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Customs Report - 1

The Administrative Monetary Penalty System

by Bruce Johnson

The Canada Customs and Revenue Agency (CCRA) has released the draft of its Administrative Monetary Penalty System (AMPS) document. AMPS is the itemization of Customs offences and the framework of civil penalties. While Canada has always had Customs laws and associated penalties, AMPS will provide heightened credibility.

I have often referred to the period from the late 80s to the late 90s as the decade of administrative tolerance. Implementation of the Harmonized tariff, NAFTA, Customs Commercial System (CCS) and a myriad of other regulatory changes and the adoption of a risk management mentality, made “administrative tolerance” synonymous with relaxed enforcement. Customs embraced technology and shifted its focus from the Primary Inspection Line (PIL) to post-entry audit.

The saying goes “everything old is new again,” so, it should come as no surprise that many things have come full circle. While the CCRA still embraces technology and, believe it or not is ahead of many importers, current plans will see a renewed focus on PIL. The requirement for mandatory HS tariff is supposedly predicated on enhancing targeting of enforcement activities at the point of first reporting.

Similarly, importer profiling which was in its infancy in CCS, will flow from the Periodic Verification audit process and AMPS administration to enhance and heighten PIL inspections.

The CCRA is soliciting feedback and opinions from the importing community regarding the structure, process and, yes, even the size and amount of the various penalties. Thankfully, CCRA appears to be listening and responsive. However, the proof will be in the final version.

For instance, AMPS, as initially proposed, is to be implemented on the premise of absolute liability; an infraction is an infraction. Many importers believe the CCRA should formalize the consideration of due diligence or reasonable care as a justification for mitigation of the prescribed penalty. Importers typically want this consideration at the front end of the process, whereas Customs has historically only considered the merits of due diligence in the adjudication process. For most importers, this would constitute a long and costly process.

In a positive vein, CCRA is making provisions for “penalty reduction agreements.” In certain circumstances CCRA will allow an importer to reinvest funds, which would otherwise be collected as penalty, into systems enhancements etc., which will rectify the non-compliant acts and provide for sustained future compliant behavior.

Historically, CCRA has stated Low Value Shipments (LVS) constitute an insignificant source of risk. Special reporting, release and accounting provisions exist in recognition of this. Therefore, why should anyone expect or accept LVS transactions to be held to the same standard of accuracy, scrutiny and/or penalty as high value shipments? Apparently CCRA is revisiting the penalties to be assessed LVS infractions and we anticipate a more appropriate manner of facilitation.

Likewise, CCRA is reviewing the topic of voluntary compliance. There is controversy about how, when and what constitutes voluntary compliance versus a calculated pre-emptive disclosure made in hopes of penalty avoidance when discovery by CCRA is anticipated.

Similarly, I would like to a see a less formal mechanism established which would facilitate the correction of non-critical (revenue neutral) data elements. I believe many importers would assume a more compliant posture if the act of voluntary compliance was not so cost prohibitive. Most importers still pay their service providers on a transactional fee basis, making even revenue neutral compliance a very expensive proposition. Importers and their agents should be able to submit a letter and/or some form of spreadsheet to correct non-revenue classification errors etc. Through compliance, importers could not only avoid the application of AMPS penalties, they would reduce their fee burden to service providers.

Based on submissions from the Canadian Importers Association, the Canadian Society of Customs Brokers and many others, CCRA is presently reviewing a wide range of issues, concerns and subtle nuances; some of these include: What constitutes an infraction? Will the definition of infraction affect the $25,000 maximum penalty per infraction? What discretion will an officer have?

At present, it is anticipated importers will have access to their profile. However, at this time it is not clear exactly how the various types of infractions may be weighted to create an accurate portrayal of an importer’s performance or how long infractions will remain on your profile.

In closing, it is up to each importer to participate in the process and help shape the environment within which you will conduct business.