Right to Make Entry

1. Right to Make Entry By Taylor Pillsbury Meeks, Sheppard, Leo & Pillsbury October 22, 2010 WESCCON 2010

2. Presentation Outline • Definitions • Background • Case Studies • Broker Concerns • The Crystal Ball • The Take Away

3. Definitions • Entry • Right to Make Entry (RTME) • Deemed Detention/Exclusion • Seizure • Transaction Value

4. Entry • Entry = filing of documentation with Customs to secure the release of imported merchandise from Customs custody. • The 1993 Mod Act limited the time available to Customs to make a decision to detain, exclude or seize an entry.

5. The “Right” to Make Entry Misnomer – there is no right!

6. Who May Make Entry? Only the owner, purchaser of the imported merchandise or licensed broker acting for the owner, purchaser or consignee of the imported merchandise has the right to make entry. 19 U.S.C. 1484.

7. Owner or Purchaser? • Customs defines as any party with a financial interest in the transaction. See Customs Directive 3530-002A • Does not include a “nominal consignee” who effectively possesses no other right, title, or interest in goods. • Includes buying or selling agent • Includes person or firm who imports on consignment.

8. General Rule – Holder of Titlehas Right to Make Entry Ex/ Happy Meal Toys • Prior arrangement company X would take title of the Happy Meal Toys after they have been imported and entered. • Now proposes to take title of the Happy Meal Toys in Asia • New Incoterm is FCA (free carrier Asia) • Hold title to Happy Meal toys upon importation and entry CBP Decision – if company X takes title to the goods before they are entered, it may be an importer of record in accordance with 19 U.S.C. 1484. See HQ 116024, August 14, 2003

9. Deemed Detention • After presentation of goods for entry, Customs has five days, excluding weekends and holidays, in which to either release or detain those goods. 19 U.S.C. 1499(c)(1). • If the goods are not released within those five days, they are deemed detained.

10. Deemed Exclusion • Customs must make determination as to admissibility of detained merchandise within 30 days after the merchandise is presented for examination. • Failure to make a final determination within 30 days is "treated as a decision . . . to exclude the merchandise for purposes of 19 U.S.C. 1514(a)(4).”

11. Seizure • Reasonable cause to believe any law or regulation enforced by Customs has been violated • Mandatory – stolen, clandestinely imported, contraband • Permissive – introduced contrary to law, non-compliance with OGA regs, IPR, Marking

12. Transaction Value The price paid or payable for the merchandise when sold for exportation to the United States, plus certain statutory amounts if not already included in the price.

13. Additions to Transaction Value • Any selling commission incurred by the buyer • The value, apportioned as appropriate, of any assist • Any royalty or license fee that the buyer is required to pay, directly or indirectly, as a condition of the sale • Packing costs incurred by the buyer • The proceeds of any subsequent resale, disposal, or use of the imported merchandise that accrue, directly or indirectly to the seller

14. RTME – Increased Enforcement • Operation Mirage • Accountability • History of Undervaluation • Does IOR “Stick to the Wall”?

15. Case Study #1 – “Release the Shoes”

16. The Marcos Case Azurin vs. Von Raab • Azurin, an agent for the fleeing Ferdinand Marcos, argues that ownership is pertinent only as it is necessary for Customs to determine who is liable for duty. Since he has offered to pay all applicable duties, Azurin argues that ownership has been rendered irrelevant, and Customs has no authority to detain the disputed property. • Customs argues that it has broad discretion to inquire into ownership, and, if necessary, to detain property until ownership can be established.

17. Azurin v. Von Raabcont.d • Customs cannot act arbitrarily. It must have some justification for rejecting a declaration. See Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971) (informal agency decisions must be based on consideration of relevant factors). • "200 years of Customs law and practice“ confirms that the agency would normally release the property in this situation.

18. Azurin Holding • Customs‘ duty to release imported property when faced with facially valid conflicting claims of ownership is not "ministerial and so plainly prescribed as to be free from doubt.“ • Detention/Exclusion is Upheld. See 803 F.2d 993

19. Case Study No. 2 – The “Unrelated Third Party”

20. Party with ”No Title” May Act as IOR • Seller wishes to become IOReven though Seller retains no title or ownership of the products • Foreign manufacturer delivers goods to Seller Ex factory • Seller delivers goods to U.S. buyer FOB foreign port • U.S. buyer owns goods and bears risk of loss at time goods are shipped • Seller makes payment to Foreign manufacturer and will be reimbursed by U.S. buyer

21. IOR without Title cont’d • CBP holding – obligation to pay the Foreign Mfr for goods and await reimbursement from U.S. buyer gives the Seller a financial interest in the goods • Nexus between the financial welfare of the would-be importer and the imported goods • CFR shipments – “insurable interest” of seller although not legally responsible for the goods. • Seller has RTME. See HQ H007168, August 2, 2007

22. Case Study No. 3 – “The Uninvited Guest”

23. Dressed Up… • Valid and Active California Company • IRS Tax ID Number Obtained • Continuous Customs Bond • Broker POA* • Origin Verified • FDA Admissibility OK • Purchase Order, Shipping Records, Foreign Proof of Manufacture supplied per CBP Request

24. …with No Place to Go. • Highly volatile commodity • New importer. New Supplier • ADD/CVD transhippmentsuspected • Non-resident Corporate principal • POA issues • Language barrier • Protest vs. Exclusion Denied • Per CBP - No right to entry = No right to export

25. Next stop…?

26. Broker Related Issues • Basic broker compliance (19 CFR 111) • Aiding and abetting unlawful entry • Errors and omissions • Information disclosure • Proprietary Client Data “Customs” Issues: “Client” Issues:

27. Basic Broker Compliance • Broker Statutory and Regulatory Provisions • 19 USC 1641 • 19 CFR 111 • Liability for violating any law enforced by Customs • Grounds for Monetary Penalty • 19 CFR 111.91 • Not to exceed $30,000 • Grounds for Revocation of License or Permit • 19 CFR 111.53( c) and (d)

28. “Aiding and abetting” • Customs electing to use “importer” penalty statutes vs. broker • 19 USC 1595 – Aiding and abetting unlawful entry • 19 USC 1592 – Broker liability?

29. Aiding and abetting - 595 • Ex/ Delivery Order issued prior to release of goods • Broker assessed penalty under 19 USC 1595 in amount equal to value of merchandise for “causing” unlawful entry • ABI exam notice transmitted on Friday night, DO issued on Monday morning • No blame assigned to CFS or trucker • Internal controls needed to prevent liability

30. Aiding and abetting - 592 • Q: Broker liability under “fraud statute”? • A: Only if broker “shared in benefits of violation” T.D. 00-41

31. The Crystal Ball – What to Expect • CBP Directive/Ruling(s) narrowing or overturning C.D. 3530-002A and related rulings • Minimum threshold for “financial interest” • Removal of buying and/or selling agents • Elimination of Non-Resident IOR • Increased Bonding Requirements • More Cases vs. Ultimate Consignees in LDP transactions – See U.S. vs. Action Products, Slip Op. 01-21

32. The Take Away Or How to Avoid the Big Letdown:

33. To Avoid Detention/Exclusions Based on Right to Make Entry • Ensure Broker POA is valid • Obtain Articles of Incorporation/IRS Docs • Obtain copy of PO in advance. Note Payment Terms. • Offer to Provide CBP with Proof of Payment following release (see PO Payment Terms) • Seek advance Ruling from CBP

34. Questions? Taylor Pillsbury 949-719-2712 taylor.pillsbury@mscustoms.com