Based on Customs Decision 13-1 effective January 9, 2013, CBP has amended the guidelines for the acceptance of untimely petitions and mitigation of claims replacing the previous guidelines promulgated under Treasury Decision 94-38 in 1994 and Treasury Decision 02-20 in 2002. Since 2002, CBP has indicated there has been significant uptick in the number of petitions for relief filed untimely and has determined the current formula for mitigation of late filed petitions is outdated and does not provide sufficient monetary assessments to discourage or deter principals and other petitioners from routinely filing untimely petitions. Under the previous guidelines, CBP would accept late petitions for relief after the lapse of the original (60) day deadline established in the CF5955A Notice of Penalty or Liquidated Damage but prior to a notice of sanction or referral to the Office of the Assistant Chief Counsel for collection. However, since the petition was untimely, CBP would require an additional assessment of 0.1% of the base mitigated amount multiplied by the number of days the petition was late (but in no case shall the additional amount be less than $400.00) to be added to the original mitigation if the petition was deemed accepted. Many late petitions were generally settled for an additional payment of $400.00 on top of the original mitigation.

In an effort to promote more timely filing of petitions, the new guidelines established under CBP Dec. 13-1 substantially raises, in most cases, the additional amounts acceptable on untimely filed petitions. In summary, the additional mitigated amount for untimely petitions on Liquidated Damage Claims for violations other than the those involving the non filing of duties or certain fees and the late payment of estimated duties, periodic monthly statement or reconciliation entries will be calculated by multiplying the assessed amount of the claim by 0.1% and then by multiplying that amount by the number of days the petition is late but in no case will the additional mitigated amount be less than $400.00. In liquidated damage cases relating to the non filing of duties or certain fees and the late payment of estimated duties, periodic monthly statement or reconciliation entries the additional mitigation amount will be calculated by multiplying two times the duty/fees due (or $1,000.00 whichever is greater) by 0.1% and then multiplying that amount by the number of days the petition is late but in no case will the additional mitigated amount be less than $400.00 (examples are outlined in the attached decision).

To further encourage timely filing of petitions, CBP will accept late petitions on Liquidated Damage Claims for violations other than the those involving the non filing of duties or certain fees and the late payment of estimated duties, periodic monthly statement or reconciliation entries only if the petitioner is able to demonstrate the existence of extraordinary circumstances that prevented the petitioner from filing a timely petition or timely seeking a lawful extension of time in which to file a petition. CBP will also not accept any untimely petition regardless of circumstance which is more than 180 days after the mailing date of the CF5955A Notice of Penalty or Liquidated Damage. A complete explanation of the new guidelines and mitigation formulas is outlined in the attached CBP Decision along with an FAQ published by CBP.

We urge you pass this information along to your bond clients to make them aware of these changes and to encourage prompt responses to all CBP claim notifications and surety claim notifications to avoid any unfavorable assessments by CBP for untimely filed petitions. Our staff is available to assist you with any questions you may have with respect to these changes.

• CBP Decision 13-1
• FAQ

As a timely reminder to our valued clients, please be aware that Customs and Border Protection (CBP) will commence enforcement of the Importer Security Filing (ISF) regulations, which took effect on January 26, 2009, beginning on January 26, 2010. The new regulations require certain data elements and information be provided by importers to CBP with respect to ocean cargo destined for U.S. ports of entry prior to the cargo being loaded on the outbound vessel. This advance notification is now required by CBP to more effectively screen incoming ocean cargo to ensure security and safety at U.S. ports. Under the regulations, importers will be required to post a bond to ensure the new ISF requirements are complied with. To enforce the new regulations, CBP will issue liquidated damages in the amount of $5,000.00 per violation for infractions including but not limited to late and inaccurate ISF filings.

Many brokers and producers have asked: How does this affect our clients who import and conduct Customs business? In furtherance of the previous information provided on our Current News and Information page of our website, it is important to note that if your client presently has an active CF301 Continuous Customs bond under activity codes 1, 2, 3 or 4, they are already in compliance with the ISF bond requirements and need not do anything further if they choose. For those parties wishing to act as ISF filers on a continuing basis without having a CF301 continuous Customs bond on file, they may file a stand alone ISF “Appendix D” continuous bond with Customs in the amount of $50,000.00 which will only secure their obligations as ISF filers. This bond requirement would only apply to entities wishing to be ISF filers and who do not presently have a CF301 continuous bond on file. There has been some speculation among the trade community that an importer or bond principal who presently has a continuous Customs bond on file may limit their liability for ISF violations by filing a separate ISF “Appendix D” bond in addition to their continuous Customs CF301 bond. While a bond principal may temporarily “cap” their claim exposure for ISF violations to the $50,000.00 limit of liability under the ISF “Appendix D” continuous bond, we have been advised by Customs officials that unsatisfied liquidated damage penalties which exceed the amount of the ISF bond could result in the bond being rendered insufficient by CBP and further, if the ISF importer has a continuous CF301 bond on file under the same importer number, CBP may obligate that bond if the ISF bond is rendered insufficient.

For those importers who do not currently have a continuous Customs bond activity 1, 2, 3 or 4, CBP will permit the filing a separate stand alone ISF single transaction bond known as the “Appendix D” ISF bond. This bond will only cover the filing of an individual ISF and will be executed in an amount of no less than $10,000.00. The ISF single transaction bond must be submitted to CBP within (12) hours of the receipt of the ISF and a separate CF301 import single transaction bond must be filed at the time of entry to secure the duties taxes and other obligations which are not secured by the ISF bond. If an importer without a continuous Customs bond elects to file their entry and the ISF at the same time electronically, they may do so as a “Unified Filing” and continue to utilize a CF301-1 importer single transaction bond without the need of a separate ISF single transaction bond. The single transaction bond liability calculation of value plus duty or three times the value in the case of restricted merchandise will still apply. For importers who do not currently have a continuous Customs bond on file, it is important to discuss these new requirement and the bonding options with your Customs broker or Freight forwarder to ensure timely and proper compliance with the new regulations. If no bond has been filed to secure the ISF, Customs cannot issue a claim for liquidated damages, however; Customs has indicated they will not release any cargo unladed at a U.S. Port until the required bond and ISF documentation is filed.

Timely and accurate compliance with the new ISF regulations will be critical to avoiding claims for violations. CBP has compiled comprehensive FAQ with responses which can be accessed by going to the following link on the CBP website. We encourage importers and those conducting Customs business with questions pertaining to ISF to review this FAQ and seek the advice of their Customs broker, freight forwarder or Customs attorneys to ensure they are prepared to meet these new requirements.

C.A. Shea and our surety partners are accepting applications and submissions for ISF continuous and single transaction bonds and all submissions will be underwritten and quoted on an individual basis. However, to reiterate, only those importers and bond principals conducting Customs business who do not have a CF301 continuous bond on file under activity codes 1, 2 3 or 4 must make arrangements to meet the new bonding requirement prior to January 26, 2010.

View Customs Powerpoint Presintation on ISF

Recently, a $1 Billion class action lawsuit was filed by a prominent law firm on behalf of U.S. Companies against several sureties who write or who have written single entry Customs bonds for merchandise imported from companies identified as “new shippers” from China. The suit alleges that these sureties have not paid claims and substantial monies owed Customs for anti-dumping duties secured by these bonds causing severe financial harm to many affected domestic companies. Given the economic downturn, this and other events affecting insurers may prompt importers and other companies requiring bonding to question; “Who is writing my U.S. Customs bond?” Read why C.A. Shea & Company and our current surety markets, none of whom are named in the suit, are the best choice today for placement of U.S. Customs bonds.

PDF Link: Do you know who writes your U.S. Customs bond?

CBP published a list of ISF and 10+2 FAQs

PDF Link: Importer Security Filing FAQ

Included below is a link to our informational bulletin with respect to the Importer Security Filing and Additional Carrier Requirements Interim Final Rule which has been published in the Federal Register on November 25, 2008.  The interim final rule becomes effective on January 26, 2009.  For the purposes of enhancing U. S. Port Security, importers will be required to electronically submit (10) data elements to CBP before cargo is laden on board a vessel destined to the United States. Carriers will be required to submit two additional data elements to those already required. Also included are links to useful information distributed by Customs and Border Protection and the Department of Homeland Security on the implementation and timeline of the new security regulations.  As outlined in the interim final rule, there is no additional bond requirement for importers and principals with a CF301-1, CF301-2, CF301-3 and CF301-4 continuous bond currently in effect.  As such, no further action is needed at the present time from importers and principals with any of the afore mentioned continuous bonds to maintain compliance with the new requirements, however; we will continue to update our clients as to what potential effect the new rules will have on Customs bonds after the implementation and expiration of the delayed compliance date which is 12 months after the interim final rule takes effect.  Should you need any further information as it pertains to the interim rule and specifically Customs bonds, please let us know.

PDF Link: Importer Security Filing Information

 Additional information can be found at the below web sites:

• DHS: New Cargo Security Requirements for Maritime Carriers and Importers
• CBP: New Cargo Security Requirements for Maritime Carriers and Importers

The JOC ran an article, entitled "Old idea is new again", involving importer bonds. We felt it was appropriate to respond and set the record straight. Below please find the article as well as a link to our letter to the editor.

Journal of Commerce
Monday, March 03, 2008
By: R.G. EDMONSON

Customs and Border Protection requires importers to post bonds to ensure that the agency will get the duties and penalties it's owed if the importer fails to pay. Right now, all importers put up 10 percent of their annual import value, but Dan Baldwin, assistant commissioner for

international trade, wondered why companies that are proved low-risk players should be treated the same as everybody else.

Three weeks ago, Baldwin asked members of COAC, the Departmental Advisory Committee for Commercial Operations of Customs and Border Protection and Related Agencies, why shouldn't companies that are well-established of the Customs-Trade Partnership Against Terrorism and the Importer Self Assessment program get a break on the amount they must put up for bonds?

"Should highly compliant importers have the same bond formula as a newbie, or a company that has no trade experience and doesn't participate in those things?" Baldwin asked. "I propose that the answer is no, the formulas should be different. They should be treated differently, and obviously, the obligations they are meeting calls for a different kind of bond."

Some COAC members greeted the proposal warmly, but giving highly compliant importers a break on their bond is no sure thing. The idea is something old that's new again. Three years ago, reduced bond requirements were suggested as a benefit for C-TPAT importers that had achieved "green lane" status, but the idea never really gained traction. Customs commissioned a study in 2006 that found "no clear commonality" in partnership programs and bond requirements.

Customs' bond formula hasn't changed in 17 years, and bonding was one of the few agency activities that hadn't been scrutinized in the light of risk management, Baldwin said. COAC could start with the continuous bond, the basic instrument that protects Customs against revenue loss, and go on to cover the whole field of bond-setting and risk mitigation.

"This is one of those broad concepts that COAC should be bringing to the commissioner, as one of the chief federal advisory committees in all of federal government," Baldwin told The Journal of Commerce. "Ten percent doesn't sound like a whole lot of risk management, because it's just a 10 percent fee. The one thing that's come to light certainly in my experience in the past few years is how expensive bonds can be to the corporate bottom line."

Baldwin said there have been cases recently where the continuous bond was not enough to cover Customs' losses, but there were just as many cases where bonds are being overwritten, "so the cost to the highly compliant importer seems to be pretty out of whack.

"There are companies that demonstrate a high risk or high liability and probably deserve to have an increase in those bonds," Baldwin said. "By the same token, there are probably a lot of tremendously strong corporate citizens that should be entitled to a reduced bond because they have demonstrated they are little to no risk. We need to take a look. We need to find a balanced equation."

In 2005, Customs tried to change the bond formula to improve collection of anti-dumping and countervailing duties. A year later, the Government Accountability Office, the congressional watchdog agency, said the changes lacked consistency or transparency, and recommended an overview of the bonding process.

Customs is just beginning to brainstorm the problem, Baldwin said. "This is a good place for the government-private sector partnership to come together to say how do we turn this into a reality? I'm sure that there are a lot of hidden issues that we're all not aware of until we get down in the weeds."

The proposed importer security filing, or 10+2 rule, has again focused attention on importer bonds. The proposal that Customs published on Jan. 2 includes a provision that would allow the agency to collect liquidated damages for the full value of an importer's entry, if the importer failed to provide any of the 10 data elements it was obligated to report.

"It would be naive to assume that as a surety, that you would know today what the impact of 10+2 is going to be, other than any time you introduce reasons to penalize an importer and the bond, there's going to be some change," said Scott Wolney, president of Avalon Risk Management, one of the leading underwriters. "Customs would like that participation in

C-TPAT or ISA would have some commercial benefits - and we would, too - but I think you have competing imperatives. Compliance could reduce the likelihood of liquidated damage claims, but it doesn't reduce the credit risk.

"There is a disconnect in that the compliance programs don't have any real relationship with the financial viability of an importer," Wolney said. "They can be compliant, they can do everything right, and they still can go out of business. The thing that causes the majority of the claims is the financial dissolution of the company, the company going bankrupt, or the company disappearing from the face of the earth. That's where I'm not sure Customs always makes the connection."

Customs may lower its bond requirements for compliant importers, but premiums will go down only if there are lower claim rates, Wolney said. Compliance aside, there are other factors in the risk equation that have to be considered. For example, more importers are paying duties and fees as monthly statements using Customs' Automated Commercial Environment. That extends a surety's risk exposure because importers have up to a month plus 20 days to pay duties that previously were due 10 days after entry. If an importer wanted to trade high compliance for low premiums, Customs would have to start looking at its financial statements.

"If Customs changes its bond formula to require smaller bonds for compliant importers, as long as the likelihood of claims on that bond limit isn't increasing at a higher rate, it would theoretically benefit the importer in the cost of the bond," Wolney said. "In the total equation, sureties are going to have to look at the potential benefit that the industry might get from increased compliance and the consequence of fewer claims, and the overall increased risk from all the other programs."

R.G. Edmonson can be contacted at bedmonson@joc.com.

On September 22, 2005 in the Federal Register, Customs and Border Protection (CBP) formally announced elimination of the bond rider requirement for participation in Periodic Monthly Statement processing (PMS). The primary reason for CBP's decision to eliminate the rider is to open participation on the PMS test to the widest number of importers. The rider was viewed by CBP as an impediment to participation.

As previously commented on our website, the key features of the notice are as follows:

- In lieu of a rider, sureties will be notified electronically by CBP of a bond principal's participation in the PMS test.

- Any bond principal who is late with an estimated duty payment by more than (2) business days will be denied further PMS privileges and be required to file entry summary documentation with estimated duties and fees attached before merchandise can be released. PMS privileges will remain suspended until full payment of any unpaid estimated duties and fees that have become due under PMS.

- Sureties will be permitted to terminate bond for those bond principals participating in PMS within (3) business days if the surety, upon receiving notification, does not accept the risk relating to participation in the PMS test or the bond principal is in default of its obligations under PMS.

Although the rider has been eliminated, sureties will continue to underwrite bond principals who are participating in PMS and additional premiums and/or security requirements may apply. A complete copy of the Federal Register notice may be obtained by clicking the following link FR 9/22/2005.

Based on discussions with the trade, to better promote participation in the Automated Commercial Environment (ACE) the successor to the current import system the Automated Commercial System (ACS), Customs and Border Protection (CBP) has recently proposed elimination of the requirement that importers file a separate rider to participate in Periodic Monthly Statement processing test (PMS).

With the elimination of the rider, CBP has indicated they will electronically notify a surety if a bond principal for whom they write a bond is participating in PMS.  Since the surety’s liability is extended for entries processed under PMS, those importers who participate under PMS may be subject to higher bond premiums and other underwriting requirements imposed by a surety to account for the increase in risk.  Elimination of the rider will restrict a surety’s ability to underwrite a principal prior to participation in PMS; however, CBP has also proposed to allow sureties to terminate bonds for those principals participating in PMS with three business days written notice to the bond principal and CBP.  This shortened termination time frame may only be utilized when the bond is being terminated due to the principal’s participation in PMS or a failure to perform an obligation arising from participation in PMS.

Lastly, according to CBP, to enforce timely payment of duties under PMS, any bond principal who is late with a monthly statement estimated duty payment by more than two business days will be notified by CBP that it will be immediately required to file entry summary documentation with estimated duties and fees attached before its merchandise may be released from any Customs port.

CBP plans to formally announce these changes in an upcoming Federal Register Notice.

For further information, please contact our office.

Effective November 22, 2004, U.S. Customs and Border Protection has completed a pilot program whereby they have transferred the processing of all CF301-1 importer/broker bonds from the individual service ports to a central location at the National Finance Center in Indianapolis, Indiana. In support of this decision, Customs has offered the following statement:

In an effort to establish a more efficient and effective bond program for U.S. Customs and Border Protection (CBP), the Continuous Transaction Bond program is being centralized at the National Finance Center (NFC) in Indianapolis, Indiana. The bond centralization effort will include the filing, approval and maintenance of all Continuous Transaction Bonds. The major objectives of the program are:

• Uniformity
• Bond sufficiency
• Fair and consistent application of regulations and policies

Our office has worked in conjunction with Customs to make the transition to bond centralization as seamless as possible for our clients. Since this is a vast undertaking to centralize bond processing within Customs, certain delays have been unavoidable. To ensure consistent and fair policies to all who file bonds Customs has given notice to the trade that going forward the processing of bonds will take a minimum of (5) business days from the date of receipt of the bond forms in Indianapolis. In the instances where an existing bond is being terminated and replaced by a new bond Customs will require a minimum of (10) business days as cited in the Code of Federal Regulations.

Also Customs will closely examine all new bonds and bond applications for accuracy of certain information and reject those bonds for which there is missing, incomplete or inaccurate information. This may cause additional delays. Due to discrepancies and problems which have occurred in the past, a key piece of information which Customs is seeking to verify on new bonds is the bond principal’s FEIN (Federal Employer Identification Number) or Tax I.D. Number. In many instances Customs requires copies of the following U.S. Tax forms to make this verification:

Although Customs has not yet made this a mandatory requirement and to reduce the chance of the bond being rejected, we strongly suggest at least one of these tax forms be returned with the completed bond forms in order to allow Customs to verify the FEIN number provided on the bond forms.

Under bond centralization, it is important to allow sufficient time for bond processing and to avoid any interruptions in bond coverage. If it is imperative to have a bond be effective by a certain date, we suggest returning the completed bond forms to our office at least (10) business days for new bonds and (15) days for replacement bonds prior to the requested date.

Should you have any questions or need additional information please contact us at bonds@cashea.com or by telephone at (201) 568-2810.