What you or your client may not know about the Periodic Monthly Statement Program and the potential negative effects.

Posted on: July 28th, 2011 • In Bonds

The periodic monthly statement program (see the side bar) is becoming more and more popular among importers. In a recent meeting with Customs, representatives of C.A. Shea learned that as many as 600 new importers a week sign up (or are signed up by their customs brokers) to pay their duties in this fashion.

This method of duty payment, if so elected by the principal, can provide the principal with a valuable cash-flow tool since it allows the deferral of duty payment up to the 15th working day of the month following the release of the merchandise. Many large companies and experienced importers recognize the benefits and utilize the periodic monthly statement program (or PMS as it is called); however, many companies and importers rely on third party intermediaries (i.e. customs brokers) to handle all aspects of duty payment. While this can be convenient, especially for a small to mid-sized importer, it can lend itself to some pitfalls. Customs recognized the following issues:

  1. Customs brokers acting in a capacity as attorney in fact under a valid Customs power of attorney may enroll principals in the PMS program, as a non portal account, with or without the principal’s knowledge. The broker can then flag the principal’s entries for PMS. If the broker places these eligible flagged entries on the broker’s monthly statement rather than an importer’s statement, they would not be required to pay Customs until the 15th day of the next month as provided for under the PMS program. However, the broker may continue to invoice and collect duty, taxes, and fees from the principal within the standard 10 day window of payment for consumption entries. In this scenario, the broker has gained the benefit of the duty deferral rather than the principal.
  2.  Many principals elect to set up an ACH account with Customs to facilitate the payment of duty, taxes, and fees to Customs in a timely manner including non-portal account PMS. The principal may also rely on their customs broker to file the monthly statement with Customs and pay the duties via the broker’s ACH account. However, rather than issuing individual monthly statements for each account, many customs brokers simply group or consolidate all of their accounts onto one PMS. While this is certainly more efficient for the customs broker, it could be detrimental for the principals identified on these consolidated statements due to the way Customs processes PMS. If processed on a consolidated statement, all of the estimated duty, taxes, and fees due for each principal must be paid at the time of filing. If all the estimated duties due under a consolidated statement are not paid to Customs at the time the statement is submitted, regardless of the number of accounts identified, the entire statement is rejected resulting in liquidated damage penalties for all the principals or importers identified on the consolidated statement!

For example, your client and three other importers all use the same customs broker. All of the companies but one forwards the appropriate duty to the broker timely. When it comes time for the broker to make payment to CBP, there may not be sufficient funds to cover the total duties due on the consolidated statement. If the entire duty for the consolidated statement is not paid in full, this will result in a liquidated damage claim for nonpayment of duty. Unfortunately, not only will the offending company be fined by Customs, but so will all of the other entities including your client listed on that statement. In addition to fines, all principals on that statement could also lose their PMS program privileges for a period of up to (90) days which could have a negative impact on their importing activities!

Most sureties see the use of periodic payment as a factor in its underwriting. Our office monitors import activity and if we note that a principal is using PMS, the surety may re-evaluate the terms of the bond and ask for additional underwriting information. We recommend that you ask your client to notifiy you if they decide to participate in PMS in order to advise the surety as soon as possible to insure there would be no disruptions to the bond.

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