2022: Prior Disclosure Woes

The year is 2022, and companies are turning over a new leaf, making a concerted effort to become compliant with U.S. Customs laws and practices. Seemingly, there are no downsides to conducting a comprehensive Customs compliance review and submitting a Prior Disclosure under 19 U.S.C. § 1592(c)(4) and 19 C.F.R. § 162.74.

And now, the proverbial “BUT.”

“BUT,” be prepared to complete that comprehensive internal review, optional statistical sample, loss of revenue quantification, applicable tender, and finely crafted Prior Disclosure narrative in 60, or 90, or 120 days.

Just in time for the new year, U.S. Customs and Border Protection has adjusted their policies regarding Prior Disclosure extension requests. The only problem is that most ports are interpreting the policy vastly differently, and it’s a crapshoot to determine whether the extension will be granted or just how many extensions you will get.

For those unfamiliar with the term, a Prior Disclosure is a mechanism established by law that allows an importer the option to use if he/she discovers that they have committed an unintentional Customs violation.

• Although a prior disclosure can be oral, it typically takes the form of a letter disclosing the facts and circumstances of a violation and the associated resulting monies owed to CBP.
• A written disclosure can be a one-step disclosure, or a two-step disclosure, in which an initial notice is submitted, and a subsequent letter is submitted with more complete findings.
• The second letter with the final details that includes a tender of the total amount owed to CBP is considered the “perfected prior disclosure.”
• The statute of limitations for customs violations is 5 years, meaning once an issue is disclosed, it is fair game for Customs to look at your past import history to determine if the issue occurred retroactively.

Here’s what we know:

The new policy is aimed at shortening the timeframe it takes for importers (mostly, companies) to perfect a two-step prior disclosure, as Prior Disclosures are moving toward funneling up to the corresponding Center of Excellence and Expertise (CEE) for review. For example, although extension requests still get sent to the port where the disclosure is on file, the request is sometimes relayed to the CEE, who has the authority to be the final arbiter. To further complicate things, as aforementioned, results have been a mixed bag.

Our experience is that the longer the extension request is, the more scrutiny the port and the CEE will give it. For example, we have been told 90-day extension requests must be escalated to the CEE for approval. Therefore, it may behoove you to ask for extensions in 60 or 30 day increments. Although there is no guarantee of what kind of response you are going to get, our advice is to beef up your reasons for the extension request, in any case. A good extension request should be narrow and specific as to why the request is being made. Include information regarding the size of the task ahead, which stage in the process you are currently at, and remind CBP of your progress to date.

BUT, even though you may execute the perfect extension request, and provide specific updates and details on next steps, you still may get push back on the extension. Or, they could say this is the last extension. Or, they could flat out say no. It really is the Wild West out here. This could be for a few reasons.

The more extensions you have requested previously, the greater likelihood CBP is going to start pushing back. Ultimately, it can be interpreted that the more extensions given may delay the system of review.

When granting extension requests, the CEE will consider how much time is left on the Statute of Limitations waiver (“SOL,” the document that provides CBP an additional two years so that extra time is afforded for review and processing). The closer the current SOL is to expiring, the likelihood of obtaining an extension may decrease. This could be a good bargaining tool depending on how badly an extension is needed and, of course, if the importer is amenable to executing an additional waiver.

CBP could also be interpreting the new policy differently than other ports. As much as we like to think of the agency as a cohesive being, our experience has told us that CBP is not a one-size fits all. What works for some ports may not work for others. The main thing is to try to work with CBP to reach an acceptable outcome for all.

So, who is affected?

The parties affected in this new era of extensions are those importers, or companies, that realize they have a trade compliance risk, are not under investigation, and they want to be afforded penalty protection while they take the necessary time to evaluate the risks and identify whether there are any other issues that may need to be disclosed to Customs. For large companies that import great volumes daily, this new policy equates to trying to quell the flames of a burning building with a bucket of water. The task is not only daunting but near impossible.

Also affected are trade professionals tasked with assisting companies to perform these large-scale reviews under the new time crunch. Additionally, these trade professionals, whether it be law firms or consultants, are often the ones requesting the Prior Disclosure extensions and having to increasingly advocate for clients.

How to Deal

A Prior Disclosure is still the best mechanism to protect importers from penalties. With the new extension policy, if possible, importers and trade professionals should work together to map out a review at the outset and conduct most of it prior to submitting a notice of initial disclosure, so that deadlines are not as big of a problem. If unavoidable, detailed extension requests outlining progress and reasons for an extension in smaller increments are, perhaps, the safest route to getting additional time approved.

Again, the main thing is to try to work with Customs to resolve an extension dispute and reiterate that your company is making an active effort to be Customs compliant.

If you are thinking about submitting a Prior Disclosure and need assistance, contact me at [email protected].