Importer Security Filings: The Game Changes On January 26, 2010 (Jan. 9, 2010)

In December of 2009, CBP held its Trade Symposium in Washington, D.C. This post recaps some important points made at the Symposium regarding importer security filings. As we all know, on January 26, 2010, CBP will begin assessing liquidated damages for failure to file ISFs, late filings, or inaccurate filings. Until January 26, CBP has allowed the trade a grace period of delayed enforcement, during which time liquidated damages have not been imposed by CBP for failure to file.

Richard DiNucci of CBP’s Office of Field Operations, Secure Freight Initiative, Cargo Conveyance Security reported at the Symposium that, since the inception of the ISF program, 103,000 ISF importers have made 3.65 million filings through 1,950 ISF filers. The ISF filings have had an acceptance rate of approximately 95%.

Penalties for non-filing, late filing, failure to withdraw a filing or errors contained in filings are capped at $5,000 per transmission or $10,000 per ISF. To understand that distinction, consider an importer that makes an error in an initial ISF filing. That is one transmission, one ISF filing. In attempting to fix the error by filing an amended ISF, the importer makes another error. That is a second transmission subject to a $5,000 penalty, and together the amounts would reach the single ISF penalty cap of $10,000.

When there is a complete failure to file an ISF, CBP may issue a Do Not Load (DNL) message to the carrier at the port of lading. Mr. DiNucci characterized the issuance of a DNL message as a “nuclear” option. Rather than issue frequent DNL messages, Mr. DiNucci indicated that the more common practice will be to detail cargo after arrival in the U.S. for examination.

CBP understands that sometimes data elements may be missing, thus necessitating the filing of incomplete ISFs or ISFs containing the best information then available. Although CBP will take the availability of information into account in determining whether to issue liquidated damages, it is clear that CBP anticipated that importers would implement methods during the period of delayed enforcement. In other words, at this point CBP expects importers to have procedures in place whereby needed data elements are on hand to make timely ISF filings. However, where data changes due to no fault of the importer, such as in the case of rolled bookings or vessel diversions, CBP will take the circumstances into account as a mitigating factor. Overall, Mr. DiNucci indicated that a rule of reason will prevail, and CBP will resort to heavy-handed enforcement only when confronted with unreasonable violations.

Mr. DiNucci commented on CBP’s General Notice of July 17, 2009 that set forth mitigating and aggravating factors to be considered in imposing liquidated damages after January 26. There are six mitigating factors for use in determining the mitigation or cancellation of liquidated damages cases. If grounds for mitigation are sufficient, a penalty may be canceled in full. The six mitigating factors are

1. Evidence of progress in implementing ISF compliance during the phase-in period.

2. The number of ISFs compared with the number of violations.

3. C-TPAT Tier 3 and Tier 2 importers will receive consideration of up to 50% mitigation for violations.

4. The importer has demonstrated that remedial actions have been taken to address the circumstances surrounding the violation.

5. Inaccurate filings due to circumstances beyond the importer’s control, such as vessel diversions and rolling bookings completely due to carrier actions.

6. Receiving incorrect information from another party in the supply chain, if this information is found to be incorrect at a date later than allowed under the correction timeline.

If an importer has not routinely made ISF filings during the phase-in period, then the first mitigating factor is clearly not available. However, as the second factor makes clear, it is never too late to start compiling a good record. The four aggravating factors also place importance on a filer’s trend toward improvement. They are:

1. The lack of cooperation with CBP.

2. Smuggling attempts and other actions contrary to law in association with the shipment.

3. Multiple errors on one ISF.

4. A rising error rate calculated over all ISFs.

Mr. DiNucci noted that having made no filings at all during the period of delayed enforcement may be considered an aggravating factor. Taken as a whole, CBP, which must tend to a flood or ISFs daily and necessarily must rely heavily upon filers’ self-policing. To that end, CBP has been issuing progress reports so that importers may measure their progress. Mr. DiNucci noted that CBP occasionally has progress report data for a firm, but no verified email address to reach out to an importer to transmit that data. If your firm has not received a progress report and would like to receive one, CBP may be contacted on the issue at progress_report@cbp.dhs.gov. Similarly, if one has questions about ISFs in general, CBP has a dedicated email address to field questions at security_filing_general@cbp.dhs.gov.

During the early stages of the enforcement period, penalty actions will go through CBP Headquarters, presumably establishing a certain level of uniformity. Only time will tell whether CBP will adopt a light touch or be heavy-handed in assessing liquidated damages in connection with ISFs. Once a penalty is issued, the penalty notice must be formally responded to in order to seek maximum mitigation. Just as importers have struggled to implement programs to aggregate ISF data to make consistent, timely filings, CBP may soon find itself struggling to reconcile its need to promote compliance through meaningful enforcement while avoiding a draconian approach that ignores the realities of business.