In a previous article we provided a general overview of U.S. Customs and Border Protection penalties for violations of 19 USC § 1592, and therefore we now address the potential cost of a penalty in terms of dollar amounts and how those amounts are calculated.
In addition to the required payment of any unpaid or underpaid duties (i.e., taxes or tariffs) as a result of a violation of § 1592, a violator will also be responsible for a penalty, which serves the purpose of deterrence and, to a lesser extent, acts as compensation for the costs of enforcement. § 1592(c). Get ready for the bad news. The penalty amounts range depending, first and foremost, on the level of culpability, as follows:
- Negligence: Twice (2x) the loss of duties, taxes, and fees or the domestic value of the goods, whichever is less; or, if the violation caused no duty loss then 20% of the dutiable value;
- Gross Negligence: Four times (4x) the loss of duties, taxes, and fees or the domestic value of the goods, whichever is less; or, if the violation caused no duty loss then 40% of the dutiable value of the goods;
- Fraud: An amount not greater than domestic value (1x) of the goods.
Customs can set the penalty anywhere it determines appropriate, but the penalty cannot exceed the maximum amount above for any degree of culpability.
Now get ready for the worse news: Customs can increase a penalty, so long as it does not exceed the legal maximum, when it finds the presence of aggravating factors, such as:
- Obstructing an investigation or audit;
- Withholding evidence;
- Providing misleading information;
- Prior violations;
- Illegal transshipment such that the country of origin has been falsified;
- Evidence of a motive to admit inadmissible merchandise;
- Failure to comply with a demand for records or a summons;
But, there is some good news in the midst of all the bad. Even when aggravating factors are present, these penalties can be reduced by Customs when it finds the presence of mitigating factors, which include:
- Contributory customs error, such as receiving misleading or wrong advice from Customs;
- Cooperating with Customs in an extraordinary fashion, beyond that normally for a penalty action;
- Taking immediate corrective actions, such as hiring an attorney, payment of the actual loss of duty prior the penalty notice, correction of organization or procedural defects, instituting a compliance program, etc.;
- Inexperience in importing;
- Prior good record of importations;
- Inability to pay, as shown by tax return and financial statements;
- Customs knew of violations, but failed to inform the violator without justification, and there is no criminal investigation.
These above-listed factors are identified by Customs as mitigating factors at the administrative level (that is, when Customs is deciding the penalty amount). Of course, if you disagree with the final decision on the penalty amount from Customs you will have the right to have a Court decide the matter. The court determines the penalties according to its own set of considerations (which will be the subject of future articles).
If you are issued a pre-penalty notice, penalty notice, or even if you are in the midst of a penalty case with Customs or before the Court of International Trade, you really should have the benefit of an attorney experienced in the customs laws. Beyond the mere arguing for and against the imposition of a penalty, or the presence and absence of aggravating and mitigating factors, there are technical arguments as well as large and well-developed body of case law about when penalties are allowed, and what amount is appropriate. You may have a complete defense to the imposition of penalties. If you are in such a situation, please make use of our experience and contact us today by calling (734) 855-4999 orby filling out our contact form.