Customs Enforcement EO Causes Hurdles for Foreign IORs, Increased Broker Liability

Brokers will also have more liability in the import process, both in importer vetting and compliance, and there will be less penalty mitigation available for administrative mistakes.

Lenny Feldman, customs counsel to the National Customs Brokers & Forwarders Association of America, said CBP will be confirming compliance for active importers of record by creating risk-based tiers in an importer registry. He said foreign importers of record won’t be able to file informal entries, and will only be able to file formal entries if the bonding is sufficient and the importer is in good standing.

“Now there's going to be multiple hurdles that they will have to clear, if ,in fact, they're going to maintain the ability to serve as importers of record,” he said.

Aaron Applebaum, partner at Sidley, said foreign e-commerce companies will be impacted, as they often make informal entries, and rely on the ability to import lower-value shipments.

Susan Thomas, CBP's executive assistant commissioner, said in a LinkedIn video all importers must now follow stricter rules and share more information on their supply chains.

“Brokers, they’re on the hook for vetting their clients more thoroughly,” she said. “And those [importers] that comply with our trade laws have nothing to worry about, and those who don’t will see tougher penalties and may lose their importing privileges.”

Feldman said there will be companies that are going to be challenged, as they have to adjust their supply chain and ensure their importers are in good standing. However, some U.S. importers may be happy about the order.

“There are a lot of importers who have been really playing by the rules and have been indicating that they feel that just allowing non-resident importers the same rates, the same footing as U.S. importers, puts them at a competitive disadvantage.”

Enforcement has already been on the rise. Applebaum said he's seen an increase in CF 28s and CF 29s, as he used to only see them every month or so, and now a few every week. Feldman said CBP has been "very intentionally" asking for IDs and passports to validate the identity of importers who are providing power of attorney to brokers. He said some IDs have been stolen or are false.

“We're looking at about 180-day window, but right now, right before us, there's, I think, an unprecedented level of scrutiny as to the right to make entry,” he said.

Beata Spuhler, counsel at Faegre Drinker, said her firm has been working with a lot of foreign companies seeking guidance from U.S. trade lawyers who are trying to get goods into the U.S. and pay the correct amount of duties.

“Now I think [non-resident importers of record] have to really think through, do they want to potentially set up U.S.-based entities or have their U.S. customers act as the importers of record?” she said, adding they also have to decide whether they want to participate in the Customs Trade Partnership Against Terrorism. Under the order, foreign importers of record that want to file formal entries will have to be CTPAT-validated, or work with a broker who is, and not all brokers are CTPAT-validated.

However, CTPAT-validated is different than CTPAT-certified. Feldman said a broker can become certified in a matter of months, but to be validated, CBP needs to conduct an in-person or virtual validation and go through their security criteria, which can take up to a year, or more.

“I wouldn't be surprised if there would be a request made from the trade community to say, ‘look, if a broker is CTPAT-certified, could that be sufficient initially?’” he said.

Feldman said there’s a possibility that brokers may not be able to serve foreign importers if they don’t have CTPAT validation.

A lot of supply chains first focus on whom the importer of record will be, and the non-resident importer performs that role in a lot of cases, Feldman said.

“Now supply chains are going to have to be restructured in a lot of cases, such that I think the U.S. party, or a, you know, very viable strong foreign importer of record, you know, will have to play that role,” he said.

Feldman said country of origin declarations may change when other parties step in during the restructuring, as parties clearly subject to U.S. law won’t be able to hide behind non-resident importers who are outside jurisdiction, and that may lead to differences in data which could shift country of origin declarations.

Spuhler said once CBP releases specific requirements, importers should work with external suppliers to get any necessary documentation.

“We have limited information, but you know, based on what we're seeing, the administration seems pretty adamant that some changes are needed in this space,” Spuhler said.

Robert Stein, vice president of Braumiller Consulting Group, said the trade had been pushing for some of these objectives prior to the order coming out. He said the order is very heavy on enforcement and quiet on trade facilitation, and importers and brokers would be interested in what resources would be available to legitimate importers.

“It's certainly not clear what's in store for those good importers, those good customs brokers, those good exporters,” he said.

The order said CBP will establish a “good standing” requirement, including examining compliance history, payment of customs liabilities and other factors. Stein said the definition was vague, giving the example of an importer protesting an entry incorrectly classified by CBP.

“It's under protest, so the importer is not paying it. Do they get tagged as not in good standing, and suddenly they can't import?” he asked.

Stein said importers and brokers should be seeking clarity throughout the implementation of this order, and should maintain compliance as an important part of their trade regimes.

“Seek out what is specified as what makes you in good standing and seek to implement that into your compliance programs,” he said.

Spuhler said currently, importers can petition for penalty reductions. However, DHS will now have to establish a penalty floor of “not less than 50%” for penalty mitigation. She said penalty reduction will still be possible, but not as generously applied. Mitigation wouldn't be allowed for “repeat offenders,” she said.

However, Stein said clerical errors can happen, such as an incorrect port code or a late-paid duty statement.

“These kind of administrative penalties can often be mitigated down to relatively low amounts, because they're not an attempt to evade the import regulations, they're simply mistakes of fact or inadvertence,” he said.

Stein said the language doesn’t seem to allow for differentiation, which has huge financial ramifications.

Applebaum said the order calls for “maximum penalties for brokers.” He said part of the order is to impose more incentives for brokers to play a larger role in compiling documentation and vetting importers.

“One of the outcomes of this is developing rules and regulations that impose more stringent requirements on brokers to give them more skin in the game,” he said.