When a violation of laws enforced by US Customs and Border Protection (CBP) is discovered, in addition to, or in lieu of, seizure and/or referral for criminal prosecution, CBP has the option of assessing a personal penalty against the alleged violator.
Certain types of violations require the issuance by CBP of a pre-penalty notice. A pre-penalty notice is a written notice that CBP is “contemplating” issuing a penalty to the named violator. A period of 30 days is offered for the recipient to respond and offer reasons as to why a penalty notice should not be issued. Violations requiring the issuance of a pre-penalty notice are:
- Commercial fraud, gross negligence, or negligence. Example: misrepresenting the value of the imported goods.
- Drawback. Example: duty drawback (refund) is requested on an incorrect amount. This can be caused by negligence.
- Recordkeeping. Example: an invoice or other record cannot be produced upon request. Import-related records must be kept for a minimum of five years.
Any other type of violation will result in the immediate issuance of a penalty notice (CBP form 5955A).
The Fines, Penalties & Forfeitures Office (FPFO) will permit the recipient of a penalty notice 60 days in which to file a petition for relief, making the argument as to why the penalty should not be imposed. In petitioning for relief from a penalty notice, petitioners are, depending on the law or regulation involved, generally permitted the opportunity to make an oral presentation in addition to their written petition.
19 U.S.C. 1592, the provision of law that governs penalties imposed by CBP, provides for penalties against any person who:
By fraud (i.e., voluntarily and intentionally), gross negligence (i.e., with actual knowledge or wanton disregard), or negligence (i.e., fails to exercise reasonable care), enters or introduces (or attempts to enter or introduce) any merchandise into the commerce of the United States 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 (i.e., the falsity has the potential to alter the classification, appraisement, or admissibility of merchandise). Example: falsifying an invoice or a NAFTA Certificate of Origin.
CBP will always require the payment of duties properly due that were underpaid or not paid at all as a result of the violation. In addition, 19 U.S.C. 592 provides for the assessment of penalties at a maximum of:
- The domestic value of the merchandise in the case of fraud violations;
- Four times the loss of lawful duties, taxes and fees or the domestic value of the merchandise, whichever is less, or 40% of the appraised value of the merchandise if the violation did not affect the assessment of duty (or no duty was properly due), in the case of gross negligence violations;
- Two times the loss of lawful duties, taxes and fees, or 20% of the appraised value of the merchandise if the violation did not affect the assessment of duty (or no duty was properly due), in the case of negligence violations.
CBP may consider factors in mitigation of the above penalties as well as aggravating factors. The latter could lead to investigation by Immigration and Customs Enforcement (ICE) agents and possible referral to the office of the U.S. Attorney in the Department of Justice.
1. A U.S. company imported decks of playing cards. According to the J-List (19 CFR 134.33), playing cards do not have to be marked with the country of origin. Yet the shipment was held up by Customs because according to the same provision, the "outermost container in which the article ordinarily reaches the ultimate purchaser" must be so marked. These would be the packages containing 52 cards plus the jokers.
The importer received a Form 4647 from CBP notifying them of the lack of proper marking. The importer was given an opportunity to take the cards in at its warehouse and mark the packages with stickers showing the country of origin. CBP also requested that the importer send the foreign manufacturer a letter requiring the country of origin to be marked on all the packages in the future. The first shipment was subject to a 10% penalty, based on the value of the shipment.
Upon receiving a written statement that the marking was complete, CBP came to the premises to inspect the shipment. After a spot-check and proof that the letter had been sent, CBP waived the penalties.
Criminal penalties of up to $5,000 fine and one year imprisonment are also possible for marking violations. Of course, if an importer were to state to CBP that the goods had been marked when an inspection then showed they weren't, this could possibly lead to criminal charges. Also, if any of the goods are shipped from the warehouse before CBP released them, this represents a further violation.
A company can also find itself under criminal penalties (and some have!) for removing a country of origin marking, or changing it to say "made in U.S.A." or another fraudulent marking.
It is up to the U.S. importer to know the regulations on marking, and properly instruct the foreign manufacturer in the specifications. Were articles to arrive not properly marked, and the importer can produce specifications proving that it made its best efforts to comply and the manufacturer did not follow the "specs" it can be a mitigating factor.
2. A U.S. company imported mannequins from China. These were for resale to department stores, clothing stores, and other retailers for display. It classified the mannequins as "dolls" which is 9503.00.0080 in the Harmonized Tariff Schedule of the United States and were clearly shown as duty-free.
CBP did not have the imports high on its list for inspection, but one day did a random inspection of an inbound shipment and found the "dolls" were mannequins. But mannequins are properly classified under provisions of HTS 9618.00.0000 as "tailor's dummies and mannequins" which bear a 4.4% rate of duty.
CBP required the 4.4% duty and did an audit of the importer. All previous imports were reassessed at 4.4% duty plus interest from the date the duty should have been paid to the date the importer finally paid it.
CBP considered the matter closed once the payments were all made, as long as proper classification was made in the future, and paid closer attention to the importer's activities for some time. CBP considered it negligence rather than intentional. However, the importer was fortunate because even under negligence, the penalty (in addition to duties and interest) can be four times the value of the goods. Note that CBP can go back five years on these matters.
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