Customs Bonds Latest News and Challenges

1. Customs Bonds Latest News and Challenges August 24, 2018 Presented by: Christie Brush – Avalon Risk Management

2. Latest News Air Cargo Advance Screening (ACAS) • Went into effect on June 12, 2018 • Requires the submission of advanced air cargo information on shipments arriving in the United States from a foreign location • Previously a voluntary process in which many airlines already participated globally • Now mandatory for airlines flying to the United States

3. Latest News ACAS data elements: • Shipper Name and Address • Consignee Name and Address • Cargo Description • Total Quantity • Total Weight • Air Waybill Number

4. Challenges

5. Import Bond Calculation • https://www.cbp.gov/sites/default/files/documents/bond_form_7.pdf • Reviewers • 10% of duties, taxes and fees paid or payable in previous 12 months • Analytical • Reviewers plus • Open bills, surety payments, etc.

6. CBP Revenue Division Review • Monthly review (import continuous bonds) • Forecasting a large increase in letters by 4th quarter • CBP will be sending a CSMS out advising to forecast bond amounts. • STB Insufficiency • GAO Audits

7. What is the process? • Termination/Replacement • 15-day termination time frame • Bonds rendered insufficient • “Fast Terms” • Only one continuous bond allowed

8. Surety Requirements • Underwriting • Financial Guarantee • Collateral Issues • Aggregate Liability Issues • “Stacking” or Aggregate Liability

9. Underwriting Tools • Relationship with customs broker • Historical review • Automated Surety Interface Data • CBP information availability • ACE Portal Information (Importers/Brokers)

10. Surety Highest Risks • ADD/CVD • Estimated Duty • Sections 232 and 301 • Free Trade Agreements • FDA

11. Bond Claims • Liquidated Damages • Redelivery issues (FDA, Quota, or Marking) • Non-filing/Non-Payment of Duty • Debit Vouchers • TIB Issues • Increased Duty Bills • ADD/CVD • Classification/Rate Advance • Preferential Treatment Denial

12. Liquidated Damage Claims • FDA • Once refused by FDA, must be exported or destroyed within 90 days • Customs will issue a demand for redelivery within 30 days • Failure to redeliver such products will ordinarily result in Customs issuing a claim for liquidated damages • Broker E&O Exposure

13. CBP’sFocus onAD/CVD as PTI • CBPprotectsU.S.national economicsecurityat ourborders • The U.S. Governmentlevelsthe playingfieldforU.S.manufacturers bycollecting AD/CVD duties onimportssold at unfairlow prices and/or subsidized byforeign governments • CBPenforcesAD/CVDlawsand penalizesthosewhoattempttoevade AD/CVD duties

14. Top 10 Countries for AD/CVD 100 80 60 40 20 0 ADDCases CVDCases Informationbasedfrom USITCwebsite www.usitc.gov Thereareover40countriesthathaveactiveAD/CVD cases; Chinarepresents40%of allactiveAD/CVD cases.

15. EvasionMethods& Challenges Method Challenge Goodsmimiclegitimateproduction, useestablishedroutestoadd legitimacy Transshipment Falsifyingdocuments,product marking,and/ortrans-loading containerstomasktruecountryof origin Undervaluation Falsifyingdocumentstoundercut CBPmustidentifysimilarnon- priceandavoid duties arbitraryvalues,orfindclear evidenceoffalseclaims Misclassification Incorrectclassificationand/or misdescriptiontoavoid duties Oftensecondarytosomeother scheme,AD/CVDcasesdetermined by“scope,”notclassification Smuggling Requiresshipment-specificintel Undeclaredorunder-declared goods GrayAreas Incorrectcaseclaims, Importer/Purchaserarm’slength transactions,productengineering Loopholesarenot“illegal,” appearanceofcompliance,limited responseoptions • Partiesinvolvedintransshipmentareoftenin foreigncountriesoutsideof CBP’sjurisdiction • Importersdissolvebeforeactioncanbe taken,andre-emergeundernewguise • Opportunitiesforfrauddueto: • Enticementfromproducersandcompetitionwithinindustry • OvercapacityandB2Bnetworking

16. Questions?

17. Christie Brush cbrush@avalonrisk.com (713) 343-0893   https://www.avalonrisk.com/quest_news.html Thank You!