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Why Pre-Compliance is a MUST

posted by Jennifer Diaz April 7, 2016 12 Comments

Compliance Blue Marker

If the thought of monetary penalties, shipment delays, detentions or seizures of merchandise keep you up at night, then this article is for you.  First, it’s quite easy to establish a U.S. company, pick (what you hope is) a terrific customs broker, file Form 5106 with U.S. Customs and Border Protection (CBP) to request your importer number, pick a surety (there are many, your broker will likely sway you to their favorite) and WALLAH! Right? Wrong. No one sits you down during this process to say, wait, importing can be great, but, this is also a LOT of responsibility. Your company (and SOMETIMES even YOU) have liability and a burden when importing. This article will walk you through YOUR burden as an importer, how CBP can question your imports, and how penalties can ensue and what you should be doing about it, in advance!

Importer’s Burden

The best resource (when you’re ready to read 211 pages) is the “Importing into the U.S.” “A Guide for Commercial Importers” by CBP (last revision in 2006).  The guide discusses the Trade Act of 2002 and the Customs Modernization Act (the “Mod Act”) and the responsibilities that came to fruition for importers as a result. A key feature of the Mod Act is a “relationship between CBP and importers that is characterized by informed compliance”. What this means is now there is a shared responsibility between CBP and the import community, wherein CBP communicates its requirements to the importer, and the importer, in turn, uses “reasonable care” to assure that CBP is provided with accurate and timely data. Bottom line, no “reasonable care” = BIG problem. I developed the TOP 10 TIPS When Importing to alert importers to “reasonable care” requirements and top items to think about, and ensure you have a plan to comply with.

Customs Request for Information (CBP Form 28)

CBP has the right to check up on importers and ensure you are using “reasonable care” in regards to the classification, valuation, country of origin and use of duty preference programs for merchandise upon entry to the U.S.  CBP often verifies that an importer is declaring merchandise entered into the U.S. properly by sending an importer a Request for Information, also known as Customs Form (CBP Form) 28. Upon receipt of a Request for Information, if an importer determines an inadvertent error took place, and an investigation by CBP has not yet commenced, filing a perfected Prior Disclosure may assist in drastically reducing potential penalties from CBP.  This is where you get counsel involved to ensure you respond adequately to the CBP Form 28, and if advised by counsel, submit a Prior Disclosure as a response.

Notice of Action (CBP Form 29)

If CBP is not satisfied with an importers response to a Request for Information, CBP will then send a Notice of Action, also known as Customs Form 29.  It is essential that importers contact an expert upon receipt of a Request for Information or Notice of Action as they often lead to penalties if not responded to properly.

CBP 1592 PENALTIES

CBP expects importers to use “reasonable care” in reporting your classification (HTSUS), value, country of origin, duty preference program, etc.  §19 U.S.C. 1592 is the statute CBP references when issuing penalties for negligence, gross negligence or fraud – depending on the degree of culpability CBP believes you had at the time of your non-compliance.  At this stage, you want to ensure you have an expert on your side. That expert should know of CBP’s laws and regulations, including when a Pre-Penalty notice should be issued first, the FP&F Mitigation Guidelines, and how best to assist you in asserting to CBP your side of the story, which hopefully is that no negligence, gross negligence or fraud existed and that you did use reasonable care when importing. An expert will discuss your options with you, including filing a Petition with CBP and working on Pre-Compliance for future importations.

Diaz Trade Law has had great success in mitigating penalties from CBP for an underlying intellectual property rights violation. Some REAL examples include a successfully mitigated $141,000.00 penalty for negligence down to $0 and another successfully mitigated $27,000.00 penalty for negligence down to $1,000.00.

Avoid Becoming Personally Liable Under Customs Penalty Statute 19 U.S.C. § 1592(a)

Compliance officers, business owners, and others can be held personally liable under the customs penalty statute 19 U.S.C. § 1592(a) for fraudulently or negligently providing information on imports, pursuant to the court decision from United States v. Trek Leather Inc. and Harish Shadadpuri (Trek Leather).  The Trek Leather case also held that import managers and compliance personnel can now be held personally liable in circumstances other than fraud for imports that violate U.S. custom laws.  In the case, the court found a corporate officer of an importer of record personally liable for gross negligence penalties where the importer understated the value of the goods.  The Court concentrated on introducers of goods into US commerce, which could potentially be anyone involved who creates documents or facilitates documents being used to enter goods into U.S. commerce.  The Trek Leather Court ruled that the customs penalty statute applies to any person, regardless of whether or not they are an “importer of record.”  According to the court, the term “introduce” was interpreted to mean “[A]ctions that bring goods to the threshold of the process of entry by moving goods into CBP custody in the United States and providing critical documents (such as invoices indicating value) for use in the filing of papers for a contemplated release into United States commerce even if no release ever occurs.”  Since the definition does not limit the term “introduce,” CBP could expand the actions that are covered under the definition.  Some say the decision created a wide range of new individuals subject to negligence and gross negligence penalties under the customs penalty statute and regulations, others say this interpretation is not new, and individuals that are grossly negligent/fraudulent when reporting information (like valuation) to CBP were always subject to enforcement.  Regardless, owners of smaller businesses or closely held corporations, who are more involved in sourcing decisions and shipping arrangements, are particularly at risk for falling under this new definition, which is why it is especially important to contact Diaz Trade Law with any questions or concerns regarding your compliance with CBP laws and regulations.

Want More Information?

The Small Business Development Center, in conjunction with 305 Cargo and Diaz Trade Consulting are hosting a Compliance Seminar on April 9, 2016, that will serve as an introduction to importing compliance.  Attendees will learn the importer’s burden of reasonable care with U.S. Customs, importer’s responsibilities, how importers can best manage their transactions through due diligence, CBP rulings, documentation and procedures, how to monitor and audit your shipments, and how to create your customs compliance program.  The seminar is essential for importers and will be held at Broward College/FAU at 111 East Las Olas Blvd. (Higher Education Complex), Conference Room 1110 A&B, Fort Lauderdale, FL 33301-2206.   For more information contact Diaz Trade Law at info@diaztradelaw.com or Register HERE.

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12 Comments

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[…] of IPR. This means grater protection for U.S. right holders, but also more of a need for pre-compliance for […]

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David Bjornson August 29, 2016 at 10:18 pm

Very informative article!

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[…] view mirror and the Christmas holiday season kicking into high gear, now is the time to think of Pre-Compliance especially with the grave risks associated with shopping online and not knowing your supplier. As […]

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[…] potentially fraudulent transactions and cause importers to exercise a heightened degree of pre-compliance diligence. It will, at the same time, also require importers to be more vigilant – and, if need be, […]

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[…] potentially fraudulent transactions and cause importers to exercise a heightened degree of pre-compliance diligence. It will, at the same time, also require importers to be more vigilant – and, if need be, […]

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[…] looking to import into the United States and would need to meet emissions standards by the EPA and ensure compliance with CBP laws and regulations, it is prudent that the company complies with every regulation to avoid any […]

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[…] Why Pre-Compliance is a Must […]

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[…] about this new rule? Believe it will reduce your compliance costs? If you want assistance in pre-compliance to ensure you are complying with the vast federal regulations, contact us at […]

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[…] about this new rule? Believe it will reduce your compliance costs? If you want assistance in pre-compliance to ensure you are complying with the vast federal regulations, contact us at […]

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