Originally published by the Journal of Commerce in November 2019
If one listens to the press, the only thing going on in D.C. right now is the impeachment hearing. However, in reality, life goes on pretty much as before. The various agencies continue their work, perhaps with somewhat different priorities, and international traders continue buying and selling goods across borders – but life goes on. True, Iran has now again become subject to full U.S. economic sanctions. There are also new economic sanctions on Russia and Venezuela. We have seen the tariffs imposed on goods from China, coupled with the significant limitations on Huawei’s access to the U.S. market. Add to that, the standard which applies when evaluating foreign investment into the U.S. has also changed. It seems as though right now, if you are an international trader, every decision involves factors far more complex than has been the norm – and the consequences of a wrong decision can be financially disastrous. At the same time, there is one context where things may be changing, but in a positive manner – with the Department of Justice, and a handful of other circumstances where things are still in flux, and, depending on your perspective, that change is either good or bad!
Let’s start with the Department of Justice (“DOJ”). Earlier in the year, DOJ published another guidance which further clarifies already existing provisions in the U.S. Sentencing Guidelines and the U.S. Attorney’s Manual. While the context relates to the False Claims Act, the topic with which DOJ continues to struggle is how to give companies credit for cooperation. False Claims Act challenges arise in the international trade context when, for example, a company fails to pay antidumping or countervailing duty because, the assertion is, the goods are not accurately described at time of importation. Another example is a party selling goods under Buy America conditions to a government entity, while those goods are actually foreign made and do not otherwise qualify, such as under a free trade agreement or because the origin country is not a signatory to the World Trade Organization’s Government Procurement Agreement. Similarly, a misclassification of goods or entering goods undervalued (so one pays too little duty) are other illustrations of how a False Claims Act violation could arise for international traders. When it comes to evading the export laws and regulations, those violations are typically handled by the individual agency as a civil matter, or are prosecuted as criminal cases.
The recently issued DOJ guidance again emphasizes the importance of compliance programs. It is their “adequacy and effectiveness” that is key. Remedial efforts taken by the company to implement or upgrade a compliance program are also critical. DOJ explained that in issuing this latest guidance, it intended to more closely align DOJ’s disposition of potential False Claims Act cases with how cases in other contexts are decided. The stated desire was to also have objective criteria form the basis for any decision-making. In the international trade context, we know what this means – consistent decisions. DOJ goes on to address voluntary disclosures and other forms of cooperation, such as identifying individuals substantially involved in or responsible for the misconduct; disclosing relevant facts and identifying opportunities for the government to obtain evidence; preserving, collecting and disclosing relevant evidence (documents and information) and so on. Put another way, how does the company engage in risk assessment (is the compliance program well designed); is the compliance program likely to have misconduct come out and be timely/properly dealt with (is the compliance program implemented effectively); and is misconduct investigated and remedial action taken (does the compliance program actually work). For international traders, we know this drill. Whether you make a prior disclosure to U.S. Customs and Border Protection, or a voluntary self-disclosure to the Departments of State (Directorate of Defense Trade Controls), Commerce (Bureau of Industry and Security) or Treasury (Office of Foreign Assets Control), each one must be accurate and complete – what happened, how was it discovered, why did it happen, what were the mistakes, what was the role of the each individual involved, what are the consequences (more duty, an export license was needed, etc.), what remedial action was taken and when, and how did the company improve its compliance procedures so the mistake does not happen again). On the one hand, it is good to see the policies and procedures of the agencies traders deal with most often are having such a great effect on how the DOJ is approaching its case decisions. The flip side is – why is it taking so long for everyone else to catch up?
In the category of things continue in flux, and more unsettling than bad, we return to the tariffs on Chinese goods. We know, of course, an exclusion process was finally implemented for the goods on List 4A. Those goods became eligible when the portal opened on October 31, 2019 and will close on January 31, 2020. It is obvious the process of evaluating and deciding exclusion requests took far longer and was much more complicated than the government initially expected. The exclusion requests for goods on Lists 1 and 2 have all now been finally decided. There were, however, 30,322 requests filed for goods on List 3, and to date there are 400+ filings regarding goods on List 4A. As to List 4B, December 15, 2019 remains the effective date, but we all know that is up in the air depending on the outcome of the so-called Phase 1 deal with China.
Evidencing even more change, on October 31, 2019, the U.S. Trade Representative announced that between November 1, 2019 and November 30, 2019, it would accept comments about whether or not exclusions granted for List 1 goods in December 2018 should be extended for up to 12 months, meaning they could now expire on December 28, 2020.
Then finally, at least for international travelers, we have the somewhat good news contained in the Alassad v. Nielsen decision issued on November 12, 2019, see 2019 WL 5899371, regarding border searches of electronic devices. In this case, 11 individuals sued the Homeland Security, Customs and Border Protection (“CBP”) and Homeland Security Investigations (“HIS”) claiming violations of Constitutional rights arising from the border/airport searches conducted of their electronic devices. While the circumstances varied as to the number of times a search was conducted, the characteristics of the individuals and the nature of those searches, 10 of the 11 individuals were U.S. citizens and the 11th a permanent resident. This is important to the outcome because when one meets those criteria, one gains admission upon return from outside the U.S. based on citizenship and identity, nothing more. Meaning is the person a U.S. citizen and is the person standing in front of the officer that citizen. Obviously there is little need to search devices to establish those two facts.
In issuing the decision, Judge Casper spent some time talking about the types of searches which are conducted – basic and advanced – with a basic search involving a review of the contents of the device, whereas the advanced search involves connecting the device to another unit to copy some or all of its contents. There is also an interesting discussion about, even when there is nothing copied off the device, the nature and extent of the information retained in the CBP computer about individual travelers. Regardless, the judge acknowledge there is no reasonable suspicion required for a cursory search (meaning having the device turned on and confirming there is content on it – in other words it is not a dud or a bomb!), whereas there is for the basic or advanced search. It is also worth noting, there was nothing found on the devices of any of the individuals which was evidence of a crime, supported any national security concern or provided evidence of anything else untoward. What these individuals had in common is once they were pulled over for one search, the odds were much greater, they would be subjected to similar searches in the future. The suspicion is their names and/or occupations led to the initial searches.
Critical to understanding the significance of the holding is the decision was made at the motion for summary judgment stage and not all the issues were decided. In other words, this is far from over. Depending on how the rest of the case is decided, it is also reasonable to expect an appeal will follow.
The heart of the decision reads: “Accordingly, the Court ALLOWS the request for declaratory relief to the following extent: the Court declares that the CBP and ICE policies for “basic” and “advanced” searches, as presently defined, violate the Fourth Amendment to the extent that the policies do not require reasonable suspicion that the devices contain contraband for both such classes of non-cursory searches and/or seizure of electronic devices; and that the non-cursory searches and/or seizures of Plaintiffs’ electronic devices, without such reasonable suspicion, violated the Fourth Amendment.” The judge went on to say: “As to injunctive relief, Plaintiffs seek: a) an injunction preventing Defendants from “searching electronic devices absent a warrant supported by probable cause that the devices contain contraband or evidence of a violation of immigration or customs laws,”… ; and b) an injunction preventing Defendants from confiscating electronic devices, with the intent to search the devices after the travelers leave the border, without probable cause and without promptly seeking a warrant for the search,..” The judge declined to make a decision on that topic without more evidence from all sides. So, there is much more to come in this ever-evolving area of law. Just how far do your privacy rights extend?
And then finally, we revert to the purely trade front, and ask – where do things really stand with U.S.-Mexico-Canada Free Trade Agreement approval and the supposed U.S. Japan trade agreement?