The U.S. has experienced a number of Customs developments in 2016 in the areas of the Enforce and Protect Act, Customs Audits and Informed Compliance Letters, and the False Claims Act. Many of these developments began in 2015 and came to fruition in 2016.
A. Enforce and Protect Act
On February 24, 2016, President Obama signed the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA) into law. Title IV, Section 421 of the TFTEA included the Enforce and Protect Act (EAPA) and established a formal process for CBP to investigate allegations of evasion of anti-dumping and countervailing duty (AD/CVD) orders. These new regulations result in U.S. importers facing increased risk of investigation and significant penalties for playing any role in the evasion of AD/CVD. The new process provides for a transparent administrative proceeding where parties can both participate in and learn the outcome of the investigation. It also provides an option for both administrative and judicial appeals of the investigation. In addition to establishing the allegation of lodging and investigative procedures, the EAPA and implementing regulations allow CBP to take such additional enforcement measures as CBP deems appropriate, including (but not limited to) modifying CBP’s procedures for identifying future evasion, re-liquidating entries as provided by law, and referring the matter to CBP’s investigative arm, Immigration and Customs Enforcement for a possible civil or criminal investigation.
B. Informed Compliance Letters and Audits
In August 2016, CBP officials with the Office of Regulatory Audit have discussed changes to their approach in auditing importers through the issuance of informed compliance notification letters. If an importer receives an informed compliance notification letter, this means Regulatory Audit has identified specific problems with the company’s import transactions and is strongly considering the company for a comprehensive audit. These letters advise importers that, while they are not required to make a prior disclosure, they may elect to file a disclosure with CBP. Additionally, the letters 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. For a summary of the top actions to consider once receiving an information compliance letter, please go to our article entitled Top 10 Things to do if Your Company Receives an Informed Compliance Letter from U.S. Customs.
C. False Claims Act
U.S. importers are also facing increased action under the False Claims Act. The Department of Justice (DOJ) received significant attention back in September 2015 when it published the “Yates memo.” The Yates memo indicated a policy shift in the DOJ to increasingly pursue individuals involved in corporate crime. The Yates memo laid out the following six key steps the DOJ will use in its “pursuit of individual corporate wrongdoing”.
- In order to qualify for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct;
- Criminal and civil corporate investigations should focus on individuals from the inception of the investigation;
- Criminal and civil attorneys handling corporate investigations should be in routine communication with one another;
- Absent extraordinary circumstances or approved departmental policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation;
- Department attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; and
- Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.
Recent False Claims Act cases from September indicated that the DOJ is beginning to put into effect the changes outlined in the Yates memo. In September, DOJ official, Bill Baer, highlighted the need for companies to proactively provide the government with information, including information about specific individuals “no matter where those individuals fall in the corporate hierarchy.” Importers must keep in mind that knowingly failing to pay import duties may result in individual liability, per the Yates memo.
Additionally, customs whistleblower cases are on the rise. For example, in October 2016, the Third Circuit Court of Appeals ruled that, if companies knowingly evade customs duties by importing goods that are not properly marked, companies are subject to liability under the False Claims Act.
Finally, in August of 2016, per the Federal Civil Penalties Adjustment Act Improvements Act (which adjusts civil monetary penalties for inflation), monetary penalties for False Claims Act violations almost doubled. Civil penalties increased from $5,500 to $11,000 per claim to $10,781.40 to $21,562.80 per claim. Treble damages may also be applied and typically are where there is a loss of revenue that has been identified from the false claims involved.
These 2016 trends are not going anywhere, and are likely to increase into 2017. As a result, importers are likely to see an increase in CBP AD/CVD investigations, CBP increased scrutiny and audits related to risk areas and the DOJ’s continued pursuit of individual corporate wrong doing, and more whistleblower suits brought under the False Claims Act for customs violations. U.S. importers must vigilantly implement and maintain compliance mechanisms, if they want to avoid penalties.