July 2017 International Trade Law Newsletter - GRVR Attorneys

Customs Broker Exam goes electronic and a lot more expensive Probably by the time you read this, CBP will have formally announced that the customs broker exam will from now on be administered and taken electronically . Yes, no more bubbling in scantron sheets with No. 2 pencils! CBP also moved the biannual date of the exam to the fourth Wednesday in October and April. However, CBP's valiant effort to drag its tired, clunky apparatus into the twenty-first Century comes at a cost. The exam fee will almost double from its current $200 price to $390. CBP did not answer some important questions, including: Will exam-takers at the exam site be given a hard copy of their exam and answers? CBP promises that the "examination sites themselves will offer ample room for hard copies of reference material, and the guidance on CBP.gov will describe the permitted reference materials. Applicants will receive scrap paper at examination sites." While CBP should be lauded for automating its antiquated procedures, like every other bureaucracy, it has been known to commit errors. Let us also not forget that we live in the era of hackers. Moreover, exam-takers can't scratch out, highlight, and scribble on a computer screen, and a piece of scratch paper is a poor substitute for being able to physically and visually work through the exam. Also, why not? The booklet and answers have always been for exam-takers to use and keep. There is no reason to change that now. How quickly will exam-takers know their score? For some unfathomable reason, CBP and its contractor minions always took way too long to grade the customs broker exam thereby inflicting unnecessary distress on people who were already under the gun. CBP largely justifies the increased application fee by promising a "faster processing time," but how fast is that? CBP's actually says "The new all-electronic version of the exam will be administered entirely on a computer where the examinees answer the questions directly on the screen and the exam is graded automatically ." (our emphasis). There is no reason on earth that test-takers should not know their answers automatically, but CBP may well continue mailing exam scores instead. We should probably be happy that at least CBP will not require test-takers to own beepers and fax and voice machines. What technology will CBP use? CBP is being coy about the technology it intends to use ( suggestion to CBP: iPods would rock!), other than to make clear that CBP will assign only one computer screen per exam-taker. In other words, you will still have to lug your half-ton load of HTSUS, CFR, and study materials (no phones allowed). In other words, you won't be able to do computer word searches of the Harmonized Tariff Schedule or the Code of Federal Register, you know, like customs brokers do in the real world. Is CBP ditching multiple choice questions? Also not clear is how much the exam will continue being mostly multiple-choice. There are only three types of computerized exam questions: multiple choice, true/false, and essay. The easiest exams to create and grade are multiple choice. It would be a mystery and probably a huge mistake if CBP relies on fewer multiple choice questions. Questions about these changes to the customs broker exam or how to become a customs broker? Attend our July 7 webinar on Becoming a Licensed U.S. Customs Broker (see information below). CEO To Pay $1 Million Misclassification Penalty The U.S. Court of International Trade recently delivered a strong reminder that misclassification of imported goods under the Harmonized Tariff Schedule of the United States can result in heavy penalties not only against the importing company but also against the officers and owners of that company. In U.S. International Trading Services, LLC and Julio Lorza (May 5, 2017), the Honorable A. Barnett entered a judgment against the importer and its CEO for classifying shipments of imported sugar under the wrong tariff provision and, thus, under a duty rate that was lower than what the importer should have paid. Unfortunately for the CEO, he worked for a company (the importer) that had gone belly up and, as a result and under joint and several liability, he is on the hook for the entire judgment of $986,967.31. Two-thirds of that amount is penalty and only a third consists of the duties that the importer owed. Judge Barnett reviewed fourteen criteria under the Complex Machine Works test (named after a court opinion) to assess the correct penalty amount. While paying a $986,967.31 judgment should terrify just about anyone whose financial means are short of a billionaire’s, the CEO in this case was lucky that the Government limited its lawsuit to negligence. The CEO could easily be facing a much larger judgment had the Government sued for gross negligence and fraud. Importer Antidumping Alert! As we previously warned, antidumping duties are becoming more common and the Trump Administration promises to keep to and even accelerate that upward trend. There are over 400 antidumping orders in place and our government imposes them against goods from around four dozen countries.Most of the antidumping orders are against a cluster of countries, including Thailand, Indonesia, Vietnam, Mexico, Turkey, Brazil, Japan, Taiwan, Korea, India, and, of course, China. China easily leads the pack. The claimed justification for antidumping duties is that they serve as great equalizers by raising to the actual, unsubsidized market value the costs of imported goods and thus allow domestic manufacturers to have a fighting chance to compete. The antidumping “margins” or duties tend to be exclusionary and punitive, often more than doubling the price of the imported goods. But owing unpaid duties is just the beginning of an importer’s troubles. If caught, the importer may well have to pay a penalty that is a multiple of the value of the goods. The importer may even face criminal penalties. So how does an importer keep up with its antidumping obligations given all the dizzying number of new duty orders and investigations? There is ACE, of course, but we also recommend the following links. Federal Register Antidumping Notices (updated daily) The U.S. International Trade Commission’s Antidumping and Countervailing Duty Orders in Place (Excel Sheet) International Trade Administration’s List of Antidumping Orders By Country New Hong Kong export rules If you are shipping to or through Hong Kong, you must follow new guidelines from the Bureau of Industry and Security that make sure that your goods will not be diverted to the wrong party or destination. Here are important online resources: Hong Kong FAQ Hong Kong’s Strategic Commodities Control System Insurance Company Settles OFAC Violations Official OFAC Press Release American International Group, Inc. (AIG) of New York, NY, an international insurance and financial services organization incorporated in Delaware and headquartered in New York, has agreed to remit $148,698 to settle its potential civil liability for 555 apparent violations of the following OFAC sanctions programs: the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR); the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. Part 544 (WMDPSR); the Sudanese Sanctions Regulations, 31 C.F.R. Part 538 (SSR); and the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR), (collectively, the “Apparent Violations”). OFAC has determined that AIG did voluntarily self-disclose the Apparent Violations, and that the Apparent Violations constitute a non-egregious case. The total base penalty amount for the apparent violations was $198,266. From on or about November 20, 2007, to on or about September 3, 2012, AIG engaged in a total of 555 transactions totaling approximately $396,530 in premiums and claims for the insurance of maritime shipments of various goods and materials destined for, or that transited through, Iran, Sudan, or Cuba, and/or that involved a blocked person. While most of the Apparent Violations occurred under global insurance policies, dozens of apparent violations occurred under single shipment policies. OFAC identified 455 apparent violations totaling $274,463.64 in which AIG extended insurance coverage to parties that were engaging in a voyage, shipment, or transshipment to, from, or through Iran, and/or accepted premium payments or paid claims arising from that insurance coverage, in apparent violation of § 560.204 of ITSR. In addition, OFAC identified 38 apparent violations of § 538.205 of the SSR, all of which pertained to global insurance policies that provided insurance coverage for shipments going to or from Sudan, with premiums received totaling $13,321.44. Moreover, OFAC identified 33 apparent violations of § 544.201 of the WMDPSR, all of which involved shipments aboard blocked Islamic Republic of Iran Shipping Lines vessels, with premiums received totaling $105,065.94. Finally, OFAC identified 29 apparent violations of § 515.201 of the CACR, all of which pertained to AIG’s provision of insurance coverage in connection with shipments to or from Cuba, or its processing of premiums or claims arising from this coverage or that involved a Cuban entity, with premiums received totaling $3,679. AIG’s OFAC compliance program in place at the time of the Apparent Violations included recommendations for when to use exclusion clauses in the policies it issued regarding coverage or claims that implicated U.S. economic sanctions. While a majority of the policies were issued with exclusionary clauses, most were too narrow in their scope and application to be effective. In addition, some of the policies were issued without such clauses. Separately, some insureds, mindful of existing exclusionary clauses in their open cargo or worldwide master policies, sought single shipment policies that had no exclusionary clauses. The settlement amount reflects OFAC’s consideration

Customs Broker Exam goes electronic and a lot more expensive

Probably by the time you read this, CBP will have formally announced that the customs broker exam will from now on be administered and taken electronically. Yes, no more bubbling in scantron sheets with No. 2 pencils! CBP also moved the biannual date of the exam to the fourth Wednesday in October and April. However, CBP's valiant effort to drag its tired, clunky apparatus into the twenty-first Century comes at a cost. The exam fee will almost double from its current $200 price to $390.

CBP did not answer some important questions, including:

Will exam-takers at the exam site be given a hard copy of their exam and answers?

CBP promises that the "examination sites themselves will offer ample room for hard copies of reference material, and the guidance on CBP.gov will describe the permitted reference materials. Applicants will receive scrap paper at examination sites." While CBP should be lauded for automating its antiquated procedures, like every other bureaucracy, it has been known to commit errors. Let us also not forget that we live in the era of hackers. Moreover, exam-takers can't scratch out, highlight, and scribble on a computer screen, and a piece of scratch paper is a poor substitute for being able to physically and visually work through the exam. Also, why not? The booklet and answers have always been for exam-takers to use and keep. There is no reason to change that now.

How quickly will exam-takers know their score?

For some unfathomable reason, CBP and its contractor minions always took way too long to grade the customs broker exam thereby inflicting unnecessary distress on people who were already under the gun. CBP largely justifies the increased application fee by promising a "faster processing time," but how fast is that? CBP's actually says "The new all-electronic version of the exam will be administered entirely on a computer where the examinees answer the questions directly on the screen and the exam is graded automatically." (our emphasis). There is no reason on earth that test-takers should not know their answers automatically, but CBP may well continue mailing exam scores instead. We should probably be happy that at least CBP will not require test-takers to own beepers and fax and voice machines.

What technology will CBP use?

CBP is being coy about the technology it intends to use ( suggestion to CBP: iPods would rock!), other than to make clear that CBP will assign only one computer screen per exam-taker. In other words, you will still have to lug your half-ton load of HTSUS, CFR, and study materials (no phones allowed). In other words, you won't be able to do computer word searches of the Harmonized Tariff Schedule or the Code of Federal Register, you know, like customs brokers do in the real world.

Is CBP ditching multiple choice questions?

Also not clear is how much the exam will continue being mostly multiple-choice. There are only three types of computerized exam questions: multiple choice, true/false, and essay. The easiest exams to create and grade are multiple choice. It would be a mystery and probably a huge mistake if CBP relies on fewer multiple choice questions.

Questions about these changes to the customs broker exam or how to become a customs broker? Attend our July 7 webinar on Becoming a Licensed U.S. Customs Broker (see information below).

CEO To Pay $1 Million Misclassification Penalty

The U.S. Court of International Trade recently delivered a strong reminder that misclassification of imported goods under the Harmonized Tariff Schedule of the United States can result in heavy penalties not only against the importing company but also against the officers and owners of that company. In U.S. International Trading Services, LLC and Julio Lorza (May 5, 2017), the Honorable A. Barnett entered a judgment against the importer and its CEO for classifying shipments of imported sugar under the wrong tariff provision and, thus, under a duty rate that was lower than what the importer should have paid. Unfortunately for the CEO, he worked for a company (the importer) that had gone belly up and, as a result and under joint and several liability, he is on the hook for the entire judgment of $986,967.31. Two-thirds of that amount is penalty and only a third consists of the duties that the importer owed. Judge Barnett reviewed fourteen criteria under the Complex Machine Works test (named after a court opinion) to assess the correct penalty amount. While paying a $986,967.31 judgment should terrify just about anyone whose financial means are short of a billionaire’s, the CEO in this case was lucky that the Government limited its lawsuit to negligence. The CEO could easily be facing a much larger judgment had the Government sued for gross negligence and fraud.

Importer Antidumping Alert!

As we previously warned, antidumping duties are becoming more common and the Trump Administration promises to keep to and even accelerate that upward trend. There are over 400 antidumping orders in place and our government imposes them against goods from around four dozen countries.Most of the antidumping orders are against a cluster of countries, including Thailand, Indonesia, Vietnam, Mexico, Turkey, Brazil, Japan, Taiwan, Korea, India, and, of course, China. China easily leads the pack. The claimed justification for antidumping duties is that they serve as great equalizers by raising to the actual, unsubsidized market value the costs of imported goods and thus allow domestic manufacturers to have a fighting chance to compete. The antidumping “margins” or duties tend to be exclusionary and punitive, often more than doubling the price of the imported goods. But owing unpaid duties is just the beginning of an importer’s troubles. If caught, the importer may well have to pay a penalty that is a multiple of the value of the goods. The importer may even face criminal penalties.

So how does an importer keep up with its antidumping obligations given all the dizzying number of new duty orders and investigations? There is ACE, of course, but we also recommend the following links.

New Hong Kong export rules

If you are shipping to or through Hong Kong, you must follow new guidelines from the Bureau of Industry and Security that make sure that your goods will not be diverted to the wrong party or destination. Here are important online resources:

Insurance Company Settles OFAC Violations

Official OFAC Press Release

American International Group, Inc. (AIG) of New York, NY, an international insurance and financial services organization incorporated in Delaware and headquartered in New York, has agreed to remit $148,698 to settle its potential civil liability for 555 apparent violations of the following OFAC sanctions programs: the Iranian Transactions and Sanctions Regulations, 31 C.F.R. Part 560 (ITSR); the Weapons of Mass Destruction Proliferators Sanctions Regulations, 31 C.F.R. Part 544 (WMDPSR); the Sudanese Sanctions Regulations, 31 C.F.R. Part 538 (SSR); and the Cuban Assets Control Regulations, 31 C.F.R. Part 515 (CACR), (collectively, the “Apparent Violations”).

OFAC has determined that AIG did voluntarily self-disclose the Apparent Violations, and that the Apparent Violations constitute a non-egregious case. The total base penalty amount for the apparent violations was $198,266.

From on or about November 20, 2007, to on or about September 3, 2012, AIG engaged in a total of 555 transactions totaling approximately $396,530 in premiums and claims for the insurance of maritime shipments of various goods and materials destined for, or that transited through, Iran, Sudan, or Cuba, and/or that involved a blocked person. While most of the Apparent Violations occurred under global insurance policies, dozens of apparent violations occurred under single shipment policies. OFAC identified 455 apparent violations totaling $274,463.64 in which AIG extended insurance coverage to parties that were engaging in a voyage, shipment, or transshipment to, from, or through Iran, and/or accepted premium payments or paid claims arising from that insurance coverage, in apparent violation of § 560.204 of ITSR. In addition, OFAC identified 38 apparent violations of § 538.205 of the SSR, all of which pertained to global insurance policies that provided insurance coverage for shipments going to or from Sudan, with premiums received totaling $13,321.44. Moreover, OFAC identified 33 apparent violations of § 544.201 of the WMDPSR, all of which involved shipments aboard blocked Islamic Republic of Iran Shipping Lines vessels, with premiums received totaling $105,065.94. Finally, OFAC identified 29 apparent violations of § 515.201 of the CACR, all of which pertained to AIG’s provision of insurance coverage in connection with shipments to or from Cuba, or its processing of premiums or claims arising from this coverage or that involved a Cuban entity, with premiums received totaling $3,679.

AIG’s OFAC compliance program in place at the time of the Apparent Violations included recommendations for when to use exclusion clauses in the policies it issued regarding coverage or claims that implicated U.S. economic sanctions. While a majority of the policies were issued with exclusionary clauses, most were too narrow in their scope and application to be effective. In addition, some of the policies were issued without such clauses. Separately, some insureds, mindful of existing exclusionary clauses in their open cargo or worldwide master policies, sought single shipment policies that had no exclusionary clauses.

The settlement amount reflects OFAC’s consideration of the following facts and circumstances, pursuant to the General Factors under OFAC’s Economic Sanctions Enforcement Guidelines, 31 C.F.R. Part 501, app. A. The following were considered aggravating factors: AIG engaged in a pattern or practice that spanned multiple years in which it issued and maintained insurance policies and processed claims and premium payments in apparent violation of multiple U.S. sanctions programs; AIG issued policies and insurance certificates, and/or processed claims and other insurance-related transactions, that conferred economic benefit to sanctioned countries or persons and undermined the policy objectives of several U.S. economic sanctions programs; and AIG is a large and commercially sophisticated financial institution.

The following were considered mitigating factors: AIG has not received a penalty notice or Finding of Violation from OFAC in the five years preceding the earliest date of the transactions giving rise to the Apparent Violations; AIG had an OFAC compliance program in place at the time of the Apparent Violations that included, in most instances, the use of sanctions exclusion clauses to try to prevent the company from issuing policies or processing claims that implicated U.S. economic sanctions; AIG took remedial action in response to the apparent violations; and AIG cooperated with OFAC’s investigation, including by voluntarily self-disclosing the Apparent Violations, submitting detailed and well-organized information to OFAC, and signing tolling agreements that tolled the statute of limitations.

This enforcement action highlights the important role that properly executed exclusionary clauses and robust compliance controls play in the global insurance industry’s efforts to comply with U.S. economic sanctions programs. As outlined in OFAC’s Frequently Asked Questions regarding Compliance for the Insurance Industry, the best and most reliable approach for insuring global risks without violating U.S. sanctions law is to insert in global insurance policies an explicit exclusion for risks that would violate U.S. sanctions laws.