CBP’s Bonding Falls Short
DHS report documents multimillion write-off on failures to collect
by Peter Quinter, guest columnist
The Office of Inspector General (OIG) of the US Department of Homeland Security (DHS) issued a report criticizing US Customs and Border Protection (CBP). In a June 2011 report entitled “Efficacy of Customs and Border Protection’s Bonding Process,” DHS concluded that up to $12 billion in single transaction bonds for importers may fail to be collected. Considering that approximately $2 trillion of goods are imported into the US each year, and that CBP collects about $32 billion in duties, taxes, and fees, $12 billion is a heck of a lot of money to lose.
Let’s discuss some fundamental customs laws and policies first. A bond is a contract between a principal (i.e., importer) and a surety (i.e., insurance company), with CBP serving as the beneficiary when an importer fails to pay any duties, taxes, and fees assessed by CBP on the imported merchandise. The single transaction bond amount for the importer established by CBP is typically 1 to 3 times the total value of the imported merchandise for that particular shipment, plus duties, taxes, and fees. If the importer does not pay the assessed amounts promptly, a liquidated damages claim is issued by the Fines, Penalties, and Forfeitures (FP&F) Office of CBP against the importer and the surety company.
Although in theory this type of insurance policy should pay CBP in full every time, it does not really work that way. Blame it, in part, on anti-dumping and countervailing duty cases. The US Government Accountability Office (GAO) estimates that it takes over three years in anti-dumping or countervailing duty cases between the initial entry of merchandise subject to an anti-dumping or countervailing duty order, and when the final duty bill is issued to the importer. Importers that are unwilling or unable to pay, or have already gone out of business, result in a loss of revenue to CBP.
According to the OIG Report, CBP has written off tens of millions of dollars “because of inaccurate, incomplete, or missing bonds,” including bonds which lack signatures or carry inaccurate transaction numbers. Moreover, it turns out that CBP is not doing a good job of keeping copies of the bonds, but often relies upon the customs brokers to do so. The OIG Report concluded that “there is a potential for collusion between the broker and the importer.” Well, at least, for once, DHS and CBP don’t blame this problem on those pesky customs lawyers.
So, you ask, what will happen now? No surprise this time – CBP will certainly re-evaluate its current monetary guidelines, last significantly updated in November 2010, to establishing higher bond limits, especially for food and drug products regulated by the Food and Drug Administration which pose a potential threat to the public health and safety. Importers should expect to see such letters from CBP’s Revenue Division at the National Finance Center located in Indianapolis, Indiana, and more liquidated damages claims from the FP&F offices around the country.
Please call or email me with any questions or comments.
Copyright © 2011, Becker & Poliakoff
About Peter Quinter
10 May 2012: Peter Quinter is now a Shareholder in the law firm of GrayRobinson and Chair of the firm’s Customs & International Trade Law Group. Based in the firm’s Miami and Ft. Lauderdale offices, Quinter principally represents persons and companies involved in international trade and transport. Editor of the GrayRobinson Customs and International Law Blog, Quinter is widely recognized for his expertise in international and trade law.
You can contact Peter Quinter at firstname.lastname@example.org or at (954) 270-1864.
Date posted: August 29, 2011