October 17, 2006
A broker can be liable for monetary penalties in excess of $30,000 under the provisions of the broker statute, 19 U.S.C. § 1641, for failure to exercise responsible supervision and control regarding a series of similar transactions with U.S. Customs and Border Protection (“Customs”).
In a recent case encaptioned U.S. v. UPS Customhouse Brokerage, Inc., Slip Op. 06-98, the U.S. Court of International Trade (“CIT”) held that Customs can issue and collect monetary penalties in excess of $30,000 under the broker statute regarding a series of misclassified entries. The issue in the case was the meaning of a phrase in the broker statute reading “a monetary penalty not to exceed $30,000 in total for violations of” the broker statute. The CIT upheld the Customs penalties of $75,000 against the broker, noting that its interpretation of the scope of this provision was one of “first impression” for the Court. We anticipate that the case will be appealed.
The Basis for the Broker Penalty
At issue in the case were 45 entries filed by the broker, UPS/CHB, at the Port of Louisville, Kentucky, between January and May of 2000, duty-free under subheading 8473.30.9000, despite Notices of Action and warning letters from Customs that that subheading was incorrect. Customs had also previously provided training to the broker's employees as to the proper classification of merchandise under subheading 8473.30.9000.
As a result, Customs assessed five penalties against UPS/CHB totaling $75,000, based on an alleged failure by the broker to exercise responsible supervision and control regarding the erroneous classification of merchandise. Customs cited the broker regulations at 19 CFR § 111.29(a), which require that a customs broker exercise due diligence in preparing or assisting in the preparation and filing of records relating to any customs business matter handled by him as a broker.
Collection Action in the CIT
When UPS/CHB failed to remit the full $75,000 in penalties, the Government filed an action to recover that amount in the CIT under the broker penalty statute, specifically Section 1641(d)(2)(A). In response, the broker alleged that the statute bars the Government from collecting more than a single penalty, not to exceed $30,000, for all violations under Section 1641 preceding the issuance of the pre-penalty notice. In support of this position, the broker argued that the statute clearly evinced an intent to place a monetary cap on the penalty Customs can impose on a customs broker. UPS/CHB also argued for a $30,000 maximum penalty based on the statute's legislative history and the negotiated positions of both Customs and the brokerage industry prior to its enactment.
NCBFAA Weighs In
The National Customs Brokers and Forwarders Association of America (“NCBFAA”) filed a brief in the case in support of the position taken by UPS/CHB, noting that it worked closely with Customs and the legislative sponsor of the bill as it moved forward to enactment in 1984. NCBFAA asserted that in Congressional testimony at the time, in correspondence to the bill's sponsor, and in meetings with Customs officials, it was understood that the intent of the revised law was that the monetary penalty would not exceed $30,000 for “violation or violations” of Section 1641.
In allowing the $75,000 broker penalty to stand in this case, the CIT held that the matter boiled down to a matter of “deference”. The Court noted that the statute was purposely vague on the issue of the scope of the broker penalty, but that Congress had delegated authority to Customs to “prescribe such rules and regulations relating to the customs business of customs brokers as [the agency] considers necessary to protect importers and the revenue of the United States”.
Accordingly, Customs issued regulations providing that the agency can impose a monetary penalty or penalties in an amount not to exceed an aggregate of $30,000 for one or more of the reasons set forth in the broker regulations. See 19 CFR § 111.91(a). Further, Customs mitigation guidelines provide that a broker shall be penalized a maximum of $30,000 for any violation or violations of the statue in any one penalty notice, implying that more than one penalty notice of up to $30,000 may be issued.
The Government argued that the agency's construction and application of its monetary penalty authority under Section 1641 was both reasonable and permissible, as demonstrated by its regulations, mitigation guidelines, and actions in this case.
The Court agreed, and held that the agency's interpretation of Section 1641 should be given so-called “Chevron deference”, meaning that, if Customs construed and applied its statutory grant of authority in a reasonable manner, a great amount of deference is owed to an agency's interpretation of its own regulations. The Court also noted that although the Customs mitigation guidelines were not subject to notice and comment, they are entitled to some deference as well, since they are a permissible construction of the broker statute.
Finally, the Court noted that if it were to accept the broker's narrow reading of Section 1641, Customs would be required “to ferret out all possible broker violations before issuing its one and only pre-penalty notice”, and such a requirement would be “absurd”.
The full CIT decision in this significant broker case may be accessed at http://www.tuttlelaw.com/customs_material/slip_op06-98.pdf.
Conclusion For Brokers and Importers
Accordingly, both brokers and importers should be aware of the regulatory requirements for brokers to exercise due diligence and control over the transaction of Customs business in general, and to exercise due diligence in preparing or assisting in the preparation and filing of entries and other official documents submitted to Customs. Failure to do so may result in separate broker penalties that could total more than $30,000, even if the underlying violation is the same for the various entries involved.
In addition, because the broker is an agent of the importer, an importer may have a separate liability for civil penalties under 19 U.S.C. 1592 for filing of a false entry or entry summary with Customs.
If you have any questions with regard to this newsletter, or broker or importer penalties in particular, please contact George R. Tuttle at (415) 288-0425 or firstname.lastname@example.org, George R. Tuttle III at (415) 288-0428 or email@example.com, Carl D. Cammarata at (415) 288-0426 or firstname.lastname@example.org, Stephen S. Spraitzar at (415) 288-0427 or email@example.com, or Gary L. Graff at (415) 986-8780 or firstname.lastname@example.org.
The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.
Copyright © 2006 by Tuttle Law Offices.
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