News / 'Collateral damage?' US Customs crackdown alarms importers and brokers

© Roman Romaniuk

The going is about to get tougher for those importing goods into the US and their customs brokers as Washington prepares to tighten regulations and raise penalties.

The US president’s executive order Strengthening Customs Enforcement tasks the Department of Homeland Security (DHS) to revise importer eligibility regulations, guidance, and policies, flanked by higher penalties for firms that fall foul of requirements.

The DHS was given 180 days to complete the job.

While importers face new restrictions and disclosure requirements, the order calls on customs brokers to “conduct greater due diligence of their importers”.

What exactly this means is unclear at the moment – like many aspects of the drive for tighter regulations.

“A lot of companies are looking for answers, and they don’t exist,” said William Jansen, director of customs brokerage services at Seko Logistics.

This uncertainty is part of the reason why the move is greeted with apprehension in the industry – but some issues are already raising red flags.

“We have some big concerns,” said Bob Imbriani, EVP international at forwarder Team Worldwide.

Importers of record (IORs) will be required to make disclosures on aspects like business ownership and affiliations, foreign tax identifiers, sanctions certifications, product level and production data, anticipated volumes, and production methods.

They also need visibility of their supply chains, because priority areas of enforcement for US Customs include forced labour, besides elements like transhipment, under-valuation, and misclassification of shipments.

Mr Imbriani noted that forced labour was more likely upstream, from manufacturers that may have multiple suppliers.

“Enforcement is very complex and takes a long time to determine,” he said. “There have been cases where shipments were stopped and held for weeks and months to investigate forced labour suspicions, which meant thousands of dollars in demurrage charges.”

In one instance this resulted in a $70,000 demurrage bill, he recalled.

In a move that clearly targets ecommerce, the new regime will abolish informal entry capabilities for foreign IORs. The Type 11 informal entry process allows imports valued at less than $2,500 to move through customs in a streamlined manner, and it has been leveraged by importers of low-value goods since the elimination of the de minimis exemption last year.

“It will be a significant change,” reckons Mr Jansen. “A lot of the previous de minimis Type 86 volume has gone to Type 11 informal entries.”

Without the Type 11 informal entry channel, a continuous bond is required, which allows more time for Customs to inspect a shipment, possibly resulting in slower clearances, he pointed out.

In addition, foreign IORs will likely have to brace for more restrictive rules and definitions to emerge from the DHS’s revision of the regulatory framework for customs clearance, under the executive order. Typically an IOR is required to have a physical presence in the US and a “minimum level of tangible domestic assets”, or a bond.

“We have a lot of business with foreign IORs that are based in Australia. They don’t have significant assets in the US. Are they going to be considered a shell company?” Mr Jansen wondered.

The DHS is expected to provide guidance on the term “located in the US” – one of many clarifications importers and brokers are waiting for.

While much about the new regime is shrouded in mystery, it appears that small and mid-sized importers will be disproportionately affected, as they may not be able to cope with the cost of compliance and the potential charges for violations, due to see a drastic increase.

The executive order from the White House directs the DHS and Customs to establish a 50% minimum floor for penalties, which will take away the latter agency’s current discretion to reduce penalties.

The potential repercussions are frightening, it has been said.

“I think this could have a huge impact. My number-one concern is whether liquidated damages is the same as a penalty? Liquidated damages happen quite often. It could be a mistake, a clerical error. If duty on a shipment is paid a day late, and that duty is $200, that duty is looked at as a breach of a bond, and a bond could be $100,000. So, is it a $50,000 penalty, minimum?” asked Mr Jansen.

Another concern for him is what this does with prior disclosures. If a company detects an under-payment in its supply chain, current legislation is quite lenient, to allow them to self-report the matter; but the new penalty threshold may deter companies from doing so, he said.

“They want to penalise bad actors quicker and more intensely,” he added. “A lot of it is aimed at bad actors, but we don’t know who will be collateral damage.”