U.S. Customs ponders pardons for nuisance violations
Wouldn’t it be nice if the government cut you a break for missing the April 15 tax-filing deadline by a day when you have a history of paying your taxes on time and accurately every year?
Don’t bet on a penalty-holiday from the Internal Revenue Service, but U.S. Customs and Border Protection is considering a more flexible approach that would give highly compliant companies a free pass for minor violations of customs procedures.
Vera Adams, executive director of commercial targeting and enforcement in the Office of International Trade, floated the idea of forgiving nuisance penalties during CBP’s annual Trade Symposium in Washington last month.
She told several hundred import-export professionals that the agency wants to change its “parking ticket approach” to compliance to better motivate companies to get their customs documentation in order.
The flip side of the proposed policy is that companies that fall below a certain compliance level would get hit with the equivalent of a DUI (driving under the influence) penalty instead of a parking ticket, Adams said.
Under the current system of rules, Customs issues penalties for the value of the imported merchandise plus the applicable duty for violations of the Customs code, including minor infractions such as late filing of customs entries, improper delivery, and improper marking of the country of origin. In most cases CBP mitigates the fines for the liquidated damages down to $50 or $100 at the request of the importer.
The fines are so small that they are often not worth the hassle for CBP to generate the penalty notice, rule on the appeal and process the check. The process is also time-consuming for the importer, who must write to Customs explaining why the violation occurred and request a ruling to knock down the penalty.
Adams said CBP wants to eliminate the hassle factor for itself and the trade community.
The idea is part of a series of steps recently espoused by Assistant Commissioner Dan Baldwin, who heads the Office of International Trade, to establish a new climate of trade facilitation for an agency heavily focused the past five years on imposing tougher rules on cargo movement in the name of border security. Several trade groups during the past year have urged the Department of Homeland Security to apply more resources towards simplifying trade compliance.
Companies that pay import fees and file documentation on time for a certain percentage of their entries could get “a bye” for small filing errors on the remaining percentage of their entries, Adams elaborated after her presentation. CBP would look to industry to help set the bar for good performance, she said. In exchange for a higher tolerance level, importers that fall below the line would be subject to stiffer penalties than traditionally imposed, she said, and threw out the figure of $200 as one possibility.
Adams said CBP plans to take the pulse of the trade community to see if there is support for an incentive-based enforcement regime.
Michael Laden, co-founder of Minneapolis-based consulting firm Trade Innovations and former president of Target’s customs brokerage subsidiary, was enthusiastic when informed about CBP’s plan. He has long advocated rewarding companies for compliant behavior.
“I think that philosophy is long overdue. For companies that put their best foot forward, they’re still going to make mistakes because this is such a complex business. Absent some kind of fraud, there should be some deference. There should be some sort of sliding scale” for punishment, he said.
The best way to get the attention of companies to mind the law is to hit them with big penalties, not minor ones, he added.
“If I’ve got a good track record and then make a tiny mistake, let me correct the mistake for today, look back and correct my mistakes along the same line, and then fix the problem for the future. That’s how you get increased and improved compliance,” Laden said.
Richard J. Salamone, manager of government relations for BASF Corp., said Adams’ proposal sounds good, but cautioned that CBP would have to provide much more detail about implementing its carrot-and-stick approach to compliance. U.S. Customs has talked in the past about ignoring late entry filings and other petty violations but never did anything to move the concept forward, according to industry sources.
“I don’t know on what legal or regulatory grounds they can make a differentiation between companies” on compliance levels that trigger penalties, Salamone said. “They would have to define very clearly what they mean by petty nuisances.”
An explicit plan with different penalty tiers would create an incentive for companies to aim for the higher level of compliance, Salamone agreed.
“I think importers would be in favor of it,” he said.
“If that was another benefit to importers who meet compliance that would be a tangible benefit” compared to the harder to quantify benefits of reduced security inspections promised to participants in the C-TPAT trusted shipper program.