CORPORATE CUSTOMS COMPLIANCE PROGRAM

A special report by RIGGLE & CRAVEN

          The Customs Modernization Act of 1993, has made it the responsibility of all importers to take affirmative steps to ensure compliance with the Customs laws. For organizations, it is crucial that a compliance program be institutionalized, both to set up proper procedural safeguards and to ensure that all employees understand what is required.

          Necessity dictates that a Corporate Customs Compliance Program (CCCP) must be specifically tailored to a company's unique activity and requirements. As such, this discussion can only provide general information about such a program. It provides a starting point on how to create a program for your company with the assistance of outside counsel.

          A good CCCP should incorporate the following basic elements:

          a)       Documentary Compliance - The maintenance of records and other papers relating to the import process;

          b)       Import Compliance - The determination of the correct classification, valuation and marking of imported merchandise;

          c)       Export Compliance -The determination of any restrictions an the shipment of particular types of merchandise or to specific countries or individuals, and the monitoring of trade embargoes imposed by the U.S. or other countries.

          d)       Regulatory Compliance - The monitoring of, and compliance with, changes in the laws and regulations which govern imports and exports; and

          e)       Implementation - The development of appropriate intra-company controls to ensure that specific. personnel who are accountable for import responsibilities understand the company's compliance policy and have the authority to ensure uniformity in company communications with Customs and related agencies. Employees who may be involved in import and export activties should be made aware of the compliance policy. There should be a specific written compliance policy and a manual for employees.

A. Documentary Compliance

          A documentary compliance program is an essential requirement in virtually every CCCP. In recent years Customs has relaxed entry and clearance procedures. Although the procedures attendant importation are less onerous, importers are now held strictly accountable in providing timely, accurate and complete information to Customs and in ensuring proper record retention. To this end, it is the importer's responsibility for determining which documents must be retained, the length of the retention and the form in which such documents must be maintained.

          In addition to developing a system which maintains required records in an orderly and easily accessible manner, it is also crucial that a logical and consistent document destruction policy be developed. Once a document is no longer required to be maintained for Customs or for other reasons (e.g. taxes) it should be destroyed. If a document is not required to be maintained and is subsequently destroyed, Customs cannot draw improper inferences from its absence. If the document still exists, Customs will be able to obtain it from the importer. In such an event, experience has shown that an importer may thereafter be exposed to additional liabilities or issues which would not have otherwise arisen.

          The specific documents which must be retained and the periods of retention will vary depending upon a number of factors such as the products being imported, the relationship between the importer and the manufacturer, and the relationship between the importer and the ultimate purchaser. While certain documents, such as commercial invoices and Customs entries are required in virtually all cases, other documents may be required only for a specific product or a specific entry. Working with a professional skilled in Customs law is the best way to determine the list of documents which apply to your situation.

B. Import Compliance

          Documentary compliance is an important element of a CCCP, but it is equally important that an importer ensure that the company is aware of, and complies with, its obligations under the law. These obligations include areas such as the classification and valuation of merchandise, country of origin marking and ascertaining and disclosing the relationship between the importer and the foreign supplier. In the case of related parties, the question of transfer pricing should be examined carefully by a knowledgeable professional.

        Before implementing a CCCP, a company should undertake a professional review of its entire product line. For those products which raise significant questions, rulings can be sought from Customs confirming the proper classification of the products. In addition to classification, this review should also examine declared dutiable values for these products, the methodology employed in arriving at these values and the existence of any dutiable or non-dutiable assists, royalties and/or license fees. Particular attention should be paid to any royalty and/or licensing fees since their form often determines their dutiable status. The law permits the exchange of Customs data with the IRS. This law, combined with the IRS focus on transfer pricing makes this review important, even for imports which are eligible for duty free entry.

          Finally, the country of origin for the merchandise should be confirmed and the proper method of marking verified. As with valuation, compliance with country of origin requirements is becoming an issue of greater concern to Customs. Particular attention must also be paid to imports for which duty free or duty reduced eligibility is claimed in accordance with the GSP, CBI, NAFTA and American Goods Returned provisions of law.

C. Export Compliance

          Another element of an effective CCCP is export compliance. The United States has a variety of legal regimes which impact trade with other countries. For example, the U.S. Export Administration Regulations (EAR), while not as extensive as they once were, continue to restrict the exportation of certain controlled commodities and technical information. Moreover, the U.S. Commerce Department maintains a table of denial orders which restrict export trade, regardless of the commodity, with specific companies. Likewise, export trade with a number of countries is either partially or completely prohibited. The scope of these trade embargoes do vary from country to country and from year to year for so long as the United States continues to use trade as an instrument of foreign policy.  It is essential to keep abreast of the changes.

          There are other areas of the law which may be of importance to certain exporters. Among those worth mentioning here are the Foreign Corrupt Practices Act (FCPA) and the antiboycott regulations which form part of the EAR.

D. Regulatory Compliance

          Once current practices have been reviewed and brought up to standard, it is important to ensure that the company keeps up with the inevitable changes to the Customs law. In addition, each time the company introduces a new product, changes an existing product, or modifies a supply or license arrangement, the transaction should be reviewed. While most of these reviews should not be burdensome or lengthy, neither should they be cursory. Occasionally even a proposed minor change may have a significant affect on value or classification.

          Monitoring changes in the law can be done in a number of ways. In a large corporation, for example, a member of the legal or traffic department can be assigned the responsibility of liaison with outside counsel and internal dissemination of information regarding changes in the law and/or regulations. In discharging its compliance obligations, an importer is required to exercise "reasonable care", The Committee on Ways and Means in the legislative history to the current law stated that it expects importers to consult with appropriate specialists and, specifically, customs counsel. Where such consultation takes place, the Committee stated that the importer will be presumed to have acted with "reasonable care" in making entry. Thus, retained outside counsel will keep the importer advised of periodic changes in the laws, provide a convenient source for answers to basic questions,, and furnish the importer with the means to ensure that it has acted with reasonable care in the event of a problem should occur. Customs, through the Office of the Chief Counsel, has emphasized the need to consult with attorneys familiar with the legal requirements as a means of demonstrating reasonable care.

E. Implementation and Personnel Compliance

          The key to an effective Compliance Program is proper implementation. The specific manner of implementation will very depending on the size and complexity of an organization, but three elements are common to any meaningful program: education, coordination and audit. As the legal requirements are specific and the consequences for non-compliance severe, the details of implementation should be developed in consultation with legal counsel experienced in Customs matters.

          All personnel involved in international commercial transactions should be made aware of the company's policy toward compliance with the applicable laws and regulations. They should be kept up to date on specific legal requirements that affect their responsibilities and, if necessary, they should attend periodic presentations or seminars on areas that are potentially confusing.

          In addition, one person should be designated to coordinate implementation of the policy. This person would be the arbiter for any questions that might arise, such as which documents need to be retained and which destroyed. This person should also have sufficient stature within the company to obtain essential information or to enforce controversial decisions.

          Finally, companies should have a means of auditing or otherwise verifying compliance with the CCCP. Ideally, the person the company designates should be independent of those charged with carrying out the policy on a day-to-day basis. The company should have prescribed remedies for noncompliance so as to ensure that employees take the matter seriously.

Who Should Design A Compliance Program

          Once a company has decided to proceed with a CCCP, the next question is who should prepare the program. Under the Customs Modernization Act (mod Act), importers are directed to use "reasonable care", which includes, among other things, consulting with Customs Attorneys or other international trade professionals to ensure that the importer is acting properly. There are apparently two choices for assisting in the preparation of a CCCP, your Customs Broker and your Customs Attorney. However, the Mod Act gives Customs Brokers the right to limit their liability to importers. The National Customs Broker's Association recently revised its standard brokerage agreement to include just such a limitation as part of its general terms and conditions. Thus, a Broker may render assistance without full knowledge and/or understanding of the legal effect, and the Broker may not be held accountable for any consequences to the importer. Further, communications with Brokers are not accorded the privileged status of communications with attorneys, and such communications could be easily obtained by Customs during any investigation. The distinct possibility exists that Customs could determine that relying upon a Customs Broker who has expressly disclaimed liability would not be an exercise in reasonable care.

How Can RIGGLE & CRAVEN Help?

          In contrast, Customs Attorneys, such as RIGGLE & CRAVEN, are in the business of providing legal advice in this field. Communications are privileged and are exempt from disclosure to Customs. Customs Attorneys are trained to ask difficult questions and to obtain full answers. Customs Attorneys are in daily contact with both Customs and the Courts, Customs Attorneys are licensed and regulated by the States, and are prepared to challenge Customs head on in the event the agency takes an unreasonable or improper position.

        RIGGLE & CRAVEN is well-equipped to assist in the design and implementation of a CCCP for your organization, as we concentrate our practice in International Trade and Customs law.

          If you would like to receive further information about RIGGLE & CRAVEN and its services, need assistance in crafting a CCCP, or if you would like to speak to one of our attorneys, please do not hesitate to call us at (312)368-8787.