According to a recent U.S. Customs and Border Protection (“CBP”) directive (TBT-07-003), importers are being reminded to remain vigilant with their reasonable care obligations under 19 U.S.C. § 1484, and to ensure that entries contain correct information, regardless of duty liability. CBP indicated that it discovered “egregious errors” related to the reporting of quantity, country of origin, tariff classification and manufacturer identification number (“MID”). The trade community should be advised that CBP Headquarters is in an enforcement mode, and will be reviewing entries to identify violations, directing ports to pursue penalties against both importers and customs brokers where appropriate.
The newly formed CBP Office of International Trade, which issued the above directive, is charged with developing regulations pertaining to customs enforcement. CBP’s Office of International Trade has communicated to Fines, Penalties and Forfeitures Officers across the country about the need for increased commercial trade enforcement over the next year, with particular attention to: invalid duty preference claims under the Generalized System of Preferences (“GSP”); loss of revenue due to tariff classification errors; antidumping and countervailing duty violations; circumvention of visa and quota requirements; incorrect MIDs and trademark violations.
CBP’s call for increased enforcement activity is consistent with the penalty actions our office has seen over the past six months. Importers should tighten their internal controls, increase their monitoring and audit activities, reissue customs broker and vendor instructions, and take other affirmative steps to demonstrate their reasonable care in order to prevent possible enforcement actions.
Reasonable Care Refresher
As a reminder, under the Customs Modernization Act (“Mod Act”) enacted December 8, 1993, importers are required to use “reasonable care” in filing customs entries, by declaring the correct value, tariff classification, rate of duty and other documentation or information necessary to allow CBP to properly assess duties, collect accurate statistics and determine whether any other applicable requirement of law has been met. Unfortunately, there is no bright line definition of reasonable care, but a determination as to whether an importer has exercised “reasonable care” is based upon a review of the facts and circumstances, and is dependant upon the size and sophistication of the importer. An importer’s failure to exercise reasonable care may subject them to civil penalties under 19 U.S.C. § 1592.
Customs’ Informed Compliance Publication on Reasonable Care, published in February 2004, provides a checklist of questions that are organized by topic, which can be useful in determining what constitutes reasonable care. Also, helpful best practices and red flags can be gleaned from CBP’s Focused Assessment Handbook. Please note that any system of internal controls requires continuous monitoring to identify gaps and risk areas, and to design and implement corrective actions.
In addition to exercising reasonable care on the import side, companies should also ensure that they are compliant with their exports so as to minimize potential export penalties. In the recently passed USA Patriot Act, Congress increased certain fines for violations of the Export Administration Regulations (“EAR”).
Administrative penalties for violations of the International Emergency Economic Powers Act (“IEEPA”) have increased from $11,000 to $50,000 per violation (with each unlawful shipment counting as a separate violation) and the prison term for willful violations of this Act have increased from 10 years to 20 years. In addition, certain violations involving national security issues carry fines of up to $120,000 per violation and criminal penalties could result in fines of up to $1 million per violation, as well as imprisonment. Violations of the Trading with the Enemy Act (“TWEA”) remain at $65,000 per transaction. Administrative penalties for violations of the International Traffic in Arms Regulations (“ITAR”) remain at $500,000 per transaction and criminal penalties start at $1 million per transaction. In addition to the described fines, failure to abide by these regulations could result in the denial of export privileges and inability to enter into federal contracts. Suggested Action Items
In order to minimize possible enforcement actions related to imports and exports, we suggest companies consider doing some or all of the following, as necessary:
- Ensure your company has no “unfinished business” with CBP by responding to all communications from CBP, including Requests for Information (“CBP Form 28”), Entry/Summary Rejections, and Notices to Mark and/or Redeliver on a timely basis.
- Make sure your entries are being filed correctly by reviewing Importer Trade Activity (“ITRAC”) data, ACE reports, and auditing entries on a systemic basis.
- Review and update your Import and Export Compliance Manuals, internal controls, and customs broker instructions.
- Conduct a risk assessment of all import and export activity, particularly if a comprehensive review has not been done recently, to determine where the company may have exposure to possible enforcement action.
- Consult with in-house experts and outside counsel to obtain advice memoranda related to particular issues and, where necessary, to file prior disclosures with CBP and voluntary disclosures with the Bureau of Industry and Security (“BIS”).
If you would like to further discuss the information presented above, or would like assistance in evaluating, enhancing or developing internal controls, please do not hesitate to contact the Drinker Biddle Gardner Carton Customs and Trade Practice Group.