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UPDATED: 5/7/05
 

Customs Provides Final Recordkeepers With Guidelines to Mitigate Penalties

With the passage of the Customs Modernization Act (Mod Act), Customs no longer requires that certain documentation be presented at the time of entry. However, such documentation must be maintained and timely provided to Customs at a later date, if requested. In order to ensure that brokers and importers maintain the required documentation and information, Congress modified the "recordkeeping stature" (19 U.S.C. 1509) to provide for the imposition of "substantial" penalties for failure to maintain entry records and comply with a demand for production within a reasonable time.

Section 163.6 of the Customs Regulations provides for penalties for negligent violations, of $10,000 or 40 percent of the appraised value of the merchandise for each release, and for willful violation, $100,000 or 75 percent of the appraised value of the merchandise for each release.

By any subjective criteria, these are oppressive penalty amounts. In order to lessen the potentially crippling blow assessment of such penalties will have on Recordkeepers, Customs adopted the following guidelines for reducing the amount of the statutory maximum penalty:

Negligent Violations

If the violation is a result of the negligence of the person maintaining, storing or retrieving the demanded information, such person shall be subject to a penalty, for each release of the merchandise, not to exceed an amount ranging from a minimum of $5,000 to a maximum of $10,000 or an amount ranging from a minimum of 20 percent of the appraised value of the merchandise to a maximum of 40 percent of the appraised value of the merchandise, whichever amount is less.

Willful Violations

If the violation results from the willful failure to maintain, store or retrieve records, the penalty for each release will be an amount ranging from a minimum of $50,0000 to a maximum of $100,000 or an amount ranging from a minimum of 45 percent of the appraised value of the merchandise to a maximum of 75 percent of the appraised value of the merchandise, whichever amount is less.

The actual mitigated penalty amounts will vary depending upon the presence of mitigating or aggravating factors. Among the mitigating factors Customs will take into consideration are:
  • Impaired communications due to language barriers or mental and physical disabilities;
  • Extraordinary cooperation by the violator;
  • Immediate remedial action by the violator such as production of a demanded document prior to issuance of a Penalty Notice;
  • Evidence of prior good record; Inability to pay;
  • Documented contributory Customs error; Inexperience on the part of the violator; And
  • Demonstration of a high level compliance in comparison to the total number of records requested. Aggravating factors include:
  • The violator being experienced in Customs matters;
  • Evidence of concealment or destruction of the requested records;
  • Extreme lack of cooperation on the part of the violator;
  • Record of prior violations;
  • The violator has provided misleading information concerning the violation;
  • The violator has obstructed an investigation or audit; and
  • A demonstrated motive to evade production of the requested records.
It is significant to note that recordkeeping penalties are not assessable in situations where i) the failure to produce a demanded record is due to a situation beyond the control of the recordkeeper, such as natural disaster; ii) if it is demonstrated that the demand for the production of the record was substantially complied with; or iii) the information demanded was presented to and kept by Customs at the time of entry. This last point may be of particular significance to Customs brokers, which may inadvertently have presented the document to Customs at the time of entry.

One Free Pass

Just as a dog gets "one free bite," a recordkeeper is provided a means to get one free negligent violation of the recordkeeping requirements, before being subjected to the full weight of the penalties. Under the guidelines, the penalty is avoidable in certain, limited, circumstances if the violator is certified as a participant in Customs "Recordkeeping Compliance" Program. While, this program is theoretically available, to attain certification, a recordkeeper must be in compliance with Customs laws and regulations and have demonstrated to Customs that it has taken appropriate steps to implement various procedures and safeguards designed to ensure the proper maintenance of records and compliance with the applicable Customs recordkeeping requirements. Very few importers have taken advantage of this program. Consequently, only an insignificant number of importers are eligible.

We suggest that, rather than restricting the "free pass" only to "certified" Recordkeepers, the benefit should be afforded to all importers who, if fact, maintain a satisfactory recordkeeping system.

It is also important to be aware that Customs broker subject to a penalty for a disciplinary proceeding under 19 U.S.C. 1641 will not also be subject to any of the additional recordkeeping penalties.

In any case, Recordkeepers must accept the fact that Customs is very serious about the subject and adopt a program to avoid the assessment of a penalty for failure to provide a required document.

Customs final mitigation guidelines for the assessing and disposing of penalties incurred for not producing, on demand by Customs, records required by law or regulation to be maintained by a "recordkeeper" were published in the October 4, 2000, Customs Bulletin and Decisions, Vol. 34, No. 40.

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