Most exportations of merchandise from the United States require an export declaration, in which the exporter certifies, among other things, the nature of the export and whether any applicable regulations (e.g., the International Traffic in Arms Regulations, the Export Administration Regulations) apply. While the Foreign Trade Regulations (FTR) promulgated by the U.S. Census Bureau (15 C.F.R. part 30) govern these export declarations, exporters traditionally did not face penalties for inaccuracies or omissions in these filings. This has now changed, as export declaration requirements will be enforced by U.S. Customs & Border Protection (CBP), and exporters face penalties for errors in export declarations.1
In recent years, the export community has seen myriad changes in export procedures. A June 2, 2008, final rule published in the Federal Register by the Census Bureau replaced the traditional Shippers Export Declaration (SED) with mandatory Electronic Export Information (EEI) filings using the Automated Export System (AES). While penalties for errors in an export declaration have historically been minimal and rarely imposed, the Census Bureau’s final rule instructed CBP to enforce the FTR and raised the maximum penalty to $10,000 per violation.2 On January 2, 2009, CBP published guidelines for its enforcement of the FTR that serve to aid the implementation of the Census Bureau’s final rule. CBP began to follow these guidelines on February 1, 2009, and CBP is now in an informal compliance mode, advising exporters of errors. Soon, informal compliance will change to penalty imposition.
This advisory will review the new FTR penalties authorized by the Census Bureau’s 2008 final rule and the new CBP guidelines for their imposition. These changes to the export declaration process—and the increased fines and consequences for non-compliance—make it critical that exporters understand the identity and role of all parties to an export transaction and ensure that AES filings contain complete and correct information.
Generally, the CBP penalty guidelines enumerate potential FTR violations, identify the parties to a transaction who may face penalties and state the factors that CBP will consider as mitigating or aggravating in its penalty assessment. These guidelines reflect the increased level of scrutiny of AES filings specifically, and the FTR generally. Accordingly, exporters should review their processes and procedures to ensure complete and accurate export declarations.
CBP may assess penalties for FTR violations against any of the following parties to an export transaction:
- U.S. Principal Parties in Interest (USPPI);
- Foreign Principal Parties in Interest (FPPI);
- Freight forwarders;
- Authorized agents (e.g., brokers); and
Moreover, CBP may assess penalties against more than one party for a violation arising from one export transaction.
The guidelines identify four categories of violations that may give rise to the increased penalties authorized by the Census Bureau’s June 2, 2008, final rule:
- failure to make a required EEI filing through AES;
- late filings of EEI through AES;
- other miscellaneous FTR violations (including misdeclarations); and
- carrier penalties.
Multiple errors on the same AES filing or in the same transaction may qualify as separate violations leading to multiple penalties for one export filing.
Failure to File
According to the guidelines, “[a] failure to file occurs if the government discovers that there is no record in the AES for an export transaction by the date that the record is required and that discovery is made and communicated to the USPPI, authorized agent, or other party before the violation is corrected.” In addition to a discovered non-filing, any AES filing made more than 10 days after the due date will also constitute a failure to file.
If a party to an export transaction submits EEI through the AES after the due date for such filing, a late filing has occurred.3 As noted above, filings made more than 10 days past the due date will constitute non-filings, subject to the higher penalties for the failure to file provisions discussed above. Filings made after government discovery of the violation may receive both late filing and failure to file penalties.
Other Miscellaneous FTR Violations (Including Misdeclarations)
The CBP guidelines provide the following non-exhaustive list of other FTR violations in an AES filing that gives rise to penalties:
- incorrect value for shipment;
- other incorrect information in the AES (e.g., incorrect USPPI, consignee, end-user, commodity description or port of export);
- failure to cite license code or license number;
- failure to obtain power of attorney for AES transmission;
- failure to identify transaction as routed transaction;
- failure to correct information in AES as changes arise;
- failure to provide carrier with appropriate proof of filing citation or exemption legend in time periods defined by FTR; and
- failure to retain all records relating to the export shipment for five years from the export date.
Finally, CBP may impose penalties on carriers for the following violations:
- failure of carriers to adhere to 15 C.F.R. § 30.45;
- failure to provide the USPPI or authorized agent with changes to the date or port of export;
- failure to report the proof of filing citation or exemption legend on the required manifest;
- late filing of incomplete manifest under bond;
- failure to provide list of proof of filing citations or exemption legends prior to departure from the port of exit when filing incomplete manifest under bond; and
- failure to file, upon request, proof of filing citations or exemption legends for carriers exempted from filing a manifest.
Potential Penalty Amounts
The guidelines define the range of penalties for each of the four categories of FTR violations. As a general matter, the guidelines indicate that CBP may elect alternative actions in lieu of monetary penalties for first-time violators, including informed compliance education. In each case, CBP will issue a Notice of Penalty for the maximum possible fine, and then through an administrative procedure adjust the fine within the range defined in the guidelines according to the frequency of violation by the accused person or entity, as well as mitigating and aggravating factors. These guidelines provide penalty ranges as follows.
The guidelines enumerate a non-exhaustive list of mitigating and aggravating factors that CBP will consider in setting the penalty amount within the ranges as follows:
1. Mitigating Factors
- First time violation
- Voluntary self-disclosure of the violation4
- “Clear documentary evidence” of remedial measures undertaken to prevent future violations
- “Exceptional cooperation” with the government
- The violation was an isolated event
- Providing “substantial assistance” in the investigation of another entity’s FTR violations
- The party has a “systematic export compliance effort”
2. Aggravating Factors
- Several violations in the same transaction
- Circumstances suggest that the violation was intentional
- Multiple violations in the preceding three years
- Evidence of criminal conviction for a related violation
- The party shows a pattern of disregard for export controls
- The party exports regularly, but lacks a “systematic export compliance effort”
Who is Responsible for Payment of the Penalty?
The law assigns clear responsibility to one or more parties for a penalty in connection with an export declaration violation. However, this liability is to the U.S. Government,5 and the parties to a transaction may shift the ultimate liability to another party in the transaction. Thus, where the AES EEI filing is made by a third party, liability for ultimate payment of the penalty may be shifted through a contract. Specifically, an exporter’s contract with its freight forwarder (or the buyer’s freight forwarder in a routed export transaction) has become much more important with the increased penalties and enforcement. For those exporters filing their own AES declaration, the ability to shift ultimate liability does not exist. In effect, the freight forwarder has become much more like a customs broker acting as an agent in the exporter’s interface with the government. Indeed, freight forwarders are finally requiring powers of attorney for AES filing.6
Export declarations have become an extremely important consideration in an export transaction. The penalties for mistakes in export declarations are now up to $10,000 per violation, and these penalties will be imposed by CBP. Accordingly, exporters should have procedures so that correct AES EEI filings are made, and should conduct post export reviews for accuracy and completeness of their EEI filings. Finally, voluntary disclosures of any violations should be considered, where applicable, to minimize an exporter’s penalty exposure in light of the new, tougher penalties.