The Prior Disclosure Rule: Duty Valuations and the Customs Modernization Act

currency-dlWhat is a Prior Disclosure?

The Prior Disclosure law provides an avenue for reduced penalties to parties who advise U.S. CBP (Customs & Border Patrol) of noncompliance with import laws before CBP or ICE (Immigration and Customs Enforcement) discovers noncompliance and notifies the party of the discovery. The official policy of CBP is to encourage the submission of valid prior disclosures. Prior disclosures must be submitted pursuant to 19 U.S.C. 1592 and governed according to 19 CFR 162.74. “Under Section 484 of the Tariff Act (19 USC 1484), the importer is responsible for using reasonable care to enter, classify, and determine the value of imported merchandise and to provide any other information necessary to enable U.S. Customs and Border Protection to properly assess duties, collect accurate statistics, and determine whether other applicable legal requirements, if any, have been met.”

“A prior disclosure is made if the person concerned discloses the circumstances of a violation of 15 USC 1592 either orally or in writing to a Customs officer, before, or without knowledge of, commencement of a formal investigation of the violation, and make a tender of any actual loss of duties, taxes, and fees or actual loss of revenue.” 19 CFR 162.74

Who may submit a prior disclosure to U.S. Customs and Border Protection?

Any party involved in the business of importing into the United States. This includes, but is not limited to importers, accounts, customs brokers, exporters, shippers, foreign suppliers, and manufacturers.

A valid prior disclosure reveals the circumstances of a violation of 19 U.S.C. 1592. This section of law permits U.S. Customs and Border Protection to assess monetary penalties against parties who make material false statements, acts or omissions in connection with their importations.

How  do you make a valid prior disclosure?

The presumption is that the disclosing party has the burden of demonstrating lack of knowledge of a commenced formal investigation.  A proper prior disclosure of the circumstances of a violation according to 19 CFR 162.74(b) would orally (if oral then supplemented within ten business days by writing) or in writing that:

  1. Identifies the class or kind of merchandise involved in the violation;
  2. Identifies the importation or drawback claim included in the disclosure by entry number, drawback claim number, or by indicating each concerned Customs port of entry and the approximate dates of entry or dates of drawback claims;
  3. Specifies the material false statements, omissions or acts including an explanation as to how and when they occurred; and
  4. Sets forth, to the best of the disclosing party’s knowledge, the true and accurate information or data that should have been provided in the entry or drawback claim documents, and states that the disclosing party will provide any information or data unknown at the time of disclosure w/in 30 days of the initial disclosure date.

Material false statements, acts or omissions, must result from the parties’ negligence, gross negligence or fraudulent conduct. Parties are not required to make a prior disclosure. They elect to submit the disclosure.

What are common duty violations?

Typical examples of such violations include:

Undervaluation

Misdescription of merchandise

Overvaluation

Antidumping/Countervailing duty order evasion

Improper Country of Origin Description or Markings

Improper Claims for Preference under a Free Trade Agreement

Other Duty Preference Program

What is the difference between unliquidated and liquidated custom entries?

Unliquidated custom entries have no fraud involved which means that generally no penalty will be paid.

Liquidated entries have no fraud involved which generally means that the duty penalty is the only interest on the loss of duties.

How does the disclosure of a fraudulent duty violation affect my penalty fee?

–          Penalty is reduced from the normal assessment of the domestic value of the goods to 1 times the duty loss or

–          If violation involves no duty loss,

  • Penalty is reduced to 10 per cent of the dutiable value of the merchandise.
  • All cases involving liquidated entries and duty loss violations, you must tender this duty loss to CBP.

Why should I elect to a make a Prior Disclosure?

–          Benefit of reduced penalties

–          Conducting periodic self-assessment of your importing activities

–          Availing yourself of this provision of law may permit you to detect and correct errors

–          Ensure future compliance with Customs laws and regulations

–          Reduced legal expenses and/or the elimination of lengthy CBP penalty proceedings

As always, this is not legal advice. You should seek the help of a licensed attorney before acting on any legal matter.

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Categories: Business Law, China, Europe, Import/Export | Leave a comment

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