Transcript JMCTI Seminar - Februarr 1, 2006

Informed Compliance, Customs
Penalties & Recordkeeping
Texas Brokers &
Forwarders Annual
Conference
El Paso, Texas
September 25, 2008
Robert J. Pisani
Pisani & Roll PLLC
1629 K St. NW Suite 300
Washington, DC 20006
Tel 1.202.466.0960
Fax 1.877.674.5789
[email protected]
www.worldtradelawyers.com
U.S. Customs & Border
Protection (“CBP”) Mission*
• Guardian of the Nation’s Borders
• Safeguard the Homeland at and beyond the
borders
• Protect the Public against terrorists and
instruments of terror
• Enforce the laws of the USA while fostering
lawful international trade and travel
• Serve the public through vigilance,
professionalism and integrity
*Source: CBP Website: www.cbp.gov
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CBP & Import Challenges
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326 Sea, Land and Air Ports of Entry
Import Value in 2000 = @ $1.2 billion
Import Value in 2007 = @ $2.2 billion
Over 30 Million Customs Entries in 2007
11.6 million container shipments
brought to the U.S. by over 1,200 carrier
companies operating over 50,000
voyages
Physical Inspection of Containers: Less
than 5%
Approximately 800,000 U.S. importers
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CBP Priority Trade Areas
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Textiles/Wearing Apparel
Intellectual Property Rights
Trade Fraud
Import Safety
Agriculture
Revenue
Anti-Dumping/Countervailing Duties
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Recent Customs Enforcement Initiatives
(or “Importing is not for the meek!”)
Current CBP trend is toward greater trade
enforcement
• Civil Penalties (19 USC § 1592) = $$$$
• Focused Assessments (i.e., “Customs
audits”) may result in enforcement actions
• Public Health & Safety Concerns
• Intellectual Property Rights Enforcement
• Free Trade Agreements: Complicated import
requirements can lead to non-compliance
and penalties
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Internal Controls: The Keys to
Import Compliance
• Internal controls are the measures an importer adopts
to foster adherence to CBP policies and procedures –
incorporates risk management principles
• In a study of CBP audits, the agency learned that
importers without internal controls had an average
revenue loss of over $400,000 whereas the average
loss of revenue for importers with internal controls
was @ $45,000
• Importers with strong internal controls and a robust
Import Compliance Program face fewer penalties and
supply chain disruptions
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CBP Areas of Compliance Interest
• Tariff Classification (e.g., Incorrect HTS and/or poor
invoice descriptions)
• Valuation (e.g., Undervaluation & Undeclared
Assists)
• Country of Origin (e.g., illegal transshipment)
• Quantity Discrepancies (overages & shortages)
• Preferential Trade Programs (e.g., GSP, NAFTA,
FTA’s)
• Recordkeeping
• Post Importation Price Adjustments
• Retroactive Transfer Price Adjustments
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How an Import Compliance Program
Can Save You Money
CBP’s Compliance Best Practices for Importers:
1. Demonstrate Management Commitment
2. Establish Compliance Goals
3. Develop Formal Policies and Procedures (e.g., Manual & SOP’S)
4. Develop Training Program (Recurrent – keep logs!)
5. Conduct Internal Control Reviews (i.e., TEST controls!)
6. Create a Compliance Group or Department
7. Access to Management for Needed Resources
8. Develop compliance requirement for vendors
9. Develop a Recordkeeping Program
10. Partner with CBP (when appropriate)
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Key Relationships that Affect Trade
Compliance
Accounting
Distribution
Services
Law
Customer
Service
Sales &
Marketing
Purchasing
Import
Department
Receiving
Contracts
Engineering
Tax
Sub-contracts
Manufacturing
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Export
Other
Steps to Building a Compliance
Program: First Steps
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Request your Trade Data from CBP for the past 5 years (also
called “ITRAC” or “OST Data” - may be requested from CBP
via a Freedom of Information Request)
Review the Trade Data (a gold mine of information about your
imports!):
Basic trade data includes: HTSUS, Brokers, MID’s, Ultimate Consignee,
Quota/Visa, Entry Date, Transport Mode, Rulings, Ports, Value Quantity,
Origin, SPI, Duties Paid, Relationship and Entry Types
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Look for cost saving opportunities! (e.g., Are you claiming
NAFTA
Eligible imports? FTA’s being used? Are you using too
many
brokers?)
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Steps to Building a Compliance
Program: Internal Controls
• Corporate Compliance Statement – shows upper
management’s buy in
• Customs Compliance Manual – shows awareness of
rules and regulations
• Process Map of Customs Operations – shows thoughtful
consideration of the totality of an import transaction
• Written Procedures – shows systemic, institutional
approach to compliance
• Periodic Internal Reviews (Self-Assessments) – shows
commitment to ongoing improvement
• Compliance Training – Ongoing commitment – reduces
risk of non-compliant transactions
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Self-Testing Of Import Operations
Should Confirm:
• What you declared to Custom was accurate
– Tariff classification
– Duty–preference program
– Value (method and seller/buyer
relationship)
– Origin
– Quantity
– Non-dutiable charges
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Self-Testing Of Import Operations
Should Confirm: (cont’d.)
• What you declared to Customs was
complete
– Invoice requirements
– Statutory additions to transaction value
– Additional payments outside commercial
invoice
– Documentary requirements
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Sample Review Findings: Value
Common Valuation Issues Discovered by CBP:
• Lack of Documentation to Substantiate Claims of Nondutiable Charges Such As Buying Commissions and Freight
• Price Paid or Payable Is Not Fully Reported
• Non-dutiable Charges (NDC) Are Not Actual
• Revised Invoice Prices Not Reported to Customs
• Failure to Include Assist Costs in Import Values
• Additional Payments to Sellers in Excess of Prices Listed on
Invoices
• Failure to Invoice Dutiable Charges Such As Royalty Costs
and Selling Commissions
• Additions: Royalties, Commissions, Packing, Proceeds of
Resale, and Assists (E.g., Freight Not Included in Assist)
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“It’s all about the $$$”
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A CBP Audit will include a review of Financial Accounts
A good Compliance Program includes periodic review of
such accounts. (This serves to check to ensure all elements of
value are reported to CBP at the time of entry)
Typical accounts to review include:
– Freight on Piece Goods
- Interest Expenses
– Machinery & Equipment - Quota Payments
– Molds
- Loan Accounts
– Tooling
- Mgt. Fees
– Commissions
– Design Costs
– Research & Development
– Royalties
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Penalties & Prior Disclosure:
Handling Discovered Errors
Good Internal Controls
minimize errors....
...But EVERYONE makes
mistakes.....
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Customs Enforcement Actions
• Customs inspections and examinations of
entry documentation and/or merchandise
• Detention of merchandise
• Seizure of merchandise
• Civil Penalties
– Primary enforcement tool = 19 USC §1592
– Penalties apply regardless of
revenue impact
– Not exclusive remedy
• Liquidated Damages
• Criminal Penalties
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Elements of a 19 USC § 1592
Violation (Civil Penalty)
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Entry or attempted entry
False statement, omission or act
Materiality
– No longer simply revenue impact
– Trade statistics are material
Culpability – fraud, gross negligence, or negligence
– Fraud = A knowing and willful material false statement, omission
or act
– Gross negligence = Actual knowledge of, or a wanton disregard
for the offender’s obligations under the statute
– Negligence = A failure to exercise the degree of reasonable care
expected from someone in similar circumstances
Five-year statute of limitations (19 USC §1621)
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Prior Disclosure
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An elective procedure that permits a party to disclose a violation of
section 1592 to obtain reduced penalties.
A valid disclosure involves full disclosure of the circumstances of a
violation before or without knowledge of the commencement of a
formal Customs investigation of the disclosed violation.
The Mod Act requires that commencements be evidenced by a
“writing.” A “formal investigation” is defined as commencing on
the date recorded in writing by a Customs officer - i.e., the date on
which the Customs officer had reason to believe that a violation
exists.
Section 162.74 of the customs regulations provides specific
definitions for commencement of the formal investigation as well
as what is meant by “knowledge of the investigation.”
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Prior Disclosure
What is A Prior Disclosure?
• It is an Elective Procedure to Minimize or
Eliminate section 1592 or section 1593a
Penalties by parties involved in import or
drawback non-compliance (not applicable to
record-keeping non-compliance)
• Operative statute: 19 USC § 1592(c)4
• Operative regulation: 19 CFR § 162.74
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Civil Penalties & Disclosure
Without Prior Disclosure
With Prior Disclosure
Fraud:
• up to 100% of the domestic value
Fraud:
Penalties for Revenue Loss Violations
• 1 times the loss of duties
Gross Negligence:
Penalties for Revenue Loss Violations
• The lesser of 100% of the domestic
value or 4 times the loss of duties
Penalties for Non-Revenue Loss Violations
• 10% of the dutiable value
Penalties for Non-Revenue Loss Violations
• 40% of the dutiable value
Gross Negligence & Negligence:
Penalties for Revenue Loss Violations
• Interest on any loss of duties
Negligent Violations:
Penalties for Revenue Loss Violations
• The lesser of 100% of the domestic
value or 2 times the loss of duties
Penalties for Non-Revenue Loss Violations
• No penalties
Penalties for Non-Revenue Loss Violations
• 20% of the dutiable value
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Recordkeeping
Requirements and
Customs’ Authority to
Review
Does Customs Have Authority To
Request Records Related To An Entry?
Pursuant to 19 USC § 1509
• Customs may legally examine, or cause to be
examined, upon reasonable notice, any record that
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– Is required by law or regulation for the entry of
merchandise (regardless whether presentation
was required for entry).
• Recordkeeping 101:
– 5 years retention period
– What records are required?
– How must they be stored/maintained?
– What if we don’t have a required record?
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What Type Of Records Must
Be Maintained?
• Records that pertain to importation and are made or kept in the normal course
of business, including records relating to the:
– entry of merchandise into the customs territory of the U.S.;
• tariff classification, valuation, and country of origin
– transportation and storage of merchandise;
– drawback claims;
– All duty preference claims (GSP, CBI, IFTA, ATCA, etc.)
– NAFTA claims (including NAFTA Certificates of Origin);
– Chapter 98 special program declarations;
– payment records or other financial records supporting the declared value
of imported merchandise
– any other relevant import documents (EPA, FDA, USDA, etc.).
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Description Of Records To Be Maintained
• All records or information required
for the entry of merchandise or
otherwise relating to the customs
laws must be maintained, including:
– statements, declarations, documents;
– books, papers, correspondence;
– accounts and financial data;
– technical data and product information;
– electronically stored or transmitted data
and information;
– computer programs needed to retrieve
electronically stored data and information; and
– other “(a)(1)(A)” list records.
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What Is The (a)(1)(A) List?
• The Mod Act, 19 U.S.C. § 1509(a)(1)(A), required
Customs to compile a list of all entry records
required by law.
• The (a)(1)(A) list is comprehensive, and some
records are entry and circumstance specific.
• Customs has provided an Informed Compliance
Publication (“ICP”) entitled “What Every Member
of the Trade Community Should Know About:
Records and Recordkeeping Requirements.”
• A copy of the (a)(1)(A) list is included with the
Recordkeeping ICP and is included in 19 C.F.R.
Part 167.
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Who Is Subject To Recordkeeping
Requirements?
• Generally, any owner, importer, consignee,
importer of record, entry filer, or other person who:
– imports merchandise
into the customs territory
of the United States,
– files a drawback claim,
– transports or stores
merchandise carried or
held under bond, or
– knowingly causes any of the above.
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Who Is The Responsible Party(ies) for
Recordkeeping?
• Customs Focused Assessment guidelines
suggest that the Import/Customs Compliance
Manager, Finance and Accounting Department
Managers, Engineering and R&D, and
Transportation and Warehouse Managers are all
responsible for ensuring some Customs entry
records and information.
• Audit trail
– Customs expects an importer to be able to
track and tie import entry records to financial
and payment records, and back again.
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How Long Must Records Be Kept?
• Unless otherwise required, all records must be kept:
– for five years from the date of entry, or
– for five years from the date of the activity which required
creation of the record.
• Notable EXCEPTIONS:
– records relating to drawback shall be kept for three years from
payment of claim;
– records relating to informal entries shall be kept for two years
from the date of entry; and
– other agency recordkeeping requirements (e.g., FAA, FDA).
– reconciliation entries, to be kept a period of five years from the
date of the reconciliation entry, or approximately 6 1/2 years
from the date of the original entry.
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Must Original Documents Be Kept?
• Unless a recordkeeper has adopted an alternative
storage method pursuant to 19 C.F.R. § 163.5 (and
provided written notification to and received approval
from Customs), the recordkeeper must maintain
original records.
• “Original” records are records in the condition in which
they were made or received (whether they are paper or
electronic).
• Regardless of how documents are kept, all records
must be capable of production upon lawful request
from Customs.
– For example, care must be taken in system updates
or changes to maintain integrity and accessibility of
past records.
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What is an Original Record?
• HRL 115616, dated April 8, 2002
• Whether a customs broker who receives a power of
attorney via facsimile may store and produce the
faxed document as an original?
• Because the term “original records” is defined in 19
C.F.R. § 163.1(h) as “records that are in the
condition in which they were made or received by the
person responsible for maintaining the records,”
documents received in facsimile format qualify as
“original records.”
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Should My Customs Broker Keep My
Records?
• As a general rule, no.
• Customs will allow the appointment of a thirdparty recordkeeper only if:
– designated third-party is an authorized
agent of the importer (mere relationship as
customs broker is insufficient and importer
remains fully responsible), and
– the duly authorized agent has otherwise
received certification that its recordkeeping
systems meets all statutory and
administrative requirements for certification
under the program.
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May a Related Company Maintain an
Importer’s Records?
• HRL 115248, dated August 28, 2001.
• Casio Corporation of America (CCA)
stored the entry records of its related
sister corporations that entered goods
under their own import identification
number.
• Customs held that it was permissible for
CCA to store the other companies’
records provided that the records are
produced in a timely manner.
• Any penalties would be issued to each
importer, not CCA.
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Time for Production of Records
• Generally, an importer is requested by Customs to retrieve
and produce any record within 30 calendar days of receipt
for the demand or within any shorter period prescribed by
Customs when the records are required in connection with
a determination of admissibility or release of the
merchandise.
• If the demand for record production cannot be met timely,
the importer must notify Customs in writing, before the
expiration of the production period.
• Include an explanation for the inability to comply and time
period of extension requested.
• Request for documentation can come in the form of an
informal oral request, or in a written request for information
or administrative summons.
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Penalties For Failure To Comply
With Demand For Records
• For a willful failure to produce records upon
request, the penalty per release will be the lesser
of $100,000 or 75% of appraised value.
• For a negligent failure, the penalty per release will
be the lesser of $10,000 or 40% of appraised value.
• Plus, Customs may deny duty-free or duty reduced
status.
– Customs can reliquidate an entry if within 2
years notwithstanding the finality of liquidation.
NOTE: There is no prior disclosure provision in
the recordkeeping penalty statute.
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Non-penalty Violations
• Penalties will not be issued if:
– Records were lost as a result of an Act of
God or other natural disaster
– Requested information is substantially
complied with by the submission of other
documentary evidence
– Requested information was previously
presented and retained by Customs.
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Questions?
Robert J. Pisani
Pisani & Roll PLLC
Tel 202.466.0960
Fax 877.674.5789
[email protected]
www.worldtradelawyers.com