What are Customs Penalties?

The statute – 19 USC § 1592 – provides that Customs can issue civil penalties against an importer for any “attempt to enter or introduce any merchandise into the commerce of the U.S. by means of any document or electronically transmitted data or information, written or oral statement, or act which is material and false, or any omission which is material.” Under the statute, Customs can issue these civil penalties in addition to any loss of revenue to the government as a result of underpaid duties for the past five years, plus interest. The amount of civil penalties depends on the domestic value of the merchandise, the loss of revenue, and the level of culpability established by CBP.An act or omission is fraudulent if a material false statement, omission, or act in connection with the transaction was committed (or omitted) knowingly, i.e., was done voluntarily and intentionally, as established by clear and convincing evidence, i.e., double invoicing. Customs may assess a penalty that is the domestic value of the merchandise. Note that the domestic value can be different from the entered valued under 19 USC 1401a; domestic value is the price that the merchandise or similar property is freely offered for sale at the time of entry, as described under 19 CFR 162.43.Customs will find gross negligence where a violation results from an act or acts (of commission or omission) done with actual knowledge of or wanton disregard for the relevant facts and with indifference to or disregard for the offender’s obligations under the statute. This is highly fact specific and often different results on a case-by-case basis, i.e., companies have received gross negligent penalty assessments for lying to their Customs broker about the description of their merchandise that resulted in underpayment of Antidumping duties. Customs may assess a penalty that is the lesser of the domestic merchandise or four times the loss of revenue, or if no loss of revenue, 40 percent of the dutiable value of the merchandise.Negligence results from an act or acts (of commission or omission) done through either the failure to exercise the degree of reasonable care and competence expected from a person in the same circumstances. In U.S. v. Optrex America, Inc., 560 F.Supp.2d 1326 (Ct Int’l Trade 2008), the U.S. Court of International Trade (CIT) held that the importer failed to exercise reasonable care when it disregarded legal advice from outside trade counsel to obtain a classification ruling regarding its LCD glass panels, resulting in classification errors. However, the CIT held that the importer did exercise reasonable care when it acted on classification advice from outside trade counsel regarding LCD Character Display Modules, where no ruling was advised. For negligence, Customs may assess a penalty that is the lesser of the domestic value or twice the loss of revenue, or if no loss of revenue, 20 percent of the dutiable value of the merchandise.However, these penalties can be avoided if the company files a Prior Disclosure, as described under 19 USC 1592 and 19 CFR 162.74, where the company discloses any errors and tenders any unpaid duties to the government.

Why Should I Disclose My Customs Violations?

A careful and accurate prior disclosure has many benefits for importers, especially those that import various or complicated merchandise often. Firstly, if there were any errors for the past five years after a review of the company’s entries, a prior disclosure will allow the company to come to the agency first and establish a narrative of inadvertent and accidental error with an intent to comply. This process will not blacklist your company with CBP. Contrary, it will build a transparent relationship with the agency.Further, the prior disclosure acts as a Customs penalty shield. When a disclosing party initiates the prior disclosure process by filing an initial prior disclosure that identifies the circumstances of a customs violation with CBP before CBP discovers the possible violation and notifies the party of the discovery of the possible violation, then CBP cannot assess the above Customs penalties and will not investigate the company for errors under 1592. More specifically, the party will receive reduced penalties under 19 USC 1592(c)(4)(A) and (B), depending on culpability and loss of revenue. If the violations did not involve fraud, then no penalties will be assessed for unliquidated entries, an If the violations involved fraud, then the Customs penalties that can be assessed are reduced to value of the loss of revenue (i.e., the value of the unpaid duties), or 10 percent of the dutiable value of the merchandise if there is no loss of revenue, which are assessed in addition to any loss of revenue and interest owed.Prior disclosures to Customs can disclose any errors that could result in material misinformation to Customs regarding an entry of merchandise, such as value, classification, additional duties and application of duty exclusions, free trade agreements, and country of origin declarations. Customs penalties can result from any number of these matters, and the scope of a prior disclosure can include all of these potential violations, which act as a shield to mitigate duties and avoid the intense and costly hassle of a Customs investigation.

Prior Disclosure 2023: Avoid CBP Penalties & Ensure Compliance

Yes, you should seriously consider filing a Prior Disclosure in 2023 if your company has potential or discovered Customs violations in its supply chain. Filing a prior disclosure with U.S. Customs and Border Protection (CBP) allows companies to proactively address entry violations, potentially avoiding civil penalties and building a transparent relationship with the agency. This process is an opportunity to prioritize supply chain and customs compliance, especially given recent changes in CBP's policies regarding offsetting loss of revenue, Statute of Limitations waivers, and extension requests. Companies that are frequent importers or have experienced changes in compliance personnel should review their import reporting for discrepancies, as CBP can legally pursue duties, interest, and significant penalties for up to five years.

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