Valuation no zero sum game

Exporters should be clear in declaring valuation on their goods – everything has a value    It may be a small replacement part going from one company’s U.S. office to another overseas, but in the eyes of U.S. Customs and the Census Bureau, it still has a value, and that value must be accurately presented in export documentation reported to the government.
   “You can’t say a product is worth nothing,” said Mitch Fonda, senior manager of global trade compliance and product stewardship at Waters Corp., a Boston-based analytical laboratory instrument and software company. “Otherwise, why are you in business?”
   Consequently, posting a zero-dollar value to an exported item will also throw up a red flag for foreign customs administrations as they receive and process the shipment in the form of an import.
   “Whatever you declare, you must be in a position to justify how you arrived at it,” said Paul DiVecchio, principal of export regulatory consultancy DiVecchio & Associates of Boston. “Otherwise, customs in the importing country could view a misdeclared value as fraud.”
   U.S. Customs and its counterparts overseas often have “reciprocity” in place when it comes to import investigations.
   “If a particular country feels that a U.S. exporter has not declared the proper value for clearance, then it can request U.S. Customs or the Justice Department to investigate the U.S. exporter on its behalf,” DiVecchio said.
   Transactions that generally cause the biggest volume of incorrect declarations involve replacements, repaired items returning to the customer, samples and hand carries.
   At a minimum, the value of the export should not be less than the cost of materials and labor, which can be obtained from the accounting department of the company.
   “Just because you may not be selling that product to an outside customer, doesn’t mean it has no value, or you don’t have to declare a value,” DiVecchio said.
   “If you have a product to export that actually has a zero value, then you better be able to prove it,” Fonda said. “The first thing an enforcement agent will ask, if wrongdoing is suspected, is to see your backup documentation in order to justify your declaration.”
   Exports valued at more than $2,500 per schedule B must be reported in the U.S. government’s Automated Export System (AES). Some companies may be inclined to undervalue the export to avoid clerical effort or processing fees to make this filing or to avoid scrutiny by U.S. enforcement agencies.
   Michael Ford, chief compliance officer for Philadelphia-based freight forwarder BDP International, warned that U.S. and overseas customs authorities are constantly looking for red flags related to product valuation fraud.
   “Let’s say you’re flying a part on a pallet and you declared it less than $2,500,” he said. “From the government’s point of view, why would you fly that part then. If that product is valued incorrectly, there’s a strong possibility that it will be detected, and the shipment could be delayed or even seized.”

Let’s say you’re flying a part on a pallet and you declared it less than $2,500. From the government’s point of view, why would you fly that part then.

   The forwarder can play an important role in ensuring exporters provide the proper values of their shipments in the AES filings.
   “We’re arranging the transportation, and therefore the value is one of those specific details that is transparent to the forwarder,” Ford said. “We will ask for the commercial invoice for our files, and we can use that document to point up value discrepancies. No matter if the value is $100 or $500, and no AES data filing is required, it must still be correct. It’s not a guessing game.”
   In cases where the value declared in the AES filing doesn’t stand up to the general average for that product reported in the system, Census staff will conduct verification checks with the filer. When fraud is suspected, Census may turn that evidence over to Customs to investigate and take appropriate enforcement action.
   The influx of international e-commerce transactions in recent years makes the problem of obtaining accurate product values even more challenging for forwarders.
   “You’re likely dealing with people who may not be familiar with the rules,” Ford said.
   The U.S. exporter must also ensure proper valuation is recorded for AES filings involving so-called “routed” transactions. These are exports in which the foreign principal party of interest (FPPI) authorizes a U.S. agent to facilitate the export of the items from the United States on its behalf and prepare and file the electronic export information (EEI) in AES. If the FPPI and forwarder scheme to undervalue the U.S. export for the purpose of reducing import duties overseas, the U.S. exporter may still be penalized by regulatory authorities as being a party to the transaction.
   The compliance stakes are even higher when making inaccurate value statements in AES for exports that are licensed by the Commerce Department’s Bureau of Industry and Security (BIS). Both exporters and forwarders have been fined over the years for undervaluing these shipments.
   In mid-March, Sarasota, Fla.-based mail and package forwarder Access USA Shipping agreed to pay BIS $27 million to settle numerous violations of the country’s Export Administration Regulations (EAR). According to BIS, the company illicitly facilitated the exports of rifle scopes, night vision lenses, weapons parts and other EAR 99 items.
   BIS explained in the charging documents and a subsequent press release that “item descriptions were altered and merchant invoices removed in order to avoid detection by the U.S. government and law enforcement… Access USA routinely undervalued, misrepresented, and evaded regulatory requirements for items intended for export using multiple different schemes.”
   Besides complying with regulatory requirements, DiVecchio said reporting correct export values just make good business sense. It can impact potential insurance recovery.
   “In the event the replacement item is lost, stolen or damaged on route, the U.S. firm will be reimbursed by the carrier and/or insurance provider based on the value of the item stated in the documentation supporting the shipment of the item—namely the customs invoice or commercial invoice,” he said. “If the value is understated, the reimbursement will be less than the actual replacement value.”