Example 1: Smith Corporation purchases Jones Company, a medium-sized importer. Smith Corporation is a C-TPAT and Importer Self Assessment program participant. Smith Corporation also uses the U.S. Customs & Border Protection (CBP) Reconciliation Prototype for a portion of its entries and claims drawback on some of its exports. How will the acquisition of Jones Company affect these programs?
First, Smith Corporation will need to decide whether to bring the former Jones Company into its C-TPAT program. A couple of major factors influencing this decision will be (1) whether Jones Company is already a C-TPAT participant and (2) what form Jones Company will take after acquisition.
As part of the acquisition process, the customs compliance personnel at Smith Corporation need to find out whether Jones Company is in the C-TPAT program. If Jones Company is already a participant, it will make it easier to bring it into Smith Corporation’s existing program. If it isn’t, Smith Corporation will need to determine whether the former Jones Company is C-TPAT ready and, if so, begin the process of applying for C-TPAT status.
The second factor is the form Jones Company will take. If it will be folded into Smith Corporation and becomes an unincorporated division, the former Jones Company assets will need to be given a separate suffix to Smith Corporation’s importer-of-record number. If Jones Company is made a separately incorporated subsidiary of Smith Corporation, it will already have its own importer-of record-number and identity. Should Smith Corporation decide to bring the former Jones Company into its C-TPAT program, it can do so under that separate identity – using either a different suffix or a different importer-of-record number.
Example 2: Smith Corporation is a participant in the CBP Importer Self Assessment (ISA) Program. If Jones Company is also an ISA participant, it will be reasonably easy to bring them into the program after the acquisition is complete. However, if Jones Company is not in ISA, Smith Corporation will need to decide whether to expand its ISA program to include the former Jones Company. A requirement for ISA is that the business unit or subsidiary – based on the 11-digit importer of record number – must be in the C-TPAT program. Accordingly, the customs compliance personnel at Smith Corporation will need to first deal with the C-TPAT status of the former Jones Company, then decide whether to have it in the ISA program as well.
Having the former Jones Company in the Smith Corporation ISA program will involve (1) establishing or updating the Jones Company C-TPAT status, (2) applying to CBP, (3) establishing or verifying the former Jones Company's internal controls, and (4) going through the likelihood of a new application review meeting with CBP Regulatory Audit.
Regardless of whether the former Jones Company is made part of the Smith Corporation ISA program, Smith will need to advise CBP in writing of the acquisition, as this is a reporting requirement.
Example 3: Smith Corporation handles a portion of its entries through the CBP Reconciliation Prototype. As part of the acquisition, Smith Corporation should find out whether Jones Company is a Reconciliation participant. If it is, the program and supporting bond and bond rider may need to be updated to reflect any new name or business organization. If Jones Company does not participate in reconciliation, the compliance personnel at Smith Corporation will need to assess whether that will be necessary and then either make a separate application or merge the former Jones Company entries into its program and make appropriate changes to its bond and bond rider.
Participation in drawback programs is another subject that should be explored during the acquisition stage. If Smith Corporation is already a drawback claimant, it should determine whether the former Jones Company has an existing drawback program that could be merged into Smith’s program. If Jones Company is not a drawback claimant it may be because they were not aware of drawback or felt it was too much trouble. If that is the case, Smith Corporation may want to see if drawback opportunities exist and expand its program to the former Jones Company.
Most drawback entries are handled by drawback brokers who are paid through a percentage of the refunds received. If the Jones Company acquisition leads to an expansion of the Smith Corporation drawback program, it may be worthwhile to explore renegotiating the drawback broker agreement to obtain a better rate due to the increased claims. Many drawback claims are backed by a bond to obtain accelerated refunds. Any change to the Smith Corporation drawback program resulting from the Jones Company acquisition could result in the need for a new bond or an increase in the coverage of existing bonds. Depending on what corporate form Jones Company takes, there may also be a requirement for a new power of attorney with the drawback broker.
Before we leave the subject of drawback, be aware that claims for drawback are based on the separate corporate entities that import, manufacture and export products. If the corporate entities change because of an acquisition, the drawback claims may need to be restructured. If the entities are separately incorporated, one entity may need to assign rights to claim drawback to another. So – aren’t mergers, acquisitions and divestitures lots of fun? Only a glutton for punishment would think so. Actually there is significant work to be done – something to let your management know about when it comes time for a pay raise!