CBP Loosens the Reigns on Information Sharing for Customs Brokers

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CBP recently proposed to amend federal regulations to allow customs brokers greater leeway in sharing confidential client information, with the clients written consent.

Under the proposed amendments to 19 C.F.R. § 111.24, “Permissible Sharing of Client Records by Customs Brokers,” brokers possessing prior, written authorization from their clients would be allowed to share a clients information with:

  • affiliated entities related to the broker in order to offer non-customs business services to its clients;
  • third-party service providers to perform photocopying and scanning of client records (with a signed non-disclosure agreement); and
  • third-party messenger services for transporting and/or delivering client documents on behalf of the broker (if those documents are sealed to prevent viewing, altering or amending).

The proposed regulations acknowledge that many companies affiliated with customs brokers are now offering a wider array of logistics services to its clients. Moreover, customs brokers increasingly face the need to use third-party service providers to meet client and CBP demands. Under existing regulations, brokers are only allowed to share importer information with the importers surety (on a particular entry), certain U.S. Customs and Border Protection offices and officials, and other U.S. government agents, “except on subpoena by a court of competent jurisdiction.”

CBP hails the proposed regulations as allowing brokers to offer services that are “streamlined with modern and efficient business practices, while protecting the confidentiality of client (importer) information.” We believe that it the proposed rules will allow these tireless trade professionals to do their jobs more effectively, at a lower cost to importers, and with greater benefits to both brokers and their clients.

Comments on this proposed regulation is due by December 27, 2010.

CBP loses court case on enhanced bonding requirements for shrimp importers.

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The U.S. Court of International Trade has ruled this month that Customs and Border Protection (CBP) unfairly targeted U.S. shrimp importers with its enhanced bonding requirement (EBR). The ruling stems from a lawsuit filed by the National Fisheries Institute (NFI) on behalf of 27 shrimp importers. Previously, the Court had determined that CBP had “arbitrarily and capriciously” singled out U.S. shrimp importers and they had been irreparably harmed as a result of application of the EBR.

CBP had originally adopted the EBR in 2004 to prevent tariff evasion. However, the measure was applied at that time only to shrimp, which had no history of tariff evasion. Shrimp importers had their bonds increased from $50,000 to millions of dollars in some cases. Now, following the Courts ruling this month, CBP has 60 days to cancel all of the bonds or appeal the Courts decision. Once the bonds are canceled, shrimp importers will be able to ask the surety companies to release their collateral securing the bonds. As such, an onerous bonding requirement that singled out one class of importers has now been removed.

US Department Of The Treasury Continues Its Implementation Of Tougher Sanctions Against Iran

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On September 28, 2010, the Office of Foreign Assets Control (“OFAC”) of the United States Department of the Treasury issued new regulations amending the Iranian Transactions Regulations, (“ITR”), of the Code of Federal Regulations. The new regulations come as OFAC continues its efforts at implementing the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (“CISADA”). Passed on July, 1, 2010, CISADA supplements the Iran Sanctions Act of 1996 by expanding sanctionable activities and providing for additional types of sanctions.

The new regulations revoke 31 C.F.R. §§ 560.534 and 560.535 from the ITR. As a result, OFAC will no longer authorize, by either general or specific license, the commercial importation or dealing in of certain foodstuffs and carpets of Iranian origin into the United States. Additionally, the new regulations implement the import and export prohibitions in section 103 of the CISADA. Section 103 economic sanctions include prohibitions on the importation of goods or services of Iranian origin directly or indirectly into the US and on US origin goods, services, or technology from the US or a US person to Iran. A copy of the OFAC Federal Register announcement can be at Iranian Transactions Regulations amendment.

While the new regulations prohibit the import and export of goods and services to and from Iran, numerous exceptions, such as the exportation of goods for humanitarian assistance and the exportation of technology necessary for personal internet communication, exist under both the CISADA and the ITR. Additionally, importers must be aware of the definition of “goods of Iranian origin” under the ITR. Under the ITR, goods “of Iranian origin” not only include goods grown, produced, manufactured, extracted, or processed in Iran but also goods which have entered into the stream of commerce in Iran. Therefore, foodstuffs and carpets of third-country origin which are transshipped through Iran become goods of Iranian origin under the ITR and thus prohibited from importation into the US.

For more information regarding OFAC and strategies on maintaining compliance with federal regulations, please contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com.

FinCEN Proposes Reporting Regulations For Cross-Border Electronic Transmittals Of Funds By Financial Institutions

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On September 27, 2010, the Financial Crimes Enforcement Network (“FinCEN), of the U.S. Department of the Treasury, issued a notice of proposed rulemaking for publication in the Federal Register. The proposed rule would require money services businesses (“MSB”) and certain depository institutions to affirmatively report records of certain cross-border electronic transmittals of funds (“CBETF”) to FinCEN. Under the proposed rules, MSBs would be required to report all CBETF transactions of $1,000 or more.

Under the current regulatory scheme, the financial institutions that would be subject to the proposed rule must maintain and make available upon request to FinCEN records of CBETF information. However, the proposed rule goes further and affirmatively requires these institutions to report such transactions.

The proposed rules were issued pursuant to the requirements of the Intelligence Reform and Terrorist Prevention Act of 2004. This act gave the Secretary of the Treasury the power to require financial institutions to report CBETF if the Secretary determined that reporting is reasonably necessary to prevent money laundering and terrorist financing. If the proposed rule takes effect, U.S. depository institutions that are either the first to receive funds transferred electronically from outside the US or the last to transmit funds internationally would be required to report all such transmittals of funds of $1,000 or more.

FinCEN has also proposed a rule to require an annual filing by all depository institutions of a list of taxpayer identification numbers of accountholders who transmitted or received a CBETF. FinCEN believes that this proposed rule would allow for greater utilization of the CBETF data that would be gathered, and enhance law enforcement efforts to combat tax evasion by those seeking to hide assets offshore. A copy of the proposed rules can be read at FinCEN Proposes Rule On Reporting Requirements For Cross-Border Transactions.

For more information regarding FinCEN regulations please contact us at contact@fidjlaw.com.

CBP Withdraws Proposed “Last Sale” Rule

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Preservation of First Sale Doctrine Seen as Victory for Importers

U.S. Customs and Border Protection (CBP) published a notice in the Federal Register today formally withdrawing its proposed rule to determine the value of imported merchandise for customs valuation purposes based on the last sale prior to importation of the merchandise. In a victory for importers who spent years fighting the rule, CBP will preserve the “first sale” doctrine for import valuation.

Merchandise is often bought and sold in a series of transactions between the foreign manufacturer and various foreign middlemen prior to the merchandises entry into the United States. Embraced by Customs over twenty years ago, the first sale rule allows U.S. importers to set the customs value of the merchandise upon the first sale between the manufacturer and a middleman. This allows U.S. importers to capture the manufacturers price for the goods, and avoid paying customs duties upon the additional mark-ups charged by foreign middlemen. The result for importers was big savings in duties and fees paid to the United States.

In January 2008, however, CBP proposed new rules which would base the customs value of imported merchandise on the price paid in the last sale prior to the merchandises entry into the United States. While CBP believed that this “last sale” rule would more correctly estimate the entered value of the goods, industry groups and leading American importers argued that the real result of the proposed rule would be higher prices for American consumers and the complete jettisoning of court and Customs rulings on valuation upon which importers had been able to rely.

Members of the Senate and House soon climbed aboard the bandwagon calling for the withdrawal of the proposed last sale rule. A “Sense of the Congress” provision was passed in May 2008 instructing CBP not to implement the proposed rule before January 1, 2011, and not without first consulting with Congress and trade advisory groups, and only then with the approval of the Secretary of the Treasury.

The outcry over the proposed rule was even greater when then-CBP Commissioner Ralph Basham acknowledged that the rule had been proposed without substantive consultations with Congress and the trade community.

While the proposed last sale rule has languished, and CBP has been publicly stating since August 2008 that it would not implement the proposed rule, current CBP Commissioner Alan Bersin only recently committed to formally withdrawing the rule. In a letter to the National Association of Manufacturers (NAM), Bersin also committed to clearing up the backlog of ruling requests, and to developing an internal process to highlight to management any substantive regulatory initiatives, major proposed rulings and modifications of existing rulings prior to their publication.

Todays withdrawal of the proposed last sale rule and the Bersin letter to the NAM are seen as signs that CBP is starting to address some trade regulatory issues that have been nagging importers for years. As Bersin describes, the Agency is widely expected to soon announce final rules on country of origin markings, and proposed rules increasing the values for de minimis and informal entry shipments; these values have not been updated in over 15 years.

Oprah And Rachel Ray Assist The Federal Trade Commission In Taking Down Allegedly Deceptive Acai Marketers

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The Federal Trade Commission (FTC) has obtained a court order against the Arizona­based marketers of Acai dietary supplements, Central Coast Nutraceuticals, Inc, also known as CCN. The order prohibits sales of CCNs products including the weight-loss product AcaiPure and a “colon cleanser” touted to prevent cancer, but which the FTC has said is essentially a “run-of-the-mill” laxative. Also named in the FTCs complaint were CCNs affiliated companies and personnel: iLife Health and Wellness, Simply Naturals, Fit for Life, , Health and Beauty Solutions, Graham D. Gibson, and Michael A. McKenzy.

The FTC alleged that a big part of the deception centered on bogus “free trial” offers and corrupt billing practices in which “numerous unauthorized charges” were made to customers credit-cards and debit cards. Consumers were offered free products to “try” but did not receive adequate disclosure form CCN that they would be automatically enrolled in a membership program, charged for additional products. and that CCN would continue to charge them under their memberships until such time as the consumer opted out. Such practices are in violation of the FTC Act and the Electronic Fund Transfer Act.

Other deceptive practices noted in the complaint included a plethora of unsupported health claims by CCN. AcaiPures weight-loss claims supposedly were backed by “double-blind, placebo-controlled weight loss studies” which turned out to be non­existent. Consumers were also told that “most consumers taking AcaiPure report weight loss anywhere from 10-25 pounds in the first month,” a claim that similarly had no support. Another CCN unsubstantiated claim was that Colopure could help prevent colon cancer.

Lastly, the Commission alleged that the companies engaged in false celebrity endorsements by using the names and likeness of Oprah Winfrey and Rachael Ray to promote the products. Both Winfrey and Ray provided statements to the FTC that they have no involvement with the products, did not use the products and do not endorse the product.

The FTC reported that it had received over 2,800 complaints about this business and believes that consumers were duped out of at least $100 million dollars since 2009. 

The temporary restraining order is just the first step in the FTCs law suit against CCN. It is still unknown if criminal charges will be levied as in addition to the civil penalties being sought. In addition, the FTC continues to seek a permanent injunction against CCN and its affiliated companies. 

For more information on FDA and FTC regulations and marketing guidelines, please contact us at contact@fidjlaw.com.

OFAC Begins Process Of Lifting Sanctions In Post-War Iraq

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On September 13, 2010, the Office of Foreign Assets Control (“OFAC”) of the US Department of the Treasury announced the removal of the Iraqi Sanctions Regulations from the Code of Federal Regulations, 31 C.F.R. Part 575, and added the Iraq Stabilization and Insurgency Sanctions Regulations (“ISISR”) to the Code at 31 C.F.R. Part 576. The new regulations implement Executive Order 13350 terminating the national emergency declared in Iraq by the US in 1990 in Executive Order 12722.

Prior to the new regulations US law prohibited the importation of any goods or services from Iraq to the US and prohibited the exportation of goods, services, or technology from the US to Iraq. ISISR authorizes all transactions involving property and interests in property that were previously prohibited under Executive Order 12722. However, importers and exporters should be aware that certain transactions relating to Iraq remain subject to sanctions. OFAC announced that the removal of 31 C.F.R. Part 575 from the Code of Federal Regulations will neither affect ongoing enforcement proceedings nor prevent the initiation of enforcement proceedings where the statute of limitations has not run. A full copy of ISISR can be read in the Federal Register at: Federal Register Announcement.

For more information regarding OFAC and strategies on maintaining compliance with federal regulations, please contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com.

Phone Companies Urge US Government To Loosen Telecommunications Regulations For Cuba

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Several of the largest telecommunications companies in the United States including AT&T, Verizon, and Nokia are urging the US government to ease regulations which currently prevent them from operating in Cuba. The regulations stem from the 47 year old trade embargo the US has enforced against Cuba due to the oppressive Castro regime. AT&T and Verizon are seeking a loosening of regulations to make it easier for telecommunications companies to directly connect calls to and from Cuba, while Nokia, the worlds largest mobile-phone manufacturer, is urging Washington to ease the embargo so it can export mobile-phone accessories from its US locations.

Under current rules, the Federal Communications Commission (“FCC”) has established a rate cap on the fee telecoms can pay the Cuban government for direct calls to Cuba which hampers the telecommunications industrys ability to do business in Cuba. Currently, US providers are only allowed to pay the Cuban government a fee no higher than 19 cents per call, however, Cuba demands 84 cents a call.

In June, Verizon wrote the FCC asking it to grant requests by others in the telecom industry for the FCC to waive its maximum rate cap rules. A copy of Verizons comments can be read at: Verizons reply to the FCC.

US telecoms are also interested in establishing roaming services on the island for US customers who visit the island as a first step to expanding cell phone services. Analysts believe that the mobile phone market in Cuba has the potential to be profitable given the islands population, 11.4 million, and the relative few between, 10 and 20 percent, who currently use mobile phone services.

The telecoms requests for greater access to Cuba come several months after the idea was first presented by the Obama administration. On April 13, 2009, President Obama issued a memorandum to the Secretaries of State, Treasury, and Commerce entitled “Promoting Democracy and Human Rights in Cuba” in which the President said that increased contacts between Cuba and the outside world would reduce Cubans dependency on the Castro regime. President Obama directed his Secretaries to take such actions as necessary to authorize US telecommunications providers to enter into agreements to establish fiber-optic cable and satellite telecommunications facilities linking the US and Cuba and to license US telecom service providers to enter into and operate roaming services agreements with Cubas telecommunications service providers. The Presidents full memorandum can be read at: White House Memo on Promoting Democracy and Human Rights in Cuba.

However, while an easing of telecommunications regulations may be in the near future, US companies looking to do business in Cuba still risk violating sanctions still in place, such as the Cuban Democracy Act of 1992 that prohibits investment in Cubas telecommunications network.

For guidance on how your import/export business, or related business, can take advantage of the surging trade economy while maintaining strong regulatory compliance, contact Fuerst Ittleman at 305-350-5690 or contact@fidjlaw.com.

Pistachios in a Pinch

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Tougher Sanctions Close Pipeline for Trade in Food, Carpets and Financial Transactions from Iran

On August 16, 2010, the Department of Treasurys Office of Foreign Assets Control (OFAC) promulgated new regulations to implement the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010 (CISADA).  President Obama signed CISADA into law on July 1st with the goal to enforce U.N. Security Council sanctions and “to protect the international financial system from abuse by Iran,” according to OFAC Director Adam Szubin.

American financial institutions operating correspondent accounts or payable-through accounts for foreign financial institutions as well as companies currently importing food and carpets from Iran must take note of these provisions, which go into effect on September 29, 2010.

Before these implementing regulations, there was a “general license” issued by OFAC authorizing the importation of certain foodstuffs (like caviar and pistachios) and carpets from Iran into the United States.  However, the new regulations eliminate the general license and prohibit all such imports beginning on September 29, 2010.  OFAC has also indicated that it will no longer issue specific licenses for such products after that date.  Therefore, according to the OFAC guidance, “any such goods for commercial importation into the United States must be entered for consumption before that date.”

For financial institutions, the new regulations either outright prohibit, or impose strict conditions on, the opening or maintaining of a U.S. correspondent account or payable-through account for a foreign financial institution that the government finds have knowingly aided or facilitated certain activities benefitting the Government of Iran, Iran’s Islamic Revolutionary Guard Corps (IRGC), or Iranian financial institutions.  CISADA also makes it easier for state and local governments to prohibit investments of public funds in companies which are investing in Iran.

The penalties for institutions or companies found violating these new regulatory provisions are severe.  Civil penalties may be imposed up to $250,000 or twice the value of the transaction involved.  In addition, criminal penalties for willful violations of the law include fines of up to $1 million and prison sentences of up to 20 years.

One key provision of CISADA is the civil and criminal liability for parent companies for acts by subsidiaries that the parent had “reason to know” could lead to a violation of the law.  This is an attempt by the government to close one of the many loopholes which have allowed U.S. companies to benefit for years from trade with Iranian which arguably violated previous sanctions.

When Export “Classification Determinations” do not Determine Anything At All

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In the August 2, 2010 edition of the Federal Register, the Bureau of Industry and Security (BIS) “ the Department of Commerces group in charge of export regulation in that department “ issued an interim final rule in which it says that exporters cannot rely on BISs classification determinations as “U.S. Government determinations.”

This seemingly convoluted bit of government semantics is designed to more effectively communicate to exporters what BIS has been saying for years:  Commerce isnt the only federal department or agency enforcing regulations.  In fact, BIS only has jurisdiction over those items and activities that are subject to the Export Administration Regulations (EAR).”  Therefore, when merchandise being exported falls clearly and solely under BIS jurisdiction, then its classification determinations are as good as gold.

But what happens when merchandise being exported falls under the jurisdiction of State Department’s Directorate of Defense Trade Controls (DDTC), or Treasurys Office of Foreign Assets Controls, or the Department of Energy or Nuclear Regulatory Commission?  Too often in the past, exporters have turned to BIS to pass judgment on products that arent “subject to the EAR.”  In those instances, exporters must comply with the regulations administered by the applicable agency, and exporters dont have to consider the provisions of the EAR.

So what are exporters supposed to do?  Government regulations state that an exporter should review relevant government regulations and make “jurisdictional determinations” as to which department or agency has primacy with respect to regulating a product.  In practice “ and when in doubt “ we encourage exporters to seek advisory opinions from BIS and the State Department as to the proper classification of merchandise.  When contacting the DDTC, exporters should request a “commodity jurisdiction” determination to ascertain an item is subject to the International Traffic in Arms Regulations (ITAR).

Armed with this self-determination of which agency or department has possible jurisdiction over a product, and (potentially) an ITAR determination and a BIS determination as to a commoditys possible Export Control Classification Number (ECCN), an exporter can move forward with reasonable certainty.

But what about that BIS classification in light of the interim final rule?  Exporters need only remember that because BIS does not have authority to issue determinations that would bind other agencies, a BIS commodity classification only identifies whether the merchandise being exported is described in the Commerce Control List (based on the ECCN).  Exporters still need to do their due diligence with other agencies to ensure export compliance.