Thursday, April 24, 2008

Penalties: A New Priority

Recently, Customs and Border Protection officially designated penalties as a Priority Trade Issue.

I am putting this in the same category as the attempt to gut first sale valuation, the restrictive reading of lease-like arrangements in 9801, and the decision to bring the Ford recordkeeping case. That category is "Things that make little sense."

Read the notice. We need to dissect it a bit:


The trade fraud penalty process is a PTI because: 1) considerable CBP resources are expended to achieve modest penalty collections; and 2) a penalty is often the only tool available to CBP to deter non-compliance in the trade environment.

This seems to indicate that CBP wants to focus on collecting more revenue through its enforcement activity. What follows from that is that demands will be higher and mitigation less generous.


The Penalties working group will assist other PTI working groups in developing specific instructions for the assessment of penalties related to the individual PTIs, and will be responsible for providing Headquarters oversight of the sanction processes.

This implies, at least to me, that we are likely to be seeing more referrals of cases to Fines, Penalties, and Forfeitures as well as to Immigration and Customs Enforcement.


The sanction philosophy of the Trade Strategy is to assess penalties strictly according to Headquarters instructions, and to mitigate strictly within existing mitigation guidelines for cases involving PTIs.

Again, it looks like mitigation may be harder to come by in the future.


Cases involving PTIs are considered more critical than non-PTI cases for mitigation purposes, and deciding officials are encouraged to impose mitigated amounts that are at the high end of the mitigation ranges.

This is a little circular, but I think it means penalty cases involving "other" PTIs rather than referring to all penalty cases. The confusion here is that this notice calls fraud cases a PTI, so these cases necessarily include a PTI.

For the purposes of this PTI strategy, Trade Fraud will be defined as any entry or importation by way of false acts, information, or omissions including false information, false descriptions or material omissions contained in entry documentation.

This is where is gets a little scary. This seems to say that any entry by way of any false act, information, or omission will be considered fraud. It's not. That's just wrong. Fraud is, and always has been, defined as an intentional act. It is the intentional use of deceit, trickery, or dishonesty (generally false statements) to deprive another of some benefit. When a false statement is made unintentionally, that is called a mistake or negligence.

The customs penalty laws recognize the difference between a mistake, negligence, and fraud. A mistake is not a violation, simple negligence can result in a penalty, and gross negligence a higher penalty. Fraud, on the other hand, has the highest possible penalties and, accordingly, requires proof of intent or at least such reckless disregard for the truth as to approximate intent.

So what is Customs and Border Protection saying? It appears to be that negligent importers should expect to be treated as if they have committed fraud and that mitigation will, therefore, be limited. Frankly, I know and respect a lot of lawyers working for CBP and it strikes me that this cannot possibly be what was intended. Perhaps I am reading too much into this. It would be great to hear from someone with knowledge of CBP's decision-making and drafting process on this. As it stands now, it seems unambiguously opposed to the notion that Customs is supposed to promote legitimate trade facilitation. Again, that seems unlikely. If it is, then once again we are left to wonder why Customs felt this was necessary and what constituency they feel they are serving.

Please, my few faithful readers, tell me if I am wrong. I am willing to be convinced and hopeful that I will be.

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