International Law Advisory - U.S. Customs and Border Protection Issues New Penalty Guidelines For Violations of the Export Declaration Regulations

January 9, 2009

On January 2, 2009, U.S. Customs and Border Protection (“CBP”) issued penalty mitigation guidelines for U.S. Principal Parties in Interest (“USPPI”), Foreign Principal Parties in Interest (“FPPI”), carriers, freight forwarders, and brokers and other authorized agents who fail to comply with the Foreign Trade Regulations (“FTR”) (at 15 CFR part 30) on exports.  The guidelines are effective February 1, 2009 for violations that occur on or after that date.  CBP’s notice is available at:

http://www.cbp.gov/linkhandler/cgov/trade/legal/bulletins_decisions/bulletins_2009
/vol43_01022009_no2/43genno2.ctt/43genno2.pdf

The potential impact on exporters (USPPIs and FPPIs) is summarized below.

Penalty Amounts May Be Multiplied By Each Export Containing an Error

Under current regulations, export information for all shipments that require it must be filed through the Automated Export System (“AES”) or AESDirect.  CBP can assess penalties for late filing, filing false or misleading information, and other violations such as failing to correct mistakes in AES as they become known.

The FTR allow for civil penalties of up to $10,000 per “violation.”  According to the new CBP guidelines, “[t]he penalty should be assessed against the culpable party or parties per each AES transmission that is found to be in violation of the FTR, rather than per each violation of the FTR with respect to the AES transmission.”  Therefore, if there are multiple violations in one AES transmission, this will be considered one “violation” subject to the penalty maximums listed below.  However, companies that repeat an error across multiple export shipments and multiple AES transmissions have the potential to amass large penalty amounts since each AES transmission containing the error would be considered a “violation.”  In addition, if the same export transaction includes several violations, it is considered an aggravating factor when CBP decides a penalty amount. 

Alternative action to civil penalties may be issued for first-time offenses where the party has not been previously educated or warned by an enforcement agency. Alternatives to penalties include issuing warning letters and company outreach.

Violations

Failure to File Export Information in AES.  A failure to file occurs when the AES record is filed later than 10 days after it is due.  In such cases, CBP states that it typically will issue a notice of penalty at the $10,000 maximum, per violation. However, the penalty amount may be mitigated, subject to the number of previous offenses and mitigating and aggravating factors (discussed below).  The mitigating guidelines are:

  • $750 to $2,500 for first recorded offense
  • $1000 to $3,500 for second recorded offense
  • $1,500 to $5,000 for third recorded offense
  • $2,000 to $10,000 for fourth and subsequent recorded offenses

An AES record filed less than 10 days after the due date is considered a “late filing,” rather than a “failure to file,” and is subject to generally lower mitigation amounts.

Other FTR Violations.  In addition to the above, parties to an export transaction may also be penalized for, among other things, (1) incorrect information in the AES record, including incorrect value, USPPI, end-user, consignee, port of export, or commodity description; (2) failure to include license number or code; (3) failure to obtain Power of Attorney for the AES transmission; (4) failure to list the transaction as a routed transaction; (5) failure to correct mistakes in AES as they become known; (6) failure to provide carrier with proof of filing citation or exemption legend by the FTR deadlines for doing so; and (7) failure to retain all export shipment records for 5 years from the export date.  CBP states that it intends to issue initial notices of penalty on such errors at $10,000 per violation, with potential mitigation guidelines as follows:

  • $500 to $2,500 for first recorded offense
  • $750 to $3,500 for second recorded offense
  • $1,000 to $5,000 for third recorded offense
  • $2000 to $10,000 for fourth and subsequent recorded offenses

Mitigating and Aggravating Factors

CBP’s new guidelines establish mitigating factors that can reduce a final penalty amount and aggravating factors that can increase it.  In some instances, mitigating and aggravating factors may cancel each other out.

Mitigating Factors.  CBP lists the following non-exhaustive list of mitigating factors:

  • Party makes a voluntary self-disclosure - considered an Extraordinary Mitigating Factor
  • Party undertook and has clear documentary evidence of remedial measures it took to prevent future violations
  • Party provided “exceptional” cooperation to CBP, Census, or the Bureau of Industry and Security
  • The violation was a one-time or “isolated” occurrence
  • The party has provided “substantial” assistance in a separate investigation
  • The party demonstrates that it has a “systematic export compliance effort”
  • Party is a first-time offender. 

Aggravating Factors.  CBP lists the following non-exhaustive list of aggravating factors:

  • The same export transactions includes several violations -- for example, the transaction has the wrong port code, missing data, and incorrect values, and violations of other agency regulations
  • Circumstantial evidence suggests that the violation was intentional
  • The party has a high number of violations over the course of the preceding three years
  • There is evidence of a criminal conviction for a related violation
  • Pattern of disregard for the party’s responsibilities
  • Party does not have in place a systematic export compliance effort even though it exports regularly as part of its business

Minimizing Penalty Liability

CBP’s notice identifies two key ways that exporting companies can increase the chances that mitigation of a penalty will be granted and minimize the potential for a large penalty if an error is discovered:

Export Compliance Programs.  The guidelines emphasize the importance of a systematic export compliance program by including its existence as a mitigating factor and its absence as an aggravating factor.  Companies that regularly export should therefore develop an export compliance program if one does not currently exist.  Companies should also review export compliance programs already in place to ensure that the programs generate timely AES filings, catch late filings as early as possible, and correct potential AES filing errors. The compliance program should also ensure that all export shipment records are retained for five years from the date of each export.  Companies should be prepared to show with documentary support how their compliance programs confirm these points, so that such evidence could be submitted to CBP, if necessary, to argue for the deepest possible mitigation if any penalty were issued.

Prior Disclosures.  As noted above, CBP considers a prior disclosure to be an “extraordinary” mitigating factor.  Thus, although the voluntary disclosure does not appear to act as a complete protection from potential export penalties (as is possible for import disclosures), the designation as an “extraordinary” factor indicates CBP’s willingness to give voluntary disclosures perhaps the most weight in mitigation.  A voluntary disclosure only applies when the information regarding the violation is disclosed before the US government has learned the same (or “substantially similar”) information from another source and has started an inquiry or investigation.  A voluntary disclosure on behalf of a company is only effective when made with senior management’s full knowledge and authorization.  Companies should review 15 CFR § 30.74 for further instructions on prior disclosures. 

If you have any questions about these penalty guidelines or their implications, please contact: Ed Krauland at   or 202-429-8083; or Greg McCue at gmccue@steptoe.com or 202-429-6421; or Laura Ardito at lardito@steptoe.com or 202-429-3055.