Trade Compliance

1
Trade Compliance Internal Controls
Understanding the Keys to Successful Importing
Robert J. Pisani Pisani Roll PLLC 1629 K St. NW
Suite 300 Washington, DC 20006 Tel
1.202.466.0960 Fax [phone] rpisani_at_worldtra
delawyers.com www.worldtradelawyers.com
2
U.S. Customs Border Protection (CBP) Mission

• Guardian of the Nations Borders
• Safeguard the Homeland at and beyond the borders
• Protect the Public against terrorists and
  instruments of terror
• Enforce the laws of the USA while fostering
  lawful international trade and travel
• Serve the public through vigilance,
  professionalism and integrity
• Source CBP Website www.cbp.gov

3
CBP Import Challenges

• 326 Sea, Land and Air Ports of Entry
• Import Value in 2000 _at_ 1.2 billion Import
  Value in 2007 _at_ 2.2 billion
• Over 30 Million Customs Entries in 2007
• 11.6 million container shipments brought to the
  U.S. by over 1,200 carrier companies operating
  over 50,000 voyages
• Physical Inspection of Containers Less than 5
• Approximately 800,000 U.S. importers

4
CBP Priority Trade Areas

• Textiles/Wearing Apparel
• Intellectual Property Rights
• Trade Fraud
• Import Safety
• Agriculture
• Revenue
• Anti-Dumping/Countervailing Duties

4
4
5
Recent Customs Enforcement Initiatives (or
Importing is not for the meek!)

• Current CBP trend is toward greater trade
• enforcement
• Civil Penalties (19 USC 1592)
• Focused Assessments (i.e., Customs audits) may
  result in enforcement actions
• Public Health Safety Concerns
• Intellectual Property Rights Enforcement
• Free Trade Agreements Complicated import
  requirements can lead to non-compliance and
  penalties

5
5
6
How CBP Selects Import Audit Areas

• ELEMENTS OF A RISK ASSESSMENT
• Significance / Quantitative
• Large dollar transactions
• High volume of transactions
• Sensitivity / Qualitative
• Priority Trade Issues
• Political Impact
• Complexity
• Highly technical in nature
• Requires Extensive Documentation
• History of Non-compliance
• Pre-entry
• Post-entry
• Adequacy of Internal Controls
• Source Tom Jesukiewicsz (Sr. CBP Auditor Long
  Beach CA)

6
6
7
Internal Controls The Keys to Import Compliance

• Internal controls are the measures an importer
  adopts to foster adherence to CBP policies and
  procedures incorporates risk management
  principles
• In a study of CBP audits, the agency learned that
  importers without internal controls had an
  average revenue loss of over 400,000 whereas the
  average loss of revenue for importers with
  internal controls was _at_ 45,000
• Importers with strong internal controls and a
  robust Import Compliance Program face fewer
  penalties and supply chain disruptions

8
CBP Areas of Compliance Interest

• Tariff Classification (e.g., Incorrect HTS and/or
  poor invoice descriptions)
• Valuation (e.g., Undervaluation Undeclared
  Assists)
• Country of Origin (e.g., illegal transshipment)
• Quantity Discrepancies (overages shortages)
• Preferential Trade Programs (e.g., GSP, NAFTA,
  FTAs)
• Recordkeeping
• Post Importation Price Adjustments
• Retroactive Transfer Price Adjustments

8
8
9
How an Import Compliance Program Can Save You
Money

• CBPs Compliance Best Practices for Importers
• Demonstrate Management Commitment
• Establish Compliance Goals
• Develop Formal Policies and Procedures (e.g.,
  Manual SOPS)
• Develop Training Program (Recurrent keep logs!)
• Conduct Internal Control Reviews (i.e., TEST
  controls!)
• Create a Compliance Group or Department
• Access to Management for Needed Resources
• Develop compliance requirement for vendors
• Develop a Recordkeeping Program
• Partner with CBP (when appropriate)

9
9
10
Key Relationships that Affect Trade Compliance
10
10
11
Steps to Building a Compliance Program First
Steps

• Request your Trade Data from CBP for the past 5
  years (also called ITRAC or OST Data - may be
  requested from CBP via a Freedom of Information
  Request)
• Review the Trade Data (a gold mine of information
  about your imports!)
• Basic trade data includes HTSUS, Brokers,
  MIDs, Ultimate Consignee,
• Quota/Visa, Entry Date, Transport Mode,
  Rulings, Ports, Value Quantity,
• Origin, SPI, Duties Paid, Relationship
  and Entry Types
• Look for cost saving opportunities! (e.g., Are
  you claiming NAFTA
• Eligible imports? FTAs being used? Are
  you using too many
• brokers?)

11
11
12
Steps to Building a Compliance Program Internal
Controls

• Corporate Compliance Statement shows upper
  managements buy in
• Customs Compliance Manual shows awareness of
  rules and regulations
• Process Map of Customs Operations shows
  thoughtful consideration of the totality of an
  import transaction
• Written Procedures shows systemic,
  institutional approach to compliance
• Periodic Internal Reviews (Self-Assessments)
  shows commitment to ongoing improvement
• Compliance Training Ongoing commitment
  reduces risk of non-compliant transactions

12
12
13
Written Procedures Should Be

• Developed for all departments maintaining
  information relevant to the import process
• Developed in cooperation with the import
  department and based on feedback from other
  departments
• User-friendly, easy to follow, and readily
  available
• Incorporated into normal training regiment
• Tested and updated periodically

13
13
14
Self-Testing Of Import Operations Should
Confirm

• What you declared to Custom was accurate
• Tariff classification
• Dutypreference program
• Value (method and seller/buyer relationship)
• Origin
• Quantity
• Non-dutiable charges

14
14
15
Self-Testing Of Import Operations Should Confirm
(contd.)

• What you declared to Customs was complete
• Invoice requirements
• Statutory additions to transaction value
• Additional payments outside commercial invoice
• Documentary requirements

15
15
16
Sample Review Findings Value

• Common Valuation Issues Discovered by CBP
• Lack of Documentation to Substantiate Claims of
  Non-dutiable Charges Such As Buying Commissions
  and Freight
• Price Paid or Payable Is Not Fully Reported
• Non-dutiable Charges (NDC) Are Not Actual
• Revised Invoice Prices Not Reported to Customs
• Failure to Include Assist Costs in Import Values
• Additional Payments to Sellers in Excess of
  Prices Listed on Invoices
• Failure to Invoice Dutiable Charges Such As
  Royalty Costs and Selling Commissions
• Additions Royalties, Commissions, Packing,
  Proceeds of Resale, and Assists (E.g., Freight
  Not Included in Assist)

16
16
17
Its all about the

• A CBP Audit will include a review of Financial
  Accounts
• A good Compliance Program includes periodic
  review of
• such accounts. (This serves to check to
  ensure all elements of
• value are reported to CBP at the time of
  entry)
• Typical accounts to review include
• Freight on Piece Goods - Interest Expenses
• Machinery Equipment - Quota Payments
• Molds - Loan Accounts
• Tooling - Mgt. Fees
• Commissions
• Design Costs
• Research Development
• Royalties

17
17
18
Penalties Prior Disclosure Handling
Discovered Errors

• Good Internal Controls minimize errors....
• ...But EVERYONE makes mistakes.....

18
18
19
Prior Disclosure

• What is A Prior Disclosure?
• It is an Elective Procedure to Minimize or
  Eliminate section 1592 or section 1593a Penalties
  by parties involved in import or drawback
  non-compliance (not applicable to record-keeping
  non-compliance)
• Operative statute 19 USC 1592(c)4
• Operative regulation 19 CFR 162.74

19
19
20
Civil Penalties Disclosure
20
20
21
Questions?Robert J. PisaniPisani Roll
PLLCTel 202.466.0960Fax [phone]rpisani_at_wo
rldtradelawyers.comwww.worldtradelawyers.com
21
21