Aggressive Enforcement of Customs Laws Could Catch Unwary Importers

US Customs and Border Protection (CBP) has been directed by Congress to be much more aggressive in enforcing the customs laws. This has led to CBP starting a number of new initiatives and procedures to target and take action on what it deems to be “high risk” transactions.

CBP is focusing in on certain high priority issues – trade remedies (antidumping/countervailing duty cases), intellectual property rights, and forced labor investigations – that are driven by key US industries and stakeholders. Additionally, CBP efforts to coordinate enforcement and trade functions in its Centers of Excellence and Expertise (CEE), have led to changes in the way enforcement is taking place on a day-to-day basis.

Importers will need to monitor their imports and suppliers for compliance with the customs laws now more than ever, especially in key industries – such as steel and other primary metals, chemicals, electronics, and textiles/apparel. In this alert, we examine some of the most recent antidumping and countervailing duty (AD/CVD) enforcement developments and the effects on importers. CBP has listed recent AD/CVD enforcement actions and named violators on the CBP website. Many of the examples provided below were published by CBP on its website.

Importers can find a list of products under AD or CVD orders on the Department of Commerce website (with descriptions of the scope of the orders) or the International Trade Commission website.

Additional duty evasion regulations called for in the Trade Facilitation and Trade Enforcement Act (TFTEA) are set to be published in August. Arent Fox will monitor those regulations. This alert will focus on existing measures and recently enacted programs.

Trade Enforcement Task Force

On May 2, 2016, CBP announced in a press release the creation of a Trade Enforcement Task Force within CBP’s Office of Trade, to focus agency-wide efforts to enforce AD/CVD laws, protect IPR and to interdict imported products produced from forced labor.

The task force will coordinate efforts to detect high-risk activity and target networks of illicit activity. Importers are already seeing some of the effects on increased enforcement – especially in commodities that have been traditionally covered by AD/CVD orders.

Recent enforcement actions have been announced on steel wire hangers, honey, garlic, glycine, xanthan gum, and steel. The largest actions have involved suppliers to defense contractors or allegations made under the False Claims Act. In 2015, CBP assessed a total of $51 million in penalties for AD/CVD violations. Penalties covered imports of a variety of commodities, including aluminum extrusions, wooden bedroom furniture, carbon and alloy steel, citric acid and sodium citrate, laminated woven sacks, large diameter line pipe, polyethylene bags, and tires.

Arent Fox routinely assists importers with managing CBP enforcement actions and setting up programs to review their supply chains; we provide some initial tips below.

Tools in the CBP Toolbox

Enforcement can take many forms – such as increased issuance of informed compliance notices to importers (written warnings to importers on non-compliance), increased Requests for Information (CBP Form 28s), Notices of Action (CBP Form 29s), as well as increased inspections of cargo. These CBP information requests and actions, which can take time and money to resolve, are on the rise. If not handled properly at the information request level, these routine enforcement actions can escalate into large investigations or audits.

In cases where CBP believes that a good is covered by the scope of AD or CVD case, it rejects entries less than 90 days old and requires importers to refile the entries and deposit duties.

Additionally, CBP can take further actions, enabled by the following key developments for AD/CVD enforcement:

Live Entry Procedures
- CBP is requiring a blanket “live entry” process on certain Chinese steel plate imports; this requirement may spread to other steel products.
- Under a “live entry” procedure, an importer must file an entry summary with its deposit of the estimated duties before release of the goods – instead of the typical process where duties may be deposited up to 10 days after the release of the goods. The live entry process is often more cumbersome for importers and can delay release of the merchandise from CBP custody.
Requiring single entry bonding for “high risk” importers
- Under single entry bonding, an importer must post a single customs surety bond for each shipment, for the entire value of the shipment. While that does not sound like a particular hardship – it can be costly and time consuming for an importer. Additionally, surety bond companies typically increase bond rates when CBP requires single entry bonding because it is often considered a higher risk – even if no evasion is alleged. CBP is also increasing its enforcement of debt collection against surety companies for unpaid debts – this will make sureties more risk averse when issuing customs bonds to new importers, especially from China and other Asian countries.
- CBP has wide latitude to use single transaction bonding. Courts have confirmed this wide latitude. Recently, Premier Trading, an importer of garlic from China subject to AD/CVD, filed for a preliminary injunction at the US Court of International Trade (CIT) to stop the single transaction bonding requirement. The CIT found that Premier Trade had a pattern of non-payment of duty deposits, and was potentially subject to the higher “All-Others” rate in the AD/CVD order. The court rejected the preliminary injunction.
Coordinating AD/CVD enforcement across Centers for Excellence and Expertise (CEE) and other offices
- According to CBP, in April, one Import Specialist from each CEE joined an AD/CVD Centralization Team to facilitate the centralize information related to carrying out liquidation and other DOC instructions on AD/CVD orders.
- Steel import enforcement by CBP’s Base Metal Center became fully operational in March. According to CBP, industry experts at the Base Metals Center are actively enforcing those 270 AD/CVD orders on metal products, and are working closely with industry to understand trade risks and target evasion to ensure a level playing field for US industry.
- Ironically, as personnel are transferred to CEEs as part of this process, and take on new or additional responsibilities, ports may issue multiple requests for information to importers as a mechanism for the new personnel to learn about the importers and products new to their areas of coverage.
- CEE personnel working with domestic industry stakeholders to learn more about products. CBP touted that its personnel from the Consumer Products CEE, Regulatory Audit, and the Customs Laboratory and Scientific Services visited Edsal Manufacturing Co., the petitioner in the Boltless Steel Shelving AD/CVD Orders (A-570-018/C-570-019).
- Increased audits of importers/audit focus on AD/CVD. There is also an increased audit potential for AD/CVD – recently CBP’s Regulatory Audit division completed an audit of an importer that was underpaying duties on xanthan gum, leading to an increase in duty payments.
Customs seizures are on the rise
- CBP seized three large shipments of glycine valued at $1.7 million and recovered $723,000 in duties after targeting violators of the AD order on Glycine from China. The products were declared under the incorrect country of origin. According to CBP, it coordinated with industry to understand the products and issues, used targeting approaches and gathered information from examinations at ports, used a comprehensive survey from Regulatory Audit, and in-depth review of “high risk” shipments.
Investigating False Claims Act (FCA) allegations
- CBP coordinated with the Department of Justice to investigate evasion allegations against Kilgore Flares Company and one of its subcontractors, ESM Group. The two companies agreed to pay $6 million and $2 million, respectively, to settle the FCA allegations. The allegations related to evasion of duties on the AD order on magnesium from China, which were allegedly used to make flares that were sold to the US Army. The effort was coordinated across a number of government agencies.
Targeting “high risk” shipments
- CBP screens cargo transactions and identifies anomalies based on numerous risk factors (using data from a number of sources). Shipments matching targeting factors are presented to CBP officers and upon arrival of cargo, CBP has the authority to perform an exam of the goods. CBP can also detain and potentially seize or request re-export of the goods. It can also conditionally release the goods.
CBP has announced joint steel enforcement operations with Canadian and Mexican border authorities
- Under the new initiative, the US and its North American Free Trade Agreement (NAFTA) partners will share information about companies that evade anti-dumping and countervailing duty orders and take coordinated actions such as inspections and audits to stop the illegal trade. This is anticipated to lead to increased scrutiny and enforcement actions, similar to the actions described above.