With the emphasis on Canada’s AMPS penalty systems and PV (periodic verification) audits, exporters may be tempted to believe that their US compliance obligations don’t require as much attention. Nothing could be further from the truth.
The US Congress passed the Mod Act (Customs Modernization Act) a few years ago, shifting the burden of managing compliance from Customs to a joint onus with the importer. Under this “shared responsibility” model, it is up to US Customs to clearly inform importers of their obligations and help them to become compliant.
It is the importer’s responsibility to be informed and be compliant or face stiff consequences. The Customs regimes of Canada and the US operate on many of the same basic principles, relying on such fundamentals as the Harmonized System for classification of goods, similar valuation formulae, and the NAFTA agreement for relief of duties on products of North American origin traded between Canada, the US, and Mexico. As in Canada, US Customs can select any importer for a thorough review of recent transactions and export processes to test for compliance, and can impose penalties or withhold privileges if appropriate corrective action is not taken in a timely way. The audit process is similar, however the penalty system for non-compliance is more aggressive.
“A major difference is that the onus is on the importer of record to show ‘reasonable care’ in conducting business with US Customs,” says Bob Cowie, GHY’s Vice-President Consulting, “If this is not satisfactorily demonstrated, penalties can be imposed representing multiples of the duty involved or the entire value of the shipment, depending on the degree of negligence or fraud involved. For example, on a $100,000 shipment, fines assessed for negligence are up to 20% of value or $20,000, for wilful disregard up to 40% or $40,000, and for fraud, 100% or $100,000.”
While administrative tolerance can be applied on a case-by-case basis, there is little “wiggle room” once the importer is on Customs radar screen and flagged for greater scrutiny.
The best defense against such catastrophic penalties is to be aware of Customs’ concerns and demonstrate that internal processes and checks have been put into place to ensure products are accurately described, classified, valued and reported, and that internal controls and records link information throughout the supply chain for all export transactions.
You should be working with your Trade & Advisory Group who can help you evaluate your present state of compliance with US Customs regulations, and work with you to act upon areas of potential concern.
By showing this kind of diligence before your company is targeted, you are demonstrating a degree of reasonable care to understand and comply with your obligations