Monday, June 28, 2010

Prior Disclosure - To Make or Not to Make...

“US Customs is moving in the direction of aggressive penalties for non-compliance.  When US Customs conducts a compliance assessment, an importer must be 99% compliant (i.e., US Customs only allows a 1% error rate) in order to be considered compliant.” -- Assistant Field Director, US Customs Field Office - NYC

Every importer is aware – or should be aware – of the imposition of penalties for the failure to follow US Customs regulations.
 
Even if an importer believes it has been compliant, an internal audit or other self-assessment, can reveal areas where errors have been made, and some of these may have resulted in a loss of revenue to US Customs whether of liquidated, or unliquidated, entries.
 
So what is an importer to do?  Is it better to present the issue(s) to US Customs?  And if so, how does an importer go about doing that without opening up “Pandora's Box” in terms of auditing, or the delay of shipments, on the part of US Customs now that you have put yourself on its radar? Is it better to stay under the radar?
 
Clearly, if a post-entry amendment can be done to rectify the mishap, that is an easy way to resolve the issue. 
 
But what if the impact of a seemingly small discrepancy actually extends across years of entries?  Or perhaps, the discrepancy is narrow in terms of the volume of entries, but nonetheless resulted in a gross underdeclaration of duties?
 
Well, now there is a serious problem to deal with.  Unfortunately, the problem can be a much much (yes, I wrote the word twice) bigger one.  Let me explain why.
 
First of all, 19 USC §1592 sets forth the penalty assessments for failing to pay lawful duties.  The penalties differ based upon a range of culpability, ranging from fraud (the most serious), to gross negligence, to negligence (least serious offensive).
 
They are as follows:
 
Fraud violations = the domestic value of the merchandise.
 
Gross negligence violations =
(A) The lesser of
(i) four times (4x) the loss of lawful duties, taxes, and fees deprived the government, or,
(ii) the domestic value, or,
(B) 40% of the dutiable value, but in no case to exceed the domestic value of the merchandise, if the violation did not affect the assessment of duties.
 
Negligence violations =
(A) The lesser of:
(i)two times (2x) the loss of lawful duties, taxes, and fees deprived the government or,
(ii)the domestic value, or,

(B) 20% of the dutiable value, but in no case to exceed the domestic value of the merchandise, if the violation did not affect the assessment of duties.
 
Of course, there is always the option to try and mitigate the above duties, which would reduce the penalties as follows:
 
• Fraud – from a minimum of 5 times (5x) to a maximum of 8 times (8x) the total duty loss, or 50% to 80% of the dutiable value in non-revenue loss cases, but never to exceed the domestic value of the merchandise;

• Gross negligence – from a minimum of 2.5 times (2.5x) to a maximum of 4 times (4x) the total duty loss, or 25% to 40% of the dutiable value in non-revenue loss cases, but never to exceed the domestic value of the merchandise; or

• Negligence – from a minimum of 0.5 times (0.5x) to a maximum of 2 times (2x) the total duty loss or 5% to 20% of the dutiable value in non-revenue loss cases, but never to exceed the domestic value of the merchandise.
 
Contrast these penalties, including the possibility of mitigation, to that of when an importer does make a prior disclosure.

The penalty is zero (0) if the importations involve unliquidated (i.e., open) Customs entries and no fraud is involved.

If the entries are liquidated (i.e., closed or finalized) and no fraud is involved, the penalty is the interest on the loss of duties.

If a fraudulent violation is disclosed, the penalty is reduced from the regular assessment of the domestic value of the goods to 1 times (1x) the duty loss, or if the violation involves no duty loss, the penalty is reduced to 10% of the dutiable value of the merchandise.

Based on these figures, at face value, making a prior disclosure (codified in 19 USC §1592(c)(4)) would appear to be the prudent path to take. After all, by doing so, penalties are substantially reduced.

A prior disclosure must be submitted prior to the commencement of a “formal investigation” by US Customs. There are many rules regarding how to make the prior disclosure and what must be included within it in order to be considered valid, including, the circumstances of a violation of 19 USC §1592, and a tender of any duty loss.
 
US Customs regulations for Prior Disclosure are found in 19 CFR §162.74 and more information about it can be found in Customs informed compliance publication entitled “The ABCs of Prior Disclosure.” 
 
Questions/comments?  Email me at clark.deanna@gmail.com or post below.

Saturday, June 19, 2010

Heartbreaking Oil Spill in the Gulf of Mexico

"The NOAA Ship Pisces reported a dead 25-foot sperm whale was located 150 miles due south of Pascagoula, Mississippi and approximately 77 miles due south of the spill site earlier this week. The whale was decomposed and heavily scavenged. Samples of skin and blubber will be analyzed. Sperm whales are the only endangered resident cetacean in the Upper Gulf of Mexico.

A total of 461 sea turtles have been verified from April 30 to June 16 within the designated spill area from the Texas/Louisiana border to Apalachicola, Florida. Of the 461 turtles verified from April 30 to June 16, a total of 355 stranded turtles were found dead, 34 stranded alive. Four of those subsequently died."


-as reported on June 16, 2010 by the Dept. of Commerce’s National Oceanic and Atmospheric Administration. Click here to go directly to this webpage.



Having gone to Tulane Law School down in New Orleans, LA and personally traveled to both the Louisiana wetlands and Gulf Shores of Mississippi, this seemingly endless oil spill is breaking my heart.

Known as the “Deep Water Horizon Oil Spill,” this could-have-been-avoided “accident” has yet to be contained despite a month having passed since its commencement. Given that this literally growing problem must be affecting vessel operators and others involved with international trade, I decided to take a look at the Federal Maritime Commission’s (FMC) website to see what it had to say.

The FMC has an entire section of its website dedicated to this incident. It is monitoring the spill's potential effects on shipping lines, rates, schedules, ports, and terminals and offers a number of resources. In addition, it is providing expedited review for agreements to facilitate adjustments that may be required as a result of the spill or response activities. Through the link above, the FMC further directs interested parties as to where they need to go for relief.

The FMC has incident sheets, response updates from various government agencies and interestingly, the NOAA’s website allows you to see trajectories (scroll down the page until you see the section entitled “Current Trajectory Maps”) which are updated once a day and include trajections based in part, on weather patterns, of the spill’s growth and direction.

Let’s hope that the hole on the ocean floor gets plugged soon. With hurricane season here, it's only a matter of time before the siphoning project will have to be put on hold.

Questions/comments? Post below or email me at clark.deanna@gmail.com

Sunday, June 13, 2010

Toxic Purses?

Earlier this week I saw a news piece on Headline News about toxics in handbags. It mentioned how over time as you get to love your handbag, i.e., the more it is worn, the greater the risk of releasing chemicals which were not on its surface thereby exposing yourself to them.

In an effort to reduce shopper concerns, retailers including Saks Fifth Ave., Target, TJMAXX, and many others, all agreed (according to Headline News) to not sell products with contaminants in them.

But how does a retailer actually prevent this? And given the nature of manufacturing in today’s modern world, how can exposure to toxics (which lie beneath the surface) over a certain amount of time be avoided?

At the federal level, the Consumer Product Safety Commission (CPSC) has regulations regarding maximum levels of certain chemicals, such as Lead and Pthalates in consumer products. CPSC has also found lead to not be naturally occurring in certain articles, like cotton.

On top of federal regulations, however, some states, like CA, have taken matters into their own hands when it comes to the protection of consumers. It has done this through a law that came out in the 1980s (and is gaining renewed momentum) called Proposition 65.

Proposition 65 requires businesses to warn people about significant amounts of chemicals in the products they make where that chemical is both (1) known to cause cancer, birth defects or other reproductive harm, and (2) is listed on the “Prop 65 List.”
California’s Prop 65 in its simplest terms, requires a label where a product contains a chemical compound that exceeds the Safe Harbor Level. Safe Harbor determinations are based on a person’s exposure to a chemical, assuming daily exposure at that level.

The warning to consumers is typically done via the placement of a “warning label” directly onto the merchandise itself.

Retailers and importers therefore, need to test their products (typically done at the production level) for the existence of these chemicals and, if found, are subject to the label requirement.

As for which parts to test, merchandise is subject to testing for all parts to which a user may come into contact with, or otherwise be exposed to. Therefore, all outer and inner surface materials require testing.

With all of the recent buzz around the existence of chemicals in consumer products, namely with lead, phthalates and cadmium, I decided to look into the Proposition 65 rules regarding these 3 chemicals.

While stated in simple terms, there are technically several subdivisions of each of these chemicals, only a handful of which are on the Prop 65 List and therefore, subject to testing. They are:

5 Listed Phthalates:

Di(2-ethylhexyl)phthalate) (DEHP)
Di-n-butyl phthalate (DBP)
Di-n-hexyl phthalate (DnHP)
Butyl benzyl phthalate (BBP)
Di-isodecyl phthalate (DIDP)

4 Types of Lead:

Lead
Lead acetate
Lead phosphate
Lead subacetate

1 Type of Cadmium

Cadmium

California’s Office of Environmental Health Hazard Assessment (OEHHA) provides a list of “Safe Harbor Levels,” of which there are 2 types (NSRLs and MADLs (defined below)). These levels are intended to assist in determining whether warnings are required on products for exposures to the listed chemicals because if those levels are exceeded, a label is required.

According to Susan Luong of the Prop 65 Office, however, they are not intended to provide a “maximum acceptable amount” of a chemical in a product (like how CPSCs regulations provide) because there is no established allowable concentration level for listed chemicals.

In my experience working with importers who want to be compliant with state and federal laws, having limits but declaring that they are not maximums is confusing. This is because in order to be compliant, there need to be straightforward rules so that those entities subject to penalties for not following them, understand what needs to be done and can add measures to their compliance programs as appropriate.

With more companies being the target of these laws due to greater consumer awareness, it is imperative that federal and state agencies give manufacturers, importers and retailers the information they need to be compliant.

NSRL ("No Significant Risk Levels" (NSRLs) for carcinogens)
MADL ("Maximum Allowable Dose Levels" (MADLs) for chemicals that cause reproductive toxicity)


Questions/comments? Post below or email me at clark.deanna@gmail.com

Sunday, June 6, 2010

OWIT-NY Event - Seaport Enforcement at New York/Newark Port

"Processing Cargo at the Port of New York/Newark," featuring U.S. Customs and Border Protection Chief Kevin H. McCabe, Seaport Enforcement Branch

THIS WEDNESDAY JUNE 9, 2010


This week OWIT-NY is having its final program of the Spring season with Officer Kevin McCabe from our local port. Having met the very friendly and knowledgeable Mr. McCabe last fall while taking a tour of, and on, his turf, namely, the Port of New York/Newark, I found his wealth of knowledge and easy going nature a welcoming personality at US Customs.

Officer McCabe plans to speak on subjects including:

Advanced Targeting Information
Container Security Initiative (CSI)
Customs Trade Partnership Against Terrorism (C-TPAT)
Radiation Screening, Detection and Mitigation
Non-Intrusive Inspections (container x-ray)
Physical Examination of Cargo
Internal Conspiracy Threats
Cargo Examinations
Special and Joint Operations

and he will be available to answer any questions we in the audience may have. You won't be disappointed if you come and join me there this week. Click here for more information and to register.

Hope to see you there!

Questions/comments? Post below or email me at clark.deanna@gmail.com