AUDITS, MANUALS AND PRIOR DISCLOSURES

1
AUDITS, MANUALS AND PRIOR DISCLOSURES

• V. Susanne Cook, Esq. and
• Megan E. Finkelstein

2
FOCUSED ASSESSMENT AUDITS
3
Compliance Assessment Team (CAT) Audits vs.
Focused Assessment (FA) Audits
CAT extensive audit on overall functioning of
import related activities FA Risk Based
Approach Evaluate companies importing system and
INTERNAL CONTROLS Systemic errors
4
How does an FA audit work?

• Pre-Assessment Survey (PAS) team
• Questionnaire
• Interviews with company officers and Customs
  officers
• Examine company procedures and Compliance Manuals
• Limited sample testing

5

• If PAS team determines INTERNAL CONTROLS are
  adequate and Compliance assessment risk is low,
  audit stops here!

6
Otherwise...
7
Assessment Compliance Testing (ACT) Phase

• Determine companies compliance risk level
• Audit
• Compliance Improvement Plan (CIP)
• Possible referral to Office of Investigations and
  Enforcement Evaluation Team

8
Follow-up

• Are INTERNAL CONTROLS developed according to CIP
  and are they being followed?
• Possible referral to Office of Investigations and
  Enforcement Evaluation Team

9
What criteria makes my company vulnerable to an
FA audit?

• Importing volume
• Special Trade Programs
• Sensitivity and high profile importing activities
• Prior Customs history and complexity of imports
• Evidence of poor internal controls
• Other

10
What can my company do to prepare for an audit?

• Management support
• Excellent Internal Controls
• Compliance Manual
• Recordkeeping and Documentation
• Communication between Import Department and other
  divisions
• Internal Reviews

11
What are the most common detected importing
errors?

• Assists
• Additions to Price Actually Paid or Payable
  (Value)
• Non-dutiable costs
• Classification

12

• Special Trade Programs
• Preferential Duty Tariffs (9801/9802, etc.)
• Related Party Transactions
• Buying Commissions
• Recordkeeping

13
CUSTOMSCOMPLIANCEMANUALS
14
Why does my company need a Customs Compliance
Manual?

• Reasonable Care and the Customs Modernization Act
• Internal Control concept of Focused Assessment
  Audit
• Improvement of import procedures and operations
• Management commitment to Customs Compliance

15
What type of information should be in a Customs
Compliance Manual?

• Resource manuals vs. company specific internal
  compliance manuals
• Importing operations and procedures specific to
  your company
• Companies importing unit and functions
• Communication

16

• Procedures and Requirements for importation
• Classification
• Value
• Invoice requirements
• Country of origin requirements
• Special trade programs/areas of high sensitivity
• Preferential duty tariff classifications
• Recordkeeping

17

• Training
• Internal Reviews and updates
• Other additions as specific to your company
  operations

18
PRIOR DISCLOSURES
19
What is a Prior Disclosure?

• Discovery of non-compliance relative to Customs
  laws and regulations
• Material false statements, acts, omissions that
  result from negligence, gross negligence, or
  fraudulent acts
• Declared to Customs prior to Customs having
  knowledge of violations and commencing a formal
  investigation of these violations

20
What is a formal investigation and when does it
begin?

• A formal investigation begins on the date in
  which a Customs officer has reason to believe
  that a Customs violation has taken place and that
  officer records this belief in writing

21

• A company/individual is presumed to have
  knowledge of a formal investigation if
• Customs has informed person that they believe
  specified Custom violations have occurred
• Customs Special Agent has either orally or in
  writing stated nature of their inquiry concerning
  type or circumstances of violation
• Customs Special Agent, having identified nature
  of their inquiry, requests specific books/records
  relating to the violation

22

• Customs issues a prepenalty or penalty notice
  relative to the violation
• Customs issues a prepenalty or penalty notice
  relative to a seizure of merchandise relative to
  the related violation
• If a violation involved a commercial shipment or
  merchandise accompanied a passenger, Customs must
  give an oral or written notification to the
  individual relative to the violation

23
Why would my company want to submit a Prior
Disclosure?

• Penalty reductions
• Negligence and Gross Negligence Prior Disclosure
  violations
• No penalty if entries are unliquidated and no
  fraud is involved
• Penalty equal to interest on duties and fees if
  entries are liquidated and no fraud is involved

24

• Fraudulent Violations
• Reduced from the domestic value of the
  merchandise to 1x loss of duties, taxes and fees
• When no duties are involved, reduced to 10 of
  dutiable value of merchandise

25

• Insurance Policy that caps exposure to Customs
  civil penalties
• By conducting self internal assessments of
  imports, will enable detection of non-compliance
  and minimize Customs penalty exposure
• Reduced legal fees
• Reduced lengthy Customs civil penalty proceedings

26
What type of information does my company need to
submit for Prior Disclosure?

• Statute requirements are very specific
• Must identify type of merchandise involved in
  violation
• Identify entry numbers and Custom ports involved
  (or if unknown, approximate dates of entry and
  involved Custom ports)

27

• Provide specific material false statements,
  omissions, acts involved (what happened), how the
  violation occurred and when the violation
  occurred.
• Provide all the corrected information as it
  should have been declared upon importation (or
  inform Customs that information is not yet
  available and will be provided within 30 days)

28

• Calculate duties/fees owed and submit tender (or
  submit within 30 days after Customs calculates
  and informs you of these figures)

29
When would a Prior Disclosure be inappropriate to
submit?

• Lack of required recordkeeping
• Recordkeeping is statutory requirement
• Records must be keep for 5 years
• Recordkeeping Penalties for failure to maintain
  and produce required documents

30

• Failure to maintain required records deprives you
  of Prior Disclosure opportunity since
  documentation is not able to meet statutory
  requirements and conditions

31
Historically, how far back do we need to disclose
information in Prior Disclosure?

• Determined by importer
• However, strongly recommended that disclosure
  cover scope of statute of limitations of
  violations
• 5 years from date of discovery of violation for
  fraud
• 5 years from date of occurrence for negligence
  and gross negligence

32
Does my Prior Disclosure have to be in writing?

• Can be written or oral
• However, strongly recommend written disclosure
• If oral disclosure is necessary, written
  follow-up must be submitted to Customs Fines,
  Penalties and Forfeitures within 10 days

33
(No Transcript)