As importers continue to work towards implementation of the Importer Security Filing (ISF) regulations – commonly referred to as “10+2” – they continue to have many questions that remain unanswered. One particular area of concern for the trade has been pending mitigation guidelines. As of next week, those burning questions should be addressed, as U.S. Customs and Border Protection (CBP) prepares to issue the eagerly awaited ISF Mitigation Guidelines. Here’s a high-level preview of what the trade can expect with regard to those Guidelines.

The Interim Final Rule provided only a glimpse of what importers could expect with respect to penalties for non-compliance. Under the Interim Final Rule, the importer would be liable for liquidated damages of $5,000 for each violation of the ISF. These violations included, but were not limited to, “providing security filing information to CBP in the time period prescribed by the regulation.” 1 Beyond this brief statement, the trade was left to speculate exactly how the penalties may be applied and whether there would be any opportunity to mitigate.

CBP indicated this week that the Guidelines are expected to be published in the CBP Bulletin next week on July 16 or 17. A preview of the pending Guidelines was provided to various members of the trade this week, including the Advisory Committee on Commercial Operations of Customs and Border Protection (COAC) and also to attendees at an ISF Webinar hosted by the National Customs Brokers and Forwarders Association of America (NCBFAA) and CBP.

Potential Penalties

CBP has indicated that there will be four possible violations specific to the ISF that could result in penalties to importers.

  1. Failure to file. This is the most serious violation and would incur the highest level of potential penalties.
  2. Late filing. The Interim Final Rule requires the importer to file the ISF no later than 24 hours prior to lading at foreign origin.2
  3. Inaccurate filing. This includes incorrect data being provided and applies to not only the initial filing, but could also apply on a subsequent filing (e.g., amended ISF).
  4. Failure to withdraw a filing. Withdrawal of an ISF that is known to be invalid is a requirement under the rule. This could be due to a cancellation of an order, discovery of significant change in information necessitating a new ISF, a complete change in routing, etc.

Each of the above violations has the potential for $5,000 in liquidated damages. It is possible to have more than one penalty per ISF. For example, an importer could have a late filing that also has inaccurate data. In this situation, the importer could be liable for a penalty of $10,000.

It is important to note that beyond the liquidated damages, CBP reserves the right to take other measures deemed necessary for ISF violations. These include issuing “Do Not Load” messages to the vessel carrier at origin, withholding (or delaying) permission to unlade at U.S. port of arrival, notice of seizure of goods and withholding release of cargo (movement to General Order). Additionally, CBP may take advantage of penalty measures available under 19 U.S.C. §1595a(b). While these additional measures are likely reserved for more serious violations, CBP has indicated that cargo that arrives in the U.S. without an ISF being filed will not be released and is likely to be subject to more serious penalties.

Mitigation Guidelines

Where law enforcement goals are clearly compromised (e.g., smuggling attempts, terrorist activities and fraudulent activities), importers can expect no mitigation.

CBP has, however, taken comments from the trade into consideration with respect to developing the guidelines and as a result, the mitigation factors below should provide importers with a bit more clarity and perhaps a sense that if reasonable care is exercised, penalties can be minimized.

CBP has indicated the following six factors will be considered when mitigating ISF penalties:

  • Evidence of progress in implementing ISF during the flexible enforcement period.
  • C-TPAT Tier 2 and 3 importers will receive consideration for an additional 50 percent reduction in any mitigated penalties.3 This is a benefit the trade had asked for specifically. This may provide further incentive for those companies holding off on C-TPAT application to reconsider.
  • A small number of ISF violations in relationship to the overall number of ISF filings done.
  • The importer has demonstrated remedial actions were taken to address past violations and prevent future ones.
  • Inaccurate filings due to circumstances beyond the importer’s control (e.g., carrier vessel/routing diversions).
  • Receiving incorrect information from other parties in the supply chain. This particular factor should provide some relief for importers who have been concerned about their ability to obtain complete and accurate data for certain data elements (e.g., foreign manufacturer, especially when buying agents are involved). If the importer can show that it has used reasonable care in verifying the data provided, CBP will take this into consideration.

On the other hand, CBP will consider the following items as aggravating factors when it comes to mitigation:

  • Lack of cooperation with CBP.
  • Evidence of smuggling, fraudulent or terrorist activities or introducing shipments contrary to the law associated with the shipment.
  • Multiple errors on the ISF (“sloppy filing”).
  • Rising error rate in transmission of ISFs.

With respect to mitigation amounts, the trade can anticipate that for first violations, CBP will cancel the penalty for a payment of $1,000 - $2,000. For second and subsequent violations, the penalty can be cancelled for no less than $2,500. The above-listed mitigating and aggravating factors will determine the final penalty amount.

CBP has attempted to minimize some of the trade’s concerns by including language that indicates the agency will take into consideration the importer’s reasonable-care efforts in obtaining and verifying the required data elements using standard commercial practices. CBP will continue to allow parties to present information that they believe to be true at the time of filing. However, it would benefit importers to ensure that they have written verifiable procedures with respect to this requirement if asked to provide support in response to a penalty.

The message is clear that those importers that are making an effort to comply during the flexible enforcement period will be far better positioned to mitigate should a penalty be accessed when enforcement begins. Those parties that have made no effort to comply during this time will be shown little (or no) leniency. CBP has been tracking the ISF data since implementation began in January 2009 and, like Santa Claus, the agency will know those that have been good importers – and those that have been bad – when it comes to ISF.

For those importers that have not yet begun to file, it is strongly recommended that you start immediately. CBP acknowledges that it can take a company a minimum of 60 to 90 days to get processes in place to begin implementation. The window of opportunity is becoming smaller to implement and work out any “bugs” prior to enforcement. A track record of more than one month’s progress during flexible enforcement will be important.

The above information provides a general overview of what we can expect when the Guidelines are issued next week. We recommend that once the Guidelines are published in the CBP Bulletin that companies take the time to review them in greater detail to ensure they have a solid understanding of the risks involved.

In addition to the Mitigation Guidelines, we expect that CBP will be issuing further guidelines with respect to ISF bonds and related questions shortly thereafter. This will address outstanding issues especially with respect to single-transaction bonds.