New US Customs “Centers for Excellence and Expertise” (CEE)

I attended a US Customs webinar yesterday that explained how the agency is in the process of setting up new “Centers for Excellence and Expertise” (CEE).  These centers – which are virtual – are intended to bring existing expertise together in order to facilitate trade on the part of US Customs and to align its procedures with modern business practices.

Of greater significance however, is that US Customs intends to assign each importer with an account at a CEE to route entry summaries through and to use these virtual environments to move non-revenue collection activity to a CEE for handling protests, the review of prior disclosures and other activities.  Revenue collection however, will continue to be done at the port of entry.

The creation of CEEs are part of US Customs’ “trade transformation efforts,” which also includes an overhaul of 19 CFR Part 111, which are the customs brokers regulations.

CEEs are meant to serve as an information resource for the importing community, be it a large or small importer or broker, US Customs itself, or another government agency.  Customs stated that it has created CEEs by industry in order to focus on industry-specific issues so it can better meet the challenges for that industry.  Unfortunately, with such few and broad categories (listed below) in relation to the thousands of types of imported merchandise, it is questionable as to how well this intention will be met.

The goals of the CEE are:

1)      To facilitate legitimate trade through effective risk management and to “segment” risk so as to get the “good actors” out of the way in order to focus on the riskier participants,

2)      To increase industry-based knowledge within Customs and to better understand the unique practices within an industry, and

3)      To enhance enforcement efforts and to partner with industry stakeholders in order to understand and address industry risks.

As it stands, nine (9) industry groups were identified by Customs for which nine (9) CEEs are to be created.  Four (4) of them have already opened, listed as the first four (4) in the list below, and importers are already welcome to solicit participation in one of them.

Open CEEs:

1)      Electronics (Long Beach, CA)

2)      Pharmaceutical Health and Chemicals (New York)

3)      Automotive and Aerospace (Detroit, MI)

4)      Petroleum, Natural Gas and Minerals (Houston, TX)

Unopened Centers:

5)      Apparel, Footwear and Textiles

6)      Base Metal and Machinery

7)      Consumer Products and Mass Merchandising

8)      Industrial and Manufacturing Materials

9)      Agriculture and Prepared Products

For more information, you can check out this Federal Register Notice at 77 FR 52048 dated August 28, 2012, access a .pdf version here), or email US Customs directly at cee@cbp.dhs.gov.

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

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.