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In 2016, the U.S. Customs and Border Protection (CBP) revised its importer compliance monitoring approach, although the change garnered little press. The agency's new priority involves re-focusing existing resources and using methods that more efficiently identify discrepancies and may easily catch importers off-guard. CBP's revised enforcement approach now begins with sending “informed compliance letters” that strongly encourage importers to “proactively monitor” their compliance, along with a reference list of Import Compliance Publications available at the CBP website. This seemingly benign reminder seems to function like a harmless move of a knight into position on the chess board-one move away from placing the opponent's king in “check.”

Prior Practice

Prior to this change, the primary enforcement method used by CBP was the Focused Assessment. This essentially constituted a formal audit that was (and continues to be) preceded by a very lengthy questionnaire. While this method has always been quite onerous, its very complexity lowered the risk of its being used to audit the average importer, for two primary reasons.

First, the Focused Assessment greatly encumbers CBP with procedural obligations in conformity with Government Auditing Standards. Known as the “Yellow Book,” these standards require a wide array of details to be documented to demonstrate that the inquiries, the data gathered, and the related findings-and any penalties-are objective, fair, and reasonable. Appropriate consideration of all facts must be affirmatively demonstrated.

Second, complying with the Yellow Book standards requires CBP to expend considerable resources of time, personnel, and money each time it selects an importer for a Focused Assessment. Justifying that level of effort requires that CBP pursue only those importers who appear likely to result in the most valuable enforcement outcomes-in terms of either penalty value or setting precedent.

New Policy

To address this enforcement resource dilemma, CBP devised a new approach (and matching policy) that isolates specific entry-related infractions without conducting a Focused Assessment. Instead of a formal “audit,” CBP uses details in the importer's Automated Commercial Environment (ACE) account to identify potential weaknesses and compliance issues. The steps involved in this new process are summarized below.

Step One - Encouraging Self-Review

Starting in August 2016, CBP began sending importers the aforementioned “informed compliance letters.” This practice continues, and is growing - often with the recipient unaware of its purpose and implications. These are based on CBP's preliminary review of each recipient company's ACE account. The point of this review is to glean potential inaccuracies and indiscretions of the importer during the import transaction process and related recordkeeping. The letters do not accuse the importer of wrongdoing, nor do they necessarily suggest specific details of suspected problems. Instead, CBP points out the availability of compliance resources at its website and strongly urges the importer to self-review and self-disclose. This latter point of self-reviewing and self-disclosing ACE account entries and details is the first move by CBP toward “checkmate.”

Step Two - Focused Follow-Up

Following the letter and a non-specified span of time, CBP contacts the importer by phone or email to conduct a Quick Response Audit / Audit Survey. This process involves CBP using the importer's ACE account data and other risk segmentation techniques to prepare a “questionnaire” seeking information on specific import transactions, related methods of compliance, and the function of internal controls during that import process. Although a “questionnaire” may sound innocuous, the answers provided by you or your staff can (and will) be used against you, and may lead to additional questions that test the consistency, application details, and effectiveness of the answer previously given.

Checkmate - Enforcement

Once the answers are provided, CBP evaluates the importer's specific compliance Chess board imageactivity (including internal controls) and determines what further steps are needed, which can include fines and penalties for infractions revealed. Since this is not a formal “audit,” it falls outside the scope of the Yellow Book requirements. There is no “report,” just a “closeout letter.” Enforcement actions are specific to individual infractions or inadequacies, and do not take the form of grading the importer's overall compliance environment. Nevertheless, penalties can be severe (especially as multiple infractions add up). Multiple deficiencies also serve to identify importers (especially those showing weak internal controls) as candidates for a full-blown Focused Assessment.

Prevention Worth Pounds of Cure

Let's face it, no import operation is flawless. Details are sometimes missed. Internal controls that once found favor with CBP become known for limitations and must be replaced with newer and better innovations. There are also operations without a full set of internal controls or that fail to consider certain transaction details, either because the detail cannot be integrated electronically due to system limitations, or because the detail must be manually transferred and is omitted simply due to the speed and resources required to support other daily business needs.

Experience has consistently shown that creating and sustaining a perfect operation, without adjustments, is not realistic. Instead, the cure is finding and correcting insufficiencies in processes and data on a recurring basis. Naturally, anyone that has received an informed compliance letter must treat it as significant, and take decisive action quickly. This should include an immediate internal review of the account, followed by corrective action. If time permits, the recipient should consider additional review and evaluation by a qualified third party. Keep in mind, all the while that infractions are subjects for timely self-disclosure.

Even if you have not yet received an informed compliance letter from CBP, don't wait to review your practices. Given the breadth of this policy and its impact, every importer should periodically retain a qualified third party to perform an ACE account and internal review. The reason for being proactive is simple: remedying the cause of the discrepancy nearly always requires a multi-step approach and a revision to internal controls. Self-disclosure of a discrepancy is always received more favorably when you can show that the problem has been identified and the cure has been applied proactively

For more information concerning this or other Global Trade subjects, contact James Eggenschwiler at 614-923-7472.

James Eggenschwiler is a licensed attorney with more than 30 years of experience that includes substantial international focus, and local country presence and support. Trinity Consultants offers regulatory and process support concerning all regulated aspects of Global Trade, including importing, exporting, export controls compliance and licensing, FCPA/anti-corruption compliance, International Trade Agreement qualification, audit preparation and defense support, internal/external process design and assessment, third-party risk mitigation and interaction with regulatory bodies, and more.