CBP officials with the Office of Regulatory Audit recently discussed changes to their approach to auditing importers for compliance, along with the possibility of issuing penalties for non-compliance, in a meeting with representatives for the Washington D.C., based American Association of Exporters and Importers ("AAEI")

CBP Audit Officials explained that while the Focused Assessment (FA) program is not going away, more audit surveys and quick response audits will be performed in lieu of the traditional FA. If a company gets an informed compliance notification via email or a telephone call, explained Reg Audit, that company is a likely candidate for an audit survey. On the other hand, if a company receives a letter informing and referring them to relevant Informed Compliance Publications ("ICP"), it means Regulatory Audit is strongly considering that company for a comprehensive audit as a part of its National Audit Plan. (See sample letter.)[AB1] 

Audit surveys are relatively new, and are performed when the importer presents a potential but unknown risk in a high priority trade area, such as anti-dumping or protection of intellectual property rights. If, in conducting the survey, the risk is properly mitigated or eliminated by the importer, then the auditors can exit the review quickly without having to do everything required under the more rigorous Government Accounting auditing standards. Whereas, if there is evidence of non-compliance, CBP can initiate a more focused review of the risk presented. This approach, notes Reg Audit, allows CBP to conduct more audits that effectively target suspected or high risk importers.

New Audit Policy on Penalties

CBP explained that the Informed compliance notification letters are intended to encourage importers to engage in self-review and to file prior disclosures. Prior disclosures are authorized by statute (19 U.S.C. § 1592(c)(4)), and allow a party to voluntarily disclose the circumstance of a violation and tender any lost revenue to CBP, without fear that the disclosure will result in the issuance of significant monetary penalties. Under this statute, monetary penalties may be assessed for false statements or omissions of material information. The amount of the penalty will depend on the level of culpability found. More importantly, CBP confirmed that, in situations where a prior disclosure is not submitted, and an audit is performed, it will be Regulatory Audit's new policy to recommend issuance of more penalties than what has been traditionally done in the Focused Assessment environment.  

Issuance of Informed Compliance Notification Letters

CBP has begun to issue Informed Compliance notification letters to importers. The receipt of an Informed Compliance notification letter means Regulatory Audit has identified specific problems with the company's import transactions and is "strongly considering" the company for a comprehensive audit on the National Audit Plan. These audits involve both substantive transaction testing and internal control testing. These letters advise importers that, while they are not required to make a prior disclosure, they may elect to file a disclosure with CBP. The letters go on to state that, because the company has been provided information relating to specific problems with their import transactions, "violations that may occur in the future could result in seizures and forfeitures of imported merchandise and/or the assessment of monetary penalties."

Recommended Action

Any letter, email, or telephone call from CBP's Office of Regulatory Audit should be taken seriously, and a company should strongly consider taking the following action:

  1. Conduct a risk assessment and self-review of import transactions from the Automated Commercial Environment (ACE)
  2. Take appropriate action to correct any findings of non-compliance, which would include the implementation of internal controls
  3. Consider disclosing, under the prior disclosure procedure, possible findings of non-compliance and tender of any loss of revenue.
  4. Where a disclosure is chosen, make sure it is as complete and comprehensive as possible, given that CBP may also decide to audit the disclosure.

Report Informed Compliance  Notifications to Management Immediately

CBP has already issued informed compliance notifications to some importers. At this time, we do not know if CBP will continue to issue letters to the importing community, and we do not know when CBP intends to conduct follow-up audits on selected importers. What we do recommend at this time is for companies to implement measures to ensure that they are ready for such an audit should the company receive a notification.

All importers should share this information with their compliance teams to ensure that everyone is aware of CBP Regulatory Audit's new procedure. If anyone on your team should receive an informed compliance notification, we strongly recommend they report that information to management immediately.

Special thanks to Vicky Wu (Vicky@braumillerlaw.com ), Associate Attorney, Braumiller Law Group and to George R. Tuttle, III(george.tuttle.iii@tuttlelaw.com), Attorney, Law Offices of George R. Tuttle, for their invaluable assistance in drafting this article.