One of the first significant actions taken by the U.S. Government after the events of September 11, 2001, was the creation of the Department of Homeland Security (“DHS”). Since the creation of the DHS, all of the important functions of the former U.S. Customs Service have been moved from the Treasury Department to DHS. Within DHS, the enforcement component of the former U.S. Customs Service was separated from the commercial, or trade facilitation, components, resulting in the creation of the Bureau of Immigration and Customs Enforcement, commonly referred to as “ICE.” The other components were transferred to the new Bureau of Customs and Border protection, now referred to as CPB. ICE and CBP are now collectively known as “Customs.”
The new ICE was formed with not only special agents from the former Customs Service, but also agents from the former Immigration and Naturalization Service. CBP was formed with not only import specialists from the old Customs Service, but also personnel from Border Patrol and the U.S. Department of Agriculture.
The creation of DHS, and, within it, ICE and CBP, was much more than a mere name change and a shuffling of government personnel into new agencies. The primary mission of Customs became securing our Nation’s borders from terrorist threats, with a secondary mission of facilitating international trade, even though Customs officials are quick to point out that their intention is to place equal emphasis on both missions.
So what is the result of the elevation of security to the preeminent position among Customs’ missions? The result is increased enforcement, not only of laws relating to security, but also of laws concerning commercial operations. When inspecting a container to see whether it contains weapons of mass destruction, it is difficult, if not impossible for Customs to ignore traditional problems such as misdescriptions of merchandise or false designations of origin.
Two examples of the aggressiveness of Customs’ current enforcement mentality demonstrate that it should concern any company that imports goods into the United States:
- During a routine verification of claims for duty-free treatment of imports under the North American Free-Trade Act (“NAFTA”) Customs auditors asked Ford Motor Company (“Ford”) to produce manufacturing records from an unrelated foreign supplier.When Ford was unable to do so, Customs assessed recordkeeping penalties against Ford in the amount of $41,000,000.Normally, the failure to provide documentary support for a claim for duty-free treatment under NAFTA would result merely in the denial of that claim and the payment to Customs of the duties that otherwise would be due.Customs’ claim against Ford for recordkeeping penalties is currently being litigated in U.S. district courts in Texas and Michigan.
- Customs suspected an importer of falsely designating the country of origin of certain imported goods in order to avoid antidumping duties.The problem for Customs, however, was that the normal statute of limitations for recovering any underpayment of duties and assessing penalties had expired.Customs, therefore, turned to an obscure statute, with a much longer statute of limitations, that provides a penalty for any false statement to the U.S. Government.This action is currently in litigation in the U.S. Court of International Trade.
There are other examples of the aggressiveness of Customs’ current enforcement mentality, some even more egregious than those noted above.
So, what can you expect from Customs? there are two initial levels of potential interference from Customs in your business operations. First, CBP regularly conducts audits of companies’ import activities. Second, ICE conducts investigations of suspected illegal activities by companies. From time to time, a CBP audit can turn into an ICE investigation.
If Customs finds violations, what can it do? Customs has many ways of penalizing a company for import violations. First, if a violation involves an underpayment of duties, taxes, or fees, Customs will demand payment. Second, Customs may assess civil penalties for a violation. These civil penalties can range from two times the loss of revenue or twenty percent of the value of the relevant merchandise for simple negligence up to the domestic value of the relevant merchandise for fraud. If the violation is sufficiently serious. Customs can pursue criminal penalties against the company and responsible individuals.
For export violations, a company can be subjected to civil or criminal fines, or face denial of export privileges. An individual within a company who is responsible for export violations can be fined and imprisoned.
What can you do to protect yourself? The best thing to do is to make sure that all of your company’s import and export activities comply with all of the relevant laws and regulations before you are contacted by Customs auditors. You can do this by seeking guidance from an outside expert such as a customs/international trade attorney. It is best to seek this guidance before your company begins to import or export, but the assistance of an outside expert is valuable at any time, particularly, when you have been notified that Customs auditors are coming to visit you. The outside expert can conduct an audit of your company’s import and export activities, and help your company establish an internal compliance program for those activities. An attorney can help you identify serious problems and determine whether to make a prior disclosure of those problems to Customs, thereby limiting the company’s exposure to penalties. An advantage of using an attorney instead of a non-attorney outside expert to assist your company with an internal audit is the attorney-client privilege, which prevents an attorney from disclosing any problems to outside persons unless the company permits the disclosure.
If your company becomes the target of an ICE investigation, you should obtain legal representation immediately. Investigations are much more serious than audits because the former only occur if Customs has some reason to believe that your company has violated the law. If Customs finds a violation, it can assess civil and criminal penalties against the company and bring criminal actions against responsible individuals within the company, which may result in not only monetary fines, but also imprisonment. Even when a company is ultimately exonerated, getting to that point sometimes takes years and can place an enormous burden on a company and its people. An experienced attorney can help prove a company’s innocence or limit any potential consequences of illegal activity, and reduce the burden of the investigation on a company and its people.
As you can see from the foregoing, any company that imports or exports goods should be concerned with Customs’ current aggressive enforcement posture. The optimum manner to be prepared for a Customs intrusion into your business is to ensure that your company’s import and export activities comply with all applicable laws and regulations. This best can be accomplished by seeking guidance from an outside expert in customs and international trade law.