groomers, shrimp, steel, and wooden bedroom furniture.

In-Bond Diversion and Trade Schemes

ICE and CBP have identified illegal diversion of in-bond merchandise as a vulnerability that can endanger public health and safety, damage the U.S. economy, and facilitate or finance the illegal activities of organized crime. The in-bond system allows foreign merchandise to physically enter the United States at a port of entry to transit the United States for export to a third country. When conducted properly, in-bond transactions facilitate trade by allowing the use of U.S. infrastructure for the transportation of goods to foreign markets. In-bond movements are incredibly valuable to trade, but also have an inherent vulnerability because they can be diverted to smuggle restricted or high-duty items into the United States.

In July 2013, a San Diego Customs broker was sentenced to 37 months in prison for a multi-million dollar in-bond diversion criminal fraud scheme. The customs broker, along with three international trade companies and seven other individual coconspirators, were charged in a 56-count criminal complaint for orchestrating a lucrative customs fraud scheme that involved more than 90 international commercial shipments valued at more than $100 million and resulted in more than $10 million in lost customs duties and taxes. Products illegally imported under the scheme included adulterated Mexican food products, as well as produce infected with the life-threatening salmonella bacteria.

Textile Investigations

Textile imports represent approximately 41 percent of all duties collected by CBP in FY 2013, resulting in $12.9 billion in revenue for the U.S. Government. Textile investigations focus on obtaining criminal and civil remedies for violations of customs importation laws and smuggling schemes such as the undervaluation of textiles entered into the United States for consumption, diversion through the in-bond transportation system, transshipment, and fraudulent free trade agreement claims. The textile program coordinates investigations of criminal and civil violations of customs laws carried out through a variety of fraudulent schemes and practices, including false invoicing, false claims of origin, false marking and labeling, misclassification, misdescription, and smuggling.

Textile cases often reveal significant revenue losses for the U.S. Government. On April 9, 2014, HSI New York special agents reported a $10 million settlement was approved pursuant to a civil customs fraud investigation against two importers of women’s apparel; the penalty was paid under the authority of 31 U.S.C. § 3729, the False Claims Act. Both importers were charged with cheating the United States out of millions of dollars in customs duties over a decade through the use of false invoices. The defendants paid their overseas manufacturers the full value of the apparel, but deducted a flat fee per garment set before calculating the duty on the apparel. The defendants then recorded only the lower value on the entry forms presented to the government. Through this fraud scheme, the defendants avoided paying millions of dollars in customs duties.

Environmental Crimes

ICE’s Environmental Crimes Program encompasses a myriad of investigative areas including, the illegal importation of protected, endangered and non-native detrimental species, unapproved or non-compliant automobiles, machinery and other equipment, and environmentally hazardous materials and chemicals.

One example of ICE’s work to protect the environment involves an endangered large marine fish called Totoaba, the bladders of which have been traditionally used in a Chinese soup. Fishing for Totoaba has been banned since 1975 and there has been a prohibition on importing them into the United States, except for purposes of scientific research since 1976. In conjunction with the Fish and Wildlife Service and CBP, ICE began investigating a wildlife smuggling organization in February 2013, that smuggled Totoaba bladders from Mexico into the United States, with an intended final destination of Hong Kong. As part of the investigation CBP seized four kilograms of Totoaba swim bladders at a DHL facility in Phoenix. The Totoaba bladders were mismanifested as dry meats originating from Mexico destined to Hong Kong. HSI Hong Kong then worked with Hong Kong Customs to facilitate a successful international controlled delivery, producing two arrests and intelligence on the source in Mexico. To date, the investigation has resulted in seven criminal arrests, five indictments, five convictions, seizure of 455 Totoaba swim bladders, forfeiture of $181,518, and the payment of $500,000 in restitution to the Government of Mexico.

Protecting National Security and Health and Safety

Operation Chain Reaction

Operation Chain Reaction (OCR) is an IPR Center initiative that combines the effort of 16 federal law enforcement agencies to target counterfeit items entering the supply chains of the Department of Defense and other U.S. Government agencies. By partnering together, the participants in OCR are coordinating their efforts to more productively protect the U.S. Government supply chain.

In a case investigated by ICE, DCIS, and NCIS, a Massachusetts man pleaded guilty in June 2014 to importing thousands of counterfeit integrated circuits (ICs) from China and Hong Kong and then reselling them to U.S. customers, including contractors supplying them to the U.S. Navy for use in nuclear submarines. The subject told his customers, many of whom specified in their orders that they would not accept anything but new ICs which were not from China, that the ICs were brand new and manufactured in Europe. Testing by the Navy and one of their contractors revealed the ICs had been resurfaced to change the date code and to affix counterfeit marks, all in order to hide their true pedigree. In order to purchase these ICs, the subject wired nearly $2 million to his suppliers' bank accounts in China and Hong Kong, in violation of federal money laundering laws. This was the second conviction ever under trafficking in counterfeit military goods, a provision in the U.S. criminal code which was enacted as part of the National Defense Authorization Act of 2011.

In another case, the former Chief Executive Officer (CEO) of Powerline, Inc., a battery distributor, was found guilty of five counts of wire fraud and one count of conspiracy to defraud the United States by selling more than $2.6 million in cheap, counterfeit batteries to the U.S. Department of Defense. In joint case by ICE and DCIS, with assistance from DLA and the Defense Contract Audit Agency, investigators discovered that Powerline sold more than 80,000 batteries and battery assemblies that the U.S. Navy used for emergency back-up power on aircraft carriers, minesweepers and ballistic submarines. The company would affix counterfeit labels falsely identifying the batteries as originating from approved manufacturers and used chemicals to remove “Made in China” markings from the batteries. The CEO fled the United States, but was apprehended when undercover HSI special agents hired him to sail his yacht to the U.S. Virgin Islands after spending more than two years on the yacht near St. Martin. Once the CEO entered U.S. Territory, he was arrested and his yacht was seized.

OCR has resulted in 40 criminal arrests, 70 indictments, 42 convictions, and 1,078 seizures worth $21.2 million (MSRP) in counterfeit parts, currency, and vehicles. Counterfeit items seized through OCR include commercial-grade devices re-marked as military-grade and counterfeit semiconductors intended for use on nuclear submarines.

Operation Engine Newity

Operation Engine Newity targets the importation and distribution of counterfeit and substandard automotive products that impact the health and safety. Investigations and interdictions by ICE, the FBI and CBP have uncovered counterfeit airbags, steering, braking and seat belt components.

In October 2012, as a result of investigations by ICE and seizures by CBP, the U.S. Department of Transportation issued a consumer safety advisory to vehicle owners and repair professionals about counterfeit airbags; after safety tests showed a 100 percent failure rate. ICE and CBP have seized $11.3 million MSRP worth of counterfeit auto products since FY 2010, and made 27 arrests, 17 indictments, and three convictions.

Operation Guardian and Operation Apothecary

Operation Guardian (Guardian) is the IPR Center’s public health and safety initiative. Guardian was initiated in October 2007 in response to several incidents in which hazardous imports into the United States caused serious public safety concerns.

In developing Guardian, ICE solicited the assistance of numerous law enforcement and regulatory agencies, including CBP, FDA OCI, the FDA’s Division of Import Operations, USPIS, DOJ CCIPS, CPSC, and the U.S. Department of Agriculture (USDA). These agencies formed a Headquarters Working Group (WG) to target high-risk commodities from foreign sources.

HSI alone has initiated 1,030 Guardian investigations resulting in 491 criminal arrests, obtained 496 indictments, secured 359 convictions, and worked with CBP to make more than 6,400 seizures valued at over $218 million (MSRP).

Operation Apothecary (Apothecary), which falls under the auspices of Guardian, works to combat the growing use of the Internet in illegal drug distribution. Criminals, posing as legitimate pharmaceutical providers, use the Internet to advertise purportedly FDA-approved prescription drugs, and/or less expensive unapproved foreign alternatives, all without requiring a valid prescription. The consumer purchases the pharmaceutical with the belief that the product advertised is a legitimate product, but in fact, is a counterfeit or unapproved version of the drug manufactured under unknown conditions or not subjected to any safeguards or quality control regimes. Apothecary addresses, measures, and attacks potential vulnerabilities in the entry process to attack the smuggling of commercial quantities of counterfeit, unapproved, and/or adulterated drugs through the Internet, international mail facilities, express courier hubs, and land borders.

In support of the Apothecary mission, IPR Center personnel coordinated and conducted periodic enforcement surges in conjunction with ICE, CBP, FDA and USPIS at international mail facilities and express courier hubs throughout the United States. As part of Apothecary, HSI has arrested 212 individuals and obtained 235 indictments resulting in 201 convictions. There also have been 3,068 seizures worth approximately $22.5 million (MSRP).

International Efforts

ICE HSI International Operations is DHS’s largest investigative law enforcement presence overseas and fulfills a critical role in the safety and security of the United States. ICE deploys more than 240 HSI special agents and 156 foreign service nationals to 67 attaché offices in 48 countries, as well as 8 liaisons to the Department of Defense. Their mission is executed through the enforcement of more than 400 federal statutes that protect the United States from illicit goods, people, and money by conducting multi-faceted, international law enforcement operations and removals, and by disrupting transnational criminal and terrorist organizations before their illicit activities reach our nation’s borders.

Cooperation with our international law enforcement partners is critical in combatting copyright and trademark infringement overseas and effectively protecting and enforcing American intellectual property rights holders. U.S. Government Attachés in a number of agencies, including ICE, the Department of Justice, FDA, and the U.S. Patent and Trademark Office, work with international organizations and foreign law enforcement counterparts to build capacity, strengthen relationships, and conduct joint enforcement activities. ICE, as the world’s largest customs investigative entity, is recognized as a worldwide subject matter expert on criminal customs matters. HSI has been and continues to be actively engaged in the WCO through the Enforcement Committee and other working groups to address global crime problems including violations such as: intellectual property rights crime, narcotics trafficking, financial and revenue crimes, cyber-enabled border crime, environmental crime and wildlife trafficking, proliferation of controlled commodities, and theft of cultural property.

Trade-Based Money Laundering

Some of the illicit schemes designed to circumvent lawful trade mechanisms also involve trade-based money laundering (TBML). HSI’s Trade Transparency Unit (TTU) aggressively targets the complex commercial fraud schemes used by transnational criminal organizations to move, store, and launder their funds through international trade. The core component of the TTU initiative is the exchange of trade data with foreign counterparts, which is facilitated by existing Customs Mutual Assistance Agreements or other similar information-sharing agreements. ICE has partnerships with Argentina, Australia, Brazil, Colombia, Dominican Republic Ecuador, Guatemala, Mexico, Panama, Paraguay, and the Philippines. These partner countries recognize the value of sharing trade data with the United States and gaining the tools to analyze their own data. By combining international efforts, the TTU can identify international trade anomalies indicative of trade-based money laundering. This information is then used to initiate and support international criminal investigations related to customs fraud, tax evasion, money laundering and other financial crimes. It bears mention that, ICE is the only federal law enforcement agency capable of exchanging trade data with foreign governments to investigate these types of crimes.

Additionally, the TTU is contributing to the successes of ICE investigations. With the assistance of the Headquarters TTU, the HSI office of the Special Agent in Charge (SAC) Los Angeles, California in July 2010 closed a two-year investigation of a Los Angeles based toy company suspected of money laundering, cash transaction structuring, and bulk cash smuggling. Headquarters TTU personnel provided analytical support and assisted the SAC office with the execution of a search warrant issued on the company. The case culminated in the arrest of the company’s Chief Executive Officer, company owner, and accountant. Additionally, a Colombian businessman involved in the aforementioned criminal activities with the company was also arrested.


IPR theft and unlawful importation of illicit goods pose a significant threat to national security, public safety and the economic security of the United States. ICE investigations have shown that these illegal traders and criminal organizations are profit driven, and exploit loopholes and vulnerabilities in the in-bond system and financial sectors to advance their criminal enterprises. ICE has unique expertise, as well as the necessary infrastructure and established key law enforcement partnerships, to effectively support investigative and operational activities focused on dismantling criminal organizations – thus reducing public safety hazards and limiting negative economic impact to this country.

ICE will continue to leverage all its tools to coordinate and unite domestic and international law enforcement efforts to combat international trade crimes. We are also dedicated to building on agency outreach and training programs with the trade community to enhance cooperation with all private sector partners.

Last Updated: 10/06/2022
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