AAEI Raises Concerns Over “Heavy-Handed” CBP Penalties Under FTR

A 2008 revision to the FTR delegated enforcement authority to CBP. It set forth mitigating factors that allow CBP alternatives to assessment of penalties for failures to comply with the FTR. According to a letter (here) to Maria Luisa O’Connell, CBP’s Senior Advisor for Trade and Public Engagement, from Marianne Rowden, President and CEO of AAEI, such alternatives include but are not limited to "educating and informing the parties involved in the suspect transaction, issuance of warning letters, or company outreach.”

George Tuttle, an associated professional member of AAEI, said such alternative actions have not always been taken to resolve the first-time offenses he has seen or heard about. Instead, Tuttle said the CBP will typically seize and detain a shipment if they suspect a violation of the FTR. “The FTR, which was statistical in nature, has now become a major enforcement tool of Customs to ferret out non-compliance,” Tuttle said. “However, there does not seem to be any difference in treatment between serious and non-serious violations.”

Tuttle described the tedious process that exporters must endure upon these seizures of shipments, in which the exporter must wait for a penalty letter, which took up to 30 days in one case from Los Angeles, and then file a petition explaining why the suspected violation took place or why the suspected violation is, in fact, not a violation. Exporters must then wait for a response from the local CBP office with a mitigated penalty amount, after which the exporter signs a waiver of damages, pays storage charges and pays the penalty before the shipment is finally released, Tuttle said.

“It is not the amount of penalties getting folks upset, as these turn out to be relatively small under mitigation guidelines,” Tuttle said. “What gets companies upset is that while this process is slowly unfolding, the foreign customer is cancelling the order and going elsewhere for its goods.” Tuttle clarified that the concerns expressed by AAEI do not conclude that “each and every instance of CBP’s administration of FTR enforcement provisions is inconsistent with its delegation and mitigation guidelines.”

Some of these cases were brought forward in Tuttle's comments in response to AAEI’s request for examples of CBP’s actions since the delegation of authority under the 2008 revision to the FTR. The comments described CBP’s enforcement in these cases as appearing to be “heavy-handed, unwarranted, and contrary to the President’s “National Export Initiative.”

One such instance was CBP’s Los Angeles seizure of a shipment of consumer electronics, with a total shipment value of approximately $22,000, from a small business in the San Diego area to an Egyptian customer in April 2012, Tuttle said. The shipment, designated as a “routed export”, was seized on May 2 by CBP following an outbound inspection on April 14, which determined that the Electronic Export Information (EEI) filed by the U.S. agent of the Foreign Principal Party in Interest had under-reported the value of the shipment at a total value of $10,129, when the invoice showed a total value of approximately $22,000. The goods were seized for “false reporting in the Automated Export System (AES), he said. The U.S. Principle Party in Interest (USPPI) filed a petition for remission of the seizure under the explanation that the USPPI was not responsible for what was only an under-reporting error rather than false reporting. According to Tuttle, CBP decided the case approximately one month later, fining the USPPI $750 for a violation it did not commit and releasing the goods from seizure until mid-August, when the initial attempt of export occurred on or around April 14.

In light of such cases and according to member comments, Tuttle said an effort should be made to review all FTR penalty and seizure cases initiated since the 2008 delegation of authority, including issues such as the “nature and basis of the violation,” whether or not the alleged violation was “a minor infraction or a serious violation of the rules,” “whether the goods were detained and seized,” and whether or not the matter could have been “resolved with a warning letter rather than the initiation of formal penalty or worse, seizure action.”

In response to AAEI comments, a CBP spokesman said the agency remained “committed to finding a resolution” when such "missteps" are made and that they were “on track to issue 20 percent less penalties this fiscal year over last fiscal year.” He emphasized that this didn’t mean they would be “overlooking violations,” but that they would implement alternatives “such as educating and informing the trade when problems are discovered or issuing first time warning letters where appropriate,” as suggested by AAEI members. -- Claire Yan