Tag: penalty

CBP Seizes $205,500 in Unreported Money

As reported by CBP in a recent news release:

Lukeville, Ariz. – Two Mexican nationals were arrested Monday for attempting to smuggle $205,500 of unreported U.S. currency into Mexico through the port of Lukeville.

Customs and Border Protection officers conducting outbound inspections selected a 2000 Toyota sedan for a secondary inspection. The vehicle’s occupants [ . . . ] told officers they had nothing to declare. During the inspection, however, officers found 22 bundles of U.S. currency in the vehicle’s panels.

Both individuals were referred to U.S. Immigration and Customs Enforcement’s Homeland Security Investigations. The cash and vehicle were seized.

Individuals arrested may be charged by complaint, the method by which a person is charged with criminal activity, which raises no inference of guilt. An individual is presumed innocent unless and until competent evidence is presented to a jury that establishes guilt beyond a reasonable doubt.

Live and learn, and quit smuggling. The vehicle was probably seized under authority of 19 USC 1595a, which allows Customs to seize any conveyance which has been outfitted for the purposes of smuggling (e.g., vehicles with secret compartments, boats with false floors, secret hull compartments, etc.). The money was probably, at least until criminal charges are made, seized for a simple bulk cash smuggling and/or failure to report the transportation of more than $10,000 out of the United States.

And while we are on the topic, isn’t this fact pattern a much more obvious case of bulk cash smuggling? The money was concealed in the vehicle’s panels, and there is likely no logical reason why it should be stored there; but, this qualifies for concealment and, as the bulk cash smuggling law is written, so does simply having it stored in your luggage, as explained in previous articles.

If you have had currency seized and are contemplating what to do next, please make use of the other information I make available on this website or call my office at (734) 855-4999 or e-mail us through our contact page. Read about responding to a customs currency seizure.

We are able to assist with currency seizures around the country, including Chicago, Atlanta, New York, Los Angeles, Orlando and many other places, and not just locally in Detroit.

 

Regulated Wood Packaging Material Customs Violations

In 2007, Customs & Border Protection began enforcing requirements that regulated wood packaging material imported into the United States mandating that it meet certain requirements. Although an “old” issue, importers still run afoul of these requirements and get themselves into trouble. These requirements have the effect of limiting the risk that wood packaging material imported into the United States will introduce foreign insects into the U.S. ecosystem that could be harmful to the environment and U.S. industries, particularly the lumber industry and native tree populations in our forests.

What is wood packaging material, and what is regulated?

First, it should be noted that there is a distinction between wood packaging material and regulated  wood packaging material. Wood packaging material is just wood or wood products, excluding paper products, used in support, protecting, or carrying a commodity, including dunnage. 7 CFR 314.40-1.

Regulated wood packaging material  is defined as:

Wood packaging material other than manufactured wood materials, loose wood packaging materials, and wood pieces less than 6 mm thick in any dimension, that are used or for use with cargo to prevent damage, including, but not limited to, dunnage, crating, pallets, packing blocks, drums, cases, and skids.

7 CFR 314.40-1.

Although not really made clear in the regulations, for purposes of enforcement Customs probably considers manufactured wood materials to woods like plywood, fiber board, whiskey barrels, wine barrels, and veneer. Regulated wood packaging materials include materials like dunnage, crating, pallets, packing blocks, cases, skids, and other wood that is dry and loose (as in the case of sawdust or wood shavings) and is not less than 6mm thick (as in the case of certain shims).

What must be done to wood packaging material so that it is compliant?

The requirements can be complicated in certain situations, and there are a limited number of exemptions, especially for trade with Canada and Mexico. But generally speaking, the wood must be treated and marked. 7 CFR 319.40-3. The wood must be marked in a “in a visible location on each article, preferably on at least two opposite sides of the article, with a legible and permanent mark that indicates that the article meets” the requirements of the law. The mark looks something like shown below, but the letters and numbers will vary depending on the circumstances (i.e., origin and type of treatment).

WPM Mark
WPM Mark

The means of treatment is set out in 7 CFR 305, and consists of heat treatment or a type of fumigation through chemical treatment with methyl bromide.

What if regulated wood packaging material is untreated or unmarked?

If your wood packaging material is regulated wood packaging material, meaning that there is no exception to the treatment and marking requirements, then it is violative wood packaging materials if it is not both marked and treated. A violation can either be because the treatment was not done, because the mark is not present, or because the mark is illegible. Even if the wood is actually treated but is not stamped, it is still violative. Even if you somehow know for a fact that the wood is not infested, it is still violative.

As such, it is most likely that you will be required to immediately re-export the wood packaging material out of the country. This will be done through the issuance of an Emergency Action Notification that gives you a certain period of time to re-export your entire shipment.

After receiving a notice of the presence of a violative wood packaging material, whether verbally or through an Emergency Action Notification, it is important to move very quickly. Failure to be obey the deadline given in the Emergency Action Notification can result in additional penalties.

Is there an alternative to re-exporting my merchandise?

It is possible to get permission from the Port Director to separate the violative wood packaging material from the commodity (e.g., separate the merchandise from its pallets), and re-export only the violative wood packaging material and enter the commodity. However, that is a complicated process with its own legal procedures, involving meeting certain requirements, demonstrating certain safeguards, paying certain costs, and filing an Application to Separate Violative Wood Packaging Material directly with the port director.

Obviously, this Application to Separate can be granted or denied. Filing of the application does not suspend the time period in which you must comply with the Emergency Action Notification to re-export. And if denied, you will still need to re-export. So, application to separate should prepared and filed as soon as possible. If the application is not successful, you will be re-exporting your commodities.

What are the ramifications of importing, or attempting to import, violative wood packaging materials?

Apart from the requirement to re-export the materials and your merchandise, and the costs associated with that come from your supply chain and your inventory problem, there are penalties that can be imposed by Customs for this type of violation.

Customs will usually send a Notice of Penalty or Liquidated Damages to the importer involved with the wood packaging material violation for violations of 7 CFR 319.40 as being an importation, or attempted importation, contrary to law under 19 USC 1595a, or as commercial fraud or negligence under 19 USC 1592. As in the case with all customs penalties, there are guidelines for reducing the amount of money customs seeks in penalty. This can only be done by filing a petition for mitigation.

What do I do next?

If you have been informed that you wood packaging material is in violation of the law and needs to be re-exported, immediately call or e-mail office at (734) 855-4999 and we can prepare an application to separate violative wood packaging material so that, if it is granted, you do not have to undergo the time and expense of re-exporting the merchandise you are trying to import.

If you have received a notice of penalty or liquidated damages and are being told you must as a result of the violation, immediately call or e-mail our office at (734) 855-4999 and we can prepare a petition for mitigation of the penalty amount.

Reducing Penalties through Prior Disclosures of 1592 Import Violations

Importing into the United States requires the importer exercise reasonable care, but competitive market forces and human nature can create the temptation to reduce expenses and maximize profits by finding new ways to save money through questionable application of the customs laws. Failing to exercise reasonable care, however, means possibly being penalized by Customs for import violations under § 1592. ((In summary, if any person does or attempts to enter or introduce merchandise into the United States by means of any material omission or material and false document, written or oral statement, or act that has the potential to alter the classification, appraisement, or admissibility of merchandise Customs will impose costly penalties on the violator. Bear in mind that Customs can impose penalties  – civil, criminal and monetary – under a variety of federal laws, not just under 1592.)) This means, among other things, an importer must make sure that they are classifying the merchandise properly. under the correct duty rate, giving accurate dutiable values and descriptions for the merchandise, marking the country of origin correctly, and much more. Failure to do so could cost you dearly in the form of severe monetary penalties, among other potential penalties, imposed by Customs.

"I think we could lessen our penalty exposure if we make a valid prior disclosure."
“Say, our customs attorney says we can lessen our penalty exposure if we make a valid prior disclosure to U.S. Customs for those import violations we found.”

CBP encourages importers who may have committed a violation to make a “prior disclosure.” If an importer becomes aware of § 1592 violations, they should not wait for Customs to notify them of the violations and demand payment of duties and penalties; rather they should act immediately and pro-actively and disclose violations or potential violations to Customs so that they can take advantage of significant penalty reductions allowed for those who disclose violations prior to a Customs investigation. This “prior disclosure” process is a formal notice, usually in writing, made to Customs regarding the circumstances of a 1592 violation. 19 CFR § 162.74.

How to Make a Valid Prior Disclosure

For a prior disclosure to be valid, a person must first make the prior disclosure before, or without knowing, that Customs has begun a formal investigation into the potential violation ((A prior disclosure can still have some benefit after a investigation has begun)); also, if the amount of duty loss is known, tender any actual loss of duties, taxes and fees or actual loss of revenue to Customs. In addition to this, the person must disclose the circumstances of the violation, including:

(1) Identif[ying] the class or kind of merchandise involved in the violation;

(2) Identif[ying] 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) Specif[ying] the material false statements, omissions or acts including an explanation as to how and when they occurred; and

(4) Set[ting] 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 stat[ing] that the disclosing party will provide any information or data unknown at the time of disclosure within 30 days of the initial disclosure date. [ . . . ]

19 CFR 162.74(b).

It should be noted that, because the issues that go into making a valid prior disclosure are often complex, when properly done a person can still initiate a valid prior disclosure while avoiding immediate payment of suspected duty loss, and get additional time to assemble all the necessary information.

How Penalties Can Be Reduced or Avoided

Meeting these requirements will qualify the person for substantial penalty reductions in the event that penalties are appropriate. In order for Customs not to levy penalties at all Customs must find the absence of fraud, the presence of negligence or gross negligence, and the merchandise must be unliquidated. In the case of negligence or gross negligence and liquidation has already occurred  the penalty will be “the interest on any loss of duties, taxes and fees” “at the prevailing rate of interest” under the Internal Revenue Code. 19 CFR § 162.73(b)(2).

If the violation is a result of fraud and a valid prior disclosure is made, the penalty may be reduced from the equivalent to the domestic value of the goods and to only the amount of lost duties, taxes and fees, or if not duty loss, then just 10% of the dutiable value.

If you believe or have a question about whether you should make a prior disclosure, or have concerns about representations made to Customs or omissions  it is in your best interest to consult with an attorney experienced in customs law and prior disclosures. Please contact our office today at (734) 855-4999, or by visiting our contact page.

Trademark Infringement: Importing Gray Market Goods and Seizure by Customs

Importers purchasing products from abroad may find that they bought more than they bargained for if the merchandise bears a trademark or trade name.  For the protection of registered U.S. trademarks and trade names U.S. Customs and Border Protection (“CBP” or “Customs”) limits the admissibility of foreign trademarks or trade names ((Sometimes collectively called “marks” here)) if they appear virtually identical to those already registered in the US. Ultimately, Customs may seize and forfeit imported gray market goods and impose fines and penalties on the importer. 19 CFR 133.23.

Gray Market Goods Defined

Gray market goods are articles manufactured abroad that bear either a genuine trademark or trade name that is either identical to, or substantially indistinguishable from, a trademark or trade name owned and recorded by a United States citizen or corporation. 19 CFR 133.23(a). The concept can be a bit confusing, but key to understanding is to remember that gray market goods bear a legitimate trademark or trade name but are imported into the U.S. without the consent of the owner of the U.S. trademark.  In other words, when a trademark or trade name has been applied to merchandise for use in a foreign country but are imported into the United States, then the goods bearing that trade mark or trade name are considered gray market goods.

Container Ship

The term gray market goods is used to distinguish them from goods that might be sold on black market; gray market goods are sold through legal but unauthorized or unintended channels of commerce. Gray market goods are different from counterfeit goods by the genuineness of their trade mark or trade name; counterfeit goods carry a trademark or trade name which the law calls “spurious.” Sometimes used or refurbished goods fall in the category of gray market goods, and particular laws apply to their lawful importation.

Restricted Entry for Certain Gray Market Goods

Trademarks  and trade names of U.S. owners are entitled to protection against imports of gray market goods under two conditions.  First, the U.S. owner must register its mark with CBP through the Intellectual Property Rights e-Recordation (IPRR) system. Second, the U.S. trademark and the foreign trademark must be owned by two different people or companies ((Furthermore, the companies cannot subject to common ownership or common control — such as parent companies and subsidiaries, etc.)).  The satisfaction of these conditions subjects all incoming gray market goods to “restricted” scrutiny, and Customs identifies them as such in its IPRR database; if the conditions  have not been satisfied, the goods are deemed non-restricted.

CBP will almost invariably detain restricted gray market goods for up to 30 days; and what transpires within that time will ultimately determine their seizure and eventual forfeiture or their release. 19 CFR §§ 133.23, 133.25.

Due to a counterfeit’s total lack of authenticity, the statutory penalties for attempting to import a good bearing counterfeit mark are more severe than those for attempting to import an infringing gray good. For the most part, however, the procedures for determining whether an allegedly counterfeit mark should be released or seized do not differ from those of gray goods, set forth below. 19 CFR 133.21.

The Road to Release

When a gray good is detained, the importer bears the burden of establishing that its mark fits one of the exceptions, such as showing that the foreign trademark or trade name was applied under the authority of the foreign owner who is the same as the U.S. owner; or, the foreign and domestic goods on which the marks or names are  identical physically and materially. The rationale of this difference-demanding exception may seem counterintuitive; however, the objective of grayRoadmarket rules is to prevent an influx of products which will cause customer confusion. If the marks or names of the products are nearly identical, as is always the case with gray market goods, their physical or material components must also be so similar that the average buyer in the marketplace is not likely to be confused as to the source of the products. 19 CFR 133.23(d). Showing the the imported goods qualify for one these exceptions allows Customs to release them.

A key to successfully challenging detention is requesting a sample of seized or detained merchandise suspected, or alleged, to bear a counterfeit or infringing trademark.

The Road to Seizure

Although this article does not deal with counterfeits directly, it is worthy mentioning that harsher penalties await counterfeit items. CBP has the authorization to obliterate the counterfeit mark or name and destroy the goods if there is no safe way to recycle them. 19 CFR 133.21. CBP may also impose fines on individuals who aid or direct the importation of goods bearing a counterfeit mark or name with the intent of public distribution. The first fine will not be more than the amount the goods would have had if they were genuine. For the second and every subsequent seizure, the fine will not exceed twice that amount. 19 CFR 133.27.

Bearing in mind the goals of preventing customer confusion and ensuring imported are products safe, CBP is authorized to take certain steps to ensure that infringing goods never reach the channels of commerce. An importer’s failure show the applicability of the foregoing exceptions within the 30 day detention period will trigger seizure and forfeiture proceedings. 19 CFR 133.23(f). Additionally, within the 30 day window, CBP may alert the U.S. owner of the presence of the gray goods to obtain assistance in determining whether the gray goods infringe upon the trademark or trade name of the U.S. owner. The U.S. owner may then procure a sample of the imported goods for a more detailed examination. 19 CFR 133.25. If CBP, aided by the efforts of the U.S. owner, finds that the gray goods infringe upon the trademark or trade name of the U.S. owner, it may seize the goods and commence with forfeiture proceedings. 19 CFR 133.23(f).

Still Hope

In the event of seizure and forfeiture, the importer retains its rights to contest the seizure and forfeiture, including the right to samples of seized merchandise and to petition Customs for relief from the forfeiture. Petitions for Relief and/or lawsuits in the federal district court’s can raise important issues and challenge the basis for seizure by, among other issues, contesting whether the goods are, in fact, gray market goods, whether they differ in quality, whether there is likelihood of confusion, the legitimacy of the source, the authority under which the trademark was applied, and others.

If your goods have been seized or forfeited, or if you are are importing goods bearing a trademark or trade name which is similar to one already registered in the U.S., it is in your best interest to obtain the advice of an attorney with experience in Customs laws and the laws surrounding intellectual property. As you can see, the process of clearing an item through the border can be a nuanced process in which time constraints and complex factual questions play a critical role.

Feel free to use this article to supplement your own knowledge, but do not let it serve as a substitute for legal counsel familiar with the various restrictions and exceptions of the law. Please do not hesitate to contact our office to assist you in taking the next step.

Calculation of Customs penalties for 1592 violations

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 Frustated Executiveexceed 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.

 

Customs penalties for fraud, negligence, and gross negligence under 19 USC § 1592

U.S. Customs & Border Protection (“Customs”) enforces its laws through the imposition of fines, penalties, and forfeitures. This article looks specifically at penalties imposed by Customs under 19 USC § 1592, which is the penalty statute for commercial fraud and negligence.

In essence, § 1592 is a law that penalizes any person that does or attempts to enter or introduce merchandise into the United States by means of any 1) material omission or 2) material and false document, written or oral statement, or act that has the potential to alter the classification, appraisement, or admissibility of merchandise. § 1592(a)(1)(A). It is also a violation to aid or abet anyone in violating this law. § 1592(a)(1)(B) This law is violated even if the government does not lose duties or other revenue.

Customs Penalty - Penalty Flag

Penalties can be assessed at three different levels of culpability, with more severe penalties for offenses committed with greater culpability. These levels of culpability are:

  • Negligence: defined by Customs as failure to exercise reasonable care;
  • Gross Negligence: defined by Customs as “actual knowledge or wanton disregard”; and,
  • Fraud: defined by Customs as “voluntarily and intentionally.”

For an alleged violation of § 1592,  Customs may issue a penalty on (sometimes on form 5955A) against the violator — which may be any person or people involved, including the importer of record, an employee, agent, consignee, etc. You are not immune just because a corporation, limited liability company, or someone else is the importer of record.

Before Customs issues the penalty, however, they must first issue a pre-penalty notice that typically gives the alleged violator 30 days to respond and provide reasons why they should not be penalized. § 1592(b)(1). Although somewhat rare, Customs can then decide against penalty; however, in most circumstances Customs goes forward and issues penalty notice to the alleged violator. If your company receives a pre-penalty notice Customs may still, in the future, go after certain individuals without issuing another pre-penalty notice to them. This often catches people by surprise and some will ignore a penalty notice thinking it will not be applied to them personally, but such is not the case.

If you or your company receives a pre-penalty or penalty notice it should be taken very seriously. Typically, a penalty notice requires a response within 60 days by either paying the alleged penalty, or as we typically recommend to clients, by making an offer in compromise or filing a petition for remission and/or mitigation. These responses – responses to both pre-penalty notices and penalty notices – should be drafted by an attorney experienced in the customs laws and should argue, where the facts and law allow, against imposition of a penalty or reduction in the level of culpability, along with a request to make an oral presentation to Customs.

After Customs first decision on any petition, there is an additional opportunity to file a second or supplemental petitions to argue for a more favorable decision. If you are faced with a penalty, or have recently discovered violations of  § 1592 and are considering a prior disclosure to avoid harsh penalties then please contact our office immediately by filling out our contact form or by calling (734) 855-499 and speaking with a customs lawyer directly.

Seizure for bulk cash smuggling into or out of the U.S.

Many posts in this series have dealt with how and why Customs will seize currency and monetary instruments crossing the border for a violation of 31 USC 5316, which is a failure to report. Customs is also empowered to seize cash or its equivalent smuggled into or out of the United States under 31 USC 5332(c) in addition to seizure for failure to file a report.

At its core, the law against bulk cash smuggling prohibits (1) the concealment of currency or monetary instruments, with (2) an intention to evade the reporting requirement, during the (3) knowing transport, transfer, or attempted transport or transfer, of the currency or monetary instruments out of or into the U.S. 31 USC 5332(a)(1).

Concealment can be done on your person, including  in clothing, a conveyance (e.g., a vehicle), in luggage, in a backpack, with or in merchandise, or any other container, whether it is worn or carried by the person transporting, transferring, or attempting to transport or transfer the currency or monetary instruments. 31 USC 5332(a)(2).

This law allows Customs to seize and forfeit through a civil proceeding “[a]ny property” including the container, conveyance, luggage or clothing, “involved in a violation . . . or a conspiracy to commit such violation, and any property traceable to such violation or conspiracy[.]” 31 USC 5332(c). This means that not only will Customs seizue the currency or monetary instruments, but in some cases also the luggage, backpack, merchandise, or conveyance in which it was concealed. The law also provides for penalties for a criminal conviction of not more than 5 years, among other sanctions. 31 USC 5332(b).

Each of the 3 elements above have a legal definition too detailed for an article this short, but suffice it to say that the terms “knowing” and “intentional” do not have the common, everyday definitions you might expect. If you are not a lawyer or don’t mind losing more than $10,000 do not try to be clever and figure it out.

If you have had cash seized by customs and are contemplating what to do next, please make use of the other information available on this website or call our office at (734) 855-4999 to speak to a customs lawyer, or e-mail us through our contact page. We are able to assist with cash seized by customs around the country, including Chicago, Atlanta, New York, Los Angeles, Orlando and many other places, and not just locally in Detroit.

Please read these other articles:

  1. Seizure of currency and monetary instruments by U.S. Customs
  2. Seizure for bulk cash smuggling into or out of the U.S.
  3. Structuring currency imports and exports
  4. Is it $10,000 per person?  Under what circumstances is filing a report with Customs for transporting more than $10,000 required?
  5. Criminal & civil penalties for failing to report monetary instrument transportation
  6. Is only cash currency subject to seizure by Customs?
  7. Responding to a Customs currency seizure
  8. How do I get my seized money back?
  9. Getting money seized by U.S. Customs back while staying overseas
  10. How long does it take Customs to decide a petition for a currency/monetary instrument seizure?