1. Compliance April 29, 2003

2. What is Customs Compliance? A program of ‘shared’ responsibility in which Customs requires all importers to demonstrate reasonable care and informed compliance in the preparation and presentation of their customs entries.

3. Historical Perspective Originated in 12/93 as part of the Customs Modernization Act Passed as part of NAFTA legislation Addresses the reality of needing to do more with less Implemented as part of Customs’ fiscal ‘97 trade plan (May, 1996) Changes since implementation

4. Concerns & Benefits - USA Concerns: –Increased cargo examination –Increased cycle time –Name recognition - Bad Press! –Penalties –AUDIT

5. Concerns & Benefits - USA (cont.) Benefits: –No direct monetary belief –Reduced risk of audit –Fewer Customs examinations –Reduced / more predictable cycle time –Participation in Customs programs

6. Reasonable (?) Care Reasonable Care has not been nor will be defined “Checklist approach” to determine if reasonable care is being exercised Failure to act with reasonable care justifies penalties for negligence, gross negligence and fraud

7. Exercising Reasonable Care Document your process Consult with “experts” which include Customs Brokers, Attorneys, Consultants, U.S. Customs Officials, etc. Keep informed by attending seminars, reading Customs issuances, the internet, and conducting internal training

8. What is Customs Compliance? (as per U.S. Customs Compliance Strategy…) “A shared responsibility wherein the Customs Service effectively communicates its requirements to the trade, and the people and businesses subject to those requirements conduct their regulated activities in conformance with U.S. laws and regulations”

9. U.S. Customs Compliance Strategy Goals: Attain a 90% overall trade compliance rate Attain a 95% compliance rate for each industry identified as “primary focus” Maintain a collection rate of at least 99% of the revenue that is due the government

10. U.S. Customs Compliance Strategy (cont.) Customs expects the “highest possible compliance level” Customs has “clearly defined and communicated” the responsibilities to the trade and has, therefore, met its informed compliance burden The trade must now “conduct their regulated activities in conformance with U.S. laws and regulations with reasonable care”. To ensure reasonable care…Enforced Compliance!

11. Enforced Compliance When the trade fails to exercise reasonable care or comply with “voluntary compliance”: Increased exams & delays will occur Penalties will be assessed Seizure & forfeiture authority will be utilized

12. Enforced Compliance (cont.) Penalties: Violations of 19 USC 1592 Fraud - An amount not to exceed the domestic value of the goods Gross Negligence - The lesser of: (a) domestic value or (b) 4X lawful duties due. If non-revenue: 40% of dutiable value Negligence - The lesser of (a) domestic value or (b) 2X duties. Non-revenue = 20% of dutiable value

13. Enforced Compliance (cont.) “ Voluntary Compliance” Trade should willingly come forth with all known acts of non-compliance and submit Prior Disclosure. Penalties with Prior Disclosure: –Fraud: 10% of duties due or 10% domestic value (in addition to duties submitted as part of disclosure) –Gross Negligence / Negligence: Interest on duties due.

14. The Audit Process Has changed in both focus and design over time Newly designed to reach the ‘top’ 3000 importers over next 2-3 yrs. The Regulatory Audit The Compliance Assessment (CAT) The Focused Assessment

15. Key Issues Primary Concern of U.S. Customs: Classification Valuation Country of Origin Warehouse Receipt

16. Classification Importers must insure that the proper tariff classification and rate of duty are applied to their importations including any duty reduction regimes (NAFTA, GSP, CBTPA, etc.) Close adherence to GRIs is expected Use of “basket provision” for parts are highly suspect and should be avoided whenever possible

17. Valuation Invoice must reflect the true financial transaction including terms of sale, currency of transaction, parties to the transaction, royalties, assists, etc.

18. Country of Origin Duties can vary based on country of origin Multi - country manufacturing - raw materials from country A, manufacture of parts in country B, assembly in country C: What is the country of origin? C/O declaration vs C/O marking Assessment of additional duties + penalties

19. Warehouse Receipt Do invoice quantities match warehouse receiving records? Are discrepancies reported internally? Shortages = Insurance claims ; Overages = disclosure to U.S. Customs !

20. Most Common Problems Found During a Customs’ Audit Failure to include assist costs in import values Additional payments made to foreign manufactures not shown on invoice Transfer prices between related parties fail to cover all cost and profits Unsupported deductions for non-dutiable charges Inaccurate or incomplete description of articles as a basis for classification Failure to identify or meet country of origin requirements Incorrect quantities identified upon receipt not reported to Customs

21. Record Retention

22. Importers MUST: Maintain records defined in the “(a)(1)(A) List” for 5 years from the date of entry. Exception: NAFTA, Drawback Failure to produce a record requested by Customs may result in a penalty of $100,000.00 or 75% of appraised value PER RELEASE for willful destruction!!

23. What Can You Do?? Establish an internal compliance program complete with import procedures manual Perform regular internal audits Reach out to your service providers and other trade experts to assist Stay informed!

24. Thank You