Compliance

April 29, 2003

What is Customs Compliance?

A program of ‘shared’ responsibility in which Customs requires all importers to demonstrate reasonable care and informed compliance in the preparation and presentation of their customs entries.

Historical Perspective

• Originated in 12/93 as part of the Customs Modernization Act

• Passed as part of NAFTA legislation• Addresses the reality of needing to

do more with less• Implemented as part of Customs’

fiscal ‘97 trade plan (May, 1996)• Changes since implementation

Concerns & Benefits - USA

•Concerns:– Increased cargo examination– Increased cycle time– Name recognition - Bad Press!– Penalties– AUDIT

Concerns & Benefits - USA (cont.)

• Benefits:– No direct monetary belief– Reduced risk of audit– Fewer Customs examinations– Reduced / more predictable cycle

time– Participation in Customs programs

Reasonable (?) Care

• Reasonable Care has not been nor will be defined

• “Checklist approach” to determine if reasonable care is being exercised

• Failure to act with reasonable care justifies penalties for negligence, gross negligence and fraud

Exercising Reasonable Care

• Document your process• Consult with “experts” which include

Customs Brokers, Attorneys, Consultants, U.S. Customs Officials, etc.

• Keep informed by attending seminars, reading Customs issuances, the internet, and conducting internal training

What is Customs Compliance?

(as per U.S. Customs Compliance Strategy…)

“A shared responsibility wherein the Customs Service effectively communicates its requirements to the trade, and the people and businesses subject to those requirements conduct their regulated activities in conformance with U.S. laws and regulations”

U.S. Customs Compliance Strategy

Goals:• Attain a 90% overall trade

compliance rate• Attain a 95% compliance rate for

each industry identified as “primary focus”

• Maintain a collection rate of at least 99% of the revenue that is due the government

U.S. Customs Compliance Strategy (cont.)

• Customs expects the “highest possible compliance level”

• Customs has “clearly defined and communicated” the responsibilities to the trade and has, therefore, met its informed compliance burden

• The trade must now “conduct their regulated activities in conformance with U.S. laws and regulations with reasonable care”.

• To ensure reasonable care…Enforced Compliance!

Enforced Compliance

When the trade fails to exercise reasonable care or comply with “voluntary compliance”:

• Increased exams & delays will occur• Penalties will be assessed• Seizure & forfeiture authority will be

utilized

Enforced Compliance (cont.)

Penalties: Violations of 19 USC 1592• Fraud - An amount not to exceed the

domestic value of the goods• Gross Negligence - The lesser of: (a)

domestic value or (b) 4X lawful duties due. If non-revenue: 40% of dutiable value

• Negligence - The lesser of (a) domestic value or (b) 2X duties. Non-revenue = 20% of dutiable value

Enforced Compliance (cont.)

“Voluntary Compliance”• Trade should willingly come forth with all

known acts of non-compliance and submit Prior Disclosure.

• Penalties with Prior Disclosure:– Fraud: 10% of duties due or 10%

domestic value (in addition to duties submitted as part of disclosure)

– Gross Negligence / Negligence: Interest on duties due.

The Audit Process

• Has changed in both focus and design over time

• Newly designed to reach the ‘top’ 3000 importers over next 2-3 yrs.

• The Regulatory Audit• The Compliance Assessment (CAT)• The Focused Assessment

Key Issues

Primary Concern of U.S. Customs:• Classification• Valuation• Country of Origin• Warehouse Receipt

Classification

• Importers must insure that the proper tariff classification and rate of duty are applied to their importations including any duty reduction regimes (NAFTA, GSP, CBTPA, etc.)

• Close adherence to GRIs is expected• Use of “basket provision” for parts

are highly suspect and should be avoided whenever possible

Valuation

Invoice must reflect the true financial transaction including terms of sale, currency of transaction, parties to the transaction, royalties, assists, etc.

Country of Origin

• Duties can vary based on country of origin

• Multi - country manufacturing - raw materials from country A, manufacture of parts in country B, assembly in country C: What is the country of origin?

• C/O declaration vs C/O marking• Assessment of additional duties +

penalties

Warehouse Receipt

• Do invoice quantities match warehouse receiving records?

• Are discrepancies reported internally?

• Shortages = Insurance claims ; Overages = disclosure to U.S. Customs !

Most Common Problems Found During a Customs’ Audit

• Failure to include assist costs in import values• Additional payments made to foreign manufactures

not shown on invoice• Transfer prices between related parties fail to cover

all cost and profits• Unsupported deductions for non-dutiable charges• Inaccurate or incomplete description of articles as a

basis for classification• Failure to identify or meet country of origin

requirements• Incorrect quantities identified upon receipt not

reported to Customs

Record Retention

Record Retention

Importers MUST:• Maintain records defined in the “(a)(1)

(A) List” for 5 years from the date of entry. Exception: NAFTA , Drawback

• Failure to produce a record requested by Customs may result in a penalty of $100,000.00 or 75% of appraised value PER RELEASE for willful destruction!!

What Can You Do??

• Establish an internal compliance program complete with import procedures manual

• Perform regular internal audits• Reach out to your service providers

and other trade experts to assist• Stay informed!

Thank

You