Originally published by the Journal of Commerce – November 2016

In early October, Customs and Border Protection (CBP) sent a letter to all the fruit and vegetable importers asking them to identify the basis on which they are declaring the value of their imported produce. The precursor was a realization by CBP that not all these imports were being correctly declared at time of entry. The consignment value was often based on an educated guess, if that, and generally not later updated to reflect actual sales values.  The questions asked by CBP included whether the produce was purchased or on consignment, whether the parties were related, how the consigned value was determined and why reconciliation was not filed.  Correctly, this sent chills throughout the industry and caused everyone to make sure to consult with appropriate advisors before responding.

If an importer knows his value (and other selected topics) at time of entry is not 100% correct, he runs the risk of penalty if he does not flag the discrepancy and then file reconciliation in order to report his true sales values later. Due to misunderstandings within the agency, those dealing with fruits and vegetables did not realize the disconnect until recently. In reality, what importers often overlook is the penalty for a failure to make a correct declaration when there is no duty difference is greater than when the full duty is not paid at time of entry. Perhaps this lax attitude can be traced to a lack of understanding, but it is also likely the result of the philosophy underpinning the CBP enforcement system.

When CBP enforces the law, it typically thinks first about civil penalties, for all but the most serious violations, and criminal later. When it comes to exports, however, those enforcement agencies (for good reason) think first jail first and civil penalties second. No one is suggesting CBP should change its philosophy. Rather, the point is that importers should know the requirements and abide by them, and so should exporters.

No doubt exporters pay far more attention to their levels of compliance, due in large measure to the many companies that recognize the national security and foreign policy implications of the products they sell, along with their own compliance standards, but it is also a matter that when it comes to enforcement, Commerce and State have vigorous outreach programs and make a point of talking about their successes, whereas CBP is typically silent on this topic.

By way of example, last week was the annual Bureau of Industry and Security Update. The program featured representatives of Commerce but from many other agencies as well, including State, the Office of Foreign Assets Control and the Defense Technology Security Administration.  Perhaps one of the most striking discussions had to do with voluntary disclosures.  On a dais consisting of three investigators, the Office of Export Enforcement Director proudly pointed out that not one voluntary disclosure had ever led to a criminal investigation. – imagine how quickly disclosures would stop if one was ever turned into a criminal case! What was particularly noteworthy was the Director’s comment that OEE routinely consults with the Dept. of Justice (Justice) before deciding disclosures.  When was the last time you heard CBP talk about the disclosures it receives?

What made the discussion even more topical was the early October National Security Division at Justice guidance issued regarding voluntary self-disclosures , see https://www.justice.gov/nsd/file/902491/download.  The focus of this guidance was described as “willful export control and sanctions violations” by companies and their employees.  Aiming yet again to find ways to hold individuals responsible for violations which occur, this Justice guidance requests companies to continue to file their voluntary self-disclosures with the agency having jurisdiction over the alleged violation, but to also submit a disclosure to Justice.  What makes this particular guidance unique is its focus on “willful” violations. What this tells the trade community is that generally less egregious mistakes will not lead to criminal prosecution, a philosophy the agencies generally follow when it comes to setting civil fines. In reality, any company that finds itself suffering a willful violation will most likely first fire the people involved and upgrade its compliance program.  This must be done quickly, which again points to why having processes and procedures in place, fully supported by upper management, are critical. The need for prompt action relates to a disclosure only being valid if it is reported before an investigation is opened, or if one is opened, before the company has notice of its existence. Once the remedial action has been completed, the disclosure is filed and steps taken are reported as part of the company seeking cooperation credit.

This latest Justice memo builds on the now somewhat infamous Yates memo regarding individual liability. See https://www.justice.gov/dag/file/769036/download. Both guidance documents underscore the same standard of full disclosure prior to any investigation having been initiated, with cooperation, including providing evidence and witnesses, and facilitation of third-party evidence, remains the norm at Justice.

Taken together, these various publications and events serve to remind all importers and exporters the key to financial success is a compliance program that actually works!