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Customs Bonds: ISF Where are we and how far have we come?

Customs Bonds: ISF Where are we and how far have we come?. Presented by: David F. Jordan, CHB, CPCU, Vice President, Customs Surety for WESCCON 2010 ‘Experience the Pearls of Wisdom’ October 22, 2010. Happy 30th WESCCON Conference!. ISF Statistics.

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Customs Bonds: ISF Where are we and how far have we come?

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  1. Customs Bonds: ISF Where are we and how far have we come? Presented by: David F. Jordan, CHB, CPCU, Vice President, Customs Surety for WESCCON 2010 ‘Experience the Pearls of Wisdom’ October 22, 2010

  2. Happy 30th WESCCON Conference!

  3. ISF Statistics • Number of ISF importers now up to 205,000 (NCBFAA ISF Subcommittee teleconference – October 15) • As of October 2009, importer count equaled 80,000 (156% increase in one year) • August 4 COAC number was 180,000 – suggesting a 14% increase in six weeks(?)

  4. Filers • Just under 2,400 filers as of October 15 • Note: as of October 10, 2009 (as reported at WESCCON), filer count was 1,788 (= 34% increase in past year)

  5. More ISF Statistics • Number Importer Security Filing counts: • 5.2 million (COAC – August 4, 2010) • Annualizes to 10 million • October 15 number (7 million) annualizes to slightly less, about 9.9 million • Annual average number of ISFs over a period of 10 years originally forecast by CBP to be 13.7 million (January 2, 2008 NPRM, page 106) • Elsewhere in NPRM, annual estimate is 11 million (page 102)

  6. Revenue Division Statistics(as of August month-end) • 243 ISF STBs filed per day • 16% reject rate • 243/day x 365 = 89,000 ISF STBs per year • Indicating roughly 9/10 of 1% of ISFs are secured by ISF STBs • Hence, about 99% of ISFs are secured by continuous bonds, mostly Activity Code 1 • Approximately 92% of all continuous bonds are Activity Code 1

  7. Compliance • Compliance rate? • 90-95% range (COAC – August 4) • 80% (GAO report, September, based on July data) • Characterized as a “relatively accurate assessment” during October 15 teleconference • 91-92% (October 15 teleconference) • LD claims won't be out for awhile, but will come from headquarters when they do start (CBP at COAC – August 4)

  8. Industry Concerns • NCBFAA, COAC, et al have expressed concerns/ requests regarding “finality” in connection with ISF LD exposure • 28 U.S.C. § 2415 • General “federal contract statute” • Six years from time right of action accrues • Not satisfactorily addressed as yet • See July 9 FAQ update, page 16: • “CBP will not limit its authority to enforce ISF requirements“ but note that dialog is ongoing

  9. “Fun Facts” • 10 million shipments times $5,000 LD exposure times six year finality period = • $300 billion in aggregate liability(!) • CBP long ago expressed their position they are not limited to one LD case per ISF • $10,000 ISF STB requirement consistent with this • Per CBP, actual violations that will give rise to LD cases include: • Late ISF • Inaccurate ISF • Inaccurate ISF update • Failure to withdraw an ISF

  10. Failure to File ISF • What about failure to file ISF? • CBP will withhold release or transfer of shipment pending receipt of ISF information (CBP Dec. 09−26) • Would appear to “automatically” result in a late-filed ISF • CBP may refuse to permit unlading (and seize cargo unladen without permission)

  11. Additional Statutory Remedies • “A penalty may be assessed under the provisions of 19 U.S.C. 1595a(b), or any other applicable statutory authority, with CBP Headquarters approval for serious or repetitive violations.” (CBP Dec. 09−26) • Penalty, not liquidated damages (i.e., not a surety issue but an importer issue) • Implications unknown at this time

  12. Mitigation Guidelines • Mitigation guidelines for ISF violations (CBP Decision 09−26; effective July 17, 2009): • First violation – Between $1,000 and $2,000 • Subsequent Violations – Not less than $2,500 • In either instance, no relief will be granted if CBP determines law enforcement goals were compromised by the violation. • By way of comparison, minimum assessment on late filing of an entry summary: $100

  13. Liquidated Damages Outlook • Using non-compliance rate 2½% – 50% more favorable than what would result from the most optimistic compliance rate currently reported: • 2½% x 10 million ISFs = • 250,000 LD cases a year! • All indications are that number of ISF LD cases per year would (if assessed for each & every violation) be several times the number of all other LD cases combined

  14. More Number Crunching… • 250,000 cases x $5,000 per case = • 1.25 billion a year in gross LD assessments • Assume 75% mitigated to 1st offense minimum, remaining 25% mitigated to 2nd offense minimum 187,500 cases x $1,000 = $187,500,000 62,500 cases x $2,500 = $156,250,000 $343,750,000

  15. Assumptions • Note the foregoing assumes… • No determinations by CBP that enforcement goals were compromised by violations • AllLD assessments are mitigated • i.e., noassessments at full $5,000 amount provided by regulation • Number above results from employment of generally optimistic assumptions (including a non-compliance rate discounted 50% from CBP’s own most favorable estimate) • How high can this number go? • A non-tariff barrier to trade? • On top of possibly $6.6 billion in annualized costs?

  16. A Final Word on LD • Interim Final Rule (Federal Register, November 25, 2008 – page 71761) • “Mitigation will be the exception & not the rule….”

  17. Additional Factors • To date, no regular CBP reporting of data to sureties • Large volume a problem on one day reporting prototype • New filer (i.e., new “importer”)/new supplier issues will always be a factor

  18. Additional Factors (continued) • ISF Submission Types 5 & 6 (“Late ISF-10 – No Bond” & “Late ISF-5 – No Bond” July 9 FAQs, page 51)? • “Scheduled to expire on June 30, 2011” …but has yet to go into effect • October 15 teleconference suggests possibly available mid-December? • CBP will monitor, paying particular attention to any entity that attempts to use this type of submission more than once • STB drift an issue for CHBs & sureties

  19. Past CBP “Incidents” • Good faith remarks by CBP officials are fine, but… • 1984: Surety sanction comment from OR&R • 1977: Import Specialist comment to CHB • Resulted in $100,000+ in supplemental duty bills issued to CHB, who acted as importer of record on transactions • During the 1980s, no less than three separate interpretations of applicability of 28 U.S.C. § 2415 to collection of supplemental duties assessed upon liquidation

  20. Questions??

  21. Roanoke Trade Based in 12 US Cities with a Network of Agents and Service Companies Worldwide • Miami • Milwaukee • New York • St. Louis • San Francisco • Seattle • Baltimore • Boston • Charleston • Chicago • Houston • Los Angeles 75 years experience in managing the risks associated with global trade and transportation.

  22. Thanks for being a part of our journey…

  23. Contact Us 1-800-ROANOKE www.roanoketrade.com | info@roanoketrade.com

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