Time is Money: CBP Proposes New Mitigation Guidelines for Liquidated Damages Response Petitions

Sep 10, 2012   

For importers and brokers, there may be several aspects of US Customs & Border Protections (“CBP” or “Customs”) policies that are obscure. One of those areas is liquidated damages provisions and their proposed consequences. Under CBPs most recent proposal, importers who fail to respond to liquidated damages claims in a timely manner will face possible fines and consequences far beyond what is currently in place. As any shrewd business person will note, it is important to keep operating costs low and to avoid any extra bills whenever possible. This holds the same for importers and brokers whose job is to quickly and efficiently get merchandise from point A to point B. Brokers and importers must be attentive to deadlines and time requirements just as much as any other business, but even more so because of the nature of their profession.

If the newly proposed changes to the Liquidated Damages Mitigation Guidelines (as will be discussed below) are put into place, filing timely may be the difference between a few hundred and a few thousand dollars in extra bills. But lets not get too far ahead of ourselves, lets first get a clear understanding of what exactly a Liquidated Damage is, where it comes from, and why it is so crucial for importers to “timely” respond to Liquidated Damages claims made by Customs.

Background & Current Mitigation Guidelines for Untimely Liquidated Damage Response Petitions

Before we address the consequences of untimely responding to a liquidated damages claim, we need to first understand how they occur. Liquidated damages arise out of customs bonds. A customs bond is typically filed by the importer of record, warehouseman, or other custodian of merchandise. It is effectively an agreement between an importer and surety that ensures compliance with all of Customs obligations with respect to entry, storage, and transport of goods.   In the event that an importer breaches one of these obligations, this bond functions as security for liquidated damages claims issued by the CBPs Office of Fines, Penalties, and Forfeitures.

In the event that a liquidated damages claim is issued, CBP affords importers the opportunity to challenge the claim by submitting a petition pursuant to 19 C.F.R. § 172.3(b). Under this regulation, a petition must be filed within 60 days from the date of mailing to the bond principal the notice of claim for liquidated damages or penalty secured by a bond. Historically, CBP has been lenient with respect to accepting late petitions.

CBPs most current Mitigation Guidelines: Fines, Penalties, Forfeitures, and Liquidated Damages provide instruction on how CBP determines settlement amounts for late petitions. CBP begins by calculating the mitigation amount as if a timely petition was submitted. This is called the “base amount.” CBP then takes 1% of the base amount and multiplies that by the amount of days the petition was late. This amount is then be added to the original base amount with a minimum additional value to be no less than $400.

Now that we have established what Liquidated Damages are, how they arise, and the current calculation for untimely filing, let us now turn our attention to the newly proposed changes to Customs Mitigation Guidelines.

CBPs Proposed Changes to Mitigation Guidelines for Late Petitions

In an informal document made available to members of the trade industry, CBP has claimed that the current mitigation guidelines have not effectively reduced or deterred the number of late petition filings by importers. Furthermore, in recent discussions between CBP the International Trade Surety Association (“ITSA”) and Customs Surety Executive Committee (“CSEC”), CBP explained its intent to significantly alter the calculation scheme for mitigation on untimely liquidated damage responses by importers.

Under the proposed calculation, CBP will take 1% of the full original assessment amount and multiply that by the amount of days the petition was late. This amount will then be added to the base amount. It is also reported that petitions later than 180 days late will not be accepted at all and the full original assessment amounts will be paid.

This proposed change in CBPs Mitigation Guidelines is significant and can result in final mitigation amounts being tens of thousands of dollars more than they would otherwise be under the current scheme. Importers are advised to be aware of the proposed changes and to make sure to submit liquidated damages response petitions timely.

If you need assistance filing a response petition to Customs or want more information on the developments in CBPs Mitigation Guidelines contact the Customs, Import and Trade Law practice group at Fuerst Ittleman David & Joseph, PL at 305-350-5690 or contact@fidjlaw.com.