export compliance (4-13-10)

International Business Certificate Program

Introduction to Export Compliance

James Van Eenenaam Lighthouse International Trade

Consulting, LLC April 13, 2010

2010 Lighthouse International Trade Consulting, LLC

Introduction to US Export Controls

Overview • Laws and Regulations • Government Agencies

Export Administration Regulations (“EAR”) • Bureau of Industry and Security • Exporting Under the EAR • Items Subject to EAR Controls • General Prohibitions • Foreign Nationals and Deemed Exports • Classification – Export Control Classification Number

(ECCN), Commodity Classification List • Classification Requests • Embargoed or Sanctioned Countries


Introduction to US Export Controls

EAR • End Use / End User Screening • Red Flags • EAR Licensing • Recordkeeping • Voluntary Disclosures • Penalties • EAR Compliance Programs • Lessons Learned


Export Compliance Responsibilities

Maintaining your own compliance with US export laws and regulations Familiarizing yourself with certain key regulatory areas Being aware of potential criminal and civil penalties that can result from non-compliance with US export controls


US Export Controls Framework

The US export control laws and regulations are intended to serve various governmental agencies’ objectives and interests • Restrict export of goods and

technologies that could contribute to the military potential of US adversaries

• Advance US foreign policy • Prevent the proliferation of weapons of

mass destruction and terrorism


Export Jurisdiction of US Government Agencies

US Department of Commerce, Bureau of Industry & Security (BIS) • Legal Authority - Export Administration Act & Export

Administration Regulations (EAR) (15 CFR 730-774) • Jurisdictional Control - Export and re-export of dual-use

items as classified in 10 categories on the Commerce Control List (CCL)

US Department of State, Directorate of Defense Trade Controls (DDTC) • Legal Authority - Arms Export Control Act &

International Traffic in Arms Regulations (ITAR) (22 CFR 120-130)

• Jurisdictional Control – Export and temporary import of defense articles, defense services and technical data as identified in 21 categories on the US Munitions List (USML)


Export Jurisdiction of US Government Agencies

US Department of Treasury, Office of Foreign Assets Control (OFAC) • Legal Authority – Presidential Orders, Trading with the

Enemy Act and Foreign Assets Control Regulations (31 CFR 500-599)

• Jurisdictional Control – Economic and trade sanctions transactions (i.e., investment bans, freezing of assets), import transactional embargoes, and other commercial activities such as travel related restrictions.

Other government agencies have cursory export authority (i.e., the Census Bureau collects export data from the exporter pursuant to the Foreign Trade Statistics Regulations, 15 CFR 30)


US Department of Commerce Bureau of Industry and Security Most exports are subject to BIS Jurisdiction BIS administers the Export Administration Regulations (EAR) – 15 CFR 730-744 BIS controls exports and re-exports of “dual-use items” – items not subject to ITAR controls and identified on the Commerce Control List (CCL)


Exporting Under the EAR

“Export” • Actual shipment or transmission of items out

of the US • “Items” for export include commodities,

software, certain source code and technology • Export of technology, software, certain source

code releases made in a foreign country or made to foreign nationals in the US

• There is no registration requirement under the EAR for manufacturers or exporters of EAR-controlled items


Exporting Under the EAR Technology • Specific information necessary for the development,

production or use of a product • Takes the form of technical data (blueprints, diagrams,

plans, instructions, models, formulas, engineering designs and specifications, manuals) or technical assistance, which may take forms such as instruction, skills training, working knowledge, consulting services

• Technology transfer, in one form or another, are likely to occur everyday

• EAR awareness is required where EAR-controlled technology is developed, technology transfers occur, and foreign nationals are present


Items Subject to EAR Controls Items Subject to the EAR • All goods produced in the US and identified on the CCL,

regardless of their current physical location • All goods physically located in the US and identified on the

CCL, regardless of their country of manufacture • Products manufactured outside of the US that incorporate US

origin technology or software Items Not Subject to the EAR • Items exclusively controlled for export by another agency

(e.g., DDTC) • Publicly available technology & software (e.g., published

material) • Foreign origin items with de-minimis US origin content (10%

or less of total value for embargoed/terrorist supporting countries, 25% or less of total value for all other countries)


General Prohibitions Under EAR General Prohibitions 1-10, an exporter without a license, license exception, or determination that no license is required may not:

1. Export/re-export controlled items to listed countries 2. Re-export/export from abroad foreign-made items incorporating

more than a de-minimis amount of controlled US content 3. Re-export/export from abroad the foreign procured product of US

technology and software 4. Engage in actions prohibited by a denial order 5. Export/re-export to prohibited end-users or for prohibited end-uses 6. Export/re-export to embargoed destinations 7. Support weapons proliferation activities 8. Export/re-export an item through, or transit through, certain

prohibited countries 9. Violate any order, terms and conditions of a license or license

exception 10. Proceed with transactions with knowledge that a violation has

occurred or is about to occur


General Prohibitions Key Points • The nature of the item may subject it to stringent export

controls • Certain destinations (i.e., embargoed or sanctioned

countries such as Cuba, Iran, North Korea, Sudan, Syria) require US Government authorization for virtually all exports

• Export destined for certain end-uses (i.e., proliferation activities such as nuclear weapons, chemical/biological weapons, missile technology development require US Government authorization)

• US Government authorization is also required for exports to certain end-users (i.e., proliferators, terrorists, diversion risks)


Foreign Nationals and Deemed Exports

“Foreign Nationals” • Means any person who is not lawfully admitted for permanent

residence in the US and who is not a protected individual under the Immigration and Naturalization Act (8 USC 1324b(a)(3))

What is a “Deemed Export?” • The release of EAR controlled technology, software and certain

source code to foreign nationals in the US or abroad is deemed to be an export to that person’s home country

How can a Deemed Export Occur? • Transfers regardless of media (e.g., CDs, blueprints, hardcopy,

etc.) • Electronic transfers (e.g., via company intranet, internet) • Direct verbal transfers (e.g., meetings, presentations,

telephone) • Visual inspection of US origin equipment and facilities


Foreign Nationals and Deemed Exports

Key points • BIS will consider a foreign national’s most

recent citizenship or lawful permanent residence status

• Be aware of release of EAR controlled technology to US persons who act as a representative of a foreign interest

• A “foreign national” is not a US citizen or lawful permanent resident (e.g., green card holder)

• A “foreign national” is a visa holder (e.g., H1-B, L-1, etc.)


BREAK


Five Critical Questions to Ask Before Exporting

1. What are you exporting? • Is the item “specifically designed, developed, configured…” for a

military application subject to ITAR controls, or is the items “dual-use” subject to EAR controls?

2. Where is your customer located? • Is the export destined for a sanctioned or embargoed country?

3. Who are the parties to the transaction? • Is the individual or entity a “restricted party?”

4. Why is your customer buying the product? • Was due diligence conducted to determine whether the end-users or

end-uses relate to activities such as nuclear, chemical weapons, biological weapons, or missile development?

5. Are there any red flags? • Does the transaction involve any suspicious indicators that suggest

the export or re-export is destined for an unlawful end-user or end-use?

NOTE: Be careful not put on “blinders”; due diligence is required


Items Subject to EAR Controls The Commerce Control List (“CCL”) contains 10 categories of

items assigned Export Control Classification Numbers (ECCNs), Numbered 0-9

0. Nuclear Materials, Facilities and Equipment 1. Materials, Chemicals, Microorganisms & Toxins 2. Materials Processing 3. Electronics 4. Computers 5. Telecommunications & Information Security 6. Sensors and Lasers 7. Navigation and Avionics 8. Marine 9. Propulsion Systems, Space Vehicles and Related Equipment


CCL Categories ECCNs • CCL Categories contain ECCNs that each have a 5 digit

sequence “9A991 “Aircraft” and gas turbine engines not controlled by 9A001 or 9A101 and parts and components First digit = Category Second digit = Product Group Third & Fourth digits = Reason for Control Fifth digit = Sequential Numbering

• Each ECCN entry describes the following: reason for control; applicable Country Chart; list based license exceptions; unit description; related controls; related definitions and item descriptions

• More information available at • www.bis.doc.gov • Look under “Licensing” and “Exporting Basics”


ECCNs and License Determinations

I found my item on the CCL…now what? • Review reasons for control and Country Chart reference (e.g.,

“NS Column 2”) • Review Country Chart (EAR Supp.1 to 738) • Review list based exceptions • Review activity based exceptions • Review General Prohibitions • Review publicly available or not

I did not find my item on the CCL…now what? • Check to see if the item is subject to the jurisdiction of another

agency (e.g., DDTC) • If not, item may be “EAR99”, the following statement appears

at the end of each CCL category “EAR99 items subject to the EAR that are not elsewhere specified in this CCL category or in any other category in the CCL are designated by the number EAR99.” Review General Prohibitions


ECCNs and License Determinations

Key Points • The EAR permits the exporter to “self-classify”

items for export without assistance from the US Government, however, the exporter has the responsibility of correctly classifying items for export

• Review and review again at all possible ECCN entries

• If uncertain, seek the advice of a consultant prior to submitting a formal export classification request with BIS


Embargoed or Sanctioned Countries

The US has imposed embargoes or sanctions against a number of countries under US trade and export control laws and regulations • Examples of embargoed/sanctioned countries:

US trade embargo of Cuba, Iran and Sudan US export sanctions against North Korea and Syria

• Examples of activities subject to embargoes or sanctions

Export or re-export of goods, software or technology Financial dealings Brokering Travel


Embargoed or Sanctioned Countries

Key points • Also consider that BIS has focused on

the following countries as points of illegal diversion:

China, Cyprus, Egypt, Hong Kong, India, Malta, Pakistan, Russia, Singapore, Turkey, United Arab Emirates


End-User and End-Use Concerns Restricted Party Lists – US companies are prohibited from transacting with individuals or entities identified on the “Restricted Parties” Lists unless authorized by the US Government

• Denied Person List (Commerce) • Unverified List (Commerce) • Entity List (Commerce) • Specially Designated Nationals List (State) • Debarred Parties List (State) • Nonproliferation Sanctions List (Commerce)

Proliferation concerns – If an item is to be used in activities related to nuclear, chemical weapons, biological weapons, or missile/unmanned aerial vehicle (UAV) development, then US Government authorization is required


Diversion Risks “Red Flag” Indicators • The US Government has warned that certain suspicious export

activity could be a tactic to divert goods or technology to unlawful end users or end uses

• Awareness of “red flag” indicators can prevent an unauthorized export transaction

• The following “red flags” identified by the US Government should cause an order to be placed on hold until resolution

The customer or its address is similar to one of the parties found on a Restricted Parties List The customer is reluctant to offer information about the end-use of the item The products capabilities do not fit the customer’s line of business or the customer has little or no business/industry background The customer is unfamiliar with the product’s performance characteristics but still wants the products The customer is willing to pay cash for a very expensive item when the terms of sale would normally call for financing


Diversion Risks Routine installation, training, or maintenance services are declined by the customer A freight forwarding firm is listed as the products final destination The shipping route is inconsistent with the stated method of shipment or destination When questioned, the buyer is evasive and especially unclear about whether the purchased product is for domestic use, for export, or for re-export

Key Points • Red Flags awareness training should be provided to

individuals in certain positions such as Sales, Engineering, Compliance, and Shipping

• A notification procedure for reporting red flags and other potential export issues is a necessary element in an export compliance program


BIS Licensing Reviewing agencies have 30 days to return comment License application will be either approved, denied or returned without action (“RWA”) Can appeal license denials (e.g., escalation through Operating Committee (OC)/Advisory Committee on Export Policy (ACEP)/Export Administration Review Board (EARB) Applications can take several months to process The processing time clock does not begin to tick until BIS receives all necessary information from the applicant.


What Type of Authorization Does My Company Require?

Export of commodities, software, or technology for a specified transaction value and quantity • 748P (Individual Licenses)

Export of commodities or software for shipments of unlimited value and quantity • Special Comprehensive License

Key points • 748P used for technology transfers to foreign nationals in the

US • SNAP-R may be used to submit 748Ps and supporting

documentation • License validity is 2 years • License conditions may come with restrictions • Failure to adhere to the conditions of an export license may

result in license revocation, license revisions, monetary penalties, or loss of export privileges


Common Export License Exceptions

Shipments to Country Group B Countries (GBS) Additional Permissive Re-exports (APR) Servicing and Replacement of Parts and Equipment (RPL) Aircraft and Vessels (AVS) Key Points • License exceptions are different from other exclusions

from the EAR such as publicly available information, fundamental research, patents, etc.

• Careful attention must be paid to the stated conditions for the use of the exception


Recordkeeping Records to Keep • Export control documents and related documents listed

in the EAR Part 762.2 and Part 772

Record Format • Original or reproductions that meet standards of

legibility and readability requirements in Part 762.5

Retention Period • 5 years from the date of the last transaction

Key Points • Records may be kept in electronic media but must be

legible and easily retrievable • Missing records is a compliance “red flag” to BIS


What Happens if My Company Gets it Wrong?

Voluntary Disclosure (EAR Part 764.5) • Initiated by the exporter when an export violation is

identified Not deemed to be a disclosure without senior management support

• Violations disclosed are still investigated by the BIS Office of Export Enforcement (OEE)

• Voluntary disclosure is a mitigating factor in determining what administrative sanctions, if any will be sought by OEE

Key Points • Any violations must be disclosed prior to discovery by

BIS • Does not prevent transaction from being referred to the

Department of Justice for criminal prosecution


Penalties for Noncompliance Under the EAR

Civil Penalties • Greater of $250,000 or 2X value of transaction

(Corporate/Individual)

Criminal Penalties • General Violations: Greater of $50,000 or 5X value of

transaction (Corporate); Greater of $50,000 or 5X value of transaction, and/or 5 years imprisonment (Individual)

• Willful Violations: Greater of $1 million or 5X value of transaction (Corporate); Greater of $250,000 or 5X value of transaction, and/or 10 years of imprisonment (Individual)

Others • Denial of export privileges, license denial or revocation,

forfeiture of property, Negative publicity


Penalties for Noncompliance Under the EAR

Key Points • Greater US Government scrutiny (e.g.,

license submissions) for future exports • Fines grow for subsequent disclosures of

similar type violations


EAR Compliance Programs Similar to DDTC recommended compliance programs, BIS recommends an export compliance program contain the following: • Corporate Commitment Statement • Responsible Parties • Order processing and Shipping • Technology Control Plan • Classification and Licensing • Internal Review • Training • Notification • Recordkeeping • Violations & Penalties


Export Clearances

Customs Requirements Shippers Export Declaration or Automated Export System (AES) Record Destination Control Statements Frequently Seen Technical Violations


Customs Requirements

US Principle Party in Interest (USPPI) Responsibilities • If required, the exporter (USPPI) or an agent

must file an Automated Export System (AES) submission prior to export, unless the USPPI has received US Government approval for post –departure filings

• Power of Attorney required for an agent (e.g., freight forwarder) filing an AES submission on behalf of a USPPI


Automated Export System (AES) The AES is the electronic method of filing the SED and ocean manifest information directly with US Customs AES is a nationwide system, operational at all ports and for all methods of transportation AES was designed to assure compliance with and enforcement of laws relating to exporting, improve trade statistics, reduce duplicate reporting to multiple agencies and improve customer service Used by enforcement agencies (e.g., BIS, DDTC, ICE, CBP) to review export transactions Accuracy of the data reported in AES is the responsibility of the USPPI


AES Reporting Requirements

Reporting Requirements • Licensed Exports • All commodities valued over $2500 per

Harmonized Tariff Schedule (HTS) number or Schedule B number

• Not required for non-licensed shipments destined for Canada


Destination Control Statement (DCS)

Notice to Intermediate Consignee and Consignee The destination control statement is designed to prevent exported items from being diverted while in transit or thereafter Required to be printed on all copies of the invoice, air waybill and bill of lading

ITAR • “these commodities are authorized by the US Government for

export only to (country of ultimate destination) for use by (end user). They may not be transferred, transshipped on a non-contiguous voyage, or otherwise be disposed of in any country, either in their original form or after being incorporated into other end-items, without the prior written approval of the US Department of State.”

EAR • “These commodities, technology or software were exported

from the United States in accordance with the Export Administration Regulations. Diversion contrary to US law prohibited.”


Destination Control Statement (DCS)

A DCS is just one form of “notice” (e.g., contract clauses) to parties regarding their export compliance responsibilities under US law Make sure freight forwarders use the DCS on air waybills and bills of lading


Frequently Seen Technical Violations

Omissions or Reporting Errors • Failure to File an AES submission • Failure to cite applicable license, exception or exemption

in AES submission • Failure to submit export/import license with Customs at

Port • Incorrect export information codes • Incorrect value, items, HTS/Schedule B numbers, end-

use country, etc.

Key Points • Mistakes in entering data are common • Request from the Bureau of Census a report of your

company’s AES submissions for self-auditing purposes


Government Initiatives and Industry Leading Practices

Government Efforts • Foreign Trade Division (Census) to perform compliance

reviews • Greater scrutiny of AES submissions by enforcement

authorities Industry Best Practices • Self-audit AES submissions • Audit freight forwarder AES submissions • Provide training and refresher training as needed

Key Points • BIS in particular is looking closely at the use of license

exceptions reported in AES • Proactive auditing could reduce systemic and non-

systemic errors


James Van Eenenaam Lighthouse International Trade

Consulting, LLC [email protected] (949) 842-2473

Questions and Answers


Introduction to US Import Controls Introduction to US Customs & Border Protection Importing Fundamentals Tariff Classification Special Trade Programs Customs Valuation Country of Origin Quantity Recordkeeping Prior Disclosure and Penalties Enforcement Maintaining Compliance Customs Trade Partnership Against Terrorism New Developments


US Customs & Border Protection

Housed under the Department of Homeland Security Primary Goals • Secure America’s borders • Protect against terrorism • Foster world trade • Facilitate the flow of cargo into the US • Enforce trade laws related to admissibility • Regulate trade practices to collect appropriate revenue • Collect import duties, taxes and fees • Enforce the regulations of participating government

agencies (PGAs)


US Importer Requirements Importers are expected to: • Exercise reasonable care when classifying and valuing

imported merchandise, and when furnishing Customs with tariff classification, merchandise valuation, pricing and financial information

• Apply information that Customs makes available (e.g., binding rulings, decisions and guidelines)

• Establish internal controls over Customs operations (import manuals, written procedures)

• Conduct training • Seek clarification from Customs requirements when not

understood • Be aware of appropriate laws, regulations and reporting

requirements • Maintain appropriate transaction records


Entry Process Automated Manifest System – certain advance data elements are provided to Customs 24 hours prior to container landing at the port of export Entry/Release – Assuming Customs receives all necessary details in advance of the actual arrival of the goods, the goods will enter into the US and be released immediately upon arrival Entry Summary – Declaration of information on imported goods, prepared by a customs broker on an entry summary form and submitted to Customs • Generally states the HTS classification number, country of origin,

description, quantity, and CIF value of the goods, and the estimated duty to be paid

Payment – The importer pays the applicable import duties and fees Liquidation – The official final determination by the Customs authorities of the classification and value of the imported merchandise (generally 314 days from the date of entry)


Importing Fundamentals

Who is involved in importing merchandise? • Exporter • Freight Forwarder / Carrier • Customs Broker • Importer • US Bureau of Customs & Border

Protection


Importing Fundamentals – Exporter

Exporters • Prepare merchandise for shipping and

depending on shipping terms arranges for the goods to be picked up for delivery

• Exporter prepares the commercial invoice and packing list

Name of seller, name of purchaser, description of merchandise, purchase price, terms of sale, quantity, country of origin, dutiable assists, all charges upon the merchandise Must be in English Harmonized Tariff Schedule number(s) The port of entry to which the merchandise is shipped


Importing Fundamentals - Exporter

Typical charges (itemized) usually included in the cost of merchandise (not an exhaustive list): • Freight • Insurance • Commissions • Containers • Packaging

All goods and services may not be included in the invoice price: • Tools • Dies • Molds • Engineering Work


Importing Fundamentals – Freight Forwarder and Customs Broker Freight Forwarder / Carrier • Agent that arranges the movement of

the cargo by contracting carriers for air, land and sea transport

• Prepares the manifest that includes a summary of the cargo on a vessel or aircraft

• Prepares a bill of lading


Importing Fundamentals – Freight Forwarder and Customs Broker

Customs Broker • Prepares entry packet (CF-3461, Commercial Invoice,

Packing Slip, etc.) for release of merchandise from CBP custody

• Transmits entry documents to Customs via Automated Broker Interface

• Duties are payable within 10 days from entry summary date

• Maintain the following information per entry CF7501/CF3461 Commercial Invoice and Packing List Airway Bill or B/L Certificates of Origin All other documents involved with the importation of the goods


Importing Fundamentals – Importer Importer • Coordinates with the Customs Broker to clear the

shipment through US Customs • Coordination of various departments to obtain

information related to imports • Confirms all necessary documents are available to

submit to Customs • Provides broker with correct information regarding

imports so broker can submit to Customs • Provides supplemental information that cannot be found

on the Commercial Invoice to the broker to enable filing of the Customs entry

• If the commercial invoice is missing information, the broker and/or Customs may request additional information from the importer


Importing Fundamentals - Customs

Import Specialist reviews all import documentation to allow clearance of entry for delivery to importer Customs will make a decision to release merchandise or schedule an inspection • Inspections occur for many reasons, targeted HTS

number, first time importer, errors on entry documents

Customs may issue a CF-28 (Request for Information) to importer to request additional information even if the shipment was released. The inquiry may be related to classification, valuation, country of origin, ADD, supply chain security, trade program eligibility


Tariff Classification All imported articles must be classified Distinct tariff classification numbers per the harmonized Tariff Classification Schedule (“HTS”) HTS contains approximately 65,000 HTS classification codes Finding the correct classification can be extremely difficult Many items may be classifiable in one of several potential categories The Us HTS code is a 10 digit (all numeric) assignment used to define the imported article Proper tariff classification is one of several reasons that accurate part descriptions are essential on supplier invoices


Tariff Classification Correct tariff classification is essential for the international movement of goods for several reasons: • Facilitates smooth entry of goods through US and

foreign customs territories • Determines the amount of duty assessed • Duties can range from duty free to >100% of the

product value • Determines preferential treatment eligibility under

various trade programs like NAFTA, GSP, and others • Determines applicability of quotas • Determines applicability of ADD or CVD • Determines participating government agency (PGA)

import requirements


Organization of the Harmonized Tariff Schedule

General Notes General Rules of Interpretation (GRIs 1-6) Additional Rules of US interpretation All Product Categories • Chapters • Heading • Subheading (tariff rates and preferential

treatment) • Statistical annexes • Alphabetical index • Harmonized for members of the World Trade

Organization


Tariff Classification Ruling Requests • Submitted to Customs if the classification (or valuation,

marking, country of origin, etc.) of a product is unclear and it falls within a gray area

• Issued by Customs in response to prospective shipments • Customs should issue a ruling letter within 60 days that

interprets and applies the provisions of Customs and related laws to the requests specific set of facts

• Determination valid only for importer that requests information and is specific to the product described in the request

• Importers should seek expert advice prior to submitting the ruling request

• Referred to as a Binding Tariff Information (BTI) in the European Union

• China also has binding ruling requests as well as pre-classification ruling requests available on goods prior to importation


Tariff Classification Importer’s Responsibilities • Assign a department or specific individual who will be

responsible for determining tariff classifications of all imported products

• Compile all the necessary information to make a tariff classification determination

This includes product specifications and material make-up, brochures, and end-use of product

Obtain access to the necessary resources to determine tariff classifications • HTS • Customs Regulations • Informed Compliance Publications • Tariff Classification Rulings


Special Trade Programs Decrease trade barriers among members and provide access to larger export markets for developing countries Account for 50% of world trade Agreement on Trade in Civil Aircraft (ATCA), Generalized System of Preferences (GSP) Free Trade Agreements Reciprocal arrangement in which trade barriers (tariffs) between participating countries are eventually abolished NAFTA, Israeli-US FTA, Australia-US FTA


Special Trade Programs Special Tariff provisions • Duty savings are conditional and products

must meet certain requirements 9801 (US Goods Returned), 9808 (Importations of the US Government)

• Qualifying products are imported at a reduced duty rate or duty free

• Importers are expected to qualify products • Increased analysis and review to confirm

qualification • Requires coordination with

supplier/manufacturer


Customs Valuation

All imported merchandise is subject to appraisement based on one of the following valuation methods (in sequential order) • Transaction Value (the most preferred method

of appraisement) • Transaction Value of Identical or Similar Goods • Deductive Value (Resale minus) • Computed Value (Cost plus) • Other Fallback method


Transaction value Transaction value is the Price Actually Paid or Payable (PAPP) for the merchandise when sold for exportation Plus amounts equal to: • Selling commissions • Royalties or license fees • Assists (tooling, molds, materials, foreign design work) • Packing costs • Proceeds of any subsequent resale of the imported

merchandise that accrue directly or indirectly to the seller There is a presumption that all payments made by a buyer to a seller are part of the price actually paid or payable for the imported merchandise


No Value Shipments How do we handle situations where no value may be present? • Samples, trial shipments, items not subject to a

Purchase Order, Contract or Forecast • Customs requires all items to have a value, meaning

everything is worth something, or goods can not be valued at $0. A value must be stated on the Commercial Invoice. The value should be reflective of the cost of the good if it was to be sold.

• If goods are not for purchase, it is important that the importer communicate with the supplier/exporter/shipper that the following statement be placed on the Commercial Invoice/Pro-forma Invoice:

“Value for Customs Purposes Only”


Assists An Assist is anything supplied directly or indirectly and free of charge or at a reduced cost by the buyer on imported merchandise for use in connection with the production or sale for export Assists provided to foreign suppliers must be tracked • Purchasing • Accounting • Customs Compliance Team • The foreign supplier must separately itemize assists and other

additions to the customs value on the customs invoice • Review of Commercial Invoice and information filed to

Customs by the Customs Broker • Post-entry adjustments made and reported to Customs, as

necessary


Country of Origin Importance of Country of Origin: Determining a good’s country of origin is essential for accurate duty payment and declaration to Customs • A goods country of origin is defined as its “place of

manufacture, production, or growth.” • If produced in more than one country, its country of

origin is determined by a tariff shift test • A tariff shift occurs when processing causes the item’s

classification to change from one designation to another • Country of origin affects the duty rate and applicability

of preferential trade programs Certificates of origin Shipping documents Commercial invoices


Country of Origin It is essential that products are properly marked to determine that the end-user is aware which country the product originated in • Marking of containers • Marking of products Marking exceptions • “J List” – a list of items which in and of

themselves are excepted (19 CFR 134.33) from marking but this does not include their containers or packaging materials. Examples include screws, bolts, nuts, washers


Country of Origin – Risk of Noncompliance

If a product is not properly marked at the time of importation, a special marking duty equal to 10% of the Customs value may be assessed unless the product is exported, destroyed or properly marked under US Customs supervision Improperly marked goods may be detained by Us Customs and merchandise already released from US Customs custody is subject to redelivery for marking violations Customs expects importers to confirm that the imported products are properly marked Importers should request country of origin information on shipping documents and request certificates of origin


Quantity Quantities of imported product affects the declared value and amount of duty collected by US Customs Discrepancies between the declared quantity and the received quantity could result in the following: • A loss of revenue for US Customs • Overpayment of duties by the importer • Affect US Government Trade Statistics • Create potential compliance issues for the

importer


Recordkeeping All records and data required for one entry of merchandise whether or not required for presentation at the time of entry:

• 19 USC 1509 (a)(1)(A) list • Must be retained for a minimum of 5 years from date of entry • Must be produced upon US Customs request • Records include computer programs necessary to retrieve

information • Failure to comply with demand for production of (a)(1)(A)

records: For willful failure to maintain, store or retrieve the demanded information, the lesser of $100,000, or 75% of appraised value for each release of merchandise For negligent violations, the lesser of $10,000 or 40% of appraised value for each release, plus potential loss of any special duty rate (e.g., GSP, NAFTA)


Examples of Transaction Records

Required by the (a)(1)(A) List • Entry documents (CF7501, CF3461) • Air Waybill or Bill of Lading • Commercial Invoice • Packing List • Documents or certifications required for

special categories of merchandise (e.g., Special Trade Programs)


Examples of Transaction Records Additional Suggested Documents to be Maintained

• Purchase order • Purchase order confirmation • Receiving reports • Chart of Accounts • Audited financial statements • SEC filings • Royalty/license fee contracts • General ledgers • Documented internal controls • Accounts Payable • Correspondence files • Proof of Payment • Disbursement records • Documents relating to assists, commissions, transportation costs and

any other documents directly or indirectly related to imported merchandise


Compliance with Recordkeeping Requirements

Who are the Recordkeepers under the statute? • Importer, consignee, importer of record, entry

filer or person who, Imports merchandise into the United States Files a drawback claim Transports or stores merchandise carried or held under bond Knowingly causes the importation or transportation or storage of merchandise carried or held under bond into or from the Customs territory of the United States An agent of any person described above A person whose activities require the filing of a declaration or entry, or both


Prior Disclosure An admission of a potential violation before or without the knowledge of the commencement of a formal investigation Cannot be used for recordkeeping violations or criminal penalties Under prior disclosure, the importer is still liable for any potential loss of revenue due to US Customs (duties, fees) that would have accrued against the original importation(s) Benefits of filing a prior disclosure • Penalties reduced to the interest on the amount of lost duty

and fees • Allows flexibility in computing the loss of revenue • Demonstrates the good will of the importer to rectify Customs

issues and discrepancies Other methods of correcting errors with US Customs • Post entry Adjustment (PEA) • Reconciliation


Interaction with Us Customs CF 28 – Request for Information • Issued against a particular entry or entries to

obtain additional information about the imported merchandise

CF 29 – Notice of Action • Issued against a particular entry or entries to

propose to increase duties due to change in classification

CF 4647 – Notice to Mark of Redeliver • Issued in response to a country of origin

marking violation CF 5955A – Notice of Penalty


Non-Compliance Risks US Customs may detain and inspect any imported shipment that has insufficient or incomplete documentation or if the goods are improperly marked US Customs can issue a pre-penalty notice when it has reason to believe that the importer’s action have reached the level of negligence, gross negligence or fraud US Customs may conduct a Focused Assessment audit which may include a review of the importer’s internal controls and sample testing • May last from 6 months to several years

US Customs may conduct Quick Response Audits which are single issue audits with a narrow focus; designed to address a specific objective within a shirt period of time • Typically last from 3 to 6 months


Customs Audit The audit process involves the following: • Examine the documentation relating to imports

over a specified period to foster compliance with laws and regulations

• Verification covers all relevant Customs Programs, including valuation, tariff classification, and country of origin as well as compliance with preferential trade programs

• Reviews the links between the importer’s purchasing, receiving, customs reporting and accounting systems

• Reviews any importer internal control systems related to imports/exports


Maintaining Compliance Insufficient documented internal controls • To manage discrepancies • Not applied to the import process

Minimal monitoring and/or over reliance on the Customs Broker No management oversight of compliance issues Staff lacks knowledge High turnover of personnel Complex customs transactions Prior history of customs problems or violations No testing or post-entry audit process to monitor compliance


Industry Leading Practices to Achieve and Maintain Compliance Conduct periodic internal compliance reviews of import operations Conducting, designing and implementing a comprehensive corporate import compliance program identifying customs compliance as a priority and designating responsible officials to carry out the program Increase awareness of Customs laws and regulations throughout the supply chain Provide training opportunities for key personnel Updating policies and procedures as necessary and communicating those changes


Industry Leading Practices to Achieve and Maintain Compliance Maintain interdepartmental communication Visit the CBP web site and other trade related web sites to enhance knowledge Identify Customs Brokers that are clearing entries for the importer and implement procedures for broker oversight and review Maintain communications with Customs Brokers regarding any Requests for Information, Notice of Action from US Customs and communicate any changes to classification or any other relevant information related to imported merchandise Participate in industry trade associations and attend trade seminars (e.g., International Business Certificate Program)


Internal Testing and Monitoring Determine that import controls are in place to effectively manage the import process • Upper management buy-in and support • Document policies and procedures • Communicate policies and procedures to

affected personnel – valuation, classification, quantity verification, origin verification and recordkeeping

• Training for personnel responsible for the importing process – accounting and finance, warehouse staff, logistics department, purchasing, inventory, legal


Internal Testing and Monitoring Conduct periodic reviews of the import process by third party customs experts Document findings and recommendations internally and to Customs Brokers If areas of non-compliance are identified, expand scope of transactional testing to quantify loss of revenue if necessary Implement a corrective action plan Tender any additional duties due to US Customs via a prior disclosure or post-entry amendment


CTPAT and New Developments Customs Trade Partnership Against Terrorism • Designed to increase security of cargo entering the US • Maintaining the flow of trade to reduce supply chain

disruptions

10 + 2 • Advance trade data elements provided via AMS or

Automated Broker Interface (ABI) • 24 hours prior to vessel loading • Manufacturer name/address, seller name/address,

container stuffing location, consolidator name/address, buyer name/address, ship to name/address, importer of record, consignee number, country of origin, commodity classification – plus container status messages and vessel stow plan

Questions and Answers James Van Eenenaam

Lighthouse International Trade Consulting, LLC [email protected] 949-842-2473

export compliance (4-13-10)

Documents

automated export system

industry leading practices

destination control statement

export administration regulations

aes submission failure

export control laws

commerce control list

tariff classification