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Latest customs developments in the US – the enforce and protect act, customs audits and informed compliance letters and false claim act cases

The U.S. has experienced a number of Customs developments in 2016 in the areas of the Enforce and Protect Act (EAPA), Customs Audits and Informed Compliance Letters, and the False Claim Act. Many of these developments began in 2015 and came to fruition in 2016.

For instance, the EAPA provisions of the Trade Facilitation and Trade Enforcement Act of 2015 went into effect August 22, 2016. These new regulations result in U.S. importers facing increased risk of investigation and significant penalties for playing any role in the evasion of anti-dumping and countervailing duties (AD/CVD). Previously, companies harmed by AD/CVD violators had few remedies available. Remedies were limited to bringing private "whistleblower" actions under the Federal False Claims Act. These new regulations also mark a shift in agency responsibility. Previously, the Commerce Department was the responsible agency for the administration of AD/CVD laws, and CBP took direction from Commerce on AD/CVD actions. Under the new regulations, Customs will take its own direct action.

The new regulations created a formal mechanism by which any interested party can compel Customs and Border Protection (CBP) to investigate potential violators of AD/CVD. Within 90 days of a CBP investigation, CBP may reach a preliminary determination and the importer may face interim action. Such interim action needs to only meet the standard of "reasonable suspicion," not proof. Interim actions may include the following: suspension of liquidation of entries, cash deposits of estimated AD/CVD, and bond requirements. These interim measures are imposed until a final determination is made. Although parties can challenge the results of the CBP investigation in court, such interim penalties are potentially severe enough to put importers out of business.

CBP has recently created the Trade Remedy Law Enforcement Division. The Division is anticipating a flood of requests for investigations and has already begun to process them. Wheatland Tube filed one of the first requests for an investigation against imports from China of circular welded steel pipe. However, the EAPA regulations are not the only area of increased CBP activity in 2016.

In August, CBP heightened responsibilities on U.S. importers through the issuance of letters titled "Distribution of Informed Compliance Publications and Other Informative Documents". CBP issued letters to the top 1,000 U.S. importers of record that CBP has not audited in the past 10 years. The letters reminded U.S. importers that they may submit a voluntary disclosure and potentially reduce penalties by doing so under statutory provisions 19 U.S.C. § 1592(c)(4). The CBP letters further reminded U.S. importers of potential CBP enforcement actions for failure to comply with U.S. customs regulations. The letters provided U.S. importers with a summary of the 2015 top imports, encouraged importers to review their trade data, and requested that importers sign and return the letter to CBP.

CBP has signaled that U.S. importers who have received the letters are likely to be subject to a CBP audit in the near future. These audits may take the form of a Quick Response Audit (QRA) or a more comprehensive audit. CBP will take importers profiles into consideration and if they determine that the importer is high risk across compliance areas, then the importer will likely face a comprehensive audit. Importers with high-risk profiles in Priority Trade Issue, such as with AD/CVD, will also likely face a comprehensive audit. If an importer's risk is determined to be limited to a single area, e.g. value or classification, they will likely also face a QRA.

The intention of the letters appears to be two-fold: 1) encourage importers to create a self-disclosure and 2) signal that CBP may pursue penalties in cases where CBP discovers non-compliance via an audit. While these letters do not change importers' legal obligations, the letters suggest that CBP will proceed with penalties in circumstances where the agency has not traditionally pursued them. U.S. importers who have received such a letter should conduct a comprehensive internal review with the assistance of legal counsel, in order to avoid penalties in the event of a likely audit.

U.S. importers are also facing increased action under the False Claims Act. The Department of Justice (DOJ) received a lot of attention back in September 2015 when it published the "Yates memo". The Yates memo indicated a policy shift in the DOJ to increasingly pursue individuals involved in corporate crime. The Yates memo laid out the following six key steps the DOJ will use in its "pursuit of individual corporate wrongdoing":

1. In order to qualify for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct;

2. Criminal and civil corporate investigations should focus on individuals from the inception of the investigation;

3. Criminal and civil attorneys handling corporate investigations should be in routine communication with one another;

4. Absent extraordinary circumstances or approved departmental policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation;

5. Department attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; and

6. Civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual's ability to pay.

Recent False Claims Act cases from September indicated that the DOJ is beginning to put into effect the changes outlined in the Yates memo. In September, DOJ official Bill Baer, highlighted the need for companies to proactively provide the government with information, including information about specific individuals "no matter where those individuals fall in the corporate hierarchy." Importers must keep in mind that knowingly failing to pay import duties may result in individual liability, per the Yates memo.

Additionally, customs whistleblower cases are on the rise. These cases typically fall under the False Claims Act and customs violations in these cases include: misreporting of valuation or applicable duties, misrepresenting country of origin, and misclassifying goods. In October 2016, the Third Circuit Court of Appeals ruled on a customs whistleblower case. The customs importer in the case had evaded customs duties, particularly anti-dumping duties, and the case was brought against them under the False Claims Act. The court held that companies that knowingly avoid the payment of import duties face liability under the False Claims Act.

Finally, in August of 2016, per the Federal Civil Penalties Adjustment Act Improvements Act (which adjusts civil monetary penalties for inflation), monetary penalties for False Claims Act violations almost doubled. Civil penalties increased from $5,500 to $11,000 per claim to $10,781.4 to $21,562.80 per claim (treble damages still may be applied).

These 2016 trends are not going anywhere, and are likely to increase into 2017. Importers are likely to see an increase in CBP AD/CVD investigations, a rise in CBP audits and fines for customs violations, the DOJ's continued pursuit of individual corporate wrong doing, and more False Claims Act customs whistleblower cases. U.S. importers must vigilantly implement and maintain compliance mechanisms, if they want to avoid penalties.