The new year has arrived, and we are rapidly approaching the January 26, 2010, deadline for enforcement to begin on the Importer Security Filing (ISF), more commonly referred to as “10+2.” Whether you have been proactive on implementation, are still struggling with development of internal procedures to comply or, in spite of everything, remain in complete denial, U.S. Customs and Border Protection (CBP) is moving ahead with enforcement as planned.

Although there are many issues and concerns from the trade still outstanding, CBP has been providing further insight on a variety of topics over the past month to assist the trade in preparing for enforcement. This Alert will provide further clarification on a number of areas of apprehension.

Background

On January 26, 2009, the new rule titled Importer Security Filing and Additional Carrier Requirements went into effect. The rule applies to import cargo arriving to the U.S. by vessel.

Under the rule, before merchandise arriving by vessel can be imported into the United States, the ISF Importers, or their agents (e.g., licensed customs broker), must submit electronically certain advance cargo information to CBP in the form of an ISF. ISF Importers, or their agents, must provide 10 data elements, no later than 24 hours before the cargo is laden aboard a vessel destined to the United States. Failure to comply with the new rule could ultimately result in monetary penalties, increased inspections and delay of cargo.

Handling of Violations

The mitigation guideline requirements were published in the Customs Bulletin on July 17, 2009. CBP has indicated that there are four possible violations specific to the ISF that could result in penalties to importers: (1) failure to file, (2) late filing, (3) inaccurate/ incomplete filing and (4) failure to withdraw a filing. Each of the above violations has the potential for $5,000 in liquidated damages, and it is possible to have more than one penalty per ISF.

Beyond the liquidated damages, CBP also 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).1

Although CBP has the authority to issue liquidated damages as of January 26, 2010, the agency has stated that it will be taking a more “measured approach” to enforcement and will use the least punitive enforcement measures to achieve compliance. This could include warning letters, increased examinations and, in more serious situations, withholding of cargo release. “Do Not Load” directives would only be used given the proper circumstances and instances of national security. 2

Importers still should not take this lightly, however, as increased examinations will result in additional costs, as well as delay of cargo, both of which can be as costly as mitigated liquidated damages.

CBP has also stated that for the first 12 months of enforcement, all violations will be handled through CBP Headquarters (HQ), to ensure that a consistent approach is taken. Although the ports can initiate them, violations will be centralized at HQ with a specific team of individuals for further review. Details of this process have yet to be disclosed to the trade, and there is still outstanding concern with respect to how timely this process will be and at what point the ISF transaction will be final with no possibility of further repercussions. One noteworthy point with respect to mitigation – CBP has clearly conveyed that those importers who have not been making efforts to comply with the rule during the delayed enforcement period will be given no leniency come January 26, 2010.

CBP Progress Reports

CBP began issuing monthly progress reports to filers in April of 2009. Additionally, importers who are C-TPAT Tier 2 and 3 certified are also able to receive their progress reports directly from CBP (as opposed to via their filers).

The progress reports are provided at an aggregate level only and in a PDF format. Although the reports may provide a general sense for the number of ISF errors and timeliness of filings on a monthly basis, the reports do not provide transaction level detail that would allow an importer to identify the root cause of an error. Additionally the timeliness measurement has been a major source of aggravation for importers, as initially the measurement was tied to comparing the time of ISF filing against the first bill of lading (BOL) filing date in AMS. Since it is common for the BOL to be filed in AMS well in advance of the ISF deadline, many ISFs were indicated as late when it was likely they were filed on time. CBP addressed that issue by indicating that in addition to the first BOL filing date, it would also compare the ISF filing against the departure date less 24 hours. Although this second measurement was to be used only as an additional indicator of timeliness, it should provide a more accurate metric.

With enforcement rapidly approaching, the trade remains concerned that it does not have access to accurate and detailed data that will assist it in closing gaps that could result in penalties. Recommendations from the trade for transaction level reports provided in usable formats (e.g., Excel) have yet to be acted on, as CBP has continued to reinforce that importers should rely on their filers for this level of detail.3

CBP has been making some efforts to improve accuracy and usefulness of the reports, such as:

Despite these modifications, the reports still do not provide real-time data that is helpful in correcting gaps prior to potential penalties being imposed. Importers should continue to work with their filers, however, to ensure enough detail is provided on a timely basis to avoid unnecessary exposure to penalties. Accurate and detailed recordkeeping will be necessary should a penalty be imposed and mitigation pursued.

Bonds

Under the rule, all ISF Importers must possess a bond as security for the ISF requirement (19 CFR 149.5(b)). This bond requirement provides that the principal agrees to comply with ISF requirements and in the event of a breach of the bond, agrees to pay liquidated damages in the amount of $5,000 per violation. In addition to amending existing bond regulations to incorporate this requirement, CBP also created a separate Appendix D ISF Bond (ISF Bond) that could be used for ISF purposes only.

The Interim Final Rule, however, initially failed to expressly provide for payment of liquidated damages in the amount of $5,000 for violations in the language regarding ISF Bonds. Additionally, it was not clear on the applicable time period for the ISF Bond and whether it could be used for a single transaction.

Correcting amendments were issued in a Federal Register Notice effective on December 24, 2009. The amendments added the liquidated damages amount of $5,000 for the ISF Bond and also clarified that the ISF Bond would be effective for one year beginning with the effective date and for each succeeding annual period, or until terminated. Wording was revised to indicate the ISF Bond may also be used to cover a single transaction. In addition to the above mentioned clarifications, CBP has provided additional insight on bond matters such as:

  • Regarding single transaction bonds (STB), if the importer is doing a unified filing4, one CBP Form 301 STB can be used. If a unified filing is not being done, the importer will need to select one of the other bonding options to secure the ISF (e.g., ISF Bond). The bond amount for an ISF stand-alone STB is $10,000. For STB unified filings, the bond amount is still under discussion with CBP – it could be higher to incorporate entry risk as well.5
  • The minimum bond amount for a continuous ISF bond will be $50,000. Depending on ISF violations, however, CBP may require specific bonds to be increased.
  • The Federal Register Notice allows CBP to issue ISF claims against any CBP 301 continuous bond if the ISF Bond is insufficient or becomes saturated.

Some importers may elect to have both an ISF continuous bond and a CBP Form 301 continuous bond in order to monitor ISF obligations separately. This could increase overall bond liability, however. Further questions on bonding requirements and options should be discussed with your surety bond representative.

On-going Outreach/FAQs

CBP has been very aggressive with its outreach since implementation began January 26, 2009, conducting many seminars and webinars, as well as partnering with the trade associations and overseas trade partners to create awareness and provide on-going guidance. Despite these efforts, however, many small and mid-size enterprises (SME) – as well as some larger organizations – are still unaware and unprepared.

CBP will be continuing its outreach post-enforcement. The focus likely will shift, however, from working with existing filers to improve compliance, to identifying and working with non-filers. We can expect that the agency will continue to engage the trade to assist with these efforts.

Additionally, CBP has developed a relatively extensive “Frequently Asked Questions” (FAQ) document, which is available on line at: http://www.cbp.gov/xp/cgov/trade/ cargo_security/carriers/security_filing/.

The document has been updated, as of September 2009, with more extensive feedback and also to provide hyperlinks from the various table of content topics to take the reader to the specific area of interest. Unfortunately, updates to the FAQs have been few and far between, considering the vast amount of questions from the trade on this rule. Although CBP has promised to improve the timeliness of the FAQ updates, that is yet to be seen.

Conclusion

With enforcement of ISF requirements just around the corner, importers should ensure that their internal controls are now in place for timely and accurate filing of the ISF – and that filing is actually underway at this time.

Although CBP has indicated that it will take a measured approach to enforcement, those importers who have not yet begun to file are taking a big risk with respect to CBP penalty actions for noncompliance and should not expect any leniency for shipments where ISF requirements are not fulfilled.

January 26, 2010, will not bring an end to the ISF process as the trade is still awaiting the publication of the Final Rule and many unanswered questions remain. We can expect ongoing dialogue with CBP in the coming months.