U.S. Customs and Border Protection is continuing to increase its trade enforcement efforts, and ST&R has previously discussed (here and here) how company compliance efforts, including import compliance reviews, can mitigate the impact of this trend. But sometimes those efforts fall short, problems arise, and companies are faced with CBP investigations, audits, and/or penalties.
“Nobody likes to be in CBP’s crosshairs, but when you are, it’s important to respond quickly and effectively,” said Jason Kenner, a former Department of Justice attorney who now heads ST&R’s litigation practice. “Poorly crafted or supported responses can not only harm a company’s prospects for a favorable resolution but may also be deemed violations themselves. ST&R’s experienced attorneys are some of the best in the business at steering companies successfully through these processes.”
CBP often uses the CF 28 to request information and documents to confirm a suspected entry error. Going forward, Kenner expects CBP to use CF 28s more frequently in 19 USC 1592 cases investigating fraud, negligence, and gross negligence.
Because the Department of Justice will be provided with all CF 28 responses should a case proceed to litigation, those responses should be complete, accurate, and as consistent with the position taken in any future litigation as possible. Prior to responding it is therefore important to analyze why the information is being requested, which allows for early risk assessments of potential litigation and can inform evidence preservation and collection and other strategies.
When a response is submitted it must be true and accurate, but it should also be worded in the most persuasive and advantageous manner possible and be well-supported with admissible evidence. Kenner noted that such a response may end CBP’s inquiry in the importer’s favor, while a poorly drafted or unsupported response will likely lead to further CBP action. In a worst case scenario, CBP may view an inconsistency, error, or omission in a CF 28 response as a violation in itself.
The CF 29, Notice of Action, likely confirms that CBP believes it has discovered an entry error. Once a CF 29 is received a protest, pre-penalty notice, and future litigation become distinct possibilities. Importers that have not already discussed and implemented a litigation strategy with counsel, including risk analysis, document preservation, witness interviews, etc., should do so at this point.
As is the case with CF 28s, Kenner said, a well-drafted response to a CF 29 has a chance at changing CBP’s mind, if perhaps not on the error at issue then at least on whether CBP believes that error rises to the level of a 1592 violation. It can also lay the groundwork for effective arguments in any future litigation. However, also as with CF 28s, CBP may view an inconsistency, error, or omission in a CF-29 response as a violation in itself.
Kenner said protests are often denied because of confusing arguments or gaps in evidentiary support. In addition, during litigation the DOJ will if at all possible use a protest to its advantage if it appears incomplete or inconsistent with the importer’s positions or statements.
As a result, protests should be clear and well thought out, and each fact on which the importer’s arguments are based should be fully supported with admissible evidence. Kenner noted that companies often have a wealth of evidence within their business records that they do not consider at the protest stage, including documents that were created separate and apart from the protest, have an air of credibility, and can be used to corroborate documents that may have been created for purposes of the protest.
By taking a full inventory of the available evidence early in the protest drafting process, a well-supported and persuasive protest can be drafted. Not only would such a protest have a greater chance of success at the administrative level, Kenner said, but if it is denied the company would be well situated to quickly approach the DOJ to seek a stipulation or file a complaint and litigate.
Pre-penalty and penalty notices
The DOJ will be supplied with pre-penalty and penalty notice responses as part of CBP’s referral process, and Kenner said a highly persuasive response may be considered when deciding (1) whether to commence a penalty action and (2) the amount of damages sought or the applicable culpability level alleged. Further responses may be considered in deciding whether to attempt to settle a matter short of litigation. A well-thought out defense strategy should therefore be determined prior to filing any response.
For more information on ST&R’s import compliance services and how they can benefit your company, please contact firstname.lastname@example.org or your ST&R professional.
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