CUSTOMS-NOTES
The materials contained in this document have been prepared George R. Tuttle Law Offices for informational purposes only. The information contained is general in nature, and may not apply to particular factual or legal circumstances. In any event, the materials do not constitute legal advice or opinions and should not be relied upon as such.
July 31, 2001
The Canadian Administrative Monetary Penalty System
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The Administrative Monetary Penalty System (AMPS) is the latest “modernized sanctions regime” that the Minister of National Revenue has introduced on behalf of the Canada Customs and Revenue Agency (CCRA), in order to secure compliance with the Canadian Customs laws and regulations and to deal with non-compliance issues “fairly and expeditiously.” The systems will apply monetary penalties through an administrative process similar to that in place in the United States.
This is a significant development because currently the Canadians currently impose an administrative which they readily admit is “limited and inflexible.” According to the CCRA the current systems impose insufficient monetary penalties and relies too heavily on seizure and ascertained forfeiture. The CCRA hopes that the implementation of AMPS will modernize the sanctions regime.
The proposed system will apply penalties to violations (‘contraventions’ as the Canadians say), of the Customs Act, the Customs Tariff, and the Special Import Measures Act (SIMA), and all implementing regulations, as well as contraventions of the terms and conditions of licensing agreements and other contractual undertakings. The AMPS will impose monetary penalties in proportion to the type, frequency, and severity of infraction. They are stated to be corrective rather than punitive. Pursuant to the penalty system, the options of seizure and criminal prosecution will be reserved for only the most serious cases of non-compliance such as fraud, smuggling and other criminal activities.
The Carrot and the Stick
For importers with a highly compliant performance record with the CCRA, the CCRA offers the benefits of streamlined processing, streamlined clearance, and streamlined accounting & payment processes.
For clients who do not comply, however, intervention by Customs will increase costs. The Canadian system is similar to the U.S. penalty system and the AMPS program is directed at violations and intended to effect compliance through the application of penalties that are proportional to the frequency and severity of the infractions.
In addition to the monetary penalties, non-compliance and failure to meet undertakings entered into with the CCRA will have a negative effect on performance records. Continuing non‑compliance and lack of due care will increase the probability of a trader being considered higher risk. Those in the higher-risk category can expect increased border examinations or audits, with the potential for civil penalties. Finally, violations may also result in the withdrawal of special service option privileges.
The CCRA cautions that it does not intend to conduct more audits or border examinations, but clarifies that the audits and examinations that are conducted will be more focused and the consequences of non-compliance will be substantial.
Canadian “shared
responsibility”
The CCRA states that it also believes that compliance is a two way street, and therefore, the CCRA endeavors to increase its efforts to help importers to comply with Customs legislation and regulations and to discourage non-compliance by focusing on these activities:
Ø Education and client assistance focus
Ø Measuring compliance levels
Ø Monitoring the compliance of individual clients
Ø Implementing effective means to combat non-compliance, including the AMPS program
Two Phases of AMPS
The AMP system will be administered in the same manner in both the traveler and the commercial streams, however the two streams will have separate implementation dates:
Ø Implementation of Phase 1 of AMPS for the Customs commercial stream is planned for the fall of 2001.
Ø Implementation of Phase 2 for the Customs travellers stream is planned for the spring of 2002.
The
graduated penalty system
Most penalties will be graduated and will take the compliance history of the importer into consideration. A second incident of the same infraction will result in a higher penalty with a third and subsequent infraction resulting in a penalty that is higher again.
For example, the proposed penalties for “failure to report” a commercial importation of goods valued at $1,600 or greater are:
1st infraction - $1,000 or 5% of value for duty whichever is greater
2nd infraction - $2,000 or 10% of value for duty whichever is greater
3rd infraction - $3,000 or 20% of the value for duty whichever is greater
When AMPS comes into effect, it will not be applied retroactively to infractions that occurred prior to that date. However, prior rulings, court decisions, etc., respecting tariff classification, value for duty, and origin will still be valid and will be used to determine a client’s awareness of his or her self-correction compliance requirements under section 32.2.
Section 32.2 of the Customs Act was implemented in the 1998 revisions to that Act and is not being changed by the AMPS amendment. Section 32.2 establishes the obligation of importers to self-correct their declaration (either where money is owing or in revenue neutral situations) within 90 days where they have reason to believe their declaration was incorrect. Under the current legislation, penalties do not apply in situations where the errors do not result in additional revenue owing. However, the failure to self-correct these revenue neutral errors will result in penalties pursuant to the new AMPS system.
Penalties will extend to “undertakings” of importers
The new penalty scheme includes new contraventions of an “undertaking,” not related directly to the import of the goods or conveyances.
For example, penalties would be imposed for the contravention of licensing provisions. Also, penalties will be imposed for failure to comply with conditions related to Customs Self Assessment (CSA), e.g., the failure to fulfill the conditions of a importer agreement (“client agreement”), or undertaking would be considered a contravention. Such undertakings will clearly outline importer responsibilities as well as the potential penalties for non-compliance.
Following the assessment of a penalty, a designated officer at the local or regional level will, on behalf of the Minister, be able to overturn or amend the penalty within 30 days of its issuance provided obvious errors in the assessment have occurred. This will ensure that only true disputes will reach the formal appeal stage.
Importers may thereafter file a formal appeal to the Minister within 90 days.
Penalty Relief Agreements (PRAs)
Because the penalties are intended to be corrective, rather than punitive, the object of the Penalty Relief Agreement (PRA) is to arrive at compliance without excessive penalties. The PRA concept provides Customs with the ability to offer relief from penalty assessments in situations where substantial AMPS penalties have been applied as a result of unforeseen systemic problems within the client’s processes.
When entered into with a client, a PRA will set out the nature of the identified problem, what will be done to correct the matter, the time frame required to effect correction, as well as post-correction validation criteria. The level of relief to be provided may range from partial to full penalty relief, depending on the circumstances of each case.
A new automated processing system will be created
The CCRA states that a new automated penalty assessment processing system is currently being developed to generate and record all penalty assessments issued to a client on a national basis. This system will have the functionality required to associate the contravention to the penalty level, calculate the penalty amount and update the accounting process with revenue data.
For the purposes of the assessment of graduated penalties, the retention period for this data will be three years in most cases. In addition, changes to the penalty assessment resulting from a decision taken with respect to a correction or redress request will also be recorded in the automated system.
Additional information
If you have any questions as to any of the issues raised in this newsletter, please feel free to contact George R. Tuttle, Sr. (grt@tuttlelaw.com) by email or telephone at 415-986-8780.