Customs Law Advisory - May We See Your Papers?

U.S. Customs and Border Protection (“CBP”) has proposed new rules to ease the recordkeeping requirements that apply to licensed customs brokers.  Essentially, CBP's proposal would allow brokers to keep more records electronically and at any location in the United States.  It is important to note that these proposed changes would apply to the CBP recordkeeping requirements for customs brokers.  These changes would not directly impact the obligation on importers to maintain records supporting the completeness and accuracy of the information declared to CBP.  Nonetheless, for any importer that relies on a broker’s records as part of its own recordkeeping compliance strategy, the importer should consider whether the new rules would suggest any adjustments to the importer's recordkeeping system.  In that light, CBP's proposal serves as a useful reminder for importers to make time for periodic review and testing of recordkeeping systems in order to maintain recordkeeping compliance and avoid recordkeeping penalties.

CBP states that in order to “conform {its} recordkeeping requirements to reflect modern business practices,” the agency proposes two changes to the regulations on recordkeeping by brokers.  First, CBP proposes to allow brokers to maintain records at any location in the customs territory of the United States.  As a condition, the broker’s recordkeeping contact, identified in the broker’s permit application, must be able to make available to CBP all necessary records within a reasonable period of time.  Second, CBP is proposing to allow brokers to use electronic storage for even more records than are permitted now.  While most brokers already use a significant element of electronic document storage, the current CBP regulations require paper documents to be maintained for several months if paper is used in the declaration to CBP.  The proposed rule would allow electronic recordkeeping even for these entries.  CBP notes that this exemption would not apply to a few documents that are still required by law to be maintained as a paper record.

While these proposed changes likely will make it easier for brokers to satisfy their recordkeeping obligations to CBP, these changes do not in any way reduce the requirements in U.S. law that importers maintain the records necessary to support the completeness and accuracy of information declared to CBP.  Importers that are used to contacting brokers in certain offices to collect records in certain formats should discuss procedures with their brokers to make sure that, even if the broker takes advantage of these new rules, the importer always will be able to receive the records that the importer needs in a timely fashion.  If the broker decides to move the records to a different office or have them converted to a different storage format, the importer should confirm, at least, the basics of where and how the records are being kept, whom to contact to request records if necessary, and how long the records will take to retrieve.

Regardless of whether CBP adopts these proposed changes, and regardless of what recordkeeping arrangements an importer may make with its broker, U.S. law always makes it the duty of the importer, not the broker, to maintain the records associated with its importations and to be able to present promptly, upon request, the records supporting the completeness and accuracy of the information declared.  The U.S. import system as administered by CBP does not require importers to file all supporting documents at the time of entry.  Importers must maintain the documents identified in “the (a)(1)(A) list” (which refers to the paragraph in U.S. law that describes these records, at 19 U.S.C. § 1509 (a)(1)(A)).  These documents include the usual commercial shipping documents (such as the import declaration entry form, invoice, packing list and other records specific to that shipment).  Importers also are required to maintain the underlying company records (usually generated in the ordinary course of business) that would confirm that the information declared to CBP is complete and accurate.  Import records generally are required to be maintained for five years from the date of entry, with some exceptions.

With the increasing use of electronic entry filing, it is less common for the local import specialists at any port to have a “stack” of the traditional commercial documents for each entry.  Accordingly, when a local port official has a question for the importer, that official will usually ask for a “reconstructed entry,” along with whatever other, specific questions he or she may have.  A “reconstructed entry” means providing that traditional stack of documents (entry summary, invoice, packing list, etc., along with any other documents relevant to that specific entry).  An important part of an importers ability to meet its recordkeeping obligations is for the importer to make sure that it is receiving complete, final copies of all documents filed on the importer’s behalf.  Whether received electronically or in paper, quarterly, shipment-by-shipment or with each broker invoice, the importer must have some way that it promptly can assemble a complete package of records, on an entry-by-entry basis. 

Importers who are not able to produce the records specified by the (a)(1)(A) list may be subject to penalties of up to $100,000 or 75% of merchandise value (whichever is lower) for willful violations and $10,000 or 40% of the merchandise value (whichever is lower) for non-willful violations.  These amounts apply for each release of merchandise and, if the same recordkeeping error is repeated across multiple shipments, the total potential penalty amounts can add up quickly.  If the relevant records relate to goods that are duty free (such as NAFTA merchandise), CBP can charge the duties that would apply to non-duty free merchandise, even if the entries were already liquidated up to two years before the demand for records.  These duty charges are in addition to the penalties above.  Other records that support the accuracy of the entry declaration, but that may not be on the (a)(1)(A) list, may still be subject to examination and summons by Customs officers, and to significant penalties for non-compliance.

Please note that all the references discussed here are to the recordkeeping requirements for imports.  U.S. law also requires exporters to maintain records in support of export shipments (for example, see Part 762 of the Export Administration Regulations).  However, that is a discussion for another day.

CBP’s notice describing the proposed amendments to the regulations for recordkeeping by licensed customs brokers is available online at:  http://edocket.access.gpo.gov/2010/pdf/2010-6362.pdf. 

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If you have any questions on U.S. Customs or import procedures, please contact:

Greg McCue at gmccue@steptoe.com and 202.429.6421.

Special thanks to Charles Morris for assistance with this advisory.