U.S. Customs and Border Patrol (CBP) assesses penalties based on level of culpability (degree of fault), which has three different designations. In decreasing order of magnitude, these are: fraud, gross negligence and negligence.
Fraud entails knowingly, voluntarily and intentionally making a false statement or committing a non-compliant act. To qualify as fraud, proof is required that a false statement was made with knowledge of its falsity, or that an act was committed with an intent to deceive, mislead or convey a false impression.
Penalties for fraudulent violations can be extremely large – up to the full domestic value of the merchandise involved. However, fraud is also the easiest level of culpability to protect against. Doing so requires sufficient understanding and awareness of CBP requirements to ensure that no material false statement is knowingly made and that there has been no intentional violation of CBP requirements.
This designation constitutes acts or failures to act done with actual knowledge or wanton disregard for the facts, or indifference to legal obligations.
Penalties for gross negligence are assessed at the lesser of: the domestic value of the merchandise; or four times the duties, taxes and fees owed to CBP. This can still be a very substantial penalty.
Gross negligence violations are somewhat more difficult to protect against because, in addition to knowing the material CBP requirements (and avoiding fraudulent violations), avoiding gross negligence violations requires diligent oversight of your company’s trade-related activities and a keen attentiveness to the possibility of mistakes.
A negligence designation is assessed if the importer has not exercised the degree of reasonable care and competence expected from a person in the same circumstances.
Penalties for negligence are assessed at the lesser of: the domestic value of the merchandise; or two times the duties, taxes and fees owed to CBP. These penalties can also be very substantial.
Negligence is the most difficult designation to avoid. In addition to taking the precautions needed to avoid fraudulent and grossly negligent designations, “reasonable care” requires that CBP’s expectations of a reasonable importer are met. This entails regular review of CBP regulations, rulings and guidance applicable to your trade activity and can best be demonstrated by developing procedures for CBP compliance then following and documenting your adherence to those procedures.
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If an importer realizes they have made a customs violation, the importer has a chance to call CBP’s attention to it before any enforcement proceedings have commenced by making a Prior Disclosure. If they do this, CBP will not assess a penalty – provided the importer pays the lost duties owing, plus interest from the date of the violation. This process is intended to encourage importers to disclose violations and pay outstanding duties proactively.
The lowest-cost way to avoid penalties is to prevent violations by paying attention to the ins and outs of CBP requirements. Our U.S. Customs experts can assist you in developing compliance procedures that will increase your probability of problem-free cross-border business.
You can find part 1 of this blog series here. Call or email us today to discuss your company’s cross-border shipping responsibilities with respect to U.S. or Canada Customs. For more information, visit our website, sign up for our technical updates, subscribe to our blog, or...
Information provided by: U.S. Customs Consulting Dept. - Cole International