More rules, steeper penalties require focus on customs and trade compliance

Companies engaged in international commerce need to take customs and trade compliance more seriously in this post-9/11 era of increasing regulations, stepped-up enforcement and steeper penalties, cautions one industry expert.

Recent trade regulation developments are sending a couple of clear signals, says Robert Stein, director of customs and trade compliance for Mohawk Global Trade Advisors, a full-service international and domestic logistics provider. “One is that companies are expected to know their supply chains,’” Stein says. “The other is that companies should focus less on the cost of compliance and more on the cost of noncompliance.”

Below are some recent regulatory developments that illustrate the importance of these messages.

Importer Security Filing program

The Importer Security Filing (ISF) program, also known as “10 + 2,” is designed to help U.S. Customs and Border Protection (“Customs”) capture detailed information about shipments before they are loaded on vessels bound for the United States. The program has been in place since January 26, 2009, but enforcement won’t begin until January 26, 2010.

Under the ISF program, at least 24 hours prior to vessel loading, U.S. importers must transmit detailed information to Customs about any shipment bound for them.

Filings must be timely. Beginning next January 26, Customs won’t allow ships to load unless the ISF filing beats the 24-hour deadline.

In addition, information in the filing — such as the goods’ Customs classification, country of origin, manufacturer, etc. — must be accurate. Inaccurate filings will subject importers to a $5,000 penalty per violation. “However, Customs has said it will base penalties on how hard it perceives an importer has worked to be compliant,” Stein notes. “Having a good track record might mitigate the penalty.”

Customs has been issuing progress reports to importers that have initiated 10 + 2 filings. “These reports can help importers work with their export partners to improve filing timeliness and accuracy, as well as provide a record to show Customs they have been making a good faith compliance effort,” Stein says.

As a result, importers are wise to begin ISF filings as soon as possible this year, he says.

Lacey Act amendments

With the enactment of the 2008 Farm Bill, the Lacey Act was amended to require an import declaration for certain plants and plant products. Importers of these products must file a declaration that contains information such as the plant’s scientific name, the value of the importation, its quantity and the name of the country from which the plant was taken.

The declaration requirements are being phased in. The current second phase, which runs through September 30, 2009, adds certain wood products (e.g., sheets for veneering, tools and tool handles) to the list of products that importers must declare.

Phase 3 beginning in October 2009 will require declarations for certain wood pulp products, and phase 4 beginning in April 2010 will require declarations for various paper products and furniture.

Importers must research the required information, complete a paper declaration form they can access at the Animal and Plant Health Inspection Service (APHIS) Web site, and then submit the form to their customs broker, who files the declaration electronically.

Amendment violators are subject to commercial civil penalties of $10,000 per violation and individual civil fines of $250. Criminal penalties are much more severe, with misdemeanors triggering penalties for individuals of $100,000 and up to a year in prison, and $200,000 for organizations. Meanwhile, felony convictions incur penalties for individuals of $250,000 and up to five years in prison, and $500,000 for organizations.

Increased penalties for export violations

Exporters too must focus on compliance. One reason is that recent federal legislation has increased penalties for violations of U.S. sanctions and dual-use export control regulations. The latter were designed to control the export of goods that can be used for secondary purposes such as weapons production.

In October 2008, civil penalties rose to $250,000 per violation (or twice the value of the transaction) from $50,000. Criminal penalties increased to $1 million per transaction and up to 20 years in prison for a “knowing and willing violation.”

Improve your compliance efforts

Not only are regulations multiplying and penalties escalating, but the government is using technology as a tool to enforce the rules more aggressively, Stein says.

So how should companies that source and/or sell products overseas respond? Stein, a licensed customs broker and certified customs specialist, offers this advice:

Don’t procrastinate. For example, take advantage of grace periods such as the one Customs is offering for ISF filing and prepare early for Lacey Act amendment declaration requirements.

Engage experts to conduct spot compliance audits. There are consultants, customs brokers and attorneys that can help companies gauge their level of compliance. Often, companies fall short in such routine matters as record-keeping, valuations, NAFTA violations, misclassification of goods and improper declaration of country of origin.

Invest in in-house programs and expertise. Now that all import and export filings must be done electronically, the federal government’s ability to mine and monitor data has improved dramatically.

Utilize online resources. The Bureau of Industry and Security (BIS) offers an Export Management & Compliance Program Self-Assessment Tool [pdf]. The Customs and Border Protection Web site is a great source for compliance information and provides a model internal control manual. You can also visit the sites of customs brokers and attorneys.

Link to original <www.fpsc.com/RBS/GlobalTradeAdvisor/Summer2009.htm#story2>

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With the January 26th Importer Security Filing (ISF) enforcement deadline fast approaching, there has been a firestorm of rumor and opinion on what Customs will do on that fateful date.

With penalties of $5,000 per violation and up to $10,000 per shipment, importers want to know what to expect if things go dreadfully wrong.

In December, the trade had a rare opportunity to hear high level Customs officials, such as Commissioner Jayson Ahern, address our concerns publicly at the tenth annual Customs Trade Symposium in Washington D.C.

By now you have read numerous articles filled with long explanations about ISF and what will happen once full enforcement kicks in. But what does it all mean?

What Customs really wants is your data—not your money, says Rich DiNucci, CBP Director of the Secure Freight Initiative.

Well…maybe they still want your money. During his speech at the Symposium, DiNucci repeatedly said that Customs would work with filers and importers to get the data, emphasizing that, “we NEED the data.” DiNucci also explained that if a penalty was called for, “we [Customs] will not go draconian on liquidated damages.”

Most importantly, the message repeated over and over was that Customs will be rolling out enforcement for ISF the same way they rolled out enforcement for the 24 hour rule. This means that Customs will be focused on informed, rather than enforced, compliance. Customs has promised to work with importers and filers that are struggling with timely and/or accurate filing. Penalties will only be issued if importers or filers show no improvement and a lack of concern for compliance.

An unnamed source within Customs confided that the whole intent of enforcement starting on 1/26 is NOT to issue penalties but to work with filers and importers on operating in an informed compliance mode. The source felt that the concern within the trade about “unfair” penalties was unfounded and that the trade should “cut Customs some slack”.

One of the tools that Customs will use to help collect the ISF data is the use of “customs holds.” All ocean cargo arriving without an ISF will be placed on hold and will not be released to the importer, even if the customs broker has filed an entry and obtained a customs release. Customs expressed the hope that freight holds, and the associated demurrage charges, would be a sufficient incentive to push importers to make sure the ISF is filed without resorting to penalties.

What is clear is that the structured review of ISF by Customs is not complete. Customs will be working hard to make sure importers and filers are fully on board with ISF. Here are eight things that you should be doing.

8 do’s for ISF compliance

1. Get your ISF Progress Report from your filer.
2. Review your Progress Report to understand where you stand.
3. Work with your filer to understand why errors are occurring or filings are not timely.
4. Communicate with your overseas sellers and let them know that they need to provide ISF worksheets and other documentation at least two days prior to vessel departure.
5. Educate your staff, especially buyers, on the importance of the ISF filing.
6. Include penalty clauses in sales contracts and PO’s that stipulate that the seller must provide ISF information at least 48 hours prior to vessel departure or be liable for monetary penalties.
7. Update your import compliance manual to include all ISF procedures.
8. Ask a compliance expert, such as Mohawk Global Trade Advisors, to review your ISF process and provide recommendations to bolster compliance.

Customs is taking ISF very seriously and the deadline for enforcement is no laughing matter. However, with your continuing effort to comply, Customs will work with everyone to make sure the goal of 100 percent on-time filing is met as soon as possible while issuing the fewest possible penalties.

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The following is a primer on what the 10+2 Security Filing is, why it was created, and how it might affect the handling of import shipments.

Why must there be new security filing rules?

To improve CBP’s ability to identify high risk shipments being imported into the U.S., to prevent the smuggling of terrorist weapons into the U.S., and to ensure cargo safety and security.

The proposed regulations are intended to fulfill the requirements of the Security and Accountability for Every Port Act of 2006 and the Trade Act of 2002, as amended by the Maritime Transportation Security Act of 2002.

What is the “Importer Security Filing”?

The current proposal requires an Importer Security Filing (ISF) for nearly all shipments. This ISF includes ten data elements for each good listed at the six-digit Harmonized Tariff Schedule level and at the lowest bill of lading level—unless exempted.

In addition to the ten data elements, the ISF must include two carrier data elements (hence the “10 + 2” designation): (1) a vessel stow plan, which includes information about the physical location of the cargo loaded aboard the vessel and (2) container status messages, which report container movements and status changes.

The ISF must be submitted through CBP’s Automated Broker Interface (ABI) and Vessel Automated Manifest System (AMS). While the ISF must be filed 24-hours prior to vessel loading, the Container Status Messages must be transmitted no later than 48-hours after departure from the last foreign port.

What are the ten data elements in the ISF?

1. Manufacturer (or supplier) name and address. The name and address of the entity that last manufactures, assembles, produces, or grows the commodity. If that is not known (and cannot be determined or does not apply), then the name and address of the supplier of the finished goods would be reported (this information would be used to create the manufacturer’s identification for entry purposes);
2. Seller name and address. The last known entity by whom the goods are sold or agreed to be sold. If no sale is involved, then the name and address of the owner would be reported;
3. Buyer name and address. The last known entity to whom the goods are sold or agreed to be sold. If there is no sale, then the name and address of the owner would be reported;
4. Ship to name and address. Name and address of the first deliver-to party scheduled to physically receive the goods after being released from CBP’s custody;
5. Container stuffing location. Names and addresses of the physical locations where the goods were stuffed into the container;
6. Consolidator (stuffer) name and address. Name and address of the party who stuffed or arranged for the stuffing of the container;
7. Importer of record number (IRS number). For goods intended to be delivered to a Foreign Trade Zone, the IRS number, EIN, SSN, or CBP assigned number of the party filing the Foreign Trade Zone documentation with CBP;
8. Consignee IRS numbers;
9. Country of origin. Country of manufacture, production, or growth of the article (based on the import laws, rules, and regulations of the U.S.); and
10. Commodity Harmonized Tariff Schedule (HTS) number. This would be required at the six-digit level but allowed to be reported at the 10-digit level. This number could be used for entry purposes only if provided at the 10-digit level.

What do I do if my shipment information changes after the ISF is filed?

The ISF filer would be required to update the filing if there were changes to the shipment information or more accurate information became available and the goods had not arrived within the limits of the U.S. port. The ISF may be withdrawn when a shipment is no longer intended to arrive within the limits of a U.S. port.

Who will submit the ISF?

Under the current proposal, there are three parties that can file the ISF: a licensed Customs broker, a foreign freight forwarder, and an importer. Regardless of who files the ISF, the importer will be held responsible for the timely, accurate, and complete submission of the ISF.

If a licensed Customs broker files the ISF, and the Harmonized Tariff Schedule information is submitted at the 10-digit level, then the ISF may be used as part of the entry filing.*

*Please note that the current proposal does not allow the filing of the customs entry in lieu of the ISF. This is ironic since the type of detail being requested on the ISF is already present in a Customs entry filing. Importers will now essentially be responsible for two entry filings!

What if all the required elements are not known at time of ISF filing?

There has been concern that certain types of shipments, such as carnets, DDU/DDP shipments, consigned goods, returned goods, and samples may not have all the information available for a timely ISF filing.

Under the current proposal, CBP has not made any allowances for these transactions: All information for these types of transactions must be filed on the ISF within the same time frame as all other transactions (at least 24 hours prior to vessel loading).

CBP has stated that if the importer believes that a required ISF data element does not exist for a non-exempt transaction type, the importer should request a ruling prior to the time required to file the ISF.

My company is Tier 3 C-TPAT validated. Is my company exempt from having to file the ISF?

Tier-3 C-TPAT members will NOT be exempt from the ISF requirement, nor allowed to submit fewer data elements. Regardless of the parties involved, all cargo arriving to the U.S. by vessel, will be subject to the ISF requirements. This will allow CBP to use ISF data to assess the risk of individual shipments.

I have more questions about “in-bond” shipments as well as Foreign cargo Remaining On Board (FROB). Who can I talk to?

We have experts on staff who will help you with information on 10 + 2, as well as many other topics, such as import and export compliance, NAFTA, Incoterms, and much more. Call or email us today.

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1. Get your ISF Progress Report from your filer.

2. Review your Progress Report to understand where you stand.

3. Work with your filer to understand why errors are occurring or filings are not timely.

4. Communicate with your overseas sellers and let them know that they need to provide ISF worksheets and other documentation at least two days prior to vessel departure.

5. Educate your staff, especially buyers, on the importance of the ISF filing.

6. Include penalty clauses in sales contracts and PO’s that stipulate that the seller must provide ISF information at least 48 hours prior to vessel departure or be liable for monetary penalties.

7. Update your import compliance manual to include all ISF procedures.

8. Ask a compliance expert, such as Mohawk Global Trade Advisors, to review your ISF process and provide recommendations to bolster compliance.

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What are the changes that the CPSC has mandated?

The CPSC has made changes to the requirements for certain regulated products. The most important change is that manufacturers and importers will need to certify that their U.S. imported goods are meeting all CPSC standards and regulations. Under the Consumer Product Safety Improvement Act of 2008 (CPSIA), all U.S. imported products manufactured after November 12, 2008 will need to be accompanied by a Certificate of Compliance (COC) issued by the manufacturer and the importer (although initially, the certificate will not be required to be presented at time of entry). Previously, importers were only responsible for ensuring that their products conformed to CPSC regulations, and were not required to provide a COC.

There is also a new requirement for importers who already test their products. The CPSC has mandated a new documentary requirement for the certification of third-party testing on such U.S. imports.

What needs to be on the Certificate of Conformity?

1. Product description
   1. List of each CPSC product safety regulation to which the product is being tested
   2. Name of the manufacturer, importer, and private labeler
   3. Contact information for the person maintaining records of test results
   4. Date and place where product was manufactured
   5. Date and place where product was tested
   6. Name of the third-party testing lab*
      *It is essential that the lab be accredited for the specific test being administered.

You can download a sample Certificate of Conformity (which includes instructions for completion and a brief FAQ) from the CPSC’s website.

Who can test my goods for compliance?

While some goods may be tested by importers (if they are CPSC accredited for such tests), section 102 of CPSIA imposes third party testing requirements for all consumer products “primarily intended for children 12 years of age or younger.” The testing requirements will become effective as follows:

Lead paint – 12/22/2008
Cribs (full and non-full size) & pacifiers – 01/09
Small parts – 02/09
Metal jewelry – 03/09
Baby bouncers, walkers, and jumpers – 06/09
300 ppm lead content – 08/09
All other children’s product safety rules – 09/09

What should I be doing to ensure compliance?

As an importer, you should already be aware of any CPSC requirements and regulations for your products. However, if you are unsure about which products are regulated, you can check the list of regulated products on the CPSC’s website or you can call the CPSC ‘s Office of Compliance at (301) 504-7912.

If your products were not previously regulated, then it is unlikely that they will be subject to any new requirements. Nevertheless, if you are unsure about product regulation, it is highly recommended that you consult with a Customs attorney to fulfill the requirements of reasonable care.

You should also make sure to coordinate with your manufacturers on producing certificates, which can be issued jointly or individually.

Penalties

Monetary penalties and criminal sanctions have been increased significantly under the new law.

Under CPSIA, civil penalties for violations of the Consumer Product Safety Act have been increased from $5,000 to $100,000. The cap on civil penalties has been increased from $1.25 million to $15 million. These increases also apply to violations of the Federal Hazardous Substances Act, as well as the Flammable Fabrics Act.

No later than August 14, 2009, the CPSC will issue final regulations providing its interpretation of the factors to be considered in assessing and enforcing penalties.

What should I be doing now?

1. Make sure any goods subject to CPSC regulation are properly tested by an accredited lab.
2. Contact your manufacturers to see if they want to jointly certify conformance with all CPSC regulations. This is preferable to providing separate certificates.
3. Post your COC’s electronically and provide links to them in your documentation. This method is acceptable to CPSC and U.S. Customs.
4. If any of your imported goods are regulated and have NOT been tested, you must cease importation immediately and have the goods tested and certified. Goods not meeting CPSC standards should not be sold or distributed in the United States.
5. Visit Consumer Product Safety Commission’s CPSCIA page for more information.
6. Contact Mohawk to speak to one of our on staff Customs Brokers for guidance.

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