HOLD
ONTO YOUR WALLET:
NEW ISF PENALTY
GUIDELINES AND PROPOSED GOODS MOVEMENT TAX INCREASE
By Susan Kohn Ross
ISF Penalty Guidelines Published
As has been widely publicized, Customs finally published
the penalty guidelines for the Importer Security Filing (ISF) program.
Highlighting its goal of getting importers to participate as soon as
possible, the first mitigating factor listed by Customs is an importer’s
history of compliance with ISF. If you wait until the last minute to start
filing - just before the January 26, 2010, enforcement deadline - and there
are mistakes, do not expect any mercy or mitigation from Customs.
Vessel operators will be penalized if they fail to timely file
stow plans or container status messages, but of the greatest interest is how
Customs intends to deal with importers. If the ISF is not filed, filed late,
or filed with inaccuracies, it is the importer who will be penalized. Bulk
cargo remains exempt, break bulk may or may not be exempt depending on
whether it is loaded into a container before being stowed on the ship, but
containerized cargo certainly must have ISF filed 24 hours prior to loading.
Determining when loading occurs remains a challenge. Although Customs has
said it will start consulting vessel operator data as to dates of departure,
how importers are expected to figure out loading times is unclear. At the
same time, figuring out when you have to file is another challenge, but the
flexibility as to how to declare certain data elements and when to declare
others has not changed.
So what potential penalties are importers facing under
these new regulations? First, the amount of the penalty will be $5,000 and
will be based on the final version of the ISF. However, if you fail to file,
Customs has said it will withhold release or transfer of the shipment. If
that happens, the related charges will be passed along to the importer by the
terminal operator. The agency may also deny a permit to unlade, and if the
shipment is unladen without permission, the shipment may be seized. Just as
Customs will issue a penalty if the ISF is late or inaccurate, a similar
$5,000 penalty will be issued if the ISF should have been withdrawn and was
not (for example, if the shipment will not arrive in the U.S.).
Customs has also said there will be penalties for serious
and repetitive errors. Those penalties will be issued under 19 USC 1595a(b)
and are not subject to the same $5,000 limitation, but rather are tied to the
value of the shipment.
In terms of mitigating those penalties, if law enforcement
goals are compromised, there will be no mitigation. Otherwise, for late or
inaccurate ISFs, or the failure to withdraw an ISF already on file, the first
offense will be mitigated to between $1,000 and $2,000 and subsequent
offenses will go no lower than $2,500.
Customs also provided a listing of mitigating factors:
- Progress in implementing ISF during the
flexible enforcement period - pre-January 26, 2010;
- Small number of violations compared to number of
shipments;
- Tier 2 or Tier 3 C-TPAT membership;
- Demonstrated remedial action;
- Vessel diversion due to factors outside the ISF
importer’s control, e.g., weather (but accidents should be included and
were not mentioned by Customs); and
- For inaccurate filings, did the importer acquire data
from a third party and reasonably rely on it, plus was not reasonably
able to verify the data - considered an extraordinary factor.
At the same time, aggravating
factors were articulated as:
- Lack of cooperation with CBP;
- Impeding CBP activity;
- Evidence of actual or attempted smuggling (may be
considered an extraordinary aggravating factor);
- Multiple errors on the ISF; and
- Rising error rate indicating deteriorating
performance.
In the case of
third-party data, Customs has said it will consider ordinary commercial
practices and how the presenting party acquired the data, and whether and how
that presenting party is able to verify that data. If the importer is unable
to verify the data, the standard is "reasonably believes to be
true." If Customs agrees that the importer could reasonably believe the
data was accurate, it may lead to outright cancellation of any liquidated
damages claim.
Customs has also said, if you are a Tier 2 or Tier 3 C-TPAT
member that status may account for up to 50% further mitigation. Finally, in
terms of additional options, Customs retains the right to:
(1) issue "do not load" messages; (2) delay or
deny the carrier’s preliminary entry permit to unlade; (3) withhold release
or transfer of cargo; and (4) apply statutory penalties, such as 19 U.S.C.
1595a(b), for aiding unlawful importations.
Proposed
Goods Movement Tax Increase
H.R. 2355 has been introduced with the goal of raising
funding to support infrastructure projects. By its terms, the bill provides
that states will be given yearly grants from the funds raised in proportion
to their contribution to the fund. The funding will be administered by the
state-level Department of Transportation. The federal program will be
administered by the U.S. Secretary of Transportation. Once funding is granted
to a state, the formula for distribution is 90% for goods-movement projects,
7% for environmental projects, and 3% for homeland security projects. To be
eligible, the project may be as much as 40 miles from the port of entry.
In addition to the geographic distance, the eligibility
criteria include that the project must promote definable goals related to
improving highway, rail and port goods movement; mitigate environmental
damage to air, water and soil caused by goods movement; and promote the use
of clean trucks or diesel replacement; plus improve cargo inspection,
screening and security training for workers. Regional and state
transportation organizations are to be included in the project-selection
process. There is also a waiver provision allowing a project to be as much as
150 miles from a port of entry provided the site is located within the
goods-movement chain.
The proposal also mandates the federal share of the cost of
a project "shall be" 90%. However, rather than mandate a priority
for the selection of projects or the expenditure of federal funds, these
factors are left to the states to decide. At the same time, the grant
authority to the Secretary of Transportation ends on October 1, 2019. 71.43%
of the Harbor Maintenance Tax (HMT) collected will go into the newly
authorized National Goods Movement Improvement Fund. The provisions for the
HMT are then amended to provide that the tax applies to all cargo coming
through any land or sea port of entry. The current rate is 0.125% and is
substantially raised by this proposal. For ocean-going cargo, the HMT is
increased to 0.4375% and is imposed at time of unloading. For land shipment,
those transiting through Canada and Mexico, where there is currently no such
fee, the HMT is set at 0.3215% and is imposed at time of entry. Goods
originating in Canada or Mexico are exempt in order to comply with NAFTA. At
the same time, the Secretary may reduce the amount of the tax if the state or
local government collects fees for goods-movement improvement.
Leaving aside the concern that, if enacted, the formulas
and other limitations could be changed by a later act of Congress, there is
no methodology for ensuring all interested parties are brought together to
seek common agreement as to priorities and funding goals. There is also some
discussion about transferring the funding mechanism from yearly
appropriations by Congress to direct funding by the Army Corp of Engineers.
If that were to happen, it is not at all clear how civilian oversight would
work. Another concern is the added cost of doing business these charges
represent. Assuming this increase in assessment plus the expansion to land
ports of entry is a good idea, should there be a limit on a per-entry basis
to the amount of HMT collected, in much the same way there is a cap on the
merchandise processing fee?
Foreign
Trade Association Food Safety Seminar Series
Given the rising importance placed on food safety, the
Foreign Trade Association is hosting a two-part series providing an
international perspective on food safety. Laws and regulations are rapidly
changing in the U.S. and worldwide. Find out the latest about those changes
in Australia, the U.S., and Canada from an international panel of speakers:
Andrew Hudson of Hunt and Hunt in Melbourne, Australia; Cyndee Todgham
Cherniak of Lang Michener in Toronto, Canada; and Susan Kohn Ross of Mitchell
Silberberg & Knupp in the U.S.
Topics to be discussed will include the latest legislative
efforts and regulatory changes in all three countries, including good
manufacturing practices, registration requirements and new/additional fees,
and what operational changes/upgrades companies should consider in response.
Where does one find the latest details about these rapidly evolving and
significant changes? What are the new expectations being placed on industry?
How do those expectations differ by product? How will these changes impact
your bottom line?
The perspective from Australia and the U.S. will be
presented on September 15, 2009, at 1:00 p.m. PDT. The speakers will be
Andrew Hudson and Su Ross. The Canadian perspective will be presented on
December 3, 2009 at 10:00 a.m. PDT with an update on developments in the U.S.
Cyndee Cherniak and Su Ross will speak at this session.
For more details, visit the FTA’s Calendar of Events at http://ftasc.org/ or contact the FTA office at
818- 951-2842 or info@foreigntradeassociation.com.
