October 2009 | Customs & International Trade Law Blog

U.S. Transportation Security Administration (TSA)

New TSA Penalties and Procedures

posted by Jennifer Diaz October 26, 2009 0 comments

Effective August 20, 2009, the new Transportation Security Administration (TSA) regulations increased the maximum amount of its monetary penalties against aircraft operators and freight forwarders/indirect air carriers (IACs) for violations of the Transportation Security Regulations. TSA also made significant change to its Investigative and Enforcement Procedures in 49 CFR Part 1503.

Following the tragic events of September 11, 2001, when the United States was attacked by terrorists, the U.S. Congress and President George Bush quickly passed the Aviation and Transportation Security Act of 2001 which created the Transportation Security Administration (TSA). The primary responsibilities of the TSA was to ensure the security of passengers and cargo in air transportation. Many responsibilities formerly handled by the Federal Aviation Administration (FAA) were transferred to the TSA. After moving from the U.S. Department of Transportation to the U.S. Department of Homeland Security, as part of the Homeland Security Act of 2002, the TSA had its first Administrator to lead the agency, and moved into its current physical headquarters office in Arlington, Virginia.

In a critical U.S. General Accountability Office report entitled “Aviation Security: Vulnerabilities and Potential Improvements for the Air Cargo System,” dated December 2002, the GAO stated:

U.S. air carriers transport billions of tons of cargo each year in both passenger planes and all-cargo planes. Typically, about one-half of the hull of each passenger aircraft is filled with cargo. As a result, any vulnerabilities in the air cargo security system potentially threaten the entire air transport system. Numerous government and industry studies have identified vulnerabilities in the air cargo system. These vulnerabilities occur in the security procedures of some air carriers and freight forwarders and in possible tampering with freight at various hand-offs that occur from the point when cargo leaves a shipper to the point when it is loaded onto an aircraft. As a result, any weaknesses in this program could create security risks.

It was a serious and urgent challenge for the TSA to correct these weaknesses.

The Transportation Security Regulations, 49 CFR Parts 1500 to 1572, were issued on July 23, 2002, and implemented the various laws that created and outlined the functions and expanded powers of the TSA. Important operational regulations are Part 1542 (Airport Security), Part 1544 (Aircraft Operator Security), Part 1546 (Foreign Air Carrier Security), and Part 1548 (Indirect Air Carrier Security) whereby the TSA sets forth all the many new and comprehensive requirements that attempt to prevent any person, luggage, provisions, or cargo getting aboard an aircraft that could cause it to crash.

What is most important for this discussion is the amended TSA regulation at 49 CFR Part 1503 (Investigative and Enforcement Procedures) whereby the TSA describes how and when it may issue a monetary civil penalty against an airline or IAC (a.k.a. “freight forwarder”) for a violation of the Transportation Security Regulations.

In the new TSA regulations, the TSA announced that certain penalties that previously were at a maximum of $25,000 per violation are now $27,500, and those that were at a maximum of $10,000 per violation are now $11,000. More importantly, the TSA announced: “TSA may assess a maximum penalty per case of $50,000 if the violation is committed by an individual or small business. TSA may assess a maximum penalty amount per case of $400,000 if the violation is committed by a person other than an individual or small business.” Those are big numbers by any count in the airline and cargo transportation business.

Often, a monetary civil penalty is issued months after the violation actually occurred. Typically a TSA Inspector visits the airline or warehouse of an IAC unannounced to verify that it is complying with all of the relevant TSA regulations. If a violation is discovered, the TSA Inspector issues a Letter of Investigation (LOI) to the alleged violator, and allows 30 days for a written response. If the response is not forthcoming or is not satisfactory to the TSA Inspector, the case is referred to an attorney for TSA in its Office of Chief Counsel. The TSA attorneys are located at all major international airports in the United States.

China China Trade War Customs Expert Import International Trade

Made in China, Sold in America

posted by Jennifer Diaz October 22, 2009 14 Comments

This weekend, I visited both Lowe’s and Home Depot looking for some new plants for my backyard. As I walked by all the newly arrived Christmas merchandise, I casually picked up a few to see where they were made. You guessed it, from Santa to Rudolph, one by one they all clearly stated “Made in China”. I finally did find one item that stated “Assembled in USA from foreign and domestic components.” I was getting frustrated. After all, as a customs and international trade attorney for the past 20 years, including the first 5 as an attorney for U.S. Customs, I have made a living doing international trade. I wondered, what happened to our balance in international trade? What happened to “Made in America”?

Everyone knows that mountains of Chinese goods are daily shipped to and sold in the United States, but what about the reverse. Fortunately, I also have that perspective, as I visit the People’s Republic of China (PRC) at least once a year for U.S. based clients importing from China or Chinese companies selling to the United States. I travel to China on an airplane, am transported to the hotel by car, and sometimes go down to the bar to have a drink. The plane is made by Boeing, the car is a Ford, the hotel is a Sheraton, and the drink is a rum and Coke (Bacardi and Coca-Cola). All of those iconic names are pure Americana.

With 1.4 billion people in China, no wonder American companies,and the rest of the world, are tripping over themselves to get into the Chinese consumer market. On October 28-29, 2009, United States Department of Agriculture Secretary Tom Vilsack will participate in the U.S.-China Joint Commission on Commerce and Trade (JCCT) meeting in Hangzhou, China, along with U.S. Trade Representative Ron Kirk and U.S. Commerce Secretary Gary Locke. Since China’s accession to the World Trade Organization in 2001, the country has become one of the fastest growing markets for U.S. agricultural, fish and forest exports. U.S. exports to China increased from $2.2 billion in 2001 to $13.2 billion in 2008. Today, China is the fourth largest market for U.S. agricultural exports, and the largest for soybeans, cotton, hides and skins.

Chinese culture is 4,000 years old, and it was the Chinese who invented the compass, writing paper, and gun power, among hundreds of other items. More recently, the Chinese have contributed greatly to making items affordable at your local department store. While I certainly admire the cultural achievements of China, and especially its incredibly rapid economic development over the past 20 years, for some reason, I am still perturbed that so many of the everyday items I use come from China – from books I check out at the local library which say “Printed in China” to the 13 different styles of bird feeders that I recent looked at while visiting a Wal-Mart. Every single one of the bird feeders was “Made in China”!

Don’t get me wrong. I love to live in a world where my pasta is from Italy, my olive oil is from Spain, my asparagus is from Peru, my wine is from Australia, and my cheese is from France. But why does it seem that so much of what you can buy in the stores, and not just bird feeders, is from China? From bicycles to basketballs…heck, even this Microsoft Wireless Comfort Keyboard 4000 that I am typing on right now is prominently marked “Made in China”. I challenge you to find a television that says “Made in USA”.

Our trade balance with China is totally out of whack. America needs to keep inventing, building, and selling its ideas and products to China, and to the rest of the world. U.S. Government policies should encourage investment in the United States, and exports to China and the rest of the world. Otherwise, in another 20 years, the powerful, American iconic companies such as GE, IBM, GM, Coca-Cola, Microsoft, Apple, and Boeing will dwindle and even disappear altogether, as Chinese companies continue to expand market share worldwide.

Did you know that in 2008, for the first time in history, there was more foreign direct investment into China than the United States, or that China now graduates 10 times as many engineers from college compared to the United States. Or that there are more Chinese people who speak English than the approximately 300 million Americans. Those are alarming statistics.

We need to be more sophisticated and welcoming of foreigners. Did you know that many of the street names in Beijing are in English as well as Mandarin? Can you imagine all the streets in Washington, D.C. being in English and Mandarin? Two way, free and fair trade is the answer to creating a balance of international trade.

In conclusion, I sure do look forward to my next trip to Beijing. I love Peking Duck, the Forbidden City, and the Great Wall. Hopefully, I will find on a restaurant menu a Napa Valley sauvignon blanc wine and Florida oranges, watch CNN International, admire the Chinese who increasingly follow the American traditions of Halloween and Valentine’s Day, see Chinese children’s books with Disney characters, and grab a mocha latte at the local Starbucks. Yes, international trade and travel is a great thing. We just need more of it to be from America.

U.S. Customs and Border Protection (CBP)

Did George Bush Cost Us the Olympics?

posted by Jennifer Diaz October 12, 2009 3 Comments

When the International Olympic Committee selected Rio de Janeiro, Brazil, over Chicago, to host the Summer Olympics in 2016, I was surprised and disappointed. When the media started to report that one of the factors that led the Committee members not to vote in favor of the United States was our security policy toward international visitors, I was intrigued. When I read that Secretary of State Hillary Clinton had previously promised the Committee that the White House would set up a special office to oversee a host of federal agencies to make sure the customs and immigration process would be streamlined so athletes and other visitors would have no trouble getting to the games, then I realized something was seriously wrong.

A New York Times October 2, 2009 article entitled “Chicago’s Loss: Is Passport Control to Blame?” stated the case well. The CEO of the lobbying group U.S. Travel Association also stated on October 2, 2009 that we “need to change impressions of what the experience of travel to the U.S. is like for international visitors.” And he said that the very day after personally meeting with United States Department of Homeland Security Secretary Janet Napolitano.

I wondered about the impressions that foreign visitors have of clearing the international arrival areas of our nation’s airports, including being processed by the U.S. Customs and Border Protection (U.S. Customs). The results were disturbing.

I randomly spoke to people I knew overseas who were frequent and experienced international travelers. They were Brazilians, Argentinians, Mexicans, Germans, Australians, and Colombians whom I asked for an honest assessment of their U.S. international entry experiences. Many persons spoke of being selected for questioning by U.S. Customs personnel upon arrival in the United States, usually at an international airport such as New York’s JFK, Los Angeles (LAX), or Miami International Airport (MIA). Many had their baggage examined by CBP officers. Although unpleasant, most persons did not seem to mind much even though they stated that the border security of the United States was a relatively poor experience compared to other countries. Virtually everyone I spoke with had a story about a friend or colleague of theirs who was detained and questioned by CBP officers in the United States. The result was suspicion, and even some hostility, toward the United States regarding its perceived unwelcoming attitude to business persons and vacationers coming to the United States. Many of those person interviewed mentioned President Bush as the person to blame for their negative perspective.

Clearly, something needed to be done. Fortunately, sometimes out of something bad comes something good. Within a week of the Olympics going to Rio instead of Chicago, the U.S. House of Representatives passed H.R. 1035, the “Travel Promotion Act of 2009,” co-sponsored by U.S. Representatives William Delahunt (D-MA) and Roy Blunt (R-MO). The Act would create a public-private partnership to promote the United States as a premier travel destination, and better explain U.S. security policies to our overseas guests. The U.S. Senate already passed identical legislation also entitled the Travel Promotion Act of 2009 (S. 1023) earlier in September, so the Act should eventually become law. As stated explicitly in the Act, the primary purposes of the new organization would be “to identify, counter, and correct misperceptions regarding United States entry policies around the world.”

Why does the United States need such an agency? What did we do wrong after 9/11 to have created such a bad impression around the world? In President Bush’s National Strategy for Homeland Security issued October 5, 2007, he stated:

“We have made our borders more secure and developed an effective system of layered defense by strengthening the screening of people and goods overseas and by tracking and disrupting the international travel of terrorists.”

Whether “more secure” and “effective” is arguable, however, there certainly had been more aggressive screening of people both prior to their boarding aircraft overseas and upon arrival in the United States during President Bush’s “War on Terror”.

U.S. Customs has attempted to educate the international traveler by having useful information on its website entitled “Admission into the United States” and even a flow chart of the CBP Inspection Process. From my own personal contacts, although certainly not any kind of scientifically proven study, I agree with the U.S. Travel Association that we lost the Olympics, in part, because of a perception (real or imagined) that our entry process is just not up to international standards of hospitality.

While balancing the concepts of border security and facilitating trade is now an ongoing debate, I remain optimistic that the U.S. Congress, President Obama, and DHS Secretary Napolitano have already started to move the country in the right direction in re-evaluating our trade and border security policies and practices. For example, the phrase “War on Terror” is no longer in vogue. I have personally recently heard both the U.S. Customs’ Director of Field Operations for South Florida, Harold Woodward, and U.S. Customs’ Area Port Director for Tampa, Gary McClelland, talk about a renewed relationship with the international trade community to facilitate trade and travel.

My recommendations are:

(1) If an international traveler is selected, stopped, and questioned by CBP, preferably do it in the person’s native language;

(2) With CBP’s Treasury Enforcement Communications System (TECS) that includes the Department of Justice’s National Crime Information Center (NCIC), the National Law Enforcement Telecommunications Systems (NLETS), U.S. Customs’ Automated Targeting System (ATS), Border Crossing Information (BCI), and Advance Passenger Information System (APIS), all of which is provided in advance of the arrival of the airplane in the United States, questioning of passengers should be brief;

(3) anyone detained by CBP should have explained to him or her exactly why the person is being detained, and should be informed how to remedy any false or inaccurate information that may be in a U.S. Customs database; and

(4) invigorate the DHS’s Office of Civil Rights and Civil Liberties to directly investigate and then remedy any shortcomings it identifies in the international arrivals process.

Finally, after a long international flight from somewhere such as China, it really is nice to hear a uniformed U.S. Customs officer say “Welcome to the United States.”

U.S. Transportation Security Administration (TSA)

TSA’s New Air Cargo Screening Rules Have A Serious Flaw

posted by Jennifer Diaz October 5, 2009 0 comments

Peter A. Quinter, Florida Customs Lawyer On September 16, 2009, the Transportation Security Administration (TSA) issued new air cargo screening rules. The rules are generally well thought out, except for one glaring problem.

Some background first. After the tragic, terrorist events of September 11, 2001, the U.S. Congress convened a Commission to investigate how it happened and how it could be prevented from happening again. A primary result was the "Implementing Recommendations of the 9/11 Commission Act of 2007 ("9/11 Act"). The amended law at 49 U.S.C. section 44901(g)(1) required all airlines to screen 50% of the cargo on passenger aircraft by February 3, 2009. The law also required 100% of the air cargo to be screened by August 3, 2010. The challenge was that with 12 million pounds of cargo that is now transported on passenger aircraft daily, the TSA concluded that airlines by themselves could not achieve the 100% screening requirement.

Hence, the September 16, 2009 Air Cargo Screening Interim Final Rule, effective November 16, 2009, created the certified cargo screening program (CCSP) so that companies other than airlines could be approved by TSA to screen cargo before it was delivered to an airline at the airport to be put in the belly of a passenger plane. The companies that would screen the cargo would be known as certified cargo screening facilities (CCSF).

The term "screening" is defined as a "physical examination or non-intrusive method of assessing whether cargo poses a threat to transportation security. Methods include x-ray systems, explosive detection, explosives detection canine teams, or a physical search together with manifest verification."

TSA has an elaborate (read ‘bureaucratic’) system for which screening companies may apply, be reviewed, selected, trained, and finally approved to work with shippers, freight forwarders, and airlines to allow cargo to be placed aboard a passenger aircraft. My concerns are with new 49 CFR Part 1522 which established a system to authorize TSA-approved ‘validators’ to perform assessments of CCSFs, and with new 49 CFR Part 1549 which provided for a qualifications process for facilities participating in the CCSP.

In summary, TSA selects ‘validators’ who them will visit, review, and qualify applicant CCSFs to be approved to screen cargo. As stated in the Federal Register on September 16, 2009: "These validators are responsible for conducting the assessments of the facility seeking certification as a CCSF under part 1549…The CCSF applicants…will pay the validation firm for the validation assessment. TSA will not charge or establish a fee for that purposes." In other words, the TSA selects the validator, the validator selects the CCSF, and the CCSF screens the cargo which is then moved to the airline. To me, there is a glaring problem for anyone seriously interested in air cargo security.

In my opinion, a validator hired by and paid by the applicant for a CCSF has an inherent conflict of interest with the applicant whom she or he is evaluating. TSA apparently thought of this, and created its own, specific conflict of interest rule which states at 49 CFR 1522.1(b) that a conflict of interest exists "in a situation in which a relationship with, or a financial interest in, the person being assessed may adversely affect the impartiality of the assessment." Exactly my point! TSA’s proposed system is like a builder directly handing a suitcase full of cash to the building inspector to approve the certificate of occupancy for the building. That would be called corruption.

TSA announced this "Interim Final Rule" effective November 16, 2009 because it believes further delay using its cost/benefit analysis would be too costly. TSA stated that the typical cost scenario is when an explosive device placed in the cargo shipped on a flight in the belly of a plane destroys the aircraft in flight. It figures that means 128 passengers and 5 crew members dead along with loss of the aircraft. The loss of aircraft is valued at $22 million, and the monetary loss of life at $771 million for a total of $793 million.

It has been more than 8 years since 9/11/01, and even though $793 million is a huge sum of money, getting it right the first time to prevent a weapon of mass destruction (WMD) exploding aboard an aircraft is more important. The Validators have not yet been selected by the TSA. So TSA, my recommendation is take a few more months to iron out the concern that I have identified above.

U.S. Customs and Border Protection (CBP)

A Nightmare for an Importer: Being Accused of Fraud by U.S. Customs

posted by Jennifer Diaz October 1, 2009 2 Comments

It is common for an importer to receive a CBP Form 28 (Request for Information) and then a CBP Form 29 (Notice of Action) for incorrectly classifying merchandise. It is also relatively common for an importer to receive a Pre-Penalty Notice from U.S. Customs and Border Protection (Customs) alleging negligence, gross negligence, or fraud, and demanding tens or hundreds of thousands of dollars in monetary penalties and additional duties. Don’t panic.

When a CBP 28 or CBP 29 is issued by an Import Specialist of Customs to an importer, it may ultimately result in the issuance of a fraud penalty in violation of 19 U.S.C. 1592. If Customs alleges fraud, then the penalty will be equal to the total invoiced value of the shipments affected. For example, if a shipment of clothing valued at $100,000 was misdescribed or misdeclared in some way to Customs, and a fraud penalty is issued, the penalty will $100,000. If the penalty is not paid, the case is referred by Customs to the U.S. Department of Justice to pursue litigation against the importer. Sometimes, Customs seeks to collect money by personally naming the officers, shareholders, and/or managers of the company as well. That means joint and several liability, so even if the company is no longer in business or does not have the money to pay, the U.S. Department of Justice will seek the payment of the penalty from the persons involved.

Whenever a CBP 28 or 29 indicates that the importer is under "formal investigation", those magic works should not be ignored. You can be pretty sure that the matter will result in a penalty being issued by Customs against the importer for some form of fraud. Import fraud comes in all shapes and sizes. It could be that the wrong tariff classification in the Harmonized Tariff Schedule of the United States was used by the importer to get a lower or zero duty rate, or avoid import quotas. Another common violation is the importer incorrectly stating that the imported product qualifies for one of the multi-lateral free trade agreements such as DR-CAFTA (Dominican Republic- Central American Free Trade Agreement) or a bilateral free trade agreement such as the U.S.-Australia Free Trade Agreement. Just as common is the violation whereby the importer accurately describes the merchandise and the country of origin, but greatly undervalues the merchandise to avoid Customs duties, excise taxes or other fees.

Procedurally, after the CBP 28s and CBP 29s have been issued, and the importer responds to each in writing, a Pre-Penalty Notice will be issued by Customs’ Fines, Penalties and Forfeitures (FP&F) Office. The Notice is issued to the importer of record. The Notice describes the violation, identifies the Customs entries involved, cites the laws and regulations allegedly violated, demands payment in full or provides the importer 30 days to file a Petition explaining why the violation did not occur or otherwise why the importer should not have to pay the penalty.

The Petition is filed with the FP&F Office, and reviewed by the assigned Paralegal Specialist. Most likely, the Petition will also be reviewed by an Import Specialist at the port of entry who issued the CBP 28 and CBP 29. In some situations, a Special Agent from the U.S. Immigration and Customs Enforcement (ICE) Office may be involved, or legal counsel for Customs. Customs often agrees to allow an in-person meeting to discuss the Pre-Penalty Notice. Be sure to consult Appendix B to Part 171 of the Customs Regulations to identify and list any mitigating factors which could reduce the amount of the monetary penalty. Familiarity with the FP&F Handbook is another vital tool to attempt to persuade Customs to cancel, or at least reduce, the penalty against the importer.

Hopefully, with the help of expert, legal counsel knowledgeable and experienced in Customs law, the Petition will be reviewed, and Customs will not issue a penalty. Customs sometimes changes the culpability of the wrongdoing from fraud to gross negligence, or from gross negligence to simple negligence. The lower the level of culpability, the lower the amount of the penalty.

If the Petition after the Pre-Penalty Notice is not successful, Customs will state so in a responsive letter called a Penalty Notice. Then, the importer may file another Petition alleging some new legal arguments or supplement the facts. Usually, at this stage, these cases are referred by the FP&F Office to Customs Headquarters in Washington, D.C., where an attorney in the Penalties Branch reviews the case, and writes the analytical decision. That decision is forwarded to the FP&F office which then forwards it to the importer’s legal representative. Hopefully, Customs will agree that there was no fraud, and the case is over. The whole process usually takes many months, and can take even longer.

In summary,

(1) A CBP 28 or CBP 29 almost always precede a penalty notice, so be careful when replying;

(2) Whenever you read or hear the words "formal investigation", promptly get legal counsel because a fraud penalty is coming;

(3) Remember that penalties may be issued against individuals as well as companies; and

(4) Do your homework before claiming the duty free treatment of DR-CAFTA, NAFTA, or other trade agreement on Customs entries.