Customs Bond Insufficiencies

Ensuring

Compliance with

CBP

Presenters

• Colleen Clarke, Roanoke Insurance Group Inc.

• Ed Mascher, Integro Insurance Brokers

• Keith Sanchez, Avalon Risk Management

• James Reiss, International Bond & Marine

Bond Statistics & Sufficiency

Colleen Clarke

Vice President

Roanoke Insurance Group Inc.

Active Import Bonds

BOND AMOUNT RANGE LIABILITY AMOUNT BOND COUNT 50,000 9,866,030,000 197,323 50,001 TO 99,999 288,950,000 4,088 100,000 TO 199,999 310,920,000 3,109 200,000 TO 299,999 536,900,000 2,684 300,000 TO 399,999 332,700,000 1,109 400,000 TO 499,999 217,200,000 543 500,000 TO 599,999 210,000,000 420 600,000 TO 699,999 126,600,000 211 700,000 TO 799,999 102,200,000 146 800,000 TO 899,999 100,000,000 125 900,000 TO 999,999 75,600,000 84 1,000,000 TO 9,999,999 1,875,800,000 785 GE 10,000,000 1,531,100,000 68 TOTAL 15,574,000,000 210,695

All Active Continuous Bonds

BOND AMOUNT RANGE LIABILITY AMOUNT BOND COUNT

LE - 50,000 10,209,671,000 205,727

50,001 TO 99,999 344,351,000 4,857

100,000 TO 199,999 904,180,000 8,744

200,000 TO 299,999 661,560,000 3,245

300,000 TO 399,999 395,115,000 1,310

400,000 TO 499,999 269,675,000 671

500,000 TO 599,999 296,085,000 591

600,000 TO 699,999 154,225,000 256

700,000 TO 799,999 141,665,000 200

800,000 TO 899,999 128,430,000 160

900,000 TO 999,999 87,340,000 97

1,000,000 TO 9,999,999 3,046,280,000 1,286

GE 10,000,000 2,362,500,000 108

TOTAL 19,001,077,000 227,252

Annual STB Liability (estimated)

STB Type Count

Bond Amount

(Average)

Total Liability

Import 330,000 $15,000 $ 4,950,000,000

ISF 94,000 $10,000 $ 940,000,000

Total 424,000 N/A $ 5,890,000,000

Total Annual Bond Exposure – All

Continuous & Import/ISF STBs

Bond Type Total Liability Total Exposure

Continuous (All

Activity Codes)

$ 19,001,000,000 $ 38,002,000,000

Import STB $ 4,950,000,000 $ 4,950,000,000

ISF STB $ 940,000,000 $ 940,000,000

Total $ 24,891,000,000 $ 43,892,000,000

Continuous bonds will always have two

terms exposed once they renew

(“stacking liability”)

Bond Insufficiency Notices Year # of Insufficiency Letters Total Bond Increase

2004 93 $ 96,310,000

2005 790 $ 316,755,000

2006 2,290 $ 349,605,000

2007 2,829 $ 311,690,000

2008 2,325 $ 217,755,000

2009 1,429 $ 123,730,000

2010 2,130 $ 191,505,000

2011 2,628 $ 263,580,000

2012 1,958 $ 204,763,000

2013 2,120 $ 200,247,000

2014 2,235 $ 179,970,000

2015 1,890 $ 152,350,000

2016 1,006 $ 80,540,000

2017 (5 mo) 444 $ 46,610,000

TOTAL 23,798 $2,694,770,000

Policy

• The new guidelines will allow CBP additional

latitude in the ability to enforce Priority Trade

Issues and focus on potential problematic

importers.

– “additional securities for any and all of the principal’s

transactions may be required until the deficiency is

remedied”

• Current Bond Formula (2013)

• Two Formulas

– Reviewers

– Analytical

CBP’s Review Process

• Monthly Review of all Import Bonds

– 10% of DTF for previous 12 months

• ACE vs ACS Data

– Caused a few improper demands for larger

bonds

– Status of fix

• Secondary review

– CBP performs further review in some cases

CBP’s Review Process

• Higher scrutiny on AD/CVD

• 01 entry change to 03 entry

– CBP requiring larger bonds when this occurs

• Immediate insufficiency

• All duty paid OR payable

Addressing Insufficiencies

• Be Pro-Active

• Verify the accuracy of the data

– ASI Data

• Significant Deficiencies

• Linking Letters

• Drawback bonds in ACE

– Increased bonds in February 2018

eBond Update / Challenges Ed Mascher

Senior Vice President

Integro Insurance Brokers

eBond Benefits

• Provides 24x7 capability for submission of

bonds and processing of entries through

EDI

• Standardizes the way CBP interacts with the

Trade across ports

• Ability to Pre- Underwrite and “level the

playing field”

eBond Reality

• Inability to pre-underwrite 01 transmission

later changed to 03

• CEE’s determination of classification

Centers of Excellence and Expertise

The Centers were established to increase uniformity of

practices across ports of entry, facilitate the timely

resolution of trade compliance issues nationwide, and

further strengthen critical agency knowledge on key industry

practices.

eBond Challenges when Goods are

Subject to AD/CVD

• Immediate Insufficiencies

• Change in CBP Procedures

• More important than ever to understand

bond saturation and liability calculations.

• Surety Collateral Requirements/ Bond

Increases/ Stacking Liability

PSC & AD/CVD

eBond Challenges

• Maintaining Controls

• Importer contacts CHB with an urgent continuous

bond request and a shipment already at the port.

• CHB sends Integro URGENT Bond Request

showing Commodity: Textiles- NAFTA Duty Free

• Integro Underwriting Team receives urgent

request, and does a quick search of the importer’s

address.

eBond Challenge Example

• Importer “shopping” entry of HFC’s with different brokers

$46,748 Value

• CHB erroneously quotes HTS 3824.78.0020, at a duty

rate of 3.7% ($1,729.68 Duties)

• STB written for Value + D/T/F

• CBP reviews post entry and advises A-570-028-000, all

other cash deposit rate of 210.46% (Additional $96,656

due and CBP is significantly under-bonded)

• CBP asks CHB to re-submit as 03 entry, but no new

bond required (even though original bond undervalued

based on AD/CVD)

• Surety is unaware but will be responsible for penalty

Current Landscape affecting

Surety

Keith Sanchez

Divisional Vice President

Avalon Risk Management

Fun Fact #1

What was one of the first acts of Congress?

The Tariff Act of 1789 (Hamilton Act)

– To place duty, taxes and fees on imported

goods to fund the new country and promote

manufacturing with in the U.S.

– 228 years later we are still trying to fund the

government, promote manufacturing and

increase exports through new regulations and

now Executive Orders.

Most Frequent LD Claims

Affecting Sureties

Non-payment/

Non-filing of

duties, taxes &

fees, including

Debit Vouchers

Late filing and late

payment of duties,

taxes & fees

Redelivery

(FDA)

Most Frequent ID Bill Claims

Affecting Sureties

Antidumping/

Countervailing

duty increases

Classification

change & rate

advance (including for

Free Trade

Agreements)

Value

advance &

quantity

changes

Change in Landscape

• Trade Facilitation & Trade Enforcement Act of

2015

• Started 2/24/16

• Trade Enforcement & Revenue Collection (COAC)

• Priority Trade Issues

• AD/CVD - #1 Priority for Trump Administration

• IPR – Also included Executive order

• Forced Labor – redelivery requests?? Redelivery

penalty?

• Textiles/Apparel – undervaluing and misclassification

• ACE – one stop shopping for trouble (Amazon of info)

• CEE – experienced shoppers and penalty providers

Change in Landscape

• HR 644 Sec. 115 Importer Risk Assessment • “(a) IN GENERAL—Not later than the date that is 180 days after the date of the enactment of this Act,

the Commissioner shall establish a program that directs U.S. Customs and Border Protection to adjust

bond amounts for importers, including new importers and nonresident importers, based on risk

assessments of such importers conducted by U.S. Customs and Border Protection, in order to protect

the revenue of the Federal Government.

• (b) REQUIREMENTS.—The Commissioner shall ensure that, as part of the program established under

subsection (a), U.S. Customs and Border Protection—

– (1) develops risk assessment guidelines for importers, including new importers and nonresident

importers, to determine if and to what extent—

• (A) to adjust bond amounts of imported products of such importers; and

• (B) to increase screening of imported products of such importers;

– (2) develops procedures to ensure increased oversight of imported products of new importers,

including nonresident importers, relating to the enforcement of the Priority Trade Issues

described in section 117;

– (3) develops procedures to ensure increased oversight of imported products of new importers,

including new nonresident importers, by Centers of Excellence and Expertise…”

• CBP was to response in 180 days, did not happen…

Presidential Executive Order • Executive Order issued on 3/31/17

• Response from CBP submitted within 90 days

• Await response from White House

• Increased Bonding for Covered Importers

– CBP has no record of previous imports by importer;

– CBP has record of importer's failure to fully pay;

– CBP has record of importer's failure to pay timely

• Does this include AD/CVD Bills due in 30 days even if

subsequently Protested (importer has 180 days)?

• What about Prior Disclosures?

Fun Fact #2

What was the second act of Congress?

• The Government created a way for

companies to recover duties, taxes and fees

upon exportation

• Drawback has been around for some 225

years and only 25% of eligible companies

actually participate.

Change in Landscape

• Deployment of Drawback in ACE • Drawback Simplified – All handled in ACE (Hopefully)

• Deployment delayed but can Start in Feb 24 2018

• Law fully reached in 2019 (Transition old to new)

• Substitution Liberalization • Old law – must link by part #, Style, Size, Color and other identifiers

• New law – can link to 8 digit HTS (“Other” a problem)

• Example – Molson/Coors • Molson imported Duty Free plus Excise Taxes and Coors exported to UK

• Old law – same brand or no substitution

• New law - Same 8 digit HTS to reclaim Molson Excise taxes (Big $$)

• Timeframe Liberalization ( U.S. Import rich) • Old law – 3 years of Export Activity (Max)

• New law – 5 year of Export Activity (Retro opportunity)

• Example – Same as above • Molson imported Duty Free plus Excise Taxes and Coors exported to UK

• Old law – match 3 years of exports

• Drawback Trading Company Opportunities • Inserting company into Importer A and Export B’s supply chain transactions

• New opportunity to share refunds

Change in Landscape

• Deployment of Drawback in ACE • Expectations

• Increase and rush to participation

• Significant for Petro, Alcohol and Tobacco industry (High Excise Taxes)

• Currently $1 billion returned. Possible $1.5 - $2 billion in first 2 years

• Major increases in bond limits and need for capacity

• Increase in the need for collateral as financial will not support

• More claims as more inexperienced broker/filers jump in

• What to do now • Prepare now and talk to your broker or drawback specialist

• Analyze your data

• Prepare for Drawback Trading opportunities

• Get pre approved for an increase in you bond • New application

• Current Financials (BS & IS)

So… What you should do now

• Get to know your bond!!

• Have you or your broker

review the bond annually

for activity and claims

• Be familiar with and review

the bond amount formulas

Better yet …

So… What you should do now

• Surety Tools available • Automated Surety Interface Data allows for

• Insufficiency reviews real time and send emails to your broker and the importer

• Downloads all entry info nightly, add claims data and does 12 month calculation

• Other reports available for risk review

• Screening denied parties list AND internally screen for bad importers via importer #, name and address

• Levels playing field for your importers

• Assists in vetting process for Brokers (HR644 Sec. 116)

• Reduces penalties

• Monitoring bond aggregations • Stops excessive issuance of S1’s (multiply brokers writing S1’s for importers)

• Notifies broker/importer prior to reaching limit to prequalify for more limit so you are not scrambling

• Underwriting review calculator to plug in new information • Bought new company and tripled business

• Landed new client and doubled business

• Avoid early stacking and additional collateral (increase limit 3 months after renewal)

So …What you should do now

• If you can’t be proactive, work fast once you get CBP insufficiency notice (30

days)

• DON’T THROW IT OUT!! It doesn’t go away.

• Know the process

• What you need for underwriting

• New indemnity and submit current financials to underwriters (takes time)

• General Indemnity signed by officer (officers out of town)

• Audited Financials within 6 months (accountant out of town)

• Collateral may be required (AD/CVD for sure)

• Collateral takes time to secure

• Surety review, bank review, L/C errors, wiring delays

• Time kills..

• No Bond » No Release » No Cargo + Demurrage Fees + Additional Costs

Broker Responsibility

Errors & Omissions

James Reiss

Controller

International Bond & Marine

Best Practices

• Communication

• Consistency

• Tools and Resources

• Carry E&O Insurance

E&O Coverage

• What is E&O?

Pay claims

Risk

management

• Broker Known

Importer Program 56%

14%

8%

7%

4%

11%

Claims Composite

Classification Errors

Demurrage/Detention

Fines & Penalties

AD/CVD

IPR

All Other

Classification Errors

• Things you can do to protect your brokerage

Check Rulings via CROSS system

(https://rulings.cbp.gov/)

Customs Explanatory Notes to the HTS

(www.boskage.com)

Request a Binding ruling

CBP Training manuals for specific commodities

Discuss importing history with client:

Classification/Valuation

ADD / CVD

• How has this exposure changed?

• Tools to use to identify case information

AD/CVD search (adcvd.cbp.dhs.gov/adcvdweb)

AD/CVD orders from ITC (376 total)

AD/CVD Scope Rulings and information via

(http://trade.gov/enforcement/operations)

Document all AD/CVD communication with importer

Monitor continuous bond activity

Monitor AD/CVD updates

• Risk/Reward

Validating POAs / IPR Exposures • Recommended Steps

for validating POA’s

Government issued IDs

Call importer to verify

147-C Letter (IRS

verification form)

Check applicable

websites

Registration -state

authorities

Check Sanction List

Verify FF’s POA

Other resources

available

• Uniformity in Section 111

• CBP Audits/Penalties

• 25k settlements vs 100

entry fees

• Good News/Bad News!

Nike Backing Off

Other importers attack

• Don’t do bare minimum!

Miscellaneous Exposure

• Demurrage

Check Delivery Orders Daily/ Track Cargo

• Fronting Duties

Get all importers on ACH

• Terms and Conditions

Limit Liability to $50 per entry

Schedule special contracts on E&O policy

• Bond Sufficiency

Notify importers of bond increases

Thank you!

Open Discussion / Questions