What To Do When Things Go Wrong

What To Do When Things Go Wrong
Presenter
Korrie Thomas
Director, Compliance Houston
• Joined BDP in 2011
•
24 years of trade experience
• Licensed Customs broker since 1994
korrie.thomas@bdpinternational.com
281-775-8338
Covered In This Session
Reasonable Care
Prior Disclosure
PEAS – Post Entry Amendment
CF28 – Request for Information
CF29 – Notice of Action
Focused Assessment
Quick Response Audit
Storage / Demurrage / Detention / Per diem
General Order
Seizure
Penalty Notices
Mitigation
On December 8, 1993, The Customs Modernization Act or “Mod Act” became law
Reasonable Care Standard
The importer of record is responsible, per 19 USC 1484, for using reasonable care
to enter, classify, and value merchandise and to provide other information
enabling CBP (Customs & Border Protection) to properly assess duties,
collect accurate statistics, and determine whether other requirements are
met.
Importers should tighten their internal controls, increase their monitoring and audit
activities, reissue customs broker and vendor instructions, and take other
affirmative steps to demonstrate their reasonable care in order to prevent
possible enforcement actions. 1
For more information regarding reasonable care:
http://www.cbp.gov/linkhandler/cgov/trade/legal/informed_compliance_pubs/icp021.ctt/icp021.pdf
1
DrinkerBiddle.com. 2007
Prior Disclosure
 If a party elects to make a disclosure of a violation, before or without
knowledge of a formal investigation of the violation, the party can receive
reduced penalties.
 The penalty can even be zero if the importations involve un-liquidated entries
and no fraud is involved.
 If the entries are liquidated and no fraud is involved, the penalty is generally
the interest on the loss of duties.
 If a fraudulent violation is disclosed, the penalty is reduced from the normal
assessment of the domestic value of the goods equal to the duty loss, or if
the violation involves no duty loss, the penalty is reduced to 10% of the
dutiable value of the merchandise.
http://www.cbp.gov/linkhandler/cgov/trade/legal/informed_compliance_pubs/icp028r2.ctt/icp028r2.pdf
Prior Disclosure – continued…
 Consult with a customs attorney if possible.
 Unless you have received communications from CBP that justify quick action,
take time to prepare as complete a document as possible giving sufficient
detail to avoid additional questions from the auditor.
 Some signs that customs may be considering an investigation could be:
 Census rejects
 Informal calls or visits from CBP
 Numerous CF-28’s or CF-29’s
 Notification of Audit, or discovery as part of an audit
 If you have received communication from CBP; regulations allow you to
initiate the prior disclosure, while affording you 30 days after you have
initiated the disclosure to assemble this information.
 You can ask for extensions of time past the 30 days to complete the
assembly of this information.
Post Entry Amendment (PEA)
After entry is made, corrections can be made using the PEA
process.
Two types of PEA:
 Single entry PEA
• Must be filed no less than 20 days prior to liquidation
• Only one entry per cover sheet allowed
 Quarterly tracking report (non-revenue items)
• Filed 15 days after the last day of each quarter
• Cannot be used for ADD/CVD entries
PEA’s – Additional information
Since September 22, 2011, PEA’s cannot be submitted
for entries filed in ACE
Frequent corrections made using PEA’s could
demonstrate a pattern of serious internal control
weaknesses in an importer’s compliance program;
consideration should be given to making a prior
disclosure if a systemic issue has led to a high
incidence of errors.
Customs Form-28
Request for Information
We’ve Received a CF-28 – Now what?
1.
2.
3.
4.
You have thirty days to respond, mark this down
Talk to Customs, try to find out what triggered the inquiry
Review your entry and all related documents
If customs is correct, dig deeper to determine the scope of the
problem:
One entry or many?
Was a Free Trade Agreement involved?
Was this a related transaction?
Was the invoice accurate in description, price, etc.
5.
6.
Consult with corporate legal council and executive management
If a prior disclosure will be submitted, it is best to submit it
before responding to the CF-28
Responding to a CF-28
Be complete and precise:
Incomplete answers could result in negative action:
 Tariff rate advancement
 Change in origin
 Denial of duty saving measures
 Penalty if CBP suspects fraud
Watch deadline and request extension if necessary
If sending attachments be sure to notate on the CF-28
what is attached and keep copies
Address only the issue at hand on the CF-28
Failure to respond could trigger an investigation
CF-29 Notice of Action
Will show “Proposed” or “Has Been Taken”
If “proposed”:
then you have 20 days to respond
If “action taken”:
the only recourse is filing a formal protest
Responding to a CF-29
 As mentioned earlier, receiving a CF-28 or CF-29
should trigger an internal review and executive
management should be notified in order to
determine if a prior disclosure is warranted
 Any response should be reviewed by legal
council prior to submission to ensure that the
companies best interests are protected
 The protest deadline for responding to an “action
taken” CF-29 is 180 days from the date of
liquidation or re-liquidation of the entry
Focused Assessment
Compliance Assessment/Compliance Measurement
Systematic evaluation of an importer’s systems supporting his
or her CBP-related operations. The assessment
includes testing import and financial transactions,
reviewing the adequacy of the importer’s internal
controls, and determining the importer’s compliance
levels in key areas. The assessment is conducted by an
interdisciplinary team composed of a CBP auditor,
import, specialist, account manager, industry expert)
It is a months-long process that will involve all departments
from purchasing to accounting to production
The process is meant to encourage informed compliance, not
a means of enforcement but enforcement action can
follow depending upon findings.
Focused Assessment
 Initiated by a telephone call to the importer
 The importer will receive a questionnaire
 CBP requests business records including procedure manual, organizational charts,
accounting records, specific entries
 Once received by CBP, it will be analyzed and an initial risk assessment will be made
 Introductory conference with the importer explaining the process
 Interviews with key import staff.
 CBP may ask to see a representative sample of customs entries to test compliance with
a specific focus area
 An importer can expect to be asked to pull two samples for testing—one for valuation
and one for classification.
 A Compliance Improvement Plan (CIP) will be developed if necessary
 The importer would have to pay any unpaid duties, fees or taxes along with interest.
 Depending on the extent of the non-compliance, the audit could result in additional
assessment of penalties
Focused Assessment
Review Internal Controls:
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Record keeping
Merchandise classification
Trade statistics
Merchandise quantities
Antidumping/countervailing duty
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Quota conformity
Merchandise value
Warehouse
Foreign trade zone operations
Special trade programs (GSP, CBI, etc.)
Evaluate Controls to Identify System Strengths & Weaknesses
and Help predict future compliance
Zero in on Potential Risk
Reduce the Need for Extensive Transaction Testing
Importer Receives a Blueprint for Future Compliance
Follow-Up Depends on Findings
Quick Response Audit (QRA)
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Single-issue audits with a narrow focus
A term used to cover a variety of audits that will have limited objectives
Examples
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an audit of an importer's imports to determine if there is a potential for
unlawful transshipment
•
an audit of the company’s controls concerning intellectual property rights
Generally originate from referrals by other CBP offices utilizing risk management
principles to identify certain types of transactions
The past history of an importer could lead to a QRA.
•
failed audits
•
prior disclosures
•
violations
•
reports by account managers
Quick Response Audit (QRA)
Areas likely to be reviewed:
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Generalized System of Preferences
Free Trade Agreements, including NAFTA
Intellectual Property
HTSUS Classification
Customs Valuation and Basis of Appraisement
Other Duty Reduction Programs
Antidumping/Countervailing Duty
Transshipments
We Are The Subject of a FA or QRA,
Now What?
 Like most other notifications from CBP, executive management should be
involved
 All CBP Inquiries should come through one contact; make sure all parties
know who that person is
 Review internal processes to determine if there is a need for prior disclosure
 Answer all questions completely & accurately
 Don’t expand beyond what is asked
 Provide all documentation completely and within time frames provided
 Be prepared to lead multi-functional team and devote significant time
 Provide education to CBP auditors about your company and industry
 Review and understand all responses before presenting to the CBP Auditors
 Understand the impact of your responses on duties, origin determination, etc.
 Understand that most responses lead to more questions
Seizure
CBP acts as the enforcement arm for over 40 government agencies, FDA, EPA,
Consumer Product Safety Commission, DEA, ATF, just to name a few.
CBP’s enforcement duties include the statutory right to seize goods from
importers preventing contraband or noncompliant merchandise from
entering the US in violation of Federal law.
In fiscal year 2010, 19959 seizures of counterfeit or pirated goods with a total
value of $188.1 million, a three-fold increase over the previous year.
CBP must follow particular procedure regardless of the products seized, the
owner, or destination of the products.
CBP must serve a Notice of Seizure, on both the importer and anyone else
listed on the documents with interest in the product.
The notice must contain specific information about the items, the violation, facts
to support the action, and options regarding petition for relief, including all
alternatives.
http://www.cbp.gov/linkhandler/cgov/trade/legal/informed_compliance_pubs/icp052.ctt/icp052.pdf
Seizure
Although, the notice is required by law, it can be vague and does not
necessarily offer a complete reason for the seizure.
Once seized, it can take months to obtain a release even after corrective
action is completed.
Penalties along with the costs of seizure will be due prior to release of goods.
Storage Fees can mount very quickly in government care, so it is important
to act quickly.
Multiple shipments traveling on different vessels may be subject to seizure,
discuss alternatives with a customs attorney or broker to see if preemptive action can be taken.
Communications with overseas suppliers/forwarders regarding future
shipments is paramount to avoiding future seizures.
Seizures –
Administrative
Process
Penalties
 When a penalty is issued, depending on the kind and character of the
violation, Customs first will consider whether “Option 1” resolution
may be possible. Option 1 resolution can be described as a “parking
ticket” approach insofar as it involves the payment of a pre-set amount
to eliminate petitioning and, therefore, settle cases quickly. The
amount is usually very low and amounts to “no contest” declaration.
Option 1 usually relates to a late filing issue with the entry.
 Importers have 60 days from the date of the mailing of the Notice of
Penalty or Liquidated Damages to petition for relief (cancellation,
remission or mitigation). The importer also has an opportunity to file a
supplemental petition for relief if it is not satisfied with CBP’s decision
on the original petition. 2
2 http://www.us.kpmg.com/microsite/taxnewsflash/2011/Jan/1099C.pdf
Mitigation of Fines and Penalties
Although the initial penalty notice will have high penalty amounts,
almost all can be mitigated provided there is no fraud or deliberate
misleading of customs. Some things that can be demonstrated to justify
mitigation are:
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Systematic training and development
Clear, detailed, written procedures for imports
Open communication with CBP, broker or consultation with third party
experts
Internal audit of transactions
Corporate support for compliance program
Corrective action taken internally
http://www.cbp.gov/linkhandler/cgov/trade/legal/informed_compliance_pubs/icp069.ctt/icp069.pdf
General Order
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If merchandise is not properly entered within 15 days, it will be
placed in general order (G.O.) and moved into a bonded
warehouse designated for that purpose. The carrier will place a
lien on the freight for all costs due.
All costs for movement and/or storage in the G.O. warehouse are
for the account of the importer.
The G.O. warehouse will notify the consignee by mail as well as
other means at their disposal of freight’s placement into the facility.
Release from G.O. warehouse:
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Complete entry release with G.O. number must be presented
All liens must be satisfied wit the carrier and proof provided to the G.O. whse
All costs due the G.O. warehouse must be paid in full
Title 19: Customs Duties PART 141—ENTRY OF MERCHANDISE
Subpart A—Liability for Duties and Requirement To Enter Merchandise
§ 141.5 Time limit for entry. Merchandise for which entry is required will be entered within 15 calendar days after landing from a
vessel, aircraft or vehicle, or after arrival at the port of destination in the case of merchandise transported in bond. Merchandise for
which timely entry is not made will be treated in accordance with §4.37 or §122.50 or §123.10 of this chapter.
Freetime/Storage/Demurrage/Detention
Free time is the term used for an allowance of time for customs clearance
after arrival in the US, or unloading time at the delivery location.
Demurrage refers to the delay of returning equipment to service after use;
this applies to vessels, containers, tanks, and other conveyances.
This term is used primarily for containers left on the dock after
arrival and beyond any free time.
Storage is the term most often used by airlines and public warehouses for
freight left in the warehouse after free time expires.
Detention is a charge for delay of unloading, usually referring to a truck
shipment for particularly long unloading time at the final destination
Per diem refers to charges assessed for the delay in returning an empty
container to the carrier after delivery of the goods within.
Storage / Demurrage Charges
Most carriers allow a very limited time in which to clear
customs before storage charges begin to accrue.
Air shipments can be as early as one day after arrival
Ocean shipments vary from 5 days to 30 days depending
upon the location, contracts, and cargo
Rail shipments generally are allowed 2 calendar days
Truck shipments vary widely, check with the carrier
Warehouses and container freight stations generally allow
10 calendar days for removal of goods.
Thank you!
BDP International thanks you for your time and participation.
Our complementary webinar 101 series will continue for both
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Upcoming Exports 101 Topics
Nov 17 - Handling Airfreight 101
Dec 15 - Documenting Your Hazardous Shipment
Jan 19 - What Regulations Are Important From Which
Government Agency
Feb 16 - Export documents, Incl. B/L for Air and Ocean
Mar 15 - Recordkeeping
Apr 19 - Free Trade Agreements (US Export Perspective)
Upcoming Imports 101 Topics
Dec 7 - Import Documentation
Jan 11 - Free Trade Agreements (US Import Perspective)
Contact information
• Korrie Thomas
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•
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Phone: 281-775-8338 Mobile: 832-259-9301
Email : korrie.thomas@bdpinternational.com
15333 JFK Blvd, Suite 700, Houston, TX 77032
You may download a copy of this presentation at:
http://www.bdpinternational.com/about-bdp/customer-support/resource-center/
What To Do When Things Go Wrong