Prosecutor, judge, and jury?
U.S. Customs' wide-ranging enforcement powers mean that even a simple compliance mistake can have costly consequences. Here's one example of what can go wrong.
By -- Logistics Management, 10/1/2000
Penalties are the big stick that the U.S. Customs Service uses to ensure that the international trade community follows the U.S. Customs Regulations. They also serve as a means to encourage importers and others to exercise "informed compliance."
Customs penalties, which can be arbitrary, non-judicial, and expensive, are based on the premise that the cited party has indeed committed the alleged violation: Receive a penalty notice and you are guilty unless you can prove otherwise. The amounts assessed as punishment, moreover, are oftentimes breathtakingly large.
Yes, there is supposed to be a tradition in the United States of innocence until proven otherwise, there is the Bill of Rights, and there is the judicial branch sitting in check of the executive branch's excesses. None of this, however, appears to apply to an agency such as U.S. Customs that has been empowered to conduct business as it sees fit by Congress.
Customs enjoys great power. Not only has the agency written the regulations that it enforces, but it also determines whether the cited party has violated those rules and reviews any appeal that the cited party may make. Finally, Customs collects the penalty that it assesses in any particular situation.
The agency's reach over international trade matters is broad. Customs can and does issue penalties for mistakes on import entry documents, failure to keep appropriate records, failure to file documents on time (or at all), failure to control imported goods properly, and so forth. These penalties may apply to importers, brokers, shipping agencies, airlines, terminal operators, truckers, individuals returning from overseas trips, and virtually anyone else involved in international trade. Customs also issues penalties for fraud.
Let's take a look at a hypothetical but fairly typical penalty situation. A "walk through" shows that even a seemingly simple situation can become a costly and time-consuming problem.
Ignorance Is No Defense
In our hypothetical situation, a local trucking company is picking up imported goods at an airport for delivery to the consignee. The shipment is a carton of sample sweaters that may be put on sale during the winter. The consignee-the importer-has been after the customs broker to find the shipment and get it delivered as soon as possible. The broker finds the shipment, transmits the necessary data for clearance to Customs, and faxes a delivery order to the trucker. The trucker goes over to the airport with the delivery order and picks up the freight. The driver signs for the receipt of the goods from the terminal operator and leaves a copy of the delivery order. From there, he delivers the goods to the consignee. Seems pretty straightforward.
But unfortunately, it is not a straightforward transaction. Sweaters are almost always subject to textile import quotas. Customs, in fact, had indicated to the broker that an intensive examination would be required. The broker, however, forgot to tell the trucker that the goods had to be inspected prior to delivery. To make matters worse, the terminal operator released the goods to the trucker without written assurances that the goods would be inspected, and the trucker delivered the goods without stopping at the examination station.
There are at least four violations of the regulations here:
The broker neglected to inform the trucker about the inspection;
The terminal operator released the goods without ensuring that an inspection would be done;
The trucker removed the goods from the terminal without stopping for an inspection; and
The importer took delivery of goods that it should have known required an inspection.
Customs authorities would characterize this situation as a technical violation of the regulations-that is, there was no loss of duty and there was an "insignificant impact on enforcement of the laws of the United States." The agency most probably would issue a penalty to each of these violators. In the trucker's case, that could be $1,000 or more.
The trucker, which was paid only $50 to do the pickup, thinks $1,000 is unreasonable. There are basically three courses of action it could take. It could pay the penalty and be done with it. Or it could write a letter of petition outlining the extenuating circumstances that support its argument that it should not be penalized. Another possibility is for the trucker to write a letter of petition containing facts, exhibits, documents, and testimony that prove that the alleged violation did not take place.
Customs is usually very careful about doing its research before it issues a penalty for a regulatory violation. It's unlikely, therefore, that the third option would be successful. The trucker will have to decide between the first and second options. Which is cheaper? Which has the higher probability of success?
The Petition Process
The trucker decides to petition Customs to eliminate or mitigate the fine. The trucker could either write the letter of petition itself or hire a qualified customs broker, consultant, or attorney to do it. In this case, the trucker has decided to represent itself.
The first step is to look up the relevant regulations on Customs' Web site (www.customs.treas.gov) or in other standard industry reference works. In addition to determining which regulations have been violated, the trucker should research the agency's guidelines for mitigation of such matters.
The next step is to get the facts from all of the parties involved (including the customs broker, driver, dispatcher, and terminal operator) as well as copies of any relevant documents. The trucker also should notify its surety company (the writer of the carrier's Customs bond) that it has been cited for a penalty and that it is responding to the penalty assessment. The surety company needs to know this because it would be liable if the carrier failed to settle the penalty with Customs.
The trucker now collects the relevant documents and puts together its petition. It obtains a copy of the delivery order from its own records and a copy of the delivery order from the customs broker. It also gets a copy of the aircraft manifest from the terminal operator.
Next, a company executive writes a letter of petition. In that letter, he states that the driver only knew what the customs broker told him via the delivery order (i.e., that he was to pick up the freight and deliver it to the consignee). He also argues that the terminal operator should only have given him the freight with the proviso that it must go to the examination station. The trucker further states that it is only a minor party in all this and notes that there was no loss of revenue to the government and no intent to violate the regulations. Finally, he comments that the company's economic stake in the import shipment in question was so small-a $50 pickup and delivery fee-that the $1,000 penalty is unfair. The trucker then mails the letter and supporting documents to Customs.
Several weeks later Customs writes back that the petition for relief was denied. The $1,000 penalty is valid and due.
The trucking company's executive is dumbstruck. He consults with a customs broker that he does some business with. Then he consults with an attorney. Both note that he has been cited under U.S. Code Title 19 Section 1595A, a law that states that any party in this delivery of sweaters can be faulted for the mishap. Both also note that a penalty of this kind is subject to published guidelines (19 USC 1623). The penalty is called a "fixed-sum penalty amount." Previously, infractions of this sort usually were mitigated down to $100, but recently the standard fine has been raised to a $500 minimum. The trucker is also informed that it could file a supplemental letter of appeal or petition to try to get the $1,000 penalty reduced.
The trucker acknowledges that this is a job for a specialist. He tells the lawyer to write a supplemental letter of petition.
The lawyer writes the letter, making reference to Treasury Decision 99-29, which addresses this exact situation and the resulting damages. The letter indicates that the designated range of this penalty is $100 to $500. The lawyer also states that if, in the judgment of the Penalty Officer, the fine will not be further mitigated, then the trucker wishes to make an oral presentation.
Customs accepts the supplemental letter of petition and mitigates the penalty to $500. The lawyer is thrilled; the trucking company executive thinks his firm is still being victimized. He wants justice; he wants to go to the Supreme Court. He does not care about the cost of the issue; he wants to make a point.
The lawyer says that the next step in this process would be to either pay the mitigated fine or sue Customs in the Court of International Trade in New York. The basis of the suit would be that Customs had overstepped the authority that Congress has given it in these matters. The lawyer notes that the filing fee for the suit is $150, that there are numerous other legal costs, and that, in essence, this is not a good economic proposition. The $500 penalty may not be fair, but it is much less than the potential final cost of the whole incident.
The trucker thinks for a full minute. He says that he will pay the $500 penalty and hangs up the phone. He then calls in the dispatcher for a closed-door "meeting" to review procedures for picking up international freight. The trucker has just received (and paid for) a lesson in informed compliance and the extent of the powers that have been granted to Customs by the federal government.
Rodney C. Schonland is a licensed customs broker and customs attorney in Boston, Mass. He writes regularly on customs practices and law for Logistics Management & Distribution Report.
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