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Are You Ready for the Biggest Regulatory Change Since 9/11?
Enforcement of Importer Security Filing, or "10+2", Began January 26, 2010
Background:
The Interim Final Rule (IFR) on Importer Security Filing and Additional Carrier Requirements was published in the Federal Register November 25, 2008. (See 73 FR 71730.) The additional information required from importers and other filers under the Importer Security Filing (ISF) rule was said to be necessary in order to prevent terrorist weapons from being transported into the United States, and to improve CBP's ability identify high-risk shipments and ensure cargo safety and security.
Enforcement Began January 26, 2010:
Though the effective date of the interim rule was January 26, 2009, importers (and carriers) were given a 1-year delay in the enforcement of the provisions in order to give filers time to come into compliance.
Starting January 26 this year, Customs and Border Protection (CBP) is ready to move into its compliance mode, and importers and filers had better be ready or face enforcement actions including seizures, Do Not Load orders, delays in release of cargo, withholding of release of cargo, and liquidated damages.
CBP is also now requiring bonds for ISF's filed on or after January 26. During the previous year, such bonds had been accepted, but not required, by the agency.
Any penalties proposed by CBP field offices will be reviewed by Headquarters prior to issuance.
CBP Changes Its Position on the Level of Enforcement:
During this year of stayed enforcement, CBP has given different signals about how it will go about enforcing the provisions come the January 2010 date. It started out saying that it would take an "informed compliance approach," using a soft-ball, least punitive method of ensuring compliance through communication with the trade, warning letters, exams, and the like.
That "least punitive" approach was the one discussed CBP even as late as its December 2009 Annual Trade Symposium. CBP stated that their approach would be similar to the way it began enforcement of the "24 hour" rule, and the agency assured the trade that it was more interested in collecting the data than in collecting fines.
But since that time CBP has put out different messages about the level of enforcement it plans on waging. As of January 14, 2010 CBP informed the trade that it would now pursue what they call a "measured approach" rather than the informed compliance model. Then, on January 19th, CBP stated that it would take a more lenient approach than the one previously discussed, calling its new plan a "graduated escalated" approach, and saying that its initial phases will mirror an "informed compliance" approach.
That will take the following form:
- CBP has stated that they will not start issuing liquidated damages claims during the 1st quarter of the year during which time they will monitor filings and send written notices to non-compliant filers.
- During the 2nd quarter, CBP will begin putting shipments on hold if they are at risk, no ISF has been filed, and the non-filing filer has been identified and informed. For repeated incidents of no ISFs being filed and no response, CBP may issue a claim for liquidated damages.
- During the 3rd or 4th quarters of 2010CBP will take a more enforcement-minded approach involving liquidated damages, holds, etc.
Importers and Other Filers Need to be Prepared:
Whatever the phraseology currently being used by CBP and the stage of enforcement, importers and other filers should prepare themselves for the full range of enforcement responses from Customs to failures to file, failures to obtain the correct bond, and late filings.
Hopefully, you have used this past year to put your ISF compliance program together, and are ready for the new period ahead. In addition to putting your company on top of the game, evidence of preparing for ISF compliance during this interim period will be considered by Customs in mitigation of any penalties you might face.
If you have not put together your compliance program for ISF during this interim year, make sure that it is now your first priority, for the penalties are coming.
Please see the following discussion for additional details about this new regulatory scheme.
Additional Details about the ISF Regulations:
Scope of ISF Rules:
The Interim Final Rule applies to containerized ocean vessel shipments both FCL and LCL, and fnot to air, truck or rail shipments. Bulk cargo is exempt from ISF.
Definition of ISF Importer:
The ISF Importer is defined in the IFR as "the party causing goods to arrive within the limits of a port in the U.S." For shipments of goods to be entered into the U.S. (as opposed to Immediate Export (IE), Transportation & Export (T&E), or Foreign Cargo remaining On Board (FROB), the ISF Importer will be "the goods' owner, purchaser, consignee, or agent such as a licensed customs broker."
This definition is not exactly the same as the CBP Importer of Record (IOR). In the IFR it is stated that:
"CBP recognizes that the IOR may not always be the party responsible for filing the ISF. The ISF importer is required to post their bond to secure the timely, accurate and complete ISF. When necessary CBP will issue penalties and claims for liquidated damages against that party." (73FR page 71749)
Due to the different definitions, any transactions of containerized ocean cargo that are on Delivered Duty Paid (DDP) terms should specifically address the issue of who will file the ISF.
What does ISF mean for importers?:
Importers have 10 new data elements to provide, and carriers have two, hence the name "10+2". For all containerized ocean shipments, the data submissions required under the interim final rule must be delivered to CBP by way of a CBP-approved electronic data interchange system. The specific data elements are listed below, also known as "ISF-10" for ten data elements. The information may be transmitted by the importer or their agent, such as a licensed customs broker or a freight forwarder.
What data must be provided and when?
For shipments of goods to be entered into the United States (including foreign trade zone (FTZ) entries and immediate transportation (I.T.) in-bond shipments):
- Importers or their agents must provide eight data elements, generally no later than 24 hours before the cargo is laden aboard a vessel destined to the United States, for shipments consisting of goods intended to be entered into the United States.
- The ISF will also need to include two data elements which must be submitted as early as possible, but no later than 24 hours prior to the ship's arrival at a U.S. port.
ISF-10:
The Eight Data Elements - to be provided no later than 24 hours before the cargo is laden aboard a vessel destined to the United States:
- Seller
- Buyer
- Importer of record number
- Consignee number(s)
- Manufacturer (or supplier)
- Ship to party
- Country of origin ; and
- Commodity Harmonized Tariff Schedule of the United States (HTSUS) number.
In addition, the bill of lading number at the lowest bill of lading level (i.e., house bill or regular bill) is required. (This is sometimes called the "11th element.") It is necessary in order to link the ISF information together with the customs manifest data.
The Two Data Elements - to be provided no later than 24 hours prior to arrival at a U.S. port:
- Container stuffing location; and
- Consolidator
The ocean carriers provide two additional data elements:
- the vessel stow plan, and
- the container status message ("CSM").
Notes on the Required Data Elements:
All ISF data elements are required for each good listed at the 6 digit HTSUS number at the lowest bill of lading level (e.g., the house bill of lading). Manufacturer (or supplier) name and address, country of origin, and HTSUS number will be linked to one another at the line item level.
For T&E and I.E. Entries: In addition, shipments consisting entirely of goods intended to be transported in-bond as an I.E. or T&E must provide five data elements ("ISF-5"). Importer Security Filings for IE and T&E shipments must be submitted no later than twenty-four hours before the cargo is laden aboard a vessel destined to the United States.
ISF-5:
- Booking party
- Foreign port of unlading
- Place of delivery
- Ship to party; and
- Commodity HTSUS number.
Note: In-bond shipments for immediate transportation (I.T.) require "ISF-10".
Flexibility for Certain ISF Data Elements
While CBP has allowed timing flexibility (no later than 24 hours prior to arrival) for two data elements as noted above under ISF-10, it has also allowed for flexible interpretation of four data elements.
Flexible Interpretation for Four Data Elements
The rule provides flexibility for importers with respect to the submission of four of these data elements. In lieu of a single specific response, importers may submit a range of responses for each of the following data elements:
- manufacturer (or supplier)
- ship-to party
- country of origin
- commodity HTSUS number.
The ISF must be updated as soon as more accurate or precise data becomes available and no later than 24 hours prior to the ship's arrival at a U.S. port.
There is no special timing flexibility for these elements; they must be filed 24 hours prior to lading. CBP has added flexibility by allowing ISF Importers, in their initial filing, to provide a range of acceptable responses based on facts available to the importer at the time, in lieu of a single specific response which may become known to the importer only at a later time.
ISF Importers will be required to update their filings with respect to these elements as soon as more precise or more accurate information is available, in no event later than 24 hours prior to arrival at a U.S. port (or upon lading at the foreign port if that is later than 24 hours prior to arrival in a U.S. port).
For example, 24 hours prior to lading:
- The ISF Importer could identify the manufacturer as being one of three typically used manufacturers, with more precision to be provided in subsequent ISF updates.
- The ISF Importer could submit the identity of the importer, consignee, or the facility where the goods will be unladen in the event that the ship to party is unavailable (e.g., "to order" shipments).
- If the ISF Importer is, in good faith, unable to determine whether the country where the final stage of production of an article took place is the country of origin, the ISF Importer may provide the country where the final stage of production of the article took place in lieu of the country of origin, and update the ISF submission as soon as more accurate data are available.
Accuracy of data:
The "presenting party" may electronically transmit the information on the basis of what that party reasonably believes to be true under the circumstances. See 19 CFR 4.7(b)3(iii) which states:
"Where the party electronically presenting to CBP the cargo information required in 4.7a(c)(4) receives any of this information from another party, CBP will take into consideration how, in accordance with ordinary commercial practices, the presenting party acquired such information, and whether and how the presenting party is able to verify this information. Where the presenting party is not reasonably able to verify such information, CBP will permit the party to electronically present the information on the basis of what the party reasonably believes to be true."
Bonds:
Due to the structured review and flexible enforcement period, bonds are not required until January 26, 2010, however ISF importers may have chosen to submit bond information during the delayed enforcement period last year by completing the appropriate fields in the ISF.
After the delayed enforcement period, the ISF Importer must possess one of the following:
a. a basic importation and entry bond containing all the necessary provisions of 19 CFR 113.62
b. a basic custodial bond containing all the necessary provisions of 19 CFR 113.63
c. an international carrier bond containing all the necessary provisions of 19 CFR 113.64
d. a FTZ operator bond containing all the necessary provisions of 19 CFR 113.73, or
e. an ISF bond as provided in new Appendix D to 19 CFR 113.
For importers with a continuous bond, there is no additional bond required. If the principal defaults with regard to any obligation, the principal and surety (jointly and severally) agree to pay liquidated damages of $5,000 for each violation.
A customs broker who submits an ISF on behalf of another party must do one of the following:
1) submit the filing under its own bond, or
2) at an ISF Importer's direction, submit the filing under that party's bond.
Click here for more information about bonds for ISF, see CBP"s FAQ document ("FAQs")
Power of Attorney Requirements:
A power of attorney (POA) is required for an agent to file on behalf of an importer. In the IFR it states:
"CBP is not requiring a particular form for a power of attorney for Importer Security Filing purposes. However, 19 CFR 141.32 contains an example of an acceptable general power of attorney with unlimited authority."
Entry and Entry Summary and ISF May Be Submitted Via a Single Electronic Transmission:
Four of the Importer Security Filing elements are identical to elements submitted for entry (CBP Form 3461) and entry summary (CBP Form 7501) purposes. These elements are:
the importer of record number
consignee number
country of origin, and
commodity HTSUS number when provided at the 10-digit level.
An importer may submit these elements once to be used for both Importer Security Filing and entry/entry summary purposes. If an importer chooses to have these elements used for entry/entry summary purposes, the Importer Security Filing and entry/entry summary must be self-filed by the importer or filed by a licensed customs broker in a single transmission to CBP no later than 24 hours prior to lading.
Note: any changes to the ISF must be made by filing an update to the ISF. Filing of the entry will not make an update to the ISF.
Who should file the ISF?
The importer or their authorized agent is responsible for filing the ISF.
The authorized agent must be an approved filer under ABI or AMS, and, after the delayed enforcement period ends, must possess the necessary bond.
Currently, customs brokers file entries via the Automated Broker Interface (ABI) and an importer could rely on its licensed customs brokers to transmit ISF information on its behalf if the broker is prepared to do so.
Alternatively, a foreign freight forwarder could file via the Automated Manifest System (AMS) if empowered by a POA. Also, an importer can file its own ISF transmissions through a technology service provider. At the present time there is no capability to file ISF through the ACE portal, although CBP will continue to explore additional ISF functionality as ACE is developed.
The filing party must make any and all ISF corrections.
Enforcement Dates and Flexible Enforcement Period:
As stated above, the effective date of the regulation is January 26, 2009, with "flexible enforcement" through January 26, 2010. During this 12-month period, CBP will show restraint in enforcing the rule. CBP will take into account difficulties that importers may face in complying with the rule as long as importers are making a good faith effort and satisfactory progress toward compliance.
After January 26, 2010, CBP will consider an importer's progress in the implementation of the interim final rule during the flexible enforcement period as a mitigating factor in any enforcement action following the flexible enforcement period.
Confidentiality:
CBP states the following in its FAQs regarding confidentiality:
"ISF information is not considered part of the carrier manifest. Pursuant to 19 CFR 103.31a, Importer Security Filing information that is electronically presented to CBP for inbound vessel cargo is per se exempt from disclosure under 103.12(d), unless CBP receives a specific request for such records pursuant to 103.5, and the owner of the information expressly agrees in writing to its release."
Customs brokers are required by regulations to protect the confidentiality of client information. Freight forwarders and carriers are not.
Commercial enforcement:
CBP has stated in the IFR that the information will not be used for "commercial enforcement purposes." Information will be compared to the entry but not for trade compliance, only for security purposes.
"The Importer Security Filing information, including updates, will be used exclusively for ensuring cargo safety and security and preventing smuggling and will not be used for determining merchandise entry or for any other commercial enforcement purposes." [73 FR 71754]
However, in pending legislation, the Senate's Customs Reauthorization Bill would repeal the provision prohibiting use of ISF data for commercial enforcement.
Violations;
It is a violation to fail to submit an ISF when one is required, to submit a late ISF, or to submit an inaccurate ISF. It is a violation to submit an inaccurate update or to fail to withdraw an ISF. (See 19 CFR 149.2 (d) and (e).)
Penalities:
Liquidated Damages:
Port Directors may assess a claim for liquidated damages against the party in the amount of $5,000 for late filing, inaccurate filing, inaccurate update or failure to withdraw an ISF. (Note that is $5,000 per filing, not per shipment.)
Do Not Load:
In addition to liquidated damages that may be assessed as provided for above, the failure of an arriving carrier or ISF Importer to provide the required advance electronic cargo information in the time period and manner prescribed by the regulations in 19 CFR, may result in the issuance of a Do Not Load (DNL) hold, the delay or denial of a vessel carrier's preliminary entry-permit/special license to unlade and/or the assessment of any other applicable statutory penalty.
CBP may also withhold the release or transfer of the cargo until CBP receives the required information and has had the opportunity to review the documentation and conduct any necessary examination.
Cancellation of Liquidated Damages Claims for ISF Violations:
First violation:
The liquidated damages claim may be settled for an amount between $1,000 and $2,000 depending on mitigating or aggravating factors, if CBP determines law enforcement goals were not compromised.
Subsequent violations:
The liquidated damages claim may be settled for an amount not less than $2,500 if CBP determines law enforcement goals were not compromised.
No relief will be granted if CBP determines law enforcement goals were compromised.
Mitigating and Aggravating Factors
CBP will consider all available information in a petition, taking into account any mitigating, aggravating, and extraordinary factors, in determining the final assessed claim for liquidated damages or penalties.
1. Mitigating Factors(these are not exhaustive):
a. Evidence of progress in the implementation of the ISF requirement during the flexible enforcement period (i.e., January 26, 2009 through January 26, 2010).
b. Small number of violations compared to the number of shipments for which ISFs were required.
c. An ISF Importer which is a certified Tier 2 or Tier 3 C-TPAT member may receive additional mitigation of up to 50% of the normal mitigation amount, depending upon tier of C-TPAT participation.
d. Demonstrated remedial action has been taken to prevent future violations.
e. ISF information was filed late because of vessel diversion due to factors outside of the ISF Importer's control (e.g., due to weather).
f. Regarding an inaccurate filing, the presenting party acquired the information from another party in accordance with ordinary commercial practices, and can demonstrate that it reasonably believed the information to be true, and it was not reasonably able to verify the information. This is an extraordinary mitigating factor that may warrant cancellation of a claim without payment.
2. Aggravating Factors:
a. Lack of cooperation with CBP, or CBP activity is impeded with regard to the case.
b. Evidence of smuggling or attempt to introduce or introduction of merchandise contrary to law. This may be considered an extraordinary aggravating factor.
c. Multiple errors on the ISF.
d. There is a rising error rate which is indicative of deteriorating performance in the transmission of ISF information.
Failure to File:
Liquidated damages cannot be assessed for the failure to file an ISF if no bond is in place. In these instances, the following will apply:
If goods for which an ISF has not been filed arrive in the United States, CBP shall withhold the release or transfer of the cargo until CBP receives the required ISF information and has had the opportunity to review the documentation and conduct any necessary examination.
CBP also reserves the right to limit the permit to unlade so as to not permit unlading of merchandise for which no ISF has been filed, and, if such cargo is unladen without permission, it may be subject to seizure. All seizures will be approved by CBP Headquarters.
Points to Consider:
Many of the required data elements are available at the time a purchase order is created.
Educate your foreign suppliers and overseas agents and establish a procedure for receiving electronic information, such as by email.
Classify merchandise in advance.
Make sure that good product descriptions are shown on the bill of lading. Description from BL will be matched to HTS, and HTS matched to Manufacturer and C/O.
For more information, click on the following:
Federal Register Notice, Interim Final Rule, November 25, 2008:
Federal Register Notice, correcting amendments to Interim Final Rule, July 14, 2009:
CBP Bulletin, Mitigation Guidelines, July 17, 2009:
CBP FAQs on ISF, October 1, 2009:
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