Friday, May 18, 2007

Oh Canada! Land of AMPS

Yesterday, I spoke at a CBA event. Normally, when I go to the CBA, I am visiting the Chicago Bar Association. This event, however, was in Ottawa and it was the Canadian Bar Association. The program was on Best Practices Before the CITT (the Canadian International Trade Tribunal).

I spoke on two panels: Export Controls and Penalties. The export piece was fun because I was there to give a very short presentation essentially laying out the U.S. governmental parties involved in export controls. I sounded like something from the Jumbles: BIS at DOC, DDTC at State, OFAC at Treasury. Make sure you confirm the ECCN from the CCL and determine whether your product might be on the USML. You'll need a Schedule B for the SED although you can file electronically under AES. Don't mess up or you could get a call from BIS, CBP, ICE, or the FBI. On a substantive level, I was impressed by the level to which Canada has worked cooperatively with the U.S. to coordinate its export controls to prevent Canada from becoming a platform for re-exports.

In the penalties panel, I ran through the concept of reasonable care; the penalties for negligence, gross negligence, and fraud; and prior disclosure. The interesting thing in this session is how very different the Canadian Administrative Monetary Penalties system is from the U.S. law. Canada has built a laundry list of specific violations, called "contraventions" in Canadian. Each contravention is assigned a penalty amount. Some penalties are staged for first, second, and subsequent offenses. Others are "zero rated," which amounts to a warning.

A Canadian official who spoke on the matter said pretty firmly that Canada considers its AMPS program to be based on absolute liability. In other words, it does not matter how hard the importer tried to get it right, a contravention results in liability. The grounds for appeal seem to be very limited and mitigation is not often granted. On the other hand, the penalties cap out at $25,000 Canadian.

In the U.S., the a violation occurs whenever an importer provides incorrect material information in relation to the entry of merchandise through the failure to exercise reasonable care. That means that an importer can always assert the defense of "Look, I tried as hard as anyone to get it right. Mistakes happen." Word on the street is that Customs and Border Protection has cancelled penalty cases where the importer showed a valiant effort at compliance. Personally, I haven't seen that.

I've written about this before, but it bears repeating: Evidence of reasonable care includes:
  • Documented policies and procedures for compliance
  • Responsible individuals have training
  • Responsible individual have access to relevant materials such at the Customs Regulations, HTSUS, and Customs Bulletin
  • Seeking Customs rulings
  • Reliance on outside experts such as me, my firm, or some riskier lawyer, accountant, or broker

The question came up from the audience, which system is worse for the importer? Tough call. Absolute liability really does not give importers much opportunity to avoid the imposition of a penalty. Both systems have a means of correcting entries where the importer discovers the violation before CBP or the Customs and Border Services Agency. U.S. penalties routinely get a lot bigger than $25,000. Over all, I have to say that for big companies, the lower liability of the Canadian system might look appealing. From the perspective of a lawyer who needs something to argue about, I like the malleability of "reasonable care."

Either way, I know that I like Ottawa. I've been up there a few times and have always found it a pleasant city to visit. The pictures are of Parliament House and the nearby canal and locks. My only complaint: clearing U.S. Customs in Ottawa was painfully slow given the relatively low number of people being processed.

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