(Article appeared in the 1998 Custom House Guide)
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The Customs Code (19 U.S.C. 1646a) and the Customs Regulations (19 CFR 161.1) give Customs officials the authority to supervise the performance of all actions that are required of importers under the Customs Code and or the Customs Regulations. Such supervision must be carried out as specifically prescribed by relevant sections of the Customs Code and or the Customs Regulations. In the absence of any specific supervisory provisions, however, Customs' supervision is required to be direct and continuous or to occur by such occasional verification as the principal Customs field officer deems to be appropriate.
Traditionally, Customs has carried out its supervision or enforcement activities by inspecting individual transactions. In a statement before the Senate Appropriations Committee on March 23, 1995, however, former Customs Commissioner George J. Weise made it clear that Customs planned to alter its enforcement activities by minimizing its inspection of individual transactions and by placing greater emphasis on reviewing or auditing the internal control processes of major importers.
Customs has at its disposal a broad range of measures it can use in enforcing the Customs Code and the Customs Regulations, including the right to make inquiries, the right to require the production of records, the right to examine records, the right to obtain and execute a search warrant and the right to examine witnesses. The purpose of this article is to review two prominent enforcement measures used by Customs and to advise importers how to proceed when confronted with a Customs' enforcement action.
Inspection of Individual Transactions
Customs' inspection of individual transactions often occurs after the imported product is entered into the Customs territory of the United States, but before the entry of the imported product is subject to final liquidation. In inspecting an individual transaction, Customs frequently issues a request for information to the importer. This request is made on Customs Form 28. Requests for information typically seek additional information on the following elements of the import transaction under review: the classification of imported product, the valuation of imported product and / or details on the relationship between the U.S. importer and the foreign exporter. Importers who receive a request for information on Customs Form 28 should provide the requested information as soon as possible to the import specialist who has made the information request. If an importer can not supply the requested information within a reasonable amount of time, the importer should contact the import specialist and appraise the import specialist as to the reason for the delay in response and as to when a response will be made. Upon receipt and review of an importer's response to an information request, the relevant import specialist will either liquidate the import transaction as entered or advise the importer on Customs Form 29 of any action intended or undertaken by the import specialist as a result of the importer's response to the information request. An importer's response to a notice of action from an import specialist will vary based on whether an action is proposed or has been taken. If the action is proposed, the importer will have an opportunity to voice objection to the proposed action and explain to the import specialist why the proposed action should not be taken. If, on the other hand, the action has been taken, the importer's only recourse lies in the importer's ability to protest the action that has been taken within 90 days of the entry's liquidation date.
Audit of Internal Controls
Customs' audit of an importer's internal controls takes place through the mechanism of a compliance audit A compliance audit can have up to three different phases.
The first phase of a compliance audit is a compliance assessment which is intended to evaluate the systems used by an importer in dealing with its Customs related operations. This phase includes sampling and testing the importer's import and financial transactions to: (a) assess the importer's compliance level in each trade area applicable to the importer; (b) determine the adequacy of the importer's internal controls; and (c) determine if the importer's compliance rates are at acceptable levels.
If the compliance assessment determines that the importer's compliance rate is at an acceptable level, the compliance audit of the importer will end upon the completion of the first phase of the compliance audit. If, on the other hand, the compliance assessment highlights problems with the importer's compliance rate, the importer will be subjected to phase 2 of the compliance audit process. Phase 2 of the compliance audit is a detailed audit of the importer's control systems intended to determine the cause of the importer's compliance problems and to quantify the effect of the importer's non-compliance.
The third and final phase of a compliance audit is a follow-up phase which is intended to verify that an importer's compliance problems have been corrected and that the importer's compliance rate has improved.
To assist importers in preparing for a compliance audit, Customs has made available to importers the handbooks, audit program, sampling plans and guidelines that Customs specialists use in conducting a compliance audit. These documents, collectively known as the Cat Kit or Compliance Assessment Team Kit, are available on Customs' Home Page. Importers facing a compliance audit are well advised to obtain a copy of the CAT Kit and to use it to conduct a self-assessment prior to the commencement of the compliance audit.
Penalties for Non-Compliance
Obviously, the goal of Customs' enforcement actions is to cajole importers into compliance with the Customs Code and Customs Regulations of the United States. Lending support to Customs' enforcement actions, however, is a series of statutes that subject violations of the Customs Code and the Customs Regulations either to civil monetary fines or to seizure and forfeiture of imported goods. The statute which is most often invoked in cases where violations of the Customs Code and or the Customs Regulations have occurred is 19 USC 1592. This statute is the principal civil penalty provision for Customs. It prescribes monetary fines and penalties that vary in impact and amount based on whether the importer is perceived to be negligent or grossly negligent or based on whether the importer is considered to have engaged in fraudulent conduct. While fines imposed on importers under 19 USC 1592 may be significant, they can be subject to reduction in cases where an importer makes a prior disclosure of its violation or in cases where a mitigating factor, such as a contributory Customs error, is present.