Chapter 1: Importing into the U.S. – The “Mod Act”: Compliance and Penalties
The U.S. Customs Modernization Act (the “Mod Act”) is part of the North American Free Trade Agreement (NAFTA) Act and pertains to improving compliance and enforcement with U.S. customs laws. Among other things, the Mod Act places legal responsibilities on the importer for declaring all relevant information with respect to goods imported into the U.S. (information such as the value, classification, and rate of duty, among others).
A prominent feature of the Mod Act is informed compliance. This has two sides: U.S. Customs and Border Protection (CBP) has a responsibility to communicate its requirements to the importer while importers, in turn, are responsible for using reasonable care to ensure that they provide accurate and timely data to CBP regarding their importations.
Not complying with CBP’s import regulations, whether it’s intentional or not, can result in penalties levied on the importer. Penalty amounts are based on the value of the merchandise or duties, taxes and fees owing and these can be substantial.
The three levels of non-compliance – negligence, gross negligence and fraud – carry monetary and other penalties in increasing order of magnitude. These penalties are usually much greater than comparable penalties levied by the Canadian side (Canadian Border Services Agency) for imports into Canada.
Levels of culpability for CBP non-compliance are:
- Negligence: a failure to comply due to not exercising reasonable care;
- Gross Negligence: a failure to comply, with “actual knowledge or wanton disregard” for the requirements; and
- Fraud: a failure to comply due to “voluntarily and intentionally making a false statement or committing another non-compliant act.”
The determination of non-compliance is based on human scrutiny and judgment, and is carried out by CBP representatives. Even a minor error of omission or valuation estimate on a customs form could trigger an investigation and potentially result in penalties. This is why a keen knowledge of the requirements and diligent oversight of importation practices are essential for a smooth import experience.
Amassing this expertise and having the time and resources to ensure success importing into the U.S. takes time and effort. Not everyone has the time and in-house expertise to successfully pass through CBP scrutiny.
Continue on to Chapter 2: Importing Into the U.S. here.
Cole offers a variety of Customs Compliance Consulting services to help your company have a smooth and straightforward customs experience. Our experienced professionals can also assist you in responding to a customs audit if CBP audits your import activities.
