Attorneys

• V. Susanne Cook
• Megan E. Finkelstein

Related Practices

• Customs

United States Customs Service Commissioner Robert C. Bonner recently announced a new wave of customs compliance reviews that would reward importers with internal security and compliance programs.  This development, fueled by the September 11 events, will place a renewed emphasis on the general requirement to exercise "reasonable care" in connection with all import transactions.  The reasonable care standard was originally enacted as part of the NAFTA Implementation Act, more commonly known as the Customs Modernization Act or the “Mod Act.”  The reasonable care standard grew out of the realization that while businesses devote substantial resources to Internal Revenue Service and tax issues, few resources had historically been allocated to the responsibilities of customs compliance.  The Mod Act imposed legal ramifications, and offered some real incentives, to change this way of thinking.  Every importer needs to review its import procedures and implement internal compliance programs to place itself in a good position to respond to inquiries and audits by the Customs Service.  

Customs has placed the reasonable care concept at the core of its compliance programs, penalizing those that fail to comply, but offering real incentives in the form of mitigation or avoidance of penalties to those that can demonstrate a sincere effort to exercise reasonable care in its import transactions.  

What does it mean to exercise reasonable care?  Since every corporation and import transaction is different, reasonable care is an imprecise standard in that the exact requirements depend upon many factors including the importation volume and complexity of the import transaction, e.g. whether special customs programs such as duty-draw back, Free Trade Zones or quota implications are involved.  

What should a company do to assure compliance with the reasonable care standard?  Fortunately, there are some basic programs that an importer can implement to place itself in a position where it is "presumed" to be in compliance with the reasonable care standard:

1. Every importer should utilize the advice of an expert to assist in structuring its importation business.  Such expert advise should come from customs brokers, attorneysand other professionals trained in customs compliance issues.  
2. Since the Mod Act mandates all chief executive officers to give top priority to customs compliance, importers should develop internal Customs Compliance Manuals tailored to the importer’s specific needs and reflective of their importation transactions.  
3. Companies involved in importation transactions must develop an environment that will permit the establishment of extensive recordkeeping systems, internal reviews and audit procedures, compliance training, and internal control systems designed to detect irregularities within the company.  We strongly recommend establishing  a centralized customs compliance function with a clear internal chain of command structure.  
4. We also recommend taking particular note of some key issues, such as valuation and classification of imports.  Every importer should maintain documentary evidence validating proper classification, valuation and other key issues relating to their imports.

Companies should view the “reasonable care” regime as an opportunity, offering a first line defense to combat customs compliance issues.  The Customs Service website (www.customs.ustreas.gov) offers a “Reasonable Care Checklist”  for the importing community to provide guidance and information in meeting their reasonable care obligation.  

For more information on the above or customs in general, please contact any member of the Cohen & Grigsby Customs team, Susanne Cook, Frank Schuckmann and Megan Finkelstein, at scook@cohenlaw.com, fschuckmann@cohenlaw.com and mfinkelstein@cohenlaw.com, respectively.