Customs Publishes Guidance Regarding Penalties for Export Declaration Violations

On January 2, 2009, U.S. Customs and Border Protection (CBP) published guidelines regarding the imposition of civil penalties against parties who violate the export filing requirements of the Foreign Trade Regulations (FTR). Effective February 1, 2009, CBP will begin enforcing penalties of up to $10,000 for each violation. The guidelines impact U.S. exporters, freight forwarders, carriers and other parties involved in exporting from the United States who are already subject to the broad civil penalty authority of other U.S. agencies responsible for administering and enforcing U.S. export control and sanctions laws, including the Bureau of Industry and Security (BIS), Office of Foreign Assets Control (OFAC) and the Directorate of Defense Trade Controls (DDTC).

The guidelines allow for penalties to be assessed against multiple parties involved in the same export transaction and describe the factors that CBP will take into account in mitigating potential penalties. Parties involved in exporting should carefully review these guidelines and ensure that they have adequate internal procedures to safeguard compliance. To minimize potential penalty exposure and obtain greatest mitigation in case of a violation, parties should ensure that—

• export compliance programs clearly address and reflect the requirements of the FTR for ensuring that the export information filed with the government is complete, accurate and timely
• there is clear two-way communication and coordination between shippers and service providers to ensure that the export documentation and declarations submitted by multiple parties are complete, accurate and timely
• adequate records of filings, corrections, and training and awareness efforts are maintained to demonstrate a systematic compliance effort
• all filing errors detected after a filing has been made are reported to the appropriate personnel, so that remedial measures may be taken.

BACKGROUND

The U.S. government already possesses extensive civil and criminal penalty authority in connection with U.S. export transactions. BIS and OFAC can issue civil penalties of up to $250,000 for individual violations of the Export Administration Regulations (EAR) and U.S. sanctions programs, respectively. For violations of the International Traffic in Arms Regulations (ITAR), DDTC can issue civil penalties of up to $500,000 per violation.

The FTR govern the submission of information related to U.S. export transactions and are administered by the Census Bureau and CBP. Prior to the Foreign Relations Authorization Act of 2003, civil penalties for violations of the FTR (then known as the FTSR) were limited by statute to $1,000 per violation, as adjusted for inflation. The Foreign Relations Authorization Act of 2003 increased that amount to $10,000 per violation.

On June 2, 2008, the Census Bureau published a Final Rule that mandated electronic filing of export information for all shipments where a Shipper’s Export Declaration is required and increased civil penalties to $10,000 per violation of the FTR. In that rule, Census also made clear that it had delegated authority for enforcement of the FTR to the CBP and the BIS. The June 2, 2008, rule, along with existing CBP regulations requiring advance filing of cargo information for cargo departing the United States, arose out of a post-9/11 congressional mandate to use reliable export data for targeting and identifying suspicious shipments prior to export, as well as to collect quality export data in a timely manner.

NEW GUIDELINES

The new guidelines are intended to help implement the June 2, 2008, rule. They provide detail on how the agency will implement its penalty authority to enforce the requirements of the FTR. They also reflect the role CBP will play in administering civil penalties associated with export transactions through enforcement of the FTR.

Types of Violations

Under the new mitigation guidelines, the potential range of penalties for a transaction depends on: (1) the type of violation; (2) the number of prior offenses; and (3) the balance of mitigating and aggravating factors. The guidelines outline four types of FTR violations, each with its own penalty range, as described below:

1. Failure to file the export information in AES.

A failure to file occurs when CBP discovers that there is no record in the Automated Export System (AES) for an export transaction by the date the record is required, and CBP’s discovery is made before a violation is corrected by the responsible party. Importantly, any AES record that is filed later than 10 days after the due date is also considered a failure to file, regardless of whether or not the failure to file was discovered by CBP.

2. Late filing of the export information in AES.

Late filing occurs when an AES record is filed beyond the due date for the filing. Corrections filed after the government has discovered and notified the filer of the error will be considered failures to file.

3. Carrier penalties.

Exporting carriers may be assessed penalties for violations of any of their obligations under the FTR in connection with an export shipment. These include certain manifest filing and annotation requirements; the obligation to ensure that the exporter or its agent has provided a proper proof of filing citation or exemption legend before the carrier loads the cargo; and the obligation to notify the exporter/agent of changes to the date or port of export, in order to enable them to make any necessary corrections to the AES filing.

4. Failing to file all the necessary information in AES, filing incorrect information in AES or failing to comply with some other requirements of the FTR.

The guidelines also provide for penalties based on violations of any other requirement in the FTR. CBP provides a non-exhaustive list of examples, including the declaration of incorrect information (such as value, parties, commodity descriptions or port of export), failure to cite a license code or license number, failure to meet record-keeping and retention requirements, failure to provide the carrier with the required information and failure to correct AES information as changes become known to the filer.

Consistent with the regulations, CBP’s guidance makes clear that penalties may be assessed against any culpable party with respect to the export transaction, including the U.S. Principal Party in Interest (USPPI), the Foreign Principal Party in Interest, freight forwarders, brokers and carriers. However, although the regulations provide for penalties up to $10,000 per violation, the guidelines state that the $10,000 penalty maximum will apply to each transmission of export information for each party, even if a single transmission contains multiple FTR violations. Nonetheless, CBP may assess up to the full $10,000 penalty per transmission against each of the parties to the same export transaction.

Mitigating and Aggravating Factors

For each category of violation, the guidelines provide four mitigated penalty ranges based on the number of prior violations within the preceding three-year period: (1) first offense; (2) second offense; (3) third offense; and (4) fourth or subsequent offense. The guidelines also allow CBP to issue a warning or provide education or information for first-time violators but suggest that monetary penalties will be imposed for subsequent offenses.

Within each penalty range, CBP will consider a number of mitigating and aggravating factors detailed in the guidelines in determining the appropriate penalty to assess in each case.

Mitigating Factors.

CBP lists a number of mitigating factors including voluntary self-disclosure of the violation, clear documentary evidence of remedial measures, exceptional cooperation with CBP and demonstration that a systematic export compliance program is in place. Of these, voluntary self-disclosure is the only factor considered “extraordinary” by CBP, reflecting the agency’s desire to provide an incentive to disclose violations. However, the guidelines do not provide any indication of the percentage of mitigation CBP will afford for a voluntary self-disclosure.

Aggravating Factors.

Aggravating factors may offset mitigating factors. Factors that CBP may consider include whether: the party has a high number of violations in the preceding three-year period; there are multiple violations in the same export transaction (including violations of other export regulations); there is circumstantial evidence of intentional misconduct; or the party regularly exports as part of its business but lacks an export compliance program.

CONCLUSION

The new penalty guidelines underscore the heightened scrutiny CBP may apply to export declarations to ensure that all parties file accurate, consistent and timely information in connection with their export transactions. Moreover, the total penalty exposure under the new guidelines for most exporters, carriers and freight forwarders is potentially very high, given the opportunity for multiple erroneous export filings. In addition, the new guidelines suggest CBP will only forego monetary penalties for first offenders, even when a voluntary disclosure is filed.

Historically, CBP has been aggressive in its use of civil penalty authority for violations of the laws that it enforces. The issuance of these guidelines suggests that CBP may begin to enforce the FTR on a more systematic basis, at least in conjunction with export enforcement actions initiated by other U.S. agencies. Depending on the resources dedicated by the agency to FTR enforcement, CBP may also increasingly become the source of export enforcement cases that arise out of FTR violations and lead to the identification of violations of related export laws with more significant potential penalties.

All of these factors reinforce the importance of vigilance and clear communication among all parties to an export transaction in fulfilling their respective obligations under the FTR. Exporters, carriers, freight forwarders and other export parties can most effectively manage the associated risk by ensuring that they have adequate safeguards in place to ensure compliance with their respective obligations under the new regulations. Moreover, in the event of an inadvertent violation of U.S. export control law, these guidelines further emphasize the need to coordinate remedial action, including voluntary self-disclosures, to ensure that the FTR are taken into account.