In previous columns, I discussed the concept of informed compliance under which importers in the United States are required by law to understand the U.S. customs regulations as they apply to their importations and to comply with them completely.
One major problem with this concept, however, is that the customs regulations are complicated and are constantly being changed. Moreover, Customs and Border Protection (CBP) regularly issues rulings further interpreting the regulations and product classifications.
Almost no importer has the time or resources to keep up with these changes. So the odds are quite large that you will eventually make a mistake of some nature and inadvertently not comply with some form of customs regulation. In that case, what do you—the informed importer—do?
To begin with, let’s assume that neither you nor anyone on your organization has deliberately violated the law. If there were a deliberate violation, you would need a very good customs attorney and an equally talented criminal attorney, because there would be a possibility of jail time as well as severe financial penalties.
Self-Reporting Customs Violations
CBP, however, recognizes that only a small percentage of importers deliberately engage in fraudulent conduct, so there are provisions in the regulations that allow for importers to self-report their violations, with lower penalties than would otherwise result if CBP had uncovered the violations. This process is called prior disclosure.
The most important thing to remember about prior disclosure is that it has to be prior; prior, that is, to CBP discovering and notifying you of the violation. Once CBP has informed you that the violation has been discovered and/or is under investigation, all the benefits of disclosure vanish.
Let’s assume you discover that you have been importing from an overseas supplier for several years and have never declared an assist (see my article, What Is an Assist?) that would have added to the dutiable value of every import. If you can adequately document every import, you can inform CBP of the violation, calculate the additional duties due, and pay them at the time of the disclosure.
At that point CBP will investigate your disclosure. Assuming that the disclosure is complete and no fraud was involved, CBP will bill you for the interest on the unpaid duties, and that will be the extent of your financial penalty.
Making a Prior Disclosure to CBP
There are several things to remember about making a prior disclosure. For detailed information on this, follow the links at the end of the article.
If your case is very complicated, you may wish to engage a customs attorney or other expert to assist in making the disclosure. If it is very straightforward, you may choose to work with your customs broker in preparing and submitting the disclosure.
Here are some of the most important points about prior disclosure:
- Again, make sure it really is prior! This means acting quickly once you discover a violation.
- It is not only undervaluation resulting in loss of duties that must be disclosed. Other material violations include misdescription of merchandise, overvaluation, and improper country of origin declarations and markings. Even in cases where no duties were or will be due to CBP (under NAFTA, for example), you still must make a disclosure where there is a material false statement, act or omission in connection with your importations.
- You should have a periodic self-assessment process to discover any errors that should be disclosed.
- You should make sure that any disclosure you make is complete. In the case of the unreported assists illustrated above, every importation should have been declared in the initial disclosure. If the disclosure is not complete, you run the risk of losing the protection of prior disclosure for the undisclosed importations.
- All circumstances of the violation must be disclosed including the merchandise, violation details, customs entries involved, and the correct information that should have been sent to CBP.
- Your disclosure should go back as far as the statute of limitations—in most cases five years.
- Disclosures generally consist of a narrative portion detailing the circumstances and a spreadsheet giving the entries disclosed with details of the incorrect information furnished with the original entry and the corrected information that should have been provided to CBP.
- Don’t forget to include your check for additional duties if applicable!
Here are some links for more information on prior disclosures:
- 19 CFR 162.74— Law governing prior disclosure.
- The ABC’s of Prior Disclosure – a Customs Informed Compliance Publication.