Customs Update: The importer's nightmare
10/00
Published in the Journal of Commerce on Oct 31, 2000
Each year a small handful of importers live through the same nightmare having to pay duty twice. While the occasions are now few and far between, double payment of duty hits these importers out of the blue because they have forgotten the first rule of duty liability: Just because you paid the duty to your broker does not mean you are discharged from your obligation to pay the duty to Customs!
While most brokers are professional, responsible and plan for lean times, things can happen unexpectedly even to the best of companies. Sometimes serious financial difficulty leads to unexpected results and duty money paid to the broker does not get remitted to Customs. The problem was acute in the 1980s when in the span of two or three years, we heard about brokers who absconded with $1.5 million, $800,000 and two who took $700,000 each from importers. They were criminally prosecuted and received jail sentences.
Importers should bear in mind the long standing requirement of 19 C.F.R. §141.1, which makes payment of duty the personal liability of the importer. The cited regulation specifically states that payment of duty to the broker does not relieve the importer of the obligation to pay Customs if the broker fails to remit those funds to Customs. Brokers are also required by law to yearly notify the importer of his/her continuing opportunity to pay Customs duties by way of a check payable directly to Customs, see 19 C.F.R. §111.29(b).
In the typical broker importer relationship, the broker files the entry and advances the duty money for the importer (unless the importer pays direct, see further comments below). At about the same time the entry is filed, the broker bills the importer. Duty is due ten (10) business days following release, with some exceptions. Most importers never give the payment of duty a second thought. They simply write a check to their broker for all the charges billed (including duty), frequently 2030 days following release. Most often, these importers find out about the broker's failure to pay duty because Customs imposes a fine for the nonpayment long after the fact.
There is a case working its way through the license revocation process right now involving a customs broker in Los Angeles who hit upon lean times and ended up failing to pay Customs duty monies it had received from several small importers. In many cases, the duty money totaled less than $25,000. However, for small companies even $25,000 is a large amount to have to pay twice. It certainly eats up any profits realized from the sale of the underlying imported goods.
Importers are reminded they can protect themselves in a couple of ways. One option is to write the check payable to the U.S. Customs Service before the duty is due and give it to the broker to submit with the Entry Summary, thereby insuring duty is paid in a timely fashion.
The other alternative is the Automated Clearing House, a program whereby Customs is able to automatically debit the importer's account, see 19 C.F.R. §§24.25 and 24.26.
Some importers have expressed reluctance to allow Customs direct access to their bank accounts and so have set up a separate duty payment account which Customs is able to debit. If you opt for the latter approach, it is important to make sure the account is regularly funded. Customs recently announced that debits may take place on bank holidays instead of the old two-business-day rule.
Brokers are under a statutory obligation to remit all funds to Customs received from their clients in payment of duties and other obligations in a timely fashion, see 19 C.F.R. §111.29(a), but sometimes the survival instinct takes over, to the dismay of all.
S.K. Ross & Assoc., P.C.
5777 W. Century Blvd.
Suite 520
Los Angeles, CA 90045-5659
(310) 410-4414
Fax (310) 410-1017
www.skralaw.com
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