U.S. Customs and Border Protection's Authority to Assess Monetary Penalties

• Author: Robert J. Pisani, Stuart P. Seidel, Brett Ian Harris
• Pages: 211-244

CHAPTER 11

U.S. Customs and Border

Protection’s Authority to Assess

Monetary Penalties

ROBERT J. PISANI, STUART P. SEIDEL,

BRETT IAN HARRIS

H CUSTOMS CIVIL PENALTIES (19 U.S.C. § 1592)

Background

Anyone who imports items into the United States should be aware that U.S.

Customs and Border Protection (CBP) employs a statutory enforcement tool

(9U.S.C. § 592, more commonly known as “section 592”) that provides CBP

with a powerful mechanism to assess severe monetary penalties and recover

lost revenue or duties in cases where required import documentation is false or

incomplete or the parties engage in a false act or omission. Section 592 is the

principal enforcement vehicle used by the agency to combat infractions involving

cross-border transactions and historically has resulted in many cases involving

millions of dollars in penalties and revenue recoveries.

The statute has a broad sweep—while the importer is held principally respon-

sible for the truth and accuracy of the information provided on customs entry

documents, CBP can also pursue any party who aids and abets in the transac-

tion, including foreign sellers, consignees, and customs brokers.2 To prevail under

section 592, CBP must establish that the infraction is “material” and that the

party being charged acted with culpability (i.e., fraud, gross negligence, or simple

negligence, or a combination thereof ). The dollar amounts of the penalties are

based on the level of culpability established by the evidence in each case.

A common (and serious) misconception regarding CBP’s section 592 penalty

authority is the belief that if the goods imported are duty free, section 592 does

not apply. Nothing could be further from the truth, as the penalty statute itself

provides authority for CBP to issue monetary penalties in cases where there is

no “loss of revenue” (i.e., duties, taxes, and fees), as well as in cases where there

is a duty loss.

Table  at the end of this chapter on page 240 sets forth the monetary penalty

amounts associated with each level of culpability in both revenue-loss and non–

revenue loss situations as well as the reduced penalties associated with prior dis-

closure. The following sections explore section 592 in greater detail and should

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212 CHAPTER 11

provide the practitioner with at least a basic understanding of how CBP utilizes

this potent enforcement provision.

Elements of a Section 1592 Violation

There are three basic elements of a section 592 violation:

1. A false statement, omission or act that is

2. Material and

3. Is due to the fraud, gross negligence, or negligence (i.e., “culpability”) of

the alleged violator(s)

All three of the above elements must be present to establish a violation of

section 592. In other words, if any one of the three elements is missing, no viola-

tion of section 592 can be established. Also, note that “aiders and abettors” may

be held liable under section 592, but clerical errors and mistakes of fact made by

any party are not violations of section 592 (see “Impor tant Definitions”). Remem-

ber, too, that section 592 applies to the entry, attempted entry, introduction, or

attempted introduction of merchandise into the commerce of the United States

by any party. CBP has used this aspect of the statute to assess penalties against

parties other than the importer (e.g., the foreign supplier, customs broker, and/or

consignee). In this regard, a recent section 592 court case discussed later in this

section is illustrative (United States v. Trek Leather, Inc., 767 F.3d 288 (Fed. Cir. 204)).

Important Definitions

In determining whether an import transaction involves a violation of section

592, the following definitions should be considered.

False Statement

Any false statement that appears on a customs entry document presented to CBP.

Examples include incorrect merchandise description, false value, classification,

quantity, country of origin, and so on. In general, any assertion on a customs

entry document that is not correct will qualify as a “false statement.”

Omission

An omission is a failure to provide information required under the customs laws or

regulations. For example, a failure to follow a CBP tariff classif ication ruling you

obtained is an “omission” in that 9 CFR § 77.8(a)(2) legally requires you to do so.

False Act

A false act encompasses conduct that generally does not involve a falsity or omis-

sion on entry documents, but rather concerns the violator’s conduct relating

to the import transaction(s) in question. Probably the most common example

of a section 592 false act involves the unlawful removal of required country

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U.S. Customs and Border Protection’s Authority to Assess Monetary Penalties 213

of orig in markings3 from the imported merchandise. In these cases, the entry

documentation is usually accurate (thus no false statement or omission), however

the “act” of removal is deemed to be “false” and within the ambit of section 592.

Materiality

A false statement, omission, or act is considered material if it has the natur al ten-

dency to influence or is capable of influencing CBP determinations regarding tariff

classification, appraisement, admissibility of the merchandise, the importer’s liability

for duties (including marking, countervailing, or antidumping duties), a determina-

tion of the source, country of orig in or quality of the merchandise, the collection

and reporting of accurate trade statistics,4 and/or a determination of whether an

unfair trade practice has been committed (including patent, copyright, and trade-

mark infringement). CBP’s section 592 penalty assessment and mitigation guide-

lines5 explain what constitutes a material false statement, omission, or act. For exam-

ple, if an impor ter presents incorrect entry information to CBP that results in the

collection of inaccur ate trade statistics, the importer may be liable for penalties even

if the inaccur ate information did not result in a loss of revenue to the government.

Fraud

A material false statement, omission, or act is determined to be fraudulent if

the statement, omission, or act was committed (or omitted) knowingly, that is,

done voluntarily and intentionally. The intentional undervaluation of imported

merchandise is an example of fraud. Note that the burden of proof in cases of

fraud rests with CBP to demonstrate that the violation took place by “clear and

convincing evidence.”

Gross Negligence

A material false statement, omission, or act is determined to have occurred

through the violator’s gross negligence if it results from an act or acts (of com-

mission or omission) done with actual knowledge of or wanton disregard for

the relevant facts and with indifference or wanton disregard for the offender’s

obligations under the statute. For example, an unintentional repeated failure to

report all elements of value involving imported transactions would likely consti-

tute gross negligence. In this regard, experienced importers are frequently held

to a higher standard than occasional or inexperienced importers. The burden of

proof in cases of gross negligence rests with CBP to demonstrate that the viola-

tion took place by “a preponderance of the evidence.”

Negligence

Generally, negligence results from an act or acts (of commission or omission)

done without exercising the degree of reasonable care and competence expected

from a person in the same circumstances to ensure that the information pro-

vided to CBP is correct. Negligence is a failure to exercise reasonable care and

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