The United States Customs and Border Protection's recently published memorandum entitled, "Guidance: CBP Forms 28 and 29 Language" should give importers cause for thought of how they respond to Customs' requests for information. The memorandum is directed to Customs field officers, and it specifically states that requests for information, Form 28, should not be used to notify the importer of an investigation. The Importer should have the opportunity to make a valid Prior Disclosure in most cases when it receives a Form 28.
The way in which an importer responds to questions from Customs is often just as important as the answers given by the importer, in determining whether the importer has problems. A thoughtful and professional response to a Form 28 request for information from Customs can resolve or avoid potentially large and disastrous problems. A response with little thought in its preparation can mark the beginning of what could be a costly, lengthy, and unpleasant encounter with Customs.
The purpose of this article is to provide importers with advice on what to do when Customs asks questions, and how an importer can protect oneself when the answers to questions Customs has asked may show that there are mistakes with the importer's entry practices.
Respond to Customs in a Timely Manner
As the government holds virtually all the power, one who ignores a Customs officer's request for information does so at his own peril.
A real-life example of the above principle in action: A major importing company was the target of a significant Customs penalty investigation lead by Customs Special Agents. The investigation was prompted entirely by the importer's practice of routinely ignoring Customs Form 28. The investigation centered on Customs' questions relating to whether the importer had declared all elements of the dutiable value of its imports, i.e. whether the importer had paid all duties due. As reinforced by the recent Customs memorandum, this is precisely the type of question that might normally be the subject of a relatively routine Form 28, but there was none issued. Instead, the importer was met with an investigation by Customs Special Agents with badges and threatened enforcement actions.
An inquiry was made of the Senior Customs Import Specialist who regularly handled the company's entries as to the reason that there was no Form 28 issued, particularly in light of the fact that this was a large importer with no record of wrongdoing with its imports. The answer received went straight to the heart of the matter. Customs had periodically sent the importer numerous Form 28s. However, the importer had often ignored the requests for information causing Customs repeatedly to send the same requests to the importer. Customs viewed getting information from the importer as an arduous and extremely difficult task. Consequently, when the question arose as to whether all required duties were being declared and paid, rather than follow the logical path of issuing a Form 28 to the importer, the Customs Import Specialist simply turned the matter over to the Special Agents to initiate a full civil—and possibly criminal—investigation. Clearly, the Import Specialist had grown weary of being ignored and having to go to extremes to secure information from the importer. Thus, rather than issue a Form 28 to the importer, the issue became an enforcement action with a complete investigation headed toward a penalty.
Eventually, the matter was resolved with only minor discrepancies found with the importer's entries. Nevertheless, what quickly could have been resolved at little to no expense to the importer became an expensive and costly effort taking years to resolve -- all because the importer routinely had failed to respond properly to Form 28 requests. The bottom line is as stated earlier, when asked questions by Customs, one must timely respond, even if the response is to request more time to respond. Showing Customs respect, and acting in a professional manner to its representatives, is always a prudent course. Failure to do so could cost the importer dearly.
Seize the Opportunity Provided by Form 28
When Customs issues a Form 28 request for information, the importer should never respond without understanding the reason for the questions, and the implications of the answers. Customs issues requests for information for a variety of reasons. It may be there is some missing, but needed information; Customs may not understand something about an entry; or Customs may sense that something minor or major may be wrong with the importer's entries and practices. The request for information is an opportunity for the importer to be proactive rather than reactive. When receiving a Form 28 the first thing that the importer should do is contact the importer's broker or Customs lawyer to try to learn what Customs is really seeking. Customs asks questions, but one must know what is behind those questions. Innocent sounding questions can have answers that reveal major problems. It is critical for the importer either to be well versed in Customs law or seek counsel from one who is so the importer can understand the potential issues. Also, an importer must always remember when talking with its broker that the broker is not a lawyer and there is no confidentiality. In other words, Customs can learn the contents of the conversation.
The importer must quickly discern if there is something wrong with the entries that have been filed. The importer should be telling Customs of the problem, not the other way around. The importer never wants to be in a situation where it provides the requested information to Customs only later to learn from Customs that there is a problem. Form 28 may provide the importer the opportunity to make a Prior Disclosure to Customs of a problem discovered by the importer, thereby limiting the importer's exposure.
Another real life example of this principle follows. Upon receiving a request for information from Customs, the importer studied the questions and the facts. It came to realize that its entries had carried the wrong Tariff Schedule classification for the entered products, which could result in a $2 million shortfall in duty payments. The potential exposure was not just the payment of duties, but also a multimillion-dollar penalty. Rather than responding to the request for information, the importer filed a Prior Disclosure notifying Customs of the problem.
The Prior Disclosure was accepted, which instantly eliminated the multimillion-dollar penalty threat. The importer was eventually able to convince Customs that while the original classification had been wrong, the correct classification did not result in additional duties. Customs wanted a different classification that would result in the $2 million of duties, but eventually the importer prevailed. Had the importer simply responded to the questions asked by Customs it would have faced a much different situation fighting both a penalty and the duty classification. This did not happen because the importer seized the opportunity provided by Form 28 to limit the importer's exposure. The importer was able to make the Prior Disclosure, as it had no knowledge of the commencement of a formal investigation by Customs.
Be Proactive
As the foregoing demonstrates, it is imperative that Form 28 requests for information be respected and handled in a professional manner. The form can be used as an opportunity to defend and to limit liability. An importer should never be reactive to a request for information. To protect itself, the importer must always be proactive and understand the questions, what may be behind the questions, and assure itself that answers are not going to cause problems. The importer should know any potential problems before responding. The importer should also take advantage of the opportunity to limit the scope and size of exposure. One must always take care in responding to questions from Customs, and never treat those questions as routine or matter of fact.