Canada-U.S. Blog

Trade Lawyers Cyndee Todgham Cherniak and Susan K. Ross

Cuba Regulations Change – Round 1

Posted in Cross-border trade, Customs Law, Export Controls & Economic Sanctions, Trade Agreeements

In the January 16, 2015 Federal Register, both the Office of Foreign Assets Control (OFAC) and the Bureau of Industry and Security (BIS) published the first revisions to the U.S.’ Cuba economic sanctions. As expected, those changes consisted mostly of expanding existing exceptions or granting general licenses in already well-defined areas. With this round of changes, the beneficiaries are primarily financial institutions and the telecommunications and computer industries.

OFAC described the aim of its amendments to be to: “facilitate travel to Cuba for authorized purposes, facilitate the provision by travel agents and airlines of authorized travel services and the forwarding by certain entities of authorized remittances, raise the limit on certain categories of remittances to Cuba, allow U.S. financial institutions to open correspondent accounts at Cuban financial institutions to facilitate the processing of authorized transactions, authorize certain transactions with Cuban nationals located outside of Cuba, and allow a number of other activities related to, among other areas, telecommunications, financial services, trade and shipping.”

BIS stated the aim of its amendments was to “authorize the export and reexport of certain items to Cuba that are intended to improve the living conditions of the Cuban people; support independent economic activity and strengthen civil society in Cuba; and improve the free flow of information to, from, and among the Cuban people.”

The existing travel categories in the OFAC regulations deal with educational, journalistic and religious activities, professional meetings, and humanitarian projects.  In expanding those recognized activities, the new amendments allow travel agents and airlines to provide  authorized travel and carrier services. Equally important, they also authorize remittances through the U.S. banking system, and do so without the need for a special license.  Of course, anyone claiming to provide services under these amendments would be wise to retain all supporting documents as limitations remain on what is permitted.  For example, U.S. credit and debit cards may now be used for travel-related and authorized transactions. This means U.S. financial institutions may enroll merchants and process their transactions.  Financial institutions may also authorize depository institutions to open correspondent accounts at Cuban financial institutions.  Also authorized are stored value cards, checks, drafts, travelers’ checks and similar monetary instruments. Equally appealing for American travelers is these new regulations authorize the provision of health, life and travel insurance related services, all of which were previously barred.

For those permitted to commercially deal with Cuban entities under one of the existing exceptions or pursuant to a license, a significant challenge has been getting paid. The current regulations call for “cash in advance.” That requirement is now being changed to “cash before shipment” or “cash before transfer of title and control” with the expectation of easing payment for authorized transactions.

The other big winners are in telecommunications and the computer industry. When it comes to telecommunications, those entities are now permitted to provide services which link Cuba and third countries, including services incident to internet-based communications and the export and reexport of related communications items.  Also permitted are payment activation, installation and usage, roaming, maintenance and termination fees. Further, telecommunications companies are able now to provide fiber-optic cable and satellite facilities to allow linkage for Cuba to the U.S. or third countries.  Naturally, the efforts needed to first negotiate these deals is also authorized and would include market research, commercial marketing, sales negotiations, accompanied delivery, and servicing in Cuba.  Most helpful is the fact that expenses in Cuba are now permitted also for the staff which visits and returns, but the amount of time spent by that person in non-work activities is limited and cannot impinge on each person’s fulltime work.

In the computer arena,  the focus is internet-based services, including instant messaging, chat and email, social networking, photo and file sharing, web browsing, blogging and web hosting provided none of these efforts are related to promotion of tourism or domain name registration.  These services also include software design, business consulting, information technology management services (including cloud storage), and to install, repair or replace items that are specifically listed; all fall under the Consumer Communication Devices License Exception, see 15 C.F.R. § 740.19.

Any company planning to invoke these new general license opportunities should keep in mind it is required to notify OFAC within 30 days of commencing or ceasing to offer its services. Further, while the services are being offered, each January 15 and July 15 a report must be filed detailing the total amount of all payments made to Cuba or a third country related to services authorized under these new regulations and will cover the previous six months.

There are a number of changes which related to individuals, but we are here focused on benefits for American companies. Nothing in these revisions has anything to do with immigration issues, but travelers are now permitted to carry up to $10,000.  Further, the newly revised regulations incorporate the President’s position of now allowing travelers to purchase up to $400 worth of goods, with the value of the tobacco and liquor purchased limited to $100.

While certain agriculture, information and informational materials, donations of food and humanitarian efforts are authorized, there is nothing in the new regulations which permits the free flow of goods and services. There are, however, revised rules for professional meetings,  research, educational activities, and public performances, religious activities, clinics, workshops, athletic and other competitions and exhibitions.

BIS’ amendments explain the expansion of License Exception Consumer  Communications Devices, the creation of a new License Exception Support for the Cuban People (SCP) (see 15 C.F.R. § 740.21) , but also put an interesting twist on permitted exports by specifically authorizing exports and reexports to Cuba of items for the environmental protection of the U.S. and international air quality, and waters and coastlines.

SCP includes building materials, equipment and tools to construct or renovate privately-owned buildings, including residences, businesses, places of worship and those for private sector social or recreational use; tools and equipment for private sector agricultural activity; and tools, equipment, supplies, and instruments for use by private sector entrepreneurs, including equipment for auto mechanics, barbers, hairstylists and restaurants.  SCP also allows the temporary export for use in professional research for scientific, archeological, cultural, ecological, educational, historic preservation, or sporting activities.  The very same telecommunications and computer related  equipment which OFAC authorizes, BIS also authorizes under this license exception, along with the equipment needed for environmental protection.

When it comes to the CCD license exception, 15 C.F.R. § 740.19 contains a list of the types of computer hardware and software (including mobile phones) which are authorized for export or re-export.

BIS, too, deals with individuals by changing its regulations relative to multiple gift parcels in a single shipment, but the bulk of these new regulations is focused on changes to the export control list and so deals with goods.

As stated at the outset, the amendments published are in areas where there exists relatively clear understandings about what is and is not permitted. The more difficult issues having to do with expanding trade and eliminating any license or other trading restrictions remain. Given the current climate in Washington, D.C., the likelihood of those fundamental changes happening before Obama leaves office seem highly unlikely, but stay tuned!

Customs Is Again Getting Overly Creative

Posted in Cross-border trade, Customs Law, Legal Developments, NAFTA, Trade Agreeements

In late October 2014, Customs and Border Protection (CBP) issued a guidance message in which it laid down new rules regarding post-importation/post-entry claims for duty preference  and duty reduction programs – see for the exact text. Specifically, CBP decided unless the program under which the duty free claim is being made specifically contains a post-entry claim process, the importer is barred from raising his claim for the first time by way of a protest. This positon may well get overturned by the courts, but in the meantime, importers need to be careful how they proceed. On the one hand, reasonable care mandates an importer not make claims he cannot support. At the same time, not all the duty deferral programs contain provisions for post-entry claims.

In its message, CBP stated the free trade agreements with the Caribbean countries (CAFTA-DR), Chile, Colombia, Korea, Mexico/Canada (NAFTA), Oman, Panama and Peru contain provisions allowing for post-entry claims. Therefore, those duty free claims must be raised by way of a 1520(d) claim, and not for the first time when filing a protest. For all the others, you must make the claim before the entry is liquidated by way of a Post-Entry Amendment (PEA) or Post-Summary Correction (PSC), or you are out of luck. Those stated by CBP to require the PEA/PSC process are AGOA, CBERA, CBTPA, Civil Aircraft Agreements, GSP, Insular Possessions, Intermediate Chemicals for Dyes and the Uruguay Round of Concession, the Pharmaceutical Products Agreement, and the free trade agreements with Australia, Bahrain, Israel, Jordan, Morocco and Singapore.

To justify its decision, CBP reached back to a case decided in 2005, Xerox Corp. v. U.S., 423 F.3d 1356 (Fed. Cir. 2005).  There, Xerox filed protests seeking reliquidation of its goods as NAFTA eligible, in circumstances where the original entries contained no such claims. The trial court found  Xerox’s protests were timely filed, but their claims were raised too late. NAFTA requires duty refund claims to be made within a year of entry, and Xerox’s claims were raised much later.  There is admittedly language stating CBP’s decision to liquidate as entered is not a protestable decision, but the context of that discussion was on the fact the NAFTA claims were not raised in the original entry or timely thereafter.  As a result, CBP could not make a decision about NAFTA when it liquidated the entries, and so no protestable decision occurred to resurrect those claims when filed after the one year deadline.

Interestingly, CBP listed Civil Aircraft Agreement claims in its CSMS memo. When those may be filed has already been addressed by the courts. In Aviall of Texas, Inc. v. U.S., 70 F.3d 1248 (1995),  Aviall filed its post-entry claims in accord with 19 U.S.C. 1520(c) (the clerical error provision then in effect, since superseded by the current protest framework, and effective for an amount of time beyond the then permitted protest period). Both the Court of International Trade and the Court of Appeals for the Federal Circuit held Availl’s claims valid, despite CBP’s attempt to enforce a regulation which mandated the required certification be filed only at time of entry, and the regulation which CBP enacted was invalidated as a result. Also in accord is Gulfstream Aerospace Corp. v U.S., 981 F.Supp. 654 (1997). Having lost the argument once, CBP stuck to its guns, invoked the discredited regulation and again tried to assert Gulfstream could not file the needed certifications at time of protest – CBP lost again!

The judgment in Gulfstream, supra at 668, well makes the point about why CBP is dead wrong with the position it has taken in its recent message:

Customs has explicitly held that § 10.112 allows duty-free documentation to be submitted with a protest, even where the documentation was required at time of entry:

[A]lthough the proper documentation … establishing protestant’s GSP claim, was not filed at the time of entry, as long as failure to file it was not due to willful negligence or fraudulent intent, the documentation may be filed at any time before liquidation or … before liquidation became final…. [I]f liquidation was timely protested, the protestant should be afforded an opportunity to submit documentation establishing free or reduced duty entry.

HQ 544455 (Mar. 14, 1995) (citing HQ 555269 (Dec. 20, 1990)) (emphasis added).

The protestant was required to file, in connection with its entries, documents that would have established the eligibility of its merchandise for a duty reduction…. [T]he protestant did not file the necessary documents at time of entry, but submitted them [five months after liquidation]…. 19 CFR 10.112[sic][] provides that if the importer fails to file the documents [] at the time of entry … but failure to file was not due to willful negligence or fraudulent intent, then they may be filed at any time prior to [final] liquidation….

HQ 221603 (April 30, 1991) (emphasis added).

19 CFR 10.112 [sic] provides … that a free entry document required in connection with entry … may be filed before liquidation becomes final, if lack of presentation at time of entry was not willful or negligent. This section is applicable because [the regulation requiring reduced duty documentation] requires [the documentation] at the time of entry.

The relevant portions of current 19 C.F.R. 10.112 read: “Whenever a free entry or a reduced duty document, form, or statement required to be filed in connection with the entry is not filed at the time of the entry or within the period for which a bond was filed for its production, but failure to file it was not due to willful negligence or fraudulent intent, such document, form, or statement may be filed at any time prior to liquidation of the entry or, if the entry was liquidated, before the liquidation becomes final…” In other words, the importer may file the document(s) with the post-entry claim or protest before the liquidation becomes final! Either method is permitted.

Similarly, 19 C.F.R. 10.172 authorizes a GSP claim to be made post-entry: “A claim for an exemption from duty on the ground that the Generalized System of Preferences applies shall be allowed by the port director … If duty free treatment is claimed at the time of entry, a written claim shall be filed on the entry document by placing the symbol ‘‘A’’ as a prefix to the subheading of the Harmonized Tariff Schedule of the United States for each article for which such treatment is claimed [emphasis added].” Here again, if the importer does not make the claim at time of entry, he is permitted to make it as either a post-entry claim or a protest.

In its October CSMS message, CBP cites H193959, a ruling dealing with a Singapore-US free trade agreement claim. In this case, the goods were imported without benefit of the claim. The entry was liquidated and a timely protest filed. CBP simply said no to the claim being made for the first time by way of a protest. While citing the Xerox case mentioned above, CBP also relied on Corrpro Companies, Inc. v U.S.,  433 F.3d 1360 (2006).  In that decision, the court found at Point 16: “… We observed, “[i]n the absence of a proper claim for NAFTA treatment, either at entry or within a year of entry … Customs cannot make a protestable decision to deny an importer preferential NAFTA treatment. Id. at 1365…” The court’s decision is not surprising – if the law requires a claim to be made within a given time frame and the importer is too late, his request is denied. With its current position, CBP has turned that holding on its ear in order to bar duty free claims in as many ways as possible.

When it comes to duty reduction or preference claims, as illustrated above, CBP’s own regulations typically contain language making clear the claim may be made at time of entry, by a post-entry claim, but also later – before liquidation is final – by protesting. What CBP is doing with this October CSMS is forcing importer’s into an impossible situation – fail to exercise reasonable care and make the claim in the face of a lack of documentation, not make the claim and hope to get the needed documentation prior to liquidation, or waive the claim altogether if you are in doubt about your ability to get the needed documentation before liquidation. You have to wonder whether CBP considered the additional work this guidance might well create for its own staff. How many pre-liquidation claims will now be filed as close to the deadline as possible because the importer had doubt about obtaining the needed documentation earlier? Filed close to the liquidation date, CBP will not have time to consider the claim, but the letter of the October CSMS will have been met – the claim was filed prior to liquidation. Is CBP’s next step to challenge the importer for having filed his claim too close to the liquidation date and deny his protest on that ground alone?

One also has to wonder how the courts will view CBP’s position, in the face of the very clear language in so many regulations and court decisions authorizing the right to protest, especially in view of the fact of the October CSMS was issued as a guidance document and not the result of a proposed regulatory change which subjects CBP’s position to notice and comment?

Court of Appeals for Federal Circuit (CAFC) Issues Decision In U.S. v. Trek Leather – Corporate Officer Held Liable

Posted in Aerospace & Defence, Anti-Trust/Competition Law, Border Security, Constitutional Law, Corporate Counsel, Criminal Law, Cross-border deals, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, FCPA/Anti-Corruption, Government Procurement, Legal Developments, NAFTA, Trade Agreeements, Transportation

Yesterday, the CAFC issued its en banc decision in the U.S. v. Trek Leather case.  The Court held the President of the company liable for gross negligence due to his own actions, even if he is an agent of the company.

By way of background, the case originated as a penalty action by Customs and Border Protection (CBP) against Trek Leather and Harish Shadadpuri, its President.  When the full amount of the penalty was not paid, CBP initiated litigation. The Court of International Trade (CIT) found Shadadpuri liable for gross negligence. The CAFC overturned that decision. It held Shadadpuri could have been liable for fraud, or as an aider or abettor, or if the government had pierced the corporate veil, but since none of those theories were pursued, the government lost.  CBP then sought a hearing before the entire court (called an en banc hearing), and based on the decision issued yesterday, CBP won.

The Court reached back to a Supreme Court case decided in 1913 – United States v. 25 Packages of Panama Hats, 231 U.S. 358 (1913) – which dealt with the question of “introduce” in the context of 19 U.S.C. 1592.  In that case, the consignor shipped goods to the U.S. with invoices that “falsely and fraudulently” undervalued the merchandise.  When the goods arrived in New York, no entry was filed. However, the Supreme Court held the 1592 statute as then worded covered the acts of the consignors in providing the false invoices. The language of the statute at the time read: “…if any consignor, seller, owner, importer, consignee, agent or other person or persons, shall enter or introduce, or attempt to enter or introduce, … any imported merchandise by means of any fraudulent or false invoice… (emphasis added)”.

The current text of 19 U.S.C. 1592 reads: “… [No] person … may enter, introduce or attempt to enter or introduce any merchandise…. by means of (i) any document or electronically transmitted data or information, written or oral statement, or act which is material and false; or (ii) any omission which is material…(emphasis added)”

The CAFC began by saying it is quite obvious that Mr. Shadadpuri is a person and nothing in the way the law has changed over the years allows any other conclusion.  The court went on to frame the question to be decided as: “What is critical is the defendant’s conduct”.  It then examined that conduct. The facts cited by the court included:

1)         Trek Leather imported 72 entries of men’s suits;

2)         Shadadpuri had provided fabric to the manufacturer of those suits which qualifies as an assist [An assist is anything the importer provides to the manufacturer that is used in production that the manufacturer received at a reduced cost or at no cost.];

3)         The fabric assist was not added to the value of the suits at time of entry;

4)         As a result, the value of the suits was underdeclared at time of entry;

5)         The underdeclaration led to too little duty being paid;

6)         Shadadpuri directed the customs broker to cause sales in transit to be made, meaning the manufacturer issued the invoices to one company which Shadadpuri controlled. He figured out which of the other companies he controlled had the funds to pay for the shipments and directed the customs broker to make the appropriate notations on the invoices to direct the shipments to that other company  – Trek Leather – which acted as importer of record;

7)         The invoices given to the customs broker did not include the value of the assist, and, in fact, made no reference to it;

8)         Due to prior dealings with CBP, Shadadpuri knew the value of the fabric assist had to be declared at time of entry and be part of the dutiable value of the imported suits;

9)         Shadadpuri himself, or others working for him and at his direction, would fax the invoices to the customs broker; and

10)       After CBP began its investigation, Shadadpuri produced revised invoices which included the fabric assist and the broker submitted corrected entries accordingly.

During the CIT proceedings, Trek Leather admitted it was grossly negligent in the filing of its entries, so the only question left to decide was the liability, if any, of Mr. Shadadpuri. The CAFC looked at the broad meaning of the word “introduce” in light of the Panama Hats decision, and held, it did not need to deal with any of the other issues raised on appeal. “Under the rationale of Panama Hats, [introduce] covers actions that bring goods to the threshold of the process of entry by moving goods into CBP custody … and providing critical documents (such as invoices indicating value) for use in the filing of papers for a contemplated release into United States commerce even if no release ever occurs”.

The court then looked to the Restatement (Second) of Agency §343 (1958) to point out the longstanding principal of agency law which is “an agent who actually commits a tort is generally liable for the tort along with the principal, even though the agent was acting for the principal”. In short, whether or not Mr. Shadadpuri was the importer (and his lawyers had argued he could not be liable because he was not), the “introduce” language in 1592 certainly covered his misdeeds and so found him liable.

There is an old adage in the law about bad facts make bad law. It remains to be seen whether that is the case here and whether an appeal will follow. If not,  we are left to wonder how CBP applies this holding. Certainly, in the past, it has assessed 1592 penalties against those employed by companies as managers, officers and directors on a joint and several basis, never quite articulating the misdeeds of the individual(s) named as distinct from those of the company. We know on the export enforcement side of the equation, those agencies have no trouble finding ways to charge, fine and debar individuals due to the language of the statutes they enforce. We are seeing much greater imposition of individual liability when it comes to anti-corruption violations. Exactly how this holding will influence the enforcement agencies is not clear, nor is the question of its impact on the language in future laws and regulations.  Will this holding really turn things on their head? It is just too early to tell.

Corporate Officers Becoming Liable for Negligent Acts Is Reconsidered

Posted in Aerospace & Defence, Anti-Trust/Competition Law, Corporate Counsel, Criminal Law, Cross-border deals, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, FCPA/Anti-Corruption, Government Procurement

In July 2013, the decision of the Court of Appeals for the Federal Circuit (CAFC) was announced in United States v. Trek Leather, Inc. and Harish Shadadpuri, Case No. 2011-1527 (July 30, 2013). Harish Shadadpuri (Shadadpuri) was the President and sole shareholder of Trek Leather, Inc. (Trek). The question before the appellate court was whether, in the absence of any specific allegations against him personally, Shadadpuri could be held liable for the gross negligence of Trek. The appellate court held no, but both the CAFC and Shadadpuri conceded there were other legal bases on which he could be held liable, even as the government declined to pursue those other options. The CAFC has now granted an en banc hearing to reconsider that decision, which is generating significant concern on many fronts.

The underlying facts are uncontested. Trek imported men’s suits. When the entries were filed, the cost of the fabric (considered an “assist”) was not included as part of the dutiable value. Shadadpuri was previously associated with another company and two (2) years earlier had a similar problem with that other company. In the earlier case, Customs and Border Protection (CBP) decided to forgo any penalty action, but received $46,156.89 in unpaid duties.

With Trek, Shadadpuri conceded from the outset the fabric assist should have been declared. [An assist is anything the importer provides to the manufacturer that is used in production that the manufacturer received at a reduced cost or at no cost.] CBP identified the assist and issued a penalty. In assessing the penalty, CBP named both Trek and Shadadpuri as jointly and severally liable in its claim for $2,392,307 based on fraudulently, knowingly, and intentionally understating the dutiable value of the imported men’s suits. As frequently occurs in such situations, the government also alleged gross negligence and negligence and sought payment of $45,245.39 in underpaid duty.

The Court of International Trade (CIT) found Shadadpuri liable for gross negligence, and, as a result, the other two counts (the ones for negligence and fraud) were dismissed. The CAFC overturned that decision. It held Shadadpuri could have been liable for fraud, or as an aider or abettor, or if the government had pierced the corporate veil, but since none of those theories were pursued, the government lost on appeal.

What the trade community is trying to figure out is what does this mean? Based on CAFC’s decision in United States v. Hitachi America, Ltd., 172 F.3d 1319 (Fed. Cir. 1999), a person cannot “aid and abet” negligent conduct, so under the CBP penalty regime, that would mean an individual corporate officer (or even a director or manager) could not be liable for the culpability of his corporate employer unless there is fraud present or there are allegations recited against him individually. At the same time, if fraud is alleged, that means the government has been able to assert specific acts against the individual. So, does the fact the CAFC granted the rehearing mean we will see a reversal of the Hitachi decision? Will there be clarity about personal liability in the negligence context?

As international traders know, 19 U.S.C. § 1592 requires importers to exercise reasonable care when filing their entry declarations with CBP. A violation occurs when there is a material false statement or material omission in those declarations, which is the case when a value component, such as a fabric assist, is not included in the dutiable value declared at time of entry. In imposing liability, § 1592 (a)(1) talks in terms of “no person” may make entry by fraud, gross negligence, or negligence. § 1592 (a)(1)(B) includes a prohibition for aiding or abetting such misdeclarations.

During oral argument at the CIT, Trek conceded it had been grossly negligent, while Shadadpuri continued to deny liability. Shadadpuri went on to argue he could only be personally liable if the government pierced Trek’s corporate veil or established he had committed fraud or aided and abetted Trek’s fraud. He also argued he could not be liable for aiding and abetting in the case of negligence or gross negligence; see United States vs. Hitachi America, Ltd., 172 F.3d 1319 (Fed. Cir. 1999). Surprisingly, the government abandoned any attempt to claim fraud, declined the invitation to proceed on any other theory, and instead stuck to the position Shadadpuri is a “person” as defined in § 1592 and so is liable. The CIT agreed and entered judgment for $534,420.32 based on gross negligence, holding Shadadpuri jointly and severally liable. The CIT was undoubtedly influenced by the fact Shadadpuri is the one who was responsible to examine the relevant documentation before submitting it to the customs broker to prepare entry. Put another way, Trek could not have been grossly negligent but for the actions of Shadadpuri. While Shadadpuri appealed, the government did not appeal the dismissal of the fraud claim.

In reaching its decision, the CAFC analyzed the issue by first conceding the obvious –

Shadadpuri was a person within the meaning of the statute – but questioned whether the government proceeded on the correct legal grounds. For example, a § 1592 penalty arises in conjunction with material false statements or omissions made during the entry process by the importer. As such, to establish direct liability, the government had to establish the elements of negligence – a duty, a breach of that duty, and then harm. The duties set out in §§ 1484 and 1485, and so in § 1592, relate to entry declarations by importers. In its penalty action, the government failed to assert any duty on Shadadpuri’s part, so there could be no negligence or gross negligence by him and so no penalty liability.

Typically, a corporate officer is insulated from claims by creditors by virtue of there being a corporate entity. There is a long-standing limited liability principle holding that, so long as the corporate officer is acting on behalf of the corporation, he is not liable for what follows. Obviously, there are other contexts where individual liability can arise, but in this case, because of how the government chose to plead its case, it lost.

In terms of the en banc request, the judges who heard the case referred it to the other judges on that court, who agreed to entertain the rehearing. As a result, the July 2013 decision is vacated. The parties were directed to brief the following issues:

A) 19 U.S.C. § 1592(a) imposes liability on any “person” who “enter[s], introduce[s], or attempt[s] to enter or introduce” merchandise into United States commerce by means of fraud, gross negligence, or negligence by the means described in § 1592(a). What is the meaning of “person” within this statutory provision? How do other statutory provisions of Title 19 affect this inquiry?

B) If corporate officers or shareholders qualify as “persons” under § 1592(a), can they be held personally liable for duties and penalties imposed under §§ 1592(c)(2) and (3) when, while acting within the course and scope of their employment on behalf of the corporation by which they are employed, they provide inaccurate information relating to the entry or introduction of merchandise into the United States by their corporation? If so, under what circumstances?

C) What is the scope of “gross negligence” and “negligence” in 19 U.S.C. § 1592(a) and what is the relevant duty? How do other statutory provisions in Title 19 affect this inquiry?

Shadadpuri’s brief was due April 19; the government’s response, May 19; and any reply, June 3. Thereafter the court will designate the oral argument date.

The question this case presents on rehearing is whether there are circumstances under which an individual may be held liable for the tort actions of the company simply by virtue of being an officer or director, or even a manager or employee? Obviously, if the answer of the CAFC turns out to be yes, this result could well turn long-standing corporate immunity principles upside down! There is no question an individual in the employ of the company in whatever capacity is an individual as defined in the statute, but does the legislative history of that statute allow it to have the far reaching impact of making individuals liable in the circumstance of the employer being negligent or grossly negligent without anything more?

Given the potential impact of the court’s decision, it is not surprising that many trade associations have filed amicus briefs, but all those interested in corporate governance issues should be just as concerned. It is impossible at this point to guess what will be the CAFC’s decision, but clearly the outcome could have far-reaching effects, not just on corporations, but also on limited liability companies and perhaps even limited liability partnerships. It is also reasonable to expect that, while the case is pending, many companies will be considering indemnity agreements with key employees.

Auto Exporters – 1; Government ????

Posted in Border Security, Corporate Counsel, Cross-border trade, Customs Law, Export Controls & Economic Sanctions, FCPA/Anti-Corruption, Transportation

Originally published in the Journal of Commerce in April 2014.

Ever since the government’s attempts to side with the car makers against the car exporters started, a lot of people have been scratching their heads – why did the government even get involved in what is at best a civil dispute between the dealers and the car makers, and both sides have ample resources to carry on that battle? At the beginning, we heard the cars were being exported in violation of the export laws – and let’s be frank, the export values in some cases were too low.  The vehicles were being declared as used, in the face of CBP and Census having two different definitions of what constitutes a used car, so the initial cases also included claims about export violations. There was even one U.S. Attorney who stood up at a press conference and said it is illegal to export new cars unless you are a manufacturer or dealer. I guess he forgot to check – many auto exporters are licensed dealers!

A lot of those who ended up trapped in this situation were small guys with limited resources, and they generally found themselves having to settle with the Government, often on less than favorable terms. The Government’s view originally was we’ll sell the cars and keep the proceeds. Now, their tune is typically, we’ll sell the cars, split the proceeds and you, the auto exporter, can pay the storage charges! Will that tune change soon?

Originally, the Government’s reason for action was the dealers were being duped into selling cars for export and they would not knowingly do so. Of course, once confronted with the obvious communications between the dealers and the auto exporters (or their brokers), the Government changed its tune and now claims the dealers and the manufacturers are being harmed.  We can leave for another day any discussion about whether the current franchise set-up lends itself to anti-trust claims.  For now, the auto exporters finally won one!

While many others found themselves wringing their hands waiting for the government to decide how it would proceed, Automotive Consultants (ACH) fought back. It happens from time-to-time the Government starts down a path and will simply not admit it is wrong. When that happens, there is only one option – somebody has to take them to court and beat them, and that is exactly what ACH did.

The case began when seizure warrants were served tying up significant funds along with two vehicles. The basis for the seizure was the affidavit of a Secret Service agent who essentially alleged there was a trans national money laundering and auto export business going on and the seized funds and vehicles were property involved in money laundering, and mail and wire fraud. ACH responded by filing an emergency motion to dismiss the complaint, to suppress the seizure warrant and for the release of its property.  ACH also sought to have the Secret Service agent’s affidavit unsealed.

The case had something of a checkered history until April 1st, when the latest order came down. Once the funds and vehicles had been seized, ACH filed its claim for the return of the property. About the same time, the Government filed is Complaint in Forfeiture. ACH then filed the motions mentioned. The court held a hearing on the topic of unsealing the agent’s affidavit and denied the motion. However, prior to the hearing, the Government moved to amend its complaint and provided an unsealed version of the agent’s affidavit.  Thereafter the amended complaint was filed with a slightly expanded version of the unsealed affidavit.

The parties then went back and forth as to how much of a challenge the court would allow to the affidavit and whether or not the agent’s testimony would be taken. Eventually, the court held ACH had raised “a significant question whether the Government has shown probable cause to continue to hold these assets at this juncture of the case.”  At that point, with evidence from both sides before it, the court held that ACH would be permitted to cross-examine the agent. That hearing occurred on March 10 and 11, 2014.  The outcome is the court held the Government failed to establish the probable cause needed to continue to hold the seized assets.

What you have here is parties with two totally different views of the facts. The Government was convinced that receiving funds from overseas to purchase new vehicles from dealers was perpetrating a fraud on the dealers (and maybe the manufacturers), whereas ACH, quite correctly, pointed out there is nothing illegal about receiving funds via international wire transfer, and there was also nothing illegal about cooperating with dealers so the vehicles were purchased by straw buyers on behalf of ACH.

Much of the government’s position is based on the franchise agreement a manufacturer gives to his dealer and includes a limitation as to the geographic area in which the dealer may sell his vehicles. Some, but not all, car makers include a provision the dealer may not sell for export. The dealers want to sell cars, especially those which are not good sellers, so they are more than willing to work with auto brokers to sell them quantities of cars, provided each one is purchased by an individual. There is no deception. Everyone knows what is going on, but the Government was sure that was not the case. It is worth noting in particular, this is only happening with BMWs, Porsches and Mercedes vehicles. While cars from other makers may have been seized initially, they are generally getting released as these cases progress.

In the ACH case, there was lots of generalized angst expressed by the agent in terms of the dire consequences to the dealers and the car makers about the way in which the vehicles were being sold. For example, the car makers would have difficulty servicing the cars shipped out of the U.S.; the dealers would suffer charge-backs when exportation was discovered; but if not charge-backs, then at least a reduction in the quota of new vehicles the dealer would be allotted. The generalizations were rampant, but not a shred of evidence was produced to show those claims applied to either the vehicles or the funds seized, so, in the end, Judge Sandra Beckwith issued a ruling telling the Government it had not made its case to continue to hold those assets. That was the good news. The bad news was the judge also hinted there might later be enough evidence there could be criminal conduct going on so that ACH’s ultimate goal of getting the case dismissed failed.

One other interesting fact which came out is the Secret Service’s involvement began with an investigation into vehicle brokers supposedly for schemes to export luxury cars. To conduct their investigation, the agents met with luxury car dealers and introduced a straw buyer checklist (a series of red flags). This matter did not start from a complaint by a dealer that he was duped. It did not start with a car maker complaining. The start to this case was a couple of agents with an idea. Of course, that idea played into the hands of the luxury car makers who would prefer to control where their cars are sold and serviced. What got lost in the process was the dealers will sell to whomever they can, provided they are making a profit, and who wouldn’t want to sell inventory that is not otherwise a hot seller? What also got lost in the process was the fact that by taking the actions they did, the agents managed to put a lot of small business people out of work, plus took tax revenue from states and localities, commissions from salesmen and profits from dealer, to name some of the financial consequences which were caused.

While we wait to see what happens next in ACH’s case, it is worth remembering this case is another tale of two certainties. First, what likely tempted the agents to take a closer look was the values on many of the export declarations was too low, so getting your government filings correct at the outset remains an important factor. The second lesson is sometimes you really have no choice but to fight city hall!



Posted in Aerospace & Defence, Agriculture, Border Security, Controlled Goods Program, Corporate Counsel, Criminal Law, Cross-border deals, Cross-border litigation, Cross-border trade, Customs Law, Energy, Environment, Export Controls & Economic Sanctions, FCPA/Anti-Corruption, Intellectual Property, NAFTA, Transportation

Originally published in the Journal of Commerce in May 2014.

The word cybersecurity causes shudders in the hearts of anyone in the etailing business, and one need to look no further than Target, Michaels, eBay and Neiman Marcus for the latest examples of significant consumer data theft. Unfortunately, cybersecurity and the thought of data being compromised has not caused as much concern among other businesses. For those of us involved in the movement of goods, but not in etailing, cybersecurity is an ever increasing headache.  By way of example, we continue to hear about containers which arrive. The cargo being shipped should fill the container but instead, when the doors are opened, there is no cargo but only evidence of individuals having been smuggled into the country and are long gone. Perhaps more compelling is a recent story from a Homeland Security Investigator with whom I shared a panel on the topic of cybersecurity. He provided details about a recent intrusion that presents truly chilling overtones. The saga begins with containers exported from South America and drugs stowed in with the cargo. The vessel arrives in Amsterdam, the containers are off-loaded. At this point, the drug smugglers hack into the computer system of the terminal operator, track where their containers are located and figure out the point where they can break into the containers. The goal is to retrieve the drugs in a way they are least likely to observed or caught. This process was used repeatedly before it was discovered.

Perhaps we do not need to think quite so dramatically when looking at the issue of data being compromised.  Many companies do not even worry about who has access to their goods or documents. They aren’t even sure they know how payroll data for their own employees is protected. If you use a payroll service, do you know how many individuals at that service have access to the Social Security numbers and other key data of your own staff? Do all those individuals need access to that data all the time? If not, how are you making sure only those with a need to know have access? If you handle your own payroll, you should be asking the same questions – who has access to the key personal data of the employees, and do they routinely need that access to all that data?

Similarly, when it comes to data about shipments, who has access or read/write authority to the data? Do they absolutely need it? Who has access to the containers when being loaded and unloaded?  At a program discussing cargo security a number of years ago, a security expert told the story about one of his customers in the high-end perfume business.  The company was encountering significant losses despite a security protocol having been put in place. So, the security company sent the expert to observe with the obvious goal of trying to figure out why the losses continued. The security protocol mandated only the warehouse manager or warehouse supervisor would seal the trailers. Instead, they were handing the seals to the drivers who were left to seal the trailers themselves. One enterprising driver that day was chewing on the seal so he distorted it enough that it would seem to seal the trailer. He would then go a couple of miles down the road, remove the seal, unload some of the perfume, hand it off to his co-conspirators, reuse the seal to seal the trailer and, when he arrived at destination, the seal appeared intact.

While this process was admittedly a low tech form of supply chain corruption, the more high tech process of intruding into a computer system, identifying shipments to target and then grabbing them is a part of every day life these days.

An oft-stated feeling in the transportation industry is corruption of the supply chain is really only a concern when it comes to the shipment of drugs or high value goods. While it is true that furniture has been constructed around drugs, and drugs have been commingled in fresh fruits and vegetables being shipped in various forms, the reality is that corruption of the supply chain means more than cargo damage or loss. If you have a container arrive with evidence of someone living in it, your supply chain has been corrupted. Similarly, if bribes have been paid to foreign officials, or trade secrets have been stolen, or the computer code to the design of your latest product is posted on the Internet, your supply chain has been corrupted.  You need only read the daily newspaper or journalism websites to see regular evidence of supply chain corruption in the form of theft of trade secrets, misdeclarations of goods and other illegalities. and with alarming frequency.

When it comes to high value cargo, the term needs to be defined. Certainly, the obvious meaning of a multi-million dollar shipment is clear but those often travel with additional security. But, a shipment can be high value because it is the new line for a successful apparel company, or it could be the latest mock-up of a construction site. These and many more examples offer situations where competitors or bad guys see a way to gain an advantage if they steal the information.  Therefore, the cargo is ripe for theft and it might be something as simply as the price of the raw material going up dramatically, thereby making the product highly valued at that particular moment, but not generally otherwise. Another example was the recent story of a diamond merchant losing $2 million in diamonds when he was pulled over while driving and the gems stolen from his person. You know someone had inside information –  they knew where he was going to be, when and what he had on him – his supply chain was successfully hacked!

In the IT community, the general feeling is large companies with much to protect usually do a successful job with their electronic infrastructure. However, much like the neighborhood thief who avoids the home with an alarm system and looks instead for the open window through which to get into the house, hackers are now looking for easier access to highly prized information. So, they are turning to intruding into a service provider’s system, e.g., the freight forwarder, law firm, accountant or air conditioning/heating provider.  They might also plant malware on your website and use its spread to get into your computer system.

As the threat of computer hacking spreads to companies of all sizes and sorts, here are some questions to consider:

1)         Has the issue of cybersecurity remained with your IT department or do you have involvement from ownership, the Board of Directors or the officers regarding compliance?

2)         When was the last time you had your computer system checked by a third party as a form of due diligence?

3)         If you are a service provider who is required to report about cybersecurity measures in a request for quotation, how can you be sure the steps you are saying are being taken are actually being regularly implemented within your company?

4)         Just about every company now supports BYOD – bring your own device. This is generally done to facilitate ease of working remotely. How recently did your company review how best to balance the need to keep data secure with enhancing employee working flexibility? How frequently is that issue revisited?

5)         What is the size of your current computer infrastructure budget? Is that amount really adequate to do the job?

6)         Do you know the internal reporting procedures in the event you discover your company’s has been hacked?

7)         Who handles reporting the hack to management? To outside regulatory authorities? To law enforcement? Is there even such a procedure in place? If not, why not? What will it take to create one so you are ready when the intrusion happens?

At a recent meeting of major companies and law firms, an IT security consultant was asked how many of the companies and law firms represented in the room had been hacked. His immediate answer was all of them! How is your company preparing for that eventuality?

Finally, if you work for a publicly traded company, bearing in mind the mandate of Sarbanes-Oxley that the CEO and CFO certify the financial statements, if your Board is not invested in cybersecurity, what will be the fallout when the officer certifications are found to be a sham because the risk related to cybersecurity was never properly identified or managed?

Tips For Conducting An Internal Investigation

Posted in Aerospace & Defence, Agriculture, Anti-Trust/Competition Law, Border Security, Buy America, Constitutional Law, Controlled Goods Program, Corporate Counsel, Criminal Law, Cross-border deals, Cross-border litigation, Cross-Border Real Estate, Cross-border trade, Customs Law, Energy, Environment, Export Controls & Economic Sanctions, FCPA/Anti-Corruption, Government Procurement, Intellectual Property, Labour, Legal Developments, NAFTA, Transportation

Perhaps your computer system was hacked. Maybe you opened a container to find goods in it that did not belong to you (thank goodness they were not dangerous) or perhaps no goods but evidence people lived in the container while it was en route to the U.S., or you found sizable payments made to questionable parties in odd locations in the world when you checked your records. Perhaps the adverse event is a major product defect. It might also be a significant employment dispute. Whether faced with these serious issues or others equally compelling, once management has been presented with a “situation,” the first step is to figure out what happened and then what to do about it. This article contains best practices for conducting an internal investigation, but really the first question to address is when do you call in counsel? This may seem a self-serving question, but, in fact, whether you have in–house counsel or rely on outside counsel, it is in the company’s best interest to protect the investigation by cloaking it with the attorney-client privilege to sort out what happened, and to then address such important questions as:

1)      Are there government agencies to which we are obliged to give notice about what happened? If so, is there a specific time frame under which we must act?

2)      What do we tell our customers/clients and when?

3)      What do we tell our staff and when?

4)      Who on our staff was involved and what punishment is merited? Is our only choice to fire the people involved?

5)      When do we tell our Board? Shareholders?

6)      Should we report what happened to law enforcement? If so, to what agency and when?

7)      If a vendor was involved, must we change vendors? If so, how quickly? Can we afford to cut off that vendor?

Until you are ready to answer all of these questions, and the many more that arise, it is best to keep the investigation confidential under the attorney-client privilege. For purposes of this article, we will frame the investigation as having to do with a cybersecurity breach, but these recommendations apply in any context where the company finds itself facing serious challenges.

Cloaking The Investigation With Privilege.

Best practice is to immediately engage outside counsel, have him/her lead the investigation, and include him/her on all communications from the start. While relying on in-house counsel alone may be sufficient to establish the privilege, it increases the risk that certain communications may fall outside of the privilege, based on whether the in-house counsel was using his or her “lawyer hat” or “business  hat” for the particular communication. See Wellpoint Health Networks v. Superior Court, 59 Cal. App. 4th 110, 120 (1997). Having cloaked the investigation in privilege, it is equally important to be conscientious, both during the investigation and in its aftermath, to avoid any subsequent waiver.  Generally, sharing a privileged communication with a third party will destroy the privilege. Pac. Pictures Corp. v. United States Dist. Court, 679 F.3d 1121, 1127 (9th Cir. 2012). While the rule appears simple, in the context of an investigation, complexities are likely to arise that readily complicate application of this rule.

Sharing information with the government, for instance, also presents a waiver dilemma. In California, there is a split of authority over whether, and in what circumstances, voluntary sharing of privileged documents with the government constitutes a waiver, whether during the investigation or after its conclusion. Compare McKesson HBOC, Inc. v. Superior Court, 115 Cal. App. 4th 1229 (2004) (disclosure of the results of an internal investigation to the U.S. Attorney and the Securities and Exchange Commission resulted in waiver); Regents of University of California v. Superior Court, 165 Cal. App. 4th 672 (2008) (results of privileged investigation produced to federal Corporate Fraud Task Force pursuant to subpoena did not waive the privilege; although Appellants could have refused to produce the results of the privileged investigation, cooperation with the federal agencies did not waive the privilege “because each defendant believed there would be severe regulatory or criminal consequences if it was labeled as uncooperative by the government”).

Moreover, the majority federal view is that such “selective waiver,” even with a confidentiality agreement in place, may not preserve the privilege. See, e.g., In re Pacific Pictures Corp., 679 F.3d at 1128-29; In re Columbia/HCA Healthcare Corp. Billing Practices Litigation, 293 F.3d 289, 302 (6th Cir. 2002); In re Qwest Communications Intern. Inc., 450 F.3d 1179 (10th Cir. 2006).

Accordingly, if faced with having to make a disclosure to the government, it would be wise to carefully frame the disclosure, including signing a confidentiality and joint-interest agreement, if possible, to strengthen arguments against waiver. However, having done so, there still remains a high degree of risk that any disclosure to any government entity constitutes a waiver.

The possibility of reliance on the investigation in future litigation may also raise issues regarding waiver. Typically, asserting reliance on an investigation or advice of counsel waives the privilege. See Wellpoint Health Networks, 59 Cal. App. 4th at 128 (“If a defendant employer hopes to prevail by showing that it investigated an employee’s complaint and took action appropriate to the findings of the investigation, then it will have put the adequacy of the investigation directly at issue, and cannot stand on the attorney-client privilege or work product doctrine to preclude a thorough examination of its adequacy.”). However, the privilege is waived only if and when the issue actually arises in a pending lawsuit, not at some point where there is only a possibility or likelihood that it will be raised. Id. at 129.

The key points to why you engage outside counsel from the outset are a company’s self-interest in controlling information regarding an adverse event and the legal interests protected by the involvement of counsel. The same is true when promptly bringing in-house counsel into the picture, but relying strictly on in-house counsel leaves the company vulnerable to the side issue of what “hat” counsel was wearing with each communication. If it is a business hat, the information exchanged is not privileged, and who wants to go through the nightmare of that collateral issue when the company is facing such serious challenges?

Best Practices for Conducting the Actual Internal Investigation

When setting out to investigate a cybersecurity breach, the company should first determine whether the investigation should be conducted by an “inside” human resources representative or attorney or an “outside” investigator or attorney. When selecting an investigator, in addition to the privilege considerations discussed above and below, consider whether the proposed investigator possesses the skills to properly conduct an investigation that could require technical knowledge of the systems affected.

A few additional things to keep in mind when conducting the investigation:

  • Jump in right away. The investigation should be conducted promptly, even if certain evidence is not immediately available or certain witnesses are unavailable or uncooperative. Any necessary delays in the investigation should be well documented.
  • Preserve all available evidence as soon as possible and before meeting with witnesses. Once it becomes clear an investigation is going to be conducted, people may alter or destroy electronic (or other) evidence purely out of self-preservation interests. Consider whether interim measures should be taken to preserve information; and, if so, what is available, how can it be done, and who should be involved in that effort?
  • Chase down all reasonable leads, regardless of where they might take you, ask the tough questions, and be flexible. In order to conduct a complete investigation, and in order to later defend the integrity of the investigation, the company must be able to show the investigation was fair, comprehensive and not biased.
  • Document witness interviews appropriately. The investigator should keep notes for each interview that capture both questions and answers and note the date and time of the interview and the people present. These notes may be essential support for the investigator’s conclusions and any resulting employment action taken. If appropriate, getting signed affidavits from the concerned parties may be a wise option.
  • Don’t jump to conclusions. There is almost always another side to the story. Make sure the investigator has reviewed all potentially relevant data and versions of what occurred before coming to any conclusions.
  • Once you have the outcome, take prompt but reasonable action. Once the source and scope of the problem are identified, take timely but prudent action and do not delay in doing so. The more serious the problem, the more reason to document everything that was done and why.

We mentioned above how best to protect the investigation – i.e., to cloak it in the attorney–client privilege. To illustrate the reason for that recommendation, one of our best practice recommendations was to preserve all available evidence and do so promptly. This is both a sensitive area and also one where applying the privilege can become complicated. The issue is sensitive because management wants to make sure it has all the evidence and knows the positive and negative about the situation. But, for the employee put in charge of the investigation, one of the first principles of such an effort is to keep those in the know to a small group, at least until the source and extent of the breach are known. If the investigation is started without counsel being involved, all those efforts are fair game for inquiry in any government investigation, employee action, or other litigation, including by whistleblower and class action plaintiffs. On the other hand, if counsel is involved from the start, the actions of the staff and even outside experts are protected from disclosure unless and until the company decides to voluntarily disclose any information.

Another point we raised is the investigator. It is important to keep in mind that often the skills needed to conduct the investigation are specialized, and so hiring outside experts can be necessary and prudent. The expert should work for the lawyer so there is no question that the expert is acting at the direction of the lawyer, and, thereby, those efforts are cloaked in the attorney-client privilege.

Another area where things can get complicated is when employees are interviewed. If not handled correctly, the company could end up with a whistleblower on its hands. So sensitivity during the interview process is key, but also making clear the attorney works for the company and not the employee is critical to the validity of the outcome.

The current situation with General Motors (GM) and its recall dilemma are a good example of how convoluted things can become. On the other hand, it is likely GM conducted an internal investigation about the ignition switches. From press reports, it seems possible GM had an inking of the problem several years ago and so an investigation of some sort was probably conducted back then. On the one hand, GM likely wants to keep the results concealed for a variety of plausible reasons. For example, it wants its customers to see the company as compassionate and feel confidence in GM as its weathers the storm. GM also wants the regulators to see the company as compliant and this malfunction as an aberration. Further, GM wants its employees and shareholders to see it as a good, solid, and caring company. In short, quite understandably, GM wants to protect it good name and brand. Whether GM will be able to shield the results of any old investigations (or even a current one) remains to be seen, but depending on their results, GM may decide it is better served to waive the privilege and share those findings.

Exactly how the GM situation turns out will be some time in happening. A final and more public example is the dilemma Boeing found itself in a few years back when it hired someone from a competitor in order to gain an advantage in a government contract bidding process. Because it failed to conduct due diligence in the hiring and retention of that employee, it paid $615 million to settle criminal and civil charges. After the case was resolved, a member of the Boeing legal team spoke publicly about other consequences to the company. Among them were the following: senior executives being forced to plead guilty, serve time in a federal prison, pay a fine of $250,000, and forfeit approximately $5 billion in equity-based compensation; denial of export licenses; potential loss of security clearances; resuspension or debarment; potential prohibition of the use and possession of explosive devices (needed for actuators on airplane doors); future impacts on contractor integrity scoring; defense of the Boeing competitor’s lawsuit; loss of $1 billion of launches and being suspended from the launch business for 20 months; employees fired or indicted; loss of the U.S. Government tanker market; and being forced to recompete certain projects. But the biggest damage was to the company’s reputation. Did people still want to work there? How can employees and others see the company in a good light?

While certainly there is not a lot of detail available even now about the specifics of any internal investigation Boeing conducted, it is reasonable to expect there was one. The question is when was it conducted? It would also be critical to know how far into the investigation was the government when it was completed? Given the severity of the penalties on Boeing and its staff, there is reason to think the results of any internal investigation might not have been a great bargaining chip. While this is admittedly speculation, when you look at the situation, the question you have to ask is, if you were faced with a similar situation, how would you conduct the investigation? What is the team you would bring together to help you? Wisdom suggests managers should have these questions answered before the situation explodes rather than being reactive. Are you ready?


Posted in Aerospace & Defence, Border Security, Buy America, Corporate Counsel, Customs Law, Export Controls & Economic Sanctions, FCPA/Anti-Corruption, Government Procurement, Legal Developments

President Obama issued Executive Order 13636 on February 12, 2014 setting out potentially far reaching cybersecurity standards. To learn what these new standards could mean for your company, the impact it will have on how companies are measured in the face of a hacking event and just what you are in for in the future, see

Can I Sue the Canada Border Services Agency If They Make A Mistake?

Posted in Customs Law

I get asked this question very often.  The answer is “yes” with a BUT.  Pursuant to subsection 106(1) of the Customs Act (Canada), an action or proceeding may be brought against an officer or person assisting an officer.  Subsection 106(1) of the Customs Act (Canada) provides that “no action or judicial proceeding shall be commenced against an officer for anything done in the performance of his or her duties under [the Customs Act] or any other Act of Parliament or a person called to assist the officer in the performance of such duties more than three months after the time when the cause of action or the subject matter of the proceeding arose.”

Pursuant to subsection 106(2) of the Customs Act (Canada), an action or proceeding may be brought against the Crown to recover seized or detained goods. Subsection 106(1) of the Customs Act (Canada) provides that “no action or judicial proceeding shall be commenced against the Crown, an officer or any person in possession of goods under the authority of an officer for the recovery of anything seized, detained or held in custody or safe-keeping under [the Customs Act] more than three months after the later of (a) the time when the cause of action or the subject-matter of the proceeding arose and (b) the final determination of the outcome of any action or proceeding taken under [the Customs Act] in respect of the thing seized, detained or held in custody of safe-keeping.”

The important takes aways are:

1) Yes, you may bring an action or a proceeding against the Canada Border Services Agency (“CBSA”); and

2) You MUST file the notice of application or other commencement of proceeding within 3 months.

Often, the question about suing the CBSA comes after the expiration of the three month limitation period.  The courts strictly apply the limitation period. So, if you wish to pursue a civil or criminal claim against a CBSA officer, do not delay.  It may be possible to file a protective claim and withdraw the case if you later decide to not pursue the matter.

Canada Border Services Agency Looks For Cute Puppies In The Vehicle?

Posted in Customs Law, NEXUS, Uncategorized

If you have a cute little puppy on your lap as you cross the border or a dog crate in the back of the minivan, expect the Canada Border Services Agency (CBSA) to ask some questions about the dog.  The CBSA recently released information about the December 2013 cases of non-compliance.  The CBSA gives the following examples:

  • Travelers who bought a dog in the US, claiming it was worth $500 US, but then admitted it actually cost them $1,900 US.  They were given penalties of $670.
  • A man declared $1,000 for a puppy he bought from a breeder in the United States. A quick check showed he paid $3000 for the dog.  He ended up paying a $1,100 penalty.

We have seen this happen many times.  The CBSA knows that breeders of pure breed dogs ask for significant amounts for a puppy.  If the value appears too low, the CBSA will ask where you located the breeder.  If you say Craigslist, they will search by the breed of dog and the location of the breeder to find the original advertisement.  If you say you negotiated the price by email, they will search your Blackberry/iPhone/computer for the email exchange.

If you provide the CBSA with an invoice that just does not seem right, the CBSA will accuse you of providing a false invoice.  It happens more often than you would think.

The CBSA would prefer that travelers make an accurate declaration.  The proper paperwork should be provided and make sense.  If the price is lower than what would be usual, the seller should provide a written explanation.  For example, a traveler acquired the pick of the little because her Canadian dog was used as a stud.  Another traveler owned the mommy dog and was surprised by a little of puppies while spending the summer in New York State.  Another traveler returned with a dog after the owner had passed away and did not want to put the dog down.  There are many valid reasons for a lower value for duty – they key is proving that the facts are accurate and truthful.