By Jon Yormick, originally published in Invest Buffalo Niagara on 3/31/16.

In the December 2015 article for Access-U.S., “FAST – Free & Secure Trade for Commercial Vehicles,” Aaron Bowker, Chief Customs and Border Protection (CBP) Officer & Public Affairs Liaison at U.S. CBP in Buffalo, highlighted the eligibility requirements and benefits of Free and Secure Trade (FAST). He explained that FAST is a commercial clearance program for known low-risk shipments entering the United States from Canada and Mexico. Based on my past experience, whether Canadian companies take advantage of FAST or not, they must be familiar with the legal standard for complying with U.S. customs laws and CBP regulations governing the importation of merchandise into the U.S.

Canadian companies with U.S. subsidiary or branch operations may be imported into the U.S. directly from overseas suppliers, as well as from Canadian parent and affiliated companies. Many Canadian companies that have not established a presence in the U.S. are nonresident importers in the U.S., a strategy that allows them to better serve U.S. customers. For each of these Canadian companies with U.S. importing activities, U.S. customs laws and regulations, as well as CBP’s investigation and enforcement activities can pose significant challenges and risks.

U.S. customs law and CBP regulations require all persons (business entities, as well as individuals) to exercise “reasonable care” when importing merchandise into the U.S. These laws and regulations, however, do not define “reasonable care.” In general, a lack of reasonable care can (and often does) lead to CBP imposing civil penalties on importers and others that CBP alleges failed to meet this legal standard.

For CBP to assess a civil penalty, the underlying violation must involve the introduction or entry of merchandise into U.S. commerce by means of a material and false act or statement (oral, written, or electronic) or a material omission. “False” does not require intent; essentially it means in error or incorrect. “Material” means information that tends to affect the decision by CBP to admit and release goods from its custody (“clear customs”) or assess accurate duties, taxes, and fees. Penalties can also be imposed against those who aid and abet a violation of the customs laws and regulations.

Unlike the Canada Border Services Agency’s (CBSA) Administrative Monetary Penalty System (AMPS), CBP’s civil penalties are not set according to a schedule that provides importers with some certainty as to the risk and potential exposure in the event of a violation or series of violations. Instead, CBP penalties can range from a maximum of 2x the unpaid duties (for simple negligence) to 4x (for gross negligence, generally meaning recklessness) to the U.S. domestic value of the imported merchandise (for fraud, where intent is shown by direct or circumstantial evidence).

Meeting the reasonable care legal standard can be shown by evidence that the importer consulted with a U.S. customs broker, legal counsel familiar with customs laws and CBP regulations, consultants, accountants, or by other means. Generally, documentary evidence and sworn statements, such as affidavits and declarations, will be required to demonstrate that an importer or other party involved with the importing activity exercised reasonable care in order to defend against CBP’s allegations that import activities are subject to a penalty. The statute of limitations for negligence and gross negligence penalties is five (5) years, while the limitations period for a fraud penalty is five (5) years from the date of discovery of the fraudulent activity, so complete and accessible documents will be necessary to defend a CBP civil penalty proceeding. In general, CBP will issue a Pre-Penalty Notice to which the party has an opportunity to respond, including submitting a written response and giving an oral presentation. If a penalty is pursued, a petition for relief can be filed with CBP, requesting that the penalty amount be reduced or remitted entirely.

Canadian companies, business owners, and individuals who are involved with U.S. importing activities are not immune to CBP’s civil penalties if they fail to meet the reasonable care standard. The case might involve a Canadian non-resident importer facing CBP penalties for not declaring pencils imported into the U.S. from China as subject to U.S. antidumping/countervailing duties or a Canadian company facing potential penalties for importing figure skating dresses into the U.S. and, in good faith but wrongly, declaring the dresses qualified as duty-free under NAFTA. In both instances and many others, CBP will pursue penalties against the Canadian importing parties.