Global Sourcing and Regulatory Compliance in a New Era

Global Sourcing and
Regulatory Compliance in a New Era
Society of Corporate Compliance and Ethics
10th Annual Compliance & Ethics Institute
Geoffrey M. Goodale
Foley & Lardner LLP
(202) 672-5341
ggoodale@foley.com
© 2011 Foley & Lardner LLP
Duty Preference Programs
• Free Trade Agreements (NAFTA, CAFTA-DR, etc.)
• African Growth and Opportunity Act
• Andean Trade Preference Act
• Caribbean Basin Economic Recovery Act
• Caribbean Basin Trade Partnership Act of 2000
• Freely Associated States
• Generalized System of Preferences
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Foreign Trade Zones (FTZs)
• Types
– General-Purpose Zones
– Subzones
• Benefits
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Deferral of duties
Elimination of duties
Inverted duty savings
Property tax
Zone-to-zone transfer
Defect/Damage/Waste/Scrap/Obsolescence
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Activities Permitted in an FTZ
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Assembly and processing
Repacking and relabeling
Destruction
Mixing
Manipulation
Testing
Sampling
Storage
Salvaging
Manufacturing (Special FTZ Board approval required)
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CBP Audit Types
• Focused Assessments (FAs)
– Company selected based on a risk model
– Internal control review
– Transaction testing
– Risk determination (Acceptable or Unacceptable)
– Follow-up (CIP or Assessment Compliance Testing)
• Quick Response Audits (QRAs)
– Testing is generally more extensive than FAs and is designed to
determine if transactions are in compliance with Customs laws
– At the end of a QRA, CBP determines if further action is needed
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CBP’s Priority Trade Issues
• Agriculture
• Antidumping/Countervailing Duty
• Import Safety
• Intellectual Property Rights
• Penalties
• Revenue
• Textiles
• Trade Agreements
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Reasonable Care
• Pursuant to Customs Mod Act, importers must use
reasonable care.
• Reasonable care must be applied to all Customs
requirements.
– Classification
– Valuation
– Origin
– Preferential trade programs (e.g., NAFTA, CAFTA-DR, GSP)
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Reasonable Care (cont’d)
• Requesting advice, prior to importation from recognized
Customs expert (e.g., trade attorney, customs broker,
CBP personnel)
• Providing full disclosure to expert of all facts and
circumstances
• Relying on expert advice to file entry
• Good faith, professional disagreement as to
classification - not a violation
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Internal Controls
• Control Environment – sets the tone
• Risk Assessment – identifies, analyzes, and determines how to
manage risks to achieving objectives
• Control Activities – specific policies and procedures to help
ensure objectives are met
• Information and Communication – necessary to support all
other control components
• Monitoring – assess the quality and effectiveness of the
system’s performance
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Customs Compliance Programs
• Tone at the top
• Organizational structure and staffing
– Supply chain, logistics, finance, tax, legal, other
– Compliance v. operations
– Geographical scope
– Authority and seniority
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Customs Compliance Programs (Cont’d)
• Policies, internal controls and procedures
– Use Focused Assessment (FA) process as roadmap
– Must be documented
– Tools and templates
• Automation
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Customs Compliance Programs (Cont’d)
• Training
– Live sessions, webinars, on-line
– Separate training for senior management, specialized
topics
– Interaction, e.g., quizzes, voting, games
– Training records and centralized database
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Customs Compliance Programs (Cont’d)
• Audits and self-assessments
– Risk assessments
– Internal v. external resources; “peer review”
– Detailed templates/checklists – but not too detailed
– Reporting results and implementing corrective actions
• Reporting violations
– Anonymous or confidential “hotline” without retaliation
– Voluntary disclosures to government
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Ruling Requests
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Classification
Country of Origin Marking
Valuation
Government Procurement (“Buy America”)
Temporary Importation under Bond
Bonded Warehouse
Trade Agreements and Trade Programs
Drawback
FTZ
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Types of CBP Decisions That Can Be Protested
• Appraised value of merchandise
• Classification and rate and amount of duties
• All charges or exactions (including accrual of interest)
• Exclusion of merchandise from entry or delivery
• Liquidation or reliquidation of entry
• Refusal to reliquidate an entry under 19 U.S.C. 1520(c)
[19 U.S.C. § 1514; 19 C.F.R. § 174.11]
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Parties That Can Protest CBP Decisions
• Importer or Consignee
• Any person paying any charge or exaction
(Or seeking a refund of any charge or exaction)
• Any person seeking entry or delivery
• Any person filing a claim for drawback
• Any exporter or producer of merchandise challenging a
CBP NAFTA verification or determination
• Any authorized agent of any of the above kinds of
aggrieved parties
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Substantive Requirements for Protests
• Name, address, and importer number of protestant
• Numbers and dates of entries
• Dates of liquidation of entries (or dates of decisions in
cases not involving liquidation)
• Specific description of merchandise involved
• Reasons for protest
• Declaration regarding drawback
• Date of receipt and protest number of any previously
filed protest that is the subject of an AFR (if applicable)
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Application for Further Review
• An Application for Further Review (AFR) may be made
on the same CBP Form 19 used for the protest or on a
separate CBP Form 19
• The AFR must provide information that clearly identifies
the protest to which it applies and the protestant
• In the AFR, the protestant must state that:
– It has not previously received an adverse decision from CBP and
does not have a presently pending application for an
administrative decision on the same claim
– It has not received an adverse court decision on the same claim
• Additional legal arguments can be made in the AFR
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Processing of Protests
• Generally, CBP must rule on protests within 2 years from
the date on which the protest was filed
– If several timely filed protests are treated as part of a single
protest, the 2-year period runs from the date of the last protest
– In cases relating to the exclusion of merchandise, CBP must
issue a ruling within 30 days from the date of the protest
• Accelerated disposition of a protest may be requested at
any time after 90 days from the filing of the protest
– Such a request must be submitted by registered or certified mail
– If CBP does not issue a ruling within 30 days from receipt of a
request for accelerated disposition, the protest is deemed denied
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Appeals of Denied Protests
• A protestant can seek judicial review of a denied protest
by the U.S. Court of International Trade (CIT)
• An appeal must be filed with the CIT within 180 days of:
– The date of mailing of the notice of denial of a protest
– The date that a protest for which accelerated disposition was
requested was deemed to have been denied
– The date that a protest involving the exclusion of merchandise
was deemed to have been denied
• The CIT reviews CBP’s decision on a de novo basis
• CIT rulings can be appealed to the U.S. Court of Appeals
for the Federal Circuit (CAFC)
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Discovery of Violations
• Determine and implement corrective action if the violation
is on-going.
• Conduct an internal investigation to determine cause,
scope and effect of violation.
• Consider whether a prior disclosure should be filed.
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Prior Disclosures
• Disclose the circumstances of the violation: (1) identify
class/kind of goods; (2) identify import; (3) specify
material falsities; and (4) provide true, accurate
information and data.
• Prior disclosure must be made before or without
knowledge of the commencement of formal investigation
of violation (commencement document) by CBP.
• Tender actual loss of duties at time of prior disclosure or
within 30 days after written notification of loss calculation
by CBP.
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Prior Disclosures (Cont’d)
• Issuance of CBP Form 28 or 29 may serve as
commencement of a “formal investigation,” depending on
contents.
– Did import specialist have a reason to believe there
has been a violation?
– Does language communicate to importer that CBP
suspects a violation?
– Communicate that CBP is looking beyond the cited
entry?
• If content of CF 28/29 initiates a “formal investigation,”
importer’s receipt creates presumption of knowledge.
© 2011 Foley & Lardner LLP
Key Court Cases Involving Prior Disclosures
• Yuchius Morality Co. [26 CIT 1224 (2002)]
• Tikal Distributing Corp. [970 F. Supp 1056 (CIT 1997)]
• Brotherhood Int’l Corp. [294 F. Supp. 2d 1373 (CIT 2003)]
• Nat’l Semiconductor Corp. [Slip Op. 2008-1195 (Fed. Cir.
Nov. 13, 2008)]
• Ford Motor Co. I [435 F. Supp. 2d 1324 (CIT 2006)]
• Ford Motor Co. II [463 F.3d 1267 (Fed. Cir. 2006)]
• Bridalane Fashions, Inc. [32 F. Supp. 2d 466 (CIT 1998)]
• Pentax Corp. [125 F.3d 1457 (Fed. Cir. 1997)]
© 2011 Foley & Lardner LLP
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Contact Information
• Geoffrey M. Goodale
Foley & Lardner LLP
(202) 672-5341
ggoodale@foley.com
• Thomas J. Jesukiewicz
U.S. Customs and Border Protection
(562) 980-3220 ext. 239.
thomas.jesukiewicz@dhs.gov
© 2011 Foley & Lardner LLP
Latest Trends in Regulatory Audit
Society of Corporate Compliance and Ethics
10th Annual Compliance & Ethics Institute
September 12th, 2011
Tom Jesukiewicz, Field Director, Houston Field Office
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Objectives
● Focused Assessment (FA)
● Other Types of Audits
Supply Chain Security Observation
Specialization/Subject Matter Expert
Other Government Agency (OGA)
Importer Self Assessment (ISA)
Regulatory Audit Locations
Headquarters D.C., 10 Field Offices
Seattle
Minneapolis
B uffalo
Boston
Detro it
Chicago
San Francisco
San Jose
New York
Philadelphia
JFK
Newark
Baltimore
Denver
Ft. M itchell
St. Loui s
Long Beach
Memphis
Lag una Ni gu el
San Diego
Nashville
Headquarters
Charlotte
Atlanta
Dal las
E l Paso
Regulatory Audit Headquarters
Regulatory Audit Field Offices
Houston
New Orl eans
Laredo
McA llen
Miami
Regulatory Audit Sub-offices
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Caridad & Tom Forever
FA Statistics
●Over a 1,250 FA Audits
● 90% of FAs Took Less Than One Year to
Complete
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FA Statistics
●Over $100 Million in Loss of Revenue
(excludes PD & Penalties)
●60% of FA Audits Concluded Unacceptable
Compliance
●Top 3 Areas with Unacceptable Compliance
Value
Duty Free Provisions
Classification
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Common Internal Control
Deficiencies…
● No Internal Control Procedures In Place
● Not Monitoring/Verifying Broker’s Work
● Not Maintaining or Updating Classification Database
● Not Requesting CBP Assistance/Input with New or
Complex Issues
● Other Departments Not Communicating Potential CBP
Related Information to the Import Department
● No Testing of Entries for Accuracy
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Common Compliance Errors…
● Lack of Documentation to Substantiate Various Claims
● Price Paid or Payable Is Not Fully Reported
● Inaccurate or Incomplete Description of Articles as a Basis
for Classification.
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What TRADE Can Do (Best Practices)
1. Management Commitment
2. Establish Compliance Goals
3. Develop Formal Policies & Procedures
4. Establish Training Programs
5. Conduct Internal Control Reviews
6. Create a CBP Compliance Group
7. Access to Executives for Needed Resources
8. Develop Compliance Requirements for Suppliers
9. Establish a Record Keeping Program
10. Partner with Customs & Border Protection
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Examples of QRA Subjects
● Improper Valuation
● Anti Dumping Duty Violations
● FTZ – Inventory Discrepancies
● Bonded Warehouse
● IPR Infringements
● ICE Fraud Support
● Health & Safety
● Container Exam Station (CES)
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QRA Statistics
●Almost 700 Audits
●Percent with findings (unacceptable compliance):
50%
●Total Loss of Revenue: More Than $140 Million
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Specialization
● Complex and diverse trade issues (Priority Trade IssuesPTI) call for more centralized areas of expertise and
development of Subject Matter Experts within Regulatory
Audit
● Assignment of areas of specialization by Field Offices
(FO)
● Alignment of offices in conjunction with National
Targeting and Analysis Group (NTAG)
● FO can work closely with NTAG to promote development
of high level of expertise by PTI
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Importer Self Assessment (ISA)
● ISA
● ISA - Product Safety
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Information Sharing and Other
Government Agencies (OGA)
●Increased interagency interaction with
other Government Agencies (CPSC,
Agriculture, FDA, DOT, etc.)
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Health & Safety Audits
● Agriculture
● Consumer Product Safety Commission
● DOT
● EPA
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Agriculture Audit
Labeling indicates “amino acid”
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Agriculture Audit
Inspection reveals meat
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Agriculture Audit
Instant Noodle: HTS 1902.19.4000
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Agriculture Audit
Overall Impact
● 40,700 units of prohibited merchandise were attempted to
be entered into the United States (21 entry summaries);
21,622 units entered the United States commerce
19,078 units were seized and destroyed
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Agriculture Audit
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Importer Self-Assessment/Product Safety
● Benefits to the Importer
Reduced product safety tests on goods
Front of the line testing at CPSC laboratories
Destruction of products in lieu of redelivery
Fast Track Product Recall Program
Special training on compliance, internal controls, and audit
trails
● Benefits to CPSC
Concentration of limited resources on non-compliant importers
while protecting the American consumer from harm
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THANKS!
www.CBP.gov
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