Customs and International Trade Law Blog

FREIGHT FORWARDERS ARRESTED IN MIAMI FOR SHIPPING SONY PLAYSTATIONS

Peter Quinter — Fri, 12 Mar 2010 08:10:43 -0500

To the dismay of the local international trade community, three international freight forwarding companies and their owners are being criminally prosecuted for illegally exporting merchandise to a company in Paraguay. The company in Paraguay had been designated a "Specially Designated Global Terrorist" by the United States Government. Exporters and forwarding companies sending any cargo to such a company, even Sony PlayStation video games, would be in violation of the law.

In an Indictment dated October 1, 2009, Case No. 09-20852-CR-GOLD, the United States Attorneys' Office in Miami charged three Miami freight forwarding companies and their owners with violating the International Emergency Economic Powers Act (IEEPA),50 U.S.C. 1701 et seq., 18 U.S.C. 554 (fraudulently exporting from the United States), 18 U.S.C. 371 (conspiracy), and 13 U.S.C. 305 (knowingly submitting false Shippers Export Declarations or information through the Automated Export System (AES).

In summary, the Government has alleged that the Paraguay company paid an Ohio distributor of Sony PlayStations to ship those items to the freight forwarding companies in Miami. Once in Miami, according to the Indictment, the freight forwarders and their owners allegedly created documents falsely identifying the address of the company in Paraguay because they knew they could not ship the Sony PlayStations to the real address. The real address of the company in Paraguay, according to the Indictment, had been designated by the Office of Foreign Assets Control (OFAC) as a Specially Designated Global Terrorist. The designated terrorist was Galeria Page, an office mall in Ciudad del Este, Paraguay.

The case was investigated by the Miami office of the U.S. Immigration and Customs Enforcement (ICE) which issued a Press Release. According to the Penalty Sheet filed with the Indictment, the maximum penalty for the individual owners of the freight forwarding companies who were arrested for the alleged violations is 20 years imprisonment.

To obtain a copy of the Indictment which was just unsealed on February 26, 2010, please contact me at pquinter@becker-poliakoff.com or (954) 270-1864.

FDA Finally Getting Tough on False Food Claims

Peter Quinter — Tue, 09 Mar 2010 10:31:36 -0500

The U.S. Food and Drug Administration recently issued several warning letters to prominent food and drink companies regarding false claims displayed on their food and drink products, including those marketed to children. Some food products brazenly claim to increase a person's immune system, reduce the chance of getting a cold, or even cure cancer. Are they really believable?

The Obama Administration has taken a more aggressive posture to attempt to reduce the obesity of Americans, especially children. There is a direct connection between what we eat and our health. Remember the saying "You are what you eat"? Dr. Margaret Hamburg, the new FDA Commissioner, announced in a March 3, 2010 letter to food companies:

I have made improving the scientific accuracy and usefulness of food labeling one of my priorities...It is clear to me as a working mother that the use of front of package nutrition symbols and other claims can be helpful to busy shoppers who are often pressed for time in making their food selections.

In a typical December 4, 2009 Warning Letter to one of the worlds' largest food companies, Nestle, the FDA complained about Juicy Juice All Natural 100% Juice Grape products. The FDA alleged that the product was misbranded because the labels were misleading in that the label was designed to imply that the producct was 100% grape juice when it truly was not.

The FDA regulations regarding food, including drinks, are complex. True and accurate health claims are allowed on certain food products under specific circumstances, according to the FDA guidance. Hopefully, the food industry will be more responsible, and if not, I encourage Commissioner Hamburg to pursue civil penalties against companies and the corporate officers of those companies who deceive the public.

A seminar about health claims on food products and how to respond to FDA Warning Letters will take place on June 3, 2010 in Miami, at a seminar entitled "Importing Food Products in Compliance with FDA and U.S. Customs Rules".

In solidarity with FDA Commissioner Hamburg, I am a working Dad, and I don't like to be lied to either!

Peter Quinter, Partner, Customs and International Trade Department.

pquinter@becker-poliakoff.com or (954) 270-1864

Air and Ocean Carriers Must Sign New MOU With U.S. Customs On April 23, 2010

Peter Quinter — Mon, 01 Mar 2010 20:37:22 -0500

Air and ocean carriers often unintentionally transport aliens into the United States who do not have a valid passport and/or an unexpired visa. Carriers receive a fine from U.S. Customs and Border Protection of $3,000 for every such alien illegally transported. Carriers get an automatic reduction of 50% of the fine by signing a Memorandum of Understanding (MOU) with U.S. Customs. Carriers must obtain and submit a newly revised MOU to U.S. Customs on April 23, 2010.

On February 22, 2010, U.S. Customs issued a General Notice that all air and ocean carriers which had signed an MOU with either the former U.S. Immigration and Naturalization Service or U.S. Customs will no longer be effective. Only by submitting a new Fines Mitigation MOU countersigned by U.S. Customs Headquarters may fines be automatically reduced. Carriers need to prepare now to comply with the many new changes in the MOU.

The new MOU has many changes, but the essential paragraph 3.10 still provides:

The Carrier shall maintain a reasonable level of security designed to prevent passengers from circumventing any Carrier document checks. The Carrier shall also maintin an adequate level of security designed to prevent stowaways from boarding the Carrier's aircraft or vessel.

Without the new MOU, fines will be issued against the carrier by U.S. Customs for violating the Immigration and Nationality Act, 8 U.S.C. 1323. Reduction of the fine greater than 50% may be obtained by the carrier when a violation occurs by establishing that further mitigating or extenuating circumstances exited at the time of the violation that warrant the relief sought. To do so, the carrier should carefully follow the guidelines set forth at 8 CFR Part 280.

In Florida , the U.S. Coast Guard has recently issued a directive notifying all carriers that every vessel arriving at port from Haiti will be subject to a boarding and examination. As a result, the number of discovered stoways has increased dramatically, and fines are being issued to carriers.

Carriers may contact me at pquinter@becker-poliakoff.com or U.S. Customs Headquarters to obtain a copy of the new MOU.

Peter Quinter, Partner, Customs and International Trade Department (954) 270-1864

If You are an Owner or Officer of an Importer, This Blog Post is for You

Peter Quinter — Sun, 28 Feb 2010 07:14:29 -0500

In one of the most important recent decisions, the U.S. Court of International Trade dismissed a case filed against the CEO of his importing company that had made false statements to U.S. Customs and Border Protection in the entry documents. This Court decision has significant implications for every owner, officer, and manager of any company involved in importing merchandise into the United States.

The chronology of the case is somewhat familiar. In 2002, Tip Top Pants, Inc., imported from Mexico 954 dozen men's pants, and claimed NAFTA duty free treatment. Customs issued a Request for Information (CBP form 28), and then a Notice of Action (CBP Form 29) denying the NAFTA claim. Customs then issued a Pre-Penalty Notice against both Tip Top Pants and its CEO, Mr. Nigri, alleging negligence, and assessing a penalty of $55,000. Tip Top filed a response to the Pre-Penalty Notice. Customs then issued a final Penalty Notice. Tip Top Pants filed with Customs another petition seeking cancellation or mitigation of the penalty. Customs never responded to that Petition filed by Tip Top Pant's attorney.

Even though the disputed customs duties were subsequently paid by Tip Top Pants, Customs sued both Tip Top Pants, Inc. and its Chairman and CEO, Mr. Saad Nigri, for violating 19 U.S.C. 1592, by allegedly making material false statements or acts, or material omissions, in connection with the entry of the men's pants from Mexico.

The Court took the unusual action of dismissing Mr. Nigri as a defendant in the case for two reasons. The first reason is that Customs failed to respond to Tip Top Pant's Petition, as required by 19 U.S.C. 1592(b)(2). The second reason is that the Complaint filed with the Court by Customs did not specifically allege that Mr. Nigri personally committed any act or omission in violation of 19 U.S.C. 1592. As the Court stated, "[T]he complaint does not allege that Nigri did, or failed to do, anything whatsoever." So, even if Tip Top Pants was negligent, its negligence could not be imputed to Mr. Nigri just because he was CEO of the company when the negligence occurred.

In a sentence that is certain to be cited by customs attorneys in petitions and court briefs, Judge Stanceu stated:

The [Priority Products] case does not hold that a party's serving as an officer of a corporation at the time the corporation imports merchandise is, by itself, sufficient to establish that officer's liability for acts committed by the corporation that are found to be in violation of Section 592.

The Court then issued an Order dismissing all claims by Customs against Mr. Nigri, personally.

A future blog post will let you know what happened with the negligence penalty case against Tip Top Pants, Inc.

Peter Quinter, Partner, Customs and International Trade Department.

pquinter@becker-poliakoff.com or (954) 270-1864

Who Should Give Advice to U.S. Customs?

Peter Quinter — Thu, 25 Feb 2010 18:31:25 -0500

I attended the Advisory Committee on Commercial Operations of Customs and Border Protection (COAC) meeting on February 25, 2010 in Miami. The 20 private sector members of COAC are jointly selected by the Department of Homeland Security and the Department of the Treasury, and include knowledgeable customs compliance and logistics personnel from such prominent companies as DHL, APL, Hasbro, and GE. The COAC meets four times a year to discuss creating or changing the policies and procedures of U.S. Customs and Border Protection (CBP) as they affect the international trade community.

The Miami meeting included an introduction by Acting Deputy Commissioner David Aguilar, referred to as "Chief" which is his title with the CBP component U.S. Border Patrol. Chief Aguilar spoke about "security," "resilience," and "protecting customs and exchange" which apparently is the new terminology for the former "facilitating international trade". His introduction focused on assessing and mitigating risks of people and cargo entering the United States.

Substantive presentations were made by, among others, Therese Randazzo, Director, IPR Policy and Programs, Office of International Trade on behalf of the IPR Subcommittee. Therese discussed the new IPR sample bond form for trademark and copyright owners to use to get samples of detained or seized merchandise from CBP.

Rich DiNucci, Director, Secure Freight Initiative, Office of Field Operations on the topic of Importer Security Filing, stated there were 2,300 ISF filers with 141,000 unique importer record numbers. Rich stated that the timeliness of the ISF or "10+2" filing has increased to 75%. No penalties would be issued by CBP for ISF filing errors or failure to file...for now.

Bradd Skinner, Director, Industry Partnership Programs, Office of Field Operations, spoke about C-TPAT (Customs-Trade Partnership Against Terrorism). Bradd announced that CBP now had 9,710 certified C-TPAT members, a dramatic increase from the original 7 members in 2001. 1,200 new members were added in 2009. CBP Security Supply Chain Specialists conducted 14,000 validations so far in 87 countries. 297 companies were suspended or removed from C-TPAT in 2009.

The COAC is an excellent way for private sector persons and companies to interact with top level CBP and Treasury personnel regarding the critically important, and sometime competing, objectives of security and trade. Now more than ever, our Government needs to listen closely how to improve the daily lives of its citizens. Chief Aguilar, thanks for listening.

Peter Quinter, Partner, Customs and International Trade Department.

pquinter@becker-poliakoff.com or (954) 270-1864

Is $56 Billion of Your Money For Homeland Security Too Much, Too Little, or Just Right?

Peter Quinter — Tue, 16 Feb 2010 15:34:33 -0500

On February 1, 2010, Department of Homeland Security Secretary Janet Napolitano announced that the Department's budget for fiscal year 2011 would be $56 billion. This was the first time for the Democratic Obama Administration to formally unveil its budget priorities after taking over from the Republican Bush Administration. Guess what - it's more of the same.

The Federal Government's fiscal year runs from October 1 to September 30, so the Fiscal Year 2011 budget begins on October 1, 2010. Examples of more of the same include more Federal Air Marshals on international flights, 500 more machines at airport checkpoints to detect dangerous materials, 275 more explosive detection canine teams, and more machines to scan 40 foot ocean containers entering the country for weapons of mass destruction, explosives, contraband, and illegal aliens. Compare this with prior budgets or the 2008 Five Year Plan for DHS, and you too may conclude that this is more of the same.

The Department of Homeland Security includes U.S. Customs and Border Protection, the U.S. Secret Service, the U.S. Coast Guard, the Transportation Security Administration (TSA), Immigration and Customs Enforcement, FEMA, and the U.S. Citizenship and Immigration Services. There are 230,000 employees in this mega-Department.

There are 3 items I especially like in the proposed budget.

(1) raising the journeyman level for uniformed Customs Inspectors, Border Patrol Agents and Agricultural Specialists from the GS-11 to GS-12 level (a $10,000 base salary increase to $60,000);

(2) a substantial increase in funding for stopping counterfeit merchandise from entering the United States, something which is very serious when we are talking about medicines, car and aviation parts; and

(3) dual immigration priorities of (a) making it easier for legal immigrants to become citizens, and (b) removing from the United States illegal aliens who have been convicted of a crime, and are serving time in state and local jails.

If people voted for Obama with the expectation of drastic changes in homeland security policies, they will be sorely disappointed. If people who did not vote for Obama were anxious that he would change the course of national security and counter-terrorism efforts of the prior Bush Administration, they will be pleased.

For me, my desires are much simpler. If and when Secretary Napolitano announces that TSA no longer requires us to take off our shoes at the airport, then I'll know there is progress. When my local police department gets rid of the huge barriers in its parking lot around the police department building, I'll be pleased. Unfortunately, the hundreds of billions of dollars spent on homeland security efforts since 9/11 will probably not result in my local library soon re-opening the after-hours book return slot.

Peter Quinter, Partner, Customs and International Trade Department.

pquinter@becker-poliakoff.com or (954) 270-1864

Customs Brokers Under Investigation by U.S. Customs

Peter Quinter — Fri, 12 Feb 2010 21:47:32 -0500

With all of the complexities involved in the import process, even customs brokers can make mistakes such as by providing the wrong tariff classification of the imported item to U.S. Customs and Border Protection . A customs broker who makes such a mistake may become the subject of an investigation by U.S. Customs which ultimately results in a $30,000 penalty against the broker.

Customs brokers are often the best choice for importers to take care of all the formalities in clearing imported cargo through U.S. Customs, however, a customs broker who makes a mistake when declaring certain information to U.S. Customs may put the importer at risk of being accused of fraud by U.S. Customs in violation of 19 U.S.C. 1592. Increasingly often, the customs broker may itself be investigated by U.S. Customs for failing to exercise responsible supervision and control in violation of 19 U.S.C. 1641.

It is standard practice for U.S. Customs to demand that the broker appear before the Broker Compliance Unit of U.S. Customs at the local port of entry to answer questions about the mistakes discovered by Customs regarding a particular importer or set of entries. The broker is usually directed to bring with him/her certain documents for review by U.S. Customs at the meeting. The broker may be accompanied by an attorney during this informal stage of the investigation. The customer of the customs broker, the importer, is generally not made aware by U.S. Customs that its customs broker has been summoned to a meeting with Customs for a counseling session.

If the U.S. Customs personnel are not satisfied with the answers by the broker at the meeting, U.S. Customs will issue a Notice of Pre-Penalty against the broker. The penalty may be up to $30,000. The broker will have 30 days to file a written petition, and request an oral presentation. A lawyer who is an expert in customs law and procedure should be involved to advise and represent the broker to attempt to get the penalty canceled or mitigated. The guidelines of what to say in such a Petition are set forth in an Appendix C to Part 171 of the Customs Regulations. U.S. Customs personnel must consider a certain set of factors before determining that the customs broker failed to exercise reasonable care and "responsible supervision and control". Every customs broker should read, the U.S. Court of International Trade decision issued on January 28, 2010 in the case of United States v. UPS Customhouse Brokerage, Inc.. for a better understanding of both a customs brokers' and U.S. Customs' rights and responsibilities.

Bank Accounts Seized for Alleged Money Laundering

Peter Quinter — Fri, 05 Feb 2010 20:25:24 -0500

Bank accounts are more frequently being frozen or seized by the Federal Government. The typical allegation by the Federal Government is that the money in those bank accounts were the proceeds of money laundering. Often, the owners of the seized bank accounts were somehow connected to shipping cargo to, receiving cargo from, or doing business with Colombia. The owners of the seized bank accounts then typically receive a letter from U.S. Customs and Border Protection advising of the seizure, and the procedure to attempt to get the money back.

Money laundering typically means that the money in the bank account was seized because Immigration and Customs Enforcement (ICE) believes it was generated from the sale of illegal drugs. ICE refers to this type of financial crime as "Trade-Based Money Laudering." So, for example, if a company in Colombia received money from the sale of drugs, and then purchased some merchandise from a U.S. company, and paid that U.S. company, the money received by the U.S. company could be seized as the proceeds of certain unlawful activity set forth in the money laundering law at 18 U.S.C. 1956. The allegation of money laundering is sometimes accompanied by an allegation of filing a false shipper's export declaration or Automated Export System (AES) with U.S. Customs, in violation of 15 CFR section 30.7.

Persons who, or companies which have their bank accounts frozen or seized are entitled to know the reasons for such a severe action by the Federal Government. They are also entitled to challenge the actions by the Federal Government through the administrative petition process with U.S. Customs and Border Protection or by going to Federal Court. Legitimate business persons whose bank accounts have been frozen or seized by ICE or through a Seizure Warrant should contact a knowledgeable attorney to pursue having their money returned to them promptly.

Help! U.S. Customs Took My Money at the Airport

Peter Quinter — Mon, 01 Feb 2010 09:00:02 -0500

You may legally carry or mail any amount of money you want into or out of the United States, but if it is more than $10,000 at one time, you better first report it to U.S. Customs and Border Protection. Otherwise, you risk U.S. Customs taking it from you, and never getting it back. Why? Because your failure to report the international transportation of money is a violation of the Currency and Foreign Transaction Reporting Act.

All too often, I am contacted by a distraught American ciitizen or resident returning from a trip overseas, or a foreign visitor to the United States, who was unaware of the laws regarding currency reporting. The person was asked by a U.S. Customs officer upon arrival at the international airport if he or she was carrying over $10,000. When the passenger honestly answer "yes", or the U.S. Customs officer believes the passenger may be lying about the amount of money being transported, the passenger and his or her luggage are examined. If over $10,000 in monetary instruments, including travelers checks and U.S. or foreign money, is discovered, and the required form, FINCEN Form 105, has not been filed with U.S. Customs, all of the money is likely to be seized on the spot by U.S. Customs.

A formal Seizure Notice will eventualy be issued by U.S. Customs to the passenger, and the passenger may hire a customs attorney to pursue the administrative petition process to get the money (or most of it) back. Proof of the legitimate source of the money and proof of the legitimate intended use of the money are required in communicating with Customs. Eventually, after several months, Customs may return typically 90% of the money.

It is an expensive mistake to not report to U.S. Customs when either carrying, mailing, or receiving over $10,000 internationally. Please read U.S. Customs and Border Protection's "Currrency Reporting" flyer and look at the FINCEN Form 105 and its instructions before attempting to transport over $10,000. There are no customs duties, taxes or other fees paid to U.S. Customs for the international transportation of the money; it is merely a reporting requirement to U.S. Customs.

Yes, You May Legally Import Counterfeit Merchandise into the United States

Peter Quinter — Sun, 24 Jan 2010 12:17:55 -0500

My friends tell me one of their favorite activities in China is to buy counterfeit items such as Gucci handbags or Montblanc pens. My friends do worry about U.S. Customs and Border Protection (U.S. Customs) officers looking through their luggage upon arrival at an airport in the United States, seizing the counterfeit items, and fining them. The truth is that U.S. Customs allows the importation of counterfeit merchandise, but closely follow the rules as I explain them to you now.

First, know that it is generally illegal to import counterfeit merchandise into the United States. The word "counterfeit" is defined in the Lanham Act at 15 U.S.C. 1124, and the U.S. Customs applicable law allowing for the seizure of counterfeit merchandise is 19 U.S.C. 1526. That law gives your friendly U.S. Customs officers who are waiting for you at the airport the authority to look through your luggage, and seize counterfeit merchandise from you. The U.S. Customs regulations at 19 CFR Part 133 give more specific guidelines to travelers interested in this topic.

What the readers of this blog, and even many U.S. Customs officers, do not know is that it is perfectly legal for a person who visits China, or any other foreign country, to buy counterfeit merchandise there, including one counterfeit Gucci bag and one counterfeit Montblanc pen, declare it on the U.S. Customs declaration form, pass through U.S. Customs, and enjoy using the counterfeit items in the United States. Of course, you generally get what you pay for, so the $2,000 Gucci bag that you purchased in China for $80 may not be such a bargain, but it can be a lot of fun to shop at a Chinese flea market, and compare the purchased products to the genuine items at your local U.S.-based retail store, or so I am told.

According to Customs Directive No. 2310-011A dated January 24, 2000, "Customs officers shall permit any person arriving in the United States to import one article, which must accompany the person, bearing a counterfeit, confusingly similar, or restricted gray market trademark, provided that the article is for personal use and not for sale." Moreover, the Directive states that "Customs officers shall permit the arriving person to retain one article of each type accompanying the person."

Now, don't go crazy trying to bring too much counterfeit stuff into the United States at once. There are many restrictions. You can only bring counterfeit stuff in every 30 days, it must "accompany" you which means no FedEx, UPS, or DHL packages, and it is only applicable to "one article of each type" which means, for example, if you attempt to bring in two counterfeit Gucci bags, they both will be seized by U.S. Customs. And "personal use" means for you the traveler only; no counterfeit gifts for your friends and family.

Finally, please don't waste the U.S. Customs officer's time attempting to explain to him that the fancy watches you purchased are marked "Rolexx" so they are not counterfeiting the Rolex trademark because of the different spelling, or that you did not know that importing counterfeit merchandise was illegal, because now you have read this blog post from "Mr. Customs".

Just in case you do bring in one too many counterfeit products, there is an administrative process to challenge all seizures made by U.S. Customs, as I described in a previous blog post.

Upcoming OWIT-South Florida Networking Opportunity You Must Attend

Jennifer Diaz — Wed, 13 Jan 2010 14:18:46 -0500

On January 27, 2010 you will have the opportunity to meet the new Board of Directors for the Organization of Women in International Trade's South Florida Chapter. OWIT-South Florida is a networking and educational organization that promotes women and men in international trade and commerce.

As the incoming President to this group of distinguished professionals in international business, I'll admit I'm biased, but, I do have say, this is a great group to get to know. We have representation on our Board from Adobe, C.H. Robinson, Kroll, Robertson Forwarding, UPS, and Mastercard, to name a few. Meet us personally at my law firm, Becker & Poliakoff's Coral Gables office at 121 Alhambra Plaza, 10th Floor, on January 27th, from 6-8 p.m. You will be glad you did.

Put on your calendar these must attend events:

February 17, 2010 - Are You "Women Certified?" Delia Passi, founder of Broward-based Women Certified, talks about her company's mission to teach companies, especially sales people, how to sell to and retain female consumers.
March 24, 2010 - Crisis? What Crisis? If your firm faces a reputational tsunami, call the "trouble valet." Judy Miller, CEO, JM Advisory and former Pulitzer-prize winning investigative journalist, explains how she helps companies in stressful situations avoid reputational meltdown.
November 2, 2010 - Hear Donna Shalala, President, University of Miami, former Secretary of Health and Human Services under the Clinton Administration, speak at our annual International Business Women of the Year (IBWOY) awards.

Get Involved! Join one of our several committees. Reach out to our Committee Chairs to learn more.

Join OWIT-South Florida on Linked In as well and start a discussion - let us know what you'd like to see with OWIT-South Florida in 2010!

I look forward to making membership in OWIT-South Florida a worthwhile and fun experience. If you ever have questions, comments or program ideas, I am always interested in your feedback,and want to make sure this organization is a valuable asset to everyone involved. Please feel free to contact me directly with questions and comments. See you January 27th!

Don't miss out. If you want to network with the movers and shakers of Miami's international trade scene, you must attend OWIT-South Florida's "Meet the New Board" event on January 27, 2010. This is the group that will bring Donna Shalala to you in November, get to know us!

You Ready for 100% Cargo Screening by the TSA?

Peter Quinter — Mon, 11 Jan 2010 14:41:28 -0500

In my October 5, 2009 post entitled "TSA's New Air Cargo Screening Rules Have A Serious Flaw," I commented on the Air Cargo Screening Interim Final Rule, which created the certified cargo screening program (CCSP). CCSP authorizes companies other than airlines to be approved by the Transportation Security Administration (TSA ) to screen cargo before it is delivered to an airline at the airport to be put in the belly of a passenger plane. As of February 3, 2009, U.S. airlines and foreign air carriers must have screened at least 50% of its cargo transported on passenger aircraft. That number goes up to 100% as of August 3, 2010. The problem is that even as August 3, 2010 quickly approaches, the TSA, the International Air Cargo Association (TIACA), and other prominent organizations have warned that the air cargo industry needs to do more to be ready.

On February 8-9, 2010, in Miami, Florida, The National Cargo Security Association (www.TNCSA.org) is hosting a Florida Cargo Security Conference. Speakers include managers of TSA' Air Cargo Division from its national headquarters in Arlington, Virginia, and TSA managers in Florida, the Director of the Air Forwarders Association, nationally renowned security and legal experts, and an FAA Senior Special Agent who enforces dangerous goods compliance.

Be advised that the air cargo screening rule only applies to (1) air cargo, (2) loaded on board an aircraft in the United States. The Rule also does not apply to all-cargo aircraft (freighters). However,one of the primary differences between now and August 3, 2010 (when the 100 percent deadlines hits full force) is that the stacked and shrink-wrapped shipments known as ULDs — basically numerous smaller packages stacked and wrapped on pallets for shipments — will have to be broken down so that the packages can be screened individually and then restacked.

TIACA has expressed some of its concerns when it recently stated "to avoid widespread delays, greater participation in the Certified Cargo Screening Program (CCSP) is needed." An excellent Powerpoint introduction to the TSA's CCSP is found at theTIACA website.

Shippers, indirect air carriers, airlines, and other persons involved in the international supply chain should attend the Conference to learn more about the air cargo screening requirements. Consequences of the new 100% screening rule surely will be (1) cargo that is delayed or not shipped at all, and (2) penalties against companies by the TSA for non-compliance.

Importer Security Filing or "10+2"

Peter Quinter — Tue, 05 Jan 2010 13:42:16 -0500

As of January 26, 2010, U.S. Customs and Border Protection (CBP) will require that all importers comply with the Importer Security Filing (ISF), also popularly known as "10 +2" because of the 10 elements required to be provided to CBP relevant to the importer and 2 elements required to be provided to CBP relevant to the carrier. CBP has announced that as of January 26, 2010, it will also begin to issue penalties of either $5,000 or $10,000 against importers who fail to comply with ISF; something CBP calls its "enforcement phase". Importers who self-file ISF, or their agents, must understand the changes, comply with them, and, when a penalty is issued by CBP, respond in writing to mitigate the penalty.

Fortunately, on January 28, 2010, from 11:00 a.m. to 2:30 p.m., the South Florida Chapter of the Council of Supply Chain Management Professionals (CSCMP), is hosting a seminar entitled "ISF 10+2 Reality Sinks In...What's Next?" To register or learn more about CSCMP, click on http://www.cscmp-sofl.org/events.shtml. The impressive panel includes customs brokers, importers, carriers, consultants, an attorney, and Richard DiNucci, Director, Secure Freight Initiative, CBP Headquarters.

As you should know, the ISF is filed via the Automated Broker Interface (ABI) or the Automated Manifest System (AMS), and it is always sent to the Automated Targeting System (ATS) for analysis and review by CBP officials. Hence, it is obvious that CBP will use the ISF information to target, stop, and examine imported shipments. Incorrectly or incompletely filing ISF will result in increased delays of imported shipments. Moreover, CBP has announced that as of January 26, 2010, it will selectively penalize the more severely non-compliant importers, and will only more frequently issue such penalties over time.

On December 24, 2009, CBP amended the Interim Final Rule on November 25, 2008 entitled "Importer Security Filing and Additional Carrier Requirements." See http://edocket.access.gpo.gov/2009/E9-30570.htm. The amended rule clarified the ISF Bond Terms for all importers. Knowing all aspects of this important new rule is necessary for the international trade community. Click http://www.cscmp-sofl.org/events.shtml to register. To learn more about the South Florida Chapter of the CSCMP, please contact a member of the Board of Directors at http://www.cscmp-sofl.org/board.shtml.

Happy New Year to all.

CBP Symposium Highlights

Peter Quinter — Tue, 15 Dec 2009 08:56:08 -0500

The annual CBP Symposium, held at the D.C. Convention Center, Washington, D.C. from December 8-10, 2009, was the 10th year of this very successful event. Over 850 attendees were initially greeted by outgoing Acting Commissioner Jay Ahern. The Symposium agenda was a smorgasbord of information that was appropriate for anyone with a serious interest in international trade and logistics. Highlights included presentations from Assistant Commissioner Dan Baldwin, Office of International Trade, Rich DiNucci, Director, Secure Freight Initiative ("10+2"), Bob Swierupski, Director, National Commodity Specialist Division, and Brenda Smith, Executive Director, Trade Policy and Programs, about what the international trade community should expect in 2010 from CBP. Special Presentations were made by Jeremy Baskin, Office of General Counsel, U.S. Consumer Product Safety Commission, and Domenic Veneziano, Director, Division of Import Operations and Policy, U.S. Food and Drug Administration.

Mr. DiNucci's presentation on Importer Security Filing (ISF) stated that CBP has received from January 26, 2009 through December 6, 2009 3.65 million ISF filings from over 1,900 ISF filers representing 103,000 ISF importers. There is now a 95% acceptance rate on ISF filings. As you know, the enforcement mode for ISF begins January 26, 2010, and there will be a $5,000 penalty issued by CBP for a violation per ISF transmission or $10,000 maximum per ISF filing. Importers should be familiar with the ISF Interim Final Rule, the FAQ on ISF, and the Mitigation Guidelines issued by CBP.

Therese Randazzo, Director, IPR Policy and Programs Division, stated that CBP had issued over 1,000 fine notices, pursuant to 19 U.S.C. 1526(e), totaling $94 million against importers for attempting to import counterfeit merchandise. However, only $2 million was collected from those importers. Ms. Randazzo acknowledged that the U.S. Attorney's Offices are reluctant to pursue such cases because the importer has already been punished in that the merchandise was seized and forfeited, and adding a fine on top of that may be considered a violation of the "excessive fine" clause of the United States Constitution. Charles Steuart, the new Intellectual Property Rights and Restricted Branch Chief, stated that CBP had "targeting inefficiencies because of lack of information of the international supply chain from trademark and copyright holders" who have recorded their trademarks, trade names, and copyrights with CBP.

Mr. Swierupski stated that his office had issued 6,821 Rulings pursuant to 19 CFR Part 177 in FY 2009, that Rulings from his New York office are issued within 30 days and those from CBP HQ are issued within 90 days. Myles Harmon, Director, Commercial and Trade Facilitation Division, reminded persons submitting Ruling Requests to do so using CBP's new e-Rulings system, however, if a physical sample is submitted to CBP, the Ruling must still be made by paper, and not through the e-Rulings system. CBP has issued about 160,000 rulings available on CROSS. Advance Ruling Requests are still the best method of predicting proper classification, valuation, country of origin, and other import requirements.

I look forward to next year's CBP Symposium. Be sure to sign up early as the event is always quickly sold out.

Importer Pleads Guilty to Smuggling Freon

Peter Quinter — Sat, 05 Dec 2009 22:41:54 -0500

On November 20, 2009, in Federal Court in Miami, Florida, Mr. James Garrido and the company he controlled, Kroy Corporation, pled guilty to charges related to their illegally smuggling into the United States certain restricted ozone-depleting substances, in violation of the Clean Air Act enforced by the U.S. Environmental Protection Agency.

Chlorofluorocarbons (CFCs) are ozone depleting substances and include CFC-22 which is otherwise known as R-22 or popularly known by its trademark name, Freon, owned by DuPont. CFC-22 is a widely used refrigerant for residential heat pump and air conditioning systems.

In 1988, the United States ratified the Montreal Protocol on Substances that Deplete the Ozone Layer. By ratifying the Protocol, the United States committed to a collaborative, international effort to regulate and phaseout ozone-depleting substances. The United States amended the Clean Air Act (CAA) in 1990 to include Title VI, Stratospheric Ozone Protection. The Clean Air Act established a schedule to phase out the production and importation of CFC-22. Individual companies are licensed annually by the EPA to import specified maximum quantities of CFC-22. By 2030, the CFC-22 will be completely phased out.

Neither Mr. Garrido nor Kroy Corporation were ever licensed by the EPA to import CFC-22. They imported approximately 420,000 kilograms of CFC-22 valued at about $4 million over 2 years in violation of 18 U.S.C. section 545(smuggling). They intentionally misdescribed the CFC-22 on documentation presented to U.S. Customs and Border Protection as another refrigerant, R-134A, which did not require any special license from the EPA. As stated in the press release by the United States Attorney's Office for the Southern District of Florida: "Except for a small quantity of legal refrigerant strategically placed in front of the contraband, the shipment contained CFC-22 and were accompanied by false documentation."

The case was investigated by Special Agents from the Miami offices of the EPA and the U.S. Immigration and Customs Enforcement (ICE). Sentencing will take place on February 11, 2010. Mr. Garrido could be sentenced to 20 years imprisonment, and a criminal fine of $250,000 for each of the three counts to which he pled guilty.

As a Subscriber, You Are Invited to This Thursday's Holiday Party

Peter Quinter — Sun, 29 Nov 2009 15:45:56 -0500

With the overwhelmingly positive response to my new Customs and International Trade Blog, I am inviting each of you to the Customs and International Trade Department's Holiday Party, this Thursday, December 3, from 5:30 to 8:30 p.m. at my Coral Gables, Florida, office.

Where: 121 Alhambra Plaza, 10th Floor (parking provided in the building)

The following link contains a Map to Coral Gables Office.

Plenty of food and drink provided, so just bring your holiday cheer.

RSVP required to Jennifer Diaz at jdiaz@becker-poliakoff.com or 305-260-1053.

Everything You Need to Know About Exporting

Peter Quinter — Mon, 16 Nov 2009 11:16:52 -0500

In the next few weeks, I am giving lectures and doing a webinar on the general topic of export compliance. In my legal practice over the past 20 years as a Customs and International Trade attorney, I am increasingly involved with clients on export compliance and penalty matters. The laws and regulations have changed dramatically over the past few years, as has the name and number of Federal agencies enforcing them, plus the penalties for non-compliance are much higher now.

Please call (954) 985-4101 or e-mail (pquinter@becker-poliakoff.com) to RSVP or with any questions regarding the below seminar/webinar.

(1) On Wednesday, November 18, from 9 to 12 noon at the Doubletree Miami Mart, on behalf of the Florida Customs Brokers and Forwarders Association, I am lecturing on complying with the Bureau of Industry and Security (BIS) requirements. The seminar is entitled "Export Controls Compliance and Best Business Practices," and it will cover everything from identifying the correct ECCN (Export Commodity Classification Number) in the Export Administration Regulations (EAR), to submitting an export license, to the decrementing of the license by U.S. Customs and Border Protection, to interacting with Special Agents of the BIS's Office of Export Enforcement conducting an investigation, to negotiating a favorable resolution after a Notice of Proposed Penalty has been issued against the company for an export violation. I will also cover the various trade embargoes and sanctions with countries and foreign nationals and foreign organizations enforced by the Office of Foreign Assets Control (OFAC). That means everything from Cuba to Zimbabwe and from Specially Designated Nationals (SDN) to narco-traffickers. Violations of BIS and OFAC regulations may result in severe criminal punishment or monetary penalties in the millions of dollars, plus individuals have personal liability.

(2) This Thursday, November 19, from 6:30-8:15 p.m, at the University of Phoenix, 11410 NW 20th Street, Miami, on behalf of the South Florida Chapter of the National Association of Purchasing Management (NAPM), I will discuss "Export Controls Compliance and Penalties".

(3) On December 3, 2009, I will be a speaker in an "AES Compliance Webinar" from 12 noon to 1:30 p.m. It is sponsored by the National Customs Brokers and Forwarders Association of America (NCBFAA) Educational Institute. To participate, simply go to www.ncbfaa.org and select “AES Compliance Webinar” under “Upcoming Events.” The webinar answers the questions of how, when, and why to file the required Electronic Export Information (EEI) using AESDirect. U.S. Customs is now regularly issuing penalties against exporters or freight forwarders for not properly filing the EEI. If you are wondering what happened to the old Shipper's Export Declaration (SED) form, you should participate in this webinar that I am doing in cooperation with the U.S. Census Bureau.

I am Not Worried That My Food Is "Safe", Are You?

Peter Quinter — Tue, 10 Nov 2009 09:55:01 -0500

The United States Congress is considering legislation to make the food we eat, especially imported food, "safe and secure". In my opinion, even if our food needs protecting, the proposed legislation only adds to the current Federal bureaucracy. The U.S. Food and Drug Administration (FDA) already has a comprehensive regulatory procedure to stop, examine, and refuse imported food which it considers adulterated or misbranded, or otherwise not fit for human (or animal) consumption. The current FDA system is working very well, and the only achievement of the proposed legislation will be to increase the price of food. We need enforcement of the current laws, not a bunch of new laws.

Granted, there are numerous instances of imported food making people sick, and even causing death. 15% of the food we eat is imported. Nevertheless, the overwhelming number of Americans who get sick or die from consuming food had nothing to do with imported food. You may get sick at your local restaurant with food poisoning because of the poor handling of the food at the restaurant, not because the food came from overseas.

Currently, for any food to enter the United States, the importer must submit an electronic entry to both U.S. Customs and Border Protection and the FDA. The entry information includes the name of the importer, a description of the imported food, the name of its manufacturer, the country of origin, the value, the buyer of the food, and where the food is to be delivered. The requirements of the Bio-terrorism Act of 2002 require "prior notice" which means that the importer must advise U.S. Customs and the FDA far in advance of the arrival of the food at a border crossing of the United States. The U.S. General Accountability Office just issued a thorough Food Safety Report which has an excellent graphic at page 58-59 describing the imported food procedures. The Report did state that our food supply is safe, but that U.S. Customs and FDA could do better.

The Government made significant changes already regarding the traceability of food in the Bioterrorism Act which went into effect in December 2003. It required all foreign companies involved in the manufacturing, processing, packing, or holding food that enters the United States to first register with the FDA so that the food may be traced all the way back from the retailer to its source overseas. Companies may register on-line at www.FDA-USA.com.

The prior notice requirement gives the FDA computer system the information to determine what action should be taken on any particular shipment. Most of the time, the importer gets a "May Proceed" instruction from the FDA, meaning, once the merchandise arrives in the United States, it may promptly proceed to the importer for distribution without any further FDA involvement. Alternatively, using the Import Alert system, the FDA may automatically refuse the importation of the food into the United States, require more documentation before it may be distributed, or require a physical inspection by an FDA officer. A physical inspection usually means a sample is obtained and tested at an FDA laboratory to determine if it is in any way contaminated. Chapter 9 (Import Operations ) of the FDA Regulatory Procedures Manual describes in detail the FDA requirements. Every day, all kinds of food products from all over the world are prevented by the FDA from entering the United States, or are sampled for laboratory analysis before getting a "May Proceed" order from the FDA. Failure of a U.S. importer to hold the food for examination or re-deliver food to the FDA will result in a fine from U.S. Customs for three (3) times the value of the shipment.

The proposed legislation, the Food Safety Enhancement Act of 2009, has already passed the U.S. House of Representatives this summer, and is now pending before the U.S. Senate. It would amend the Federal Food, Drug, and Cosmetic Act of 1938 to provide that the importer of the food:

(1) verifies that each facility involved in the production, manufacture, processing, packaging, and holding of the food is in compliance with the food safety and security guidelines developed [by the FDA]; and

(2) ensures that appropriate safety and security controls are in place throughout the supply chain for such food.

It is unrealistic to expect that a U.S. importer is supposed to verify and ensure that the food it is importing was grown, processed, warehoused, and transported in compliance with some yet to be written FDA standards. A U.S. importer typically has no knowledge about or connection with the manufacturer of the food it desires to import. There is an international supply chain that may involve dozens of companies before the food arrives in the United States. In even a simple transaction, just think of the farmer, trucking company, food processor, canning company, warehouse, port terminal operator, and ship or airline that transports the food to the United States. To legally require a U.S. importer to certify, under penalty of criminal prosecution or a civil fine, to "ensure" everything about the food it imports that may have been produced months ago at a farm or factory overseas is expecting too much.

The proposed legislation has penalties that are just as outrageous. It provides that an individual who commits a violation may be assessed $50,000 for a single shipment, and up to $1,000,000 against a company for a single shipment of food. If the person commits a violation "knowingly" then the civil penalty for each such violation is huge - $100,000 in the case of an individual, and $7,500,000 against a company for a single shipment. If that is not harsh enough, the proposed legislation states that "each day during which the violation continues shall be considered to be a separate offense." In 2004, I wrote an article entitled Scrap the Bioterrorism Act, and those same arguments I made then apply today.

Food importers are not insurance companies, and simply cannot "ensure" that each any every person or company that previously grew, picked, processed, transported, warehoused, or had any contact with the food overseas complies with whatever regulations the FDA may issue as a result of what may become a new law. So, the next time your stomach is upset after eating a hot dog or hamburger with lettuce and tomato (says Jimmy Buffet) from your local restaurant, don't blame the lettuce or tomato grower in Mexico, or complain that U.S. Customs and FDA officials are not doing enough. Instead, consider whether the restaurant properly refrigerated or otherwise handled your food before serving it to you.

In a future blog post, I will discuss the FDA PREDICT (Predictive Risk-Based Evaluation for Dynamic Import Compliance Targeting) system which will soon be implemented to oversee imported food safety. That will really change things for the better without any new legislation from Washington, D.C.

U.S. Customs Seized My Merchandise: Now What?

Peter Quinter — Tue, 03 Nov 2009 06:43:17 -0500

Every day, U.S. Customs and Border Protection officers at the airports, seaports, and other border crossings, stop, examine, detain, and seize merchandise from both travelers and commercial cargo importers and exporters. The process of getting back your property can be a harrowing one fraught with bureaucratic delays. There is, fortunately, a set of rules that U.S. Customs must follow, and knowing those rules will give you an advantage.

Customs officers may examine cargo to look for illegal drugs, counterfeit merchandise, merchandise from a country with which the U.S. has an embargo, food or medical devices not approved by the FDA, or motorcycles not approved by the EPA, just to name a few examples.

While the cargo is being held by U.S. Customs, it is transferred to a Centralized Examination Station (CES) where the cargo is separated and intensively examined by Customs officers. U.S. Customs has 35 days from the date of arrival of the cargo in the United States to detain the merchandise for examination. See 19 CFR 151.16. During that period of time, it is the obligation of U.S. Customs to advise the importer, its customs broker, and/or customs attorney with an explanation for the detention. A written Detention Notice stating the specific reason for the detention should be issued by the U.S. Customs officer.

After 35 days, the Customs Regulations require that the cargo must be seized or released. Unfortunately, this is too often ignored. The problem is that U.S. Customs must rely upon other Federal agencies to give it advice whether a violation has occurred. For example, if a shipment of motorcycles is imported from China, but Customs suspects that they may not satisfy the Environmental Protection Administration (EPA) safety requirements, digital photographs and paperwork must be sent to EPA officials in Washington, D.C. for review and recommendation. The communication is not directly from the front line U.S. Customs officer to the EPA attorney. Instead, it will go through the chain of command which typically involves 5 sets of eyes and hands going up the chain and then down the chain. 35 days pass quickly with so many people handing off to each other. Hence, despite the 35 day requirement, a determination to release or seize may not be made for 60 or more days after being detained by Customs. Getting frustrated with or repeatedly calling a particular U.S. Customs officer may not be helpful as s/he may also be waiting for an answer from someone else. Knowing who to call and when is the key to successfully getting cargo released.

The customs attorney hired to assist the importer needs to know the internal procedures of U.S. Customs as well as the laws and regulations it enforces to identify who and when to speak to a Customs officer or other U.S. Government official. Getting involved early in the detention process is one of the best ways to assist Customs in identifying whether or not there is a violation, and avoiding a seizure or other negative action by U.S. Customs. For example, if the product is a suspected counterfeit, showing an Import Specialist the license from Bluetooth or Apple could avoid a lengthy, expensive, and totally unnecessary seizure process with U.S. Customs. Getting a Licensing Officer from the Bureau of Industry and Security (BIS) of the U.S. Department of Commerce in Washington, D.C. to speak directly with the U.S. Customs officer on the Anti-Terrorism Trade Enforcement Team (AT-TET) to clarify any suspected discrepancy in the terms of the export license could avoid an unnecessary seizure.

If a violation does occur, the merchandise will be seized by U.S. Customs. The merchandise is then transported by U.S. Customs from the CES to a Seized Property warehouse. The merchandise will remain in the warehouse until it is authorized to be released by Customs, and the warehouse is paid its storage fees.

Once the merchandise is seized, the file is forwarded by the U.S. Customs officer to the Fines, Penalties, and Forfeitures Office (FP&F). The FP&F paralegal reviews the file and prepares a formal, written Seizure Notice. The Seizure Notice is mailed to the alleged violator. My standard operating procedure is to notify FP&F of my representation of an importer or exporter whose goods have been seized by Customs so that the Seizure Notice is forwarded to me directly. The Seizure Notice will identify what and where the cargo was seized, as well as the legal basis for the seizure. See 19 CFR 162.31(b).

Once a Seizure Notice is received, the "violator" is provided 30 days to file a Petition with Customs. The Petition is the means by which the owner of the cargo may seek to persuade U.S. Customs to release the seized shipment. The Petition may argue that a violation did not really occur, or that there was a violation, however, there were mitigating factors in favor of releasing the cargo. The Petition should follow the guidelines set forth by U.S. Customs in 19 CFR Part 171. U.S. Customs also published a very helpful handbook about seizure case processing.

Eventually, U.S. Customs will either grant and release the seized merchandise, or deny the Petition and not release the seized merchandise. A Supplemental Petition or Offer in Compromise may then be submitted to U.S. Customs.

In summary, the administrative petition process with U.S. Customs can be a long one, however, there are a few key points to keep in mind:

1) Be as careful as possible to be sure imported merchandise complies with all relevant laws and regulations applicable to the particular product;

2) If U.S. Customs detains your products, contact a knowledgeable customs attorney or customs broker to actively demonstrate that there is no violation; and

3) If U.S. Customs seizes your products, make sure your customs attorney knows the policies, procedures, and practices of U.S. Customs to pursue the release of the merchandise.

New TSA Penalties and Procedures

Peter Quinter — Mon, 26 Oct 2009 11:35:13 -0500

Effective August 20, 2009, the new Transportation Security Administration (TSA) regulations increased the maximum amount of its monetary penalties against aircraft operators and freight forwarders/indirect air carriers (IACs) for violations of the Transportation Security Regulations. TSA also made significant change to its Investigative and Enforcement Procedures in 49 CFR Part 1503.

Following the tragic events of September 11, 2001, when the United States was attacked by terrorists, the U.S. Congress and President George Bush quickly passed the Aviation and Transportation Security Act of 2001 which created the Transportation Security Administration (TSA). The primary responsibilities of the TSA was to ensure the security of passengers and cargo in air transportation. Many responsibilities formerly handled by the Federal Aviation Administration (FAA) were transferred to the TSA. After moving from the U.S. Department of Transportation to the U.S. Department of Homeland Security, as part of the Homeland Security Act of 2002, the TSA had its first Administrator to lead the agency, and moved into its current physical headquarters office in Arlington, Virginia.

In a critical U.S. General Accountability Office report entitled "Aviation Security: Vulnerabilities and Potential Improvements for the Air Cargo System," dated December 2002, the GAO stated:

U.S. air carriers transport billions of tons of cargo each year in both passenger planes and all-cargo planes. Typically, about one-half of the hull of each passenger aircraft is filled with cargo. As a result, any vulnerabilities in the air cargo security system potentially threaten the entire air transport system. Numerous government and industry studies have identified vulnerabilities in the air cargo system. These vulnerabilities occur in the security procedures of some air carriers and freight forwarders and in possible tampering with freight at various hand-offs that occur from the point when cargo leaves a shipper to the point when it is loaded onto an aircraft. As a result, any weaknesses in this program could create security risks.

It was a serious and urgent challenge for the TSA to correct these weaknesses.

The Transportation Security Regulations, 49 CFR Parts 1500 to 1572, were issued on July 23, 2002, and implemented the various laws that created and outlined the functions and expanded powers of the TSA. Important operational regulations are Part 1542 (Airport Security), Part 1544 (Aircraft Operator Security), Part 1546 (Foreign Air Carrier Security), and Part 1548 (Indirect Air Carrier Security) whereby the TSA sets forth all the many new and comprehensive requirements that attempt to prevent any person, luggage, provisions, or cargo getting aboard an aircraft that could cause it to crash.

What is most important for this discussion is the amended TSA regulation at 49 CFR Part 1503 (Investigative and Enforcement Procedures) whereby the TSA describes how and when it may issue a monetary civil penalty against an airline or IAC (a.k.a. "freight forwarder") for a violation of the Transportation Security Regulations.

In the new TSA regulations, the TSA announced that certain penalties that previously were at a maximum of $25,000 per violation are now $27,500, and those that were at a maximum of $10,000 per violation are now $11,000. More importantly, the TSA announced: "TSA may assess a maximum penalty per case of $50,000 if the violation is committed by an individual or small business. TSA may assess a maximum penalty amount per case of $400,000 if the violation is committed by a person other than an individual or small business." Those are big numbers by any count in the airline and cargo transportation business.

Often, a monetary civil penalty is issued months after the violation actually occurred. Typically a TSA Inspector visits the airline or warehouse of an IAC unannounced to verify that it is complying with all of the relevant TSA regulations. If a violation is discovered, the TSA Inspector issues a Letter of Investigation (LOI) to the alleged violator, and allows 30 days for a written response. If the response is not forthcoming or is not satisfactory to the TSA Inspector, the case is referred to an attorney for TSA in its Office of Chief Counsel. The TSA attorneys are located at all major international airports in the United States.

The TSA attorney drafts a Notice of Proposed Civil Penalty against the alleged violator. The Notice describes the facts which supported the violation, identifies the statute, regulation, or order violated, and provides 30 days for the recipient of the letter to respond. Often, the letter is sent by certified mail to the President or CEO of the company, or to the TSA-designated security coordinator.

The airline operator, foreign air carrier, airport, IAC, or flight school that receives such a Notice has several options:

1) pay the penalty in full;

2) demand a hearing before an Administrative Law Judge;

3) plead that the individual or company does not have the money to pay the penalty;

4) write back to the TSA and attempt to persuade the TSA that the violation did not occur; or

5) request an informal conference with the TSA attorney identified in the Notice.

In my experience, it is best to meet with the TSA attorney who issued the letter as part of an informal conference. Informal conferences may be held by telephone or in person. If in person, I usually bring with me an officer of the company that allegedly violated the cited TSA regulations, a security manager, and perhaps another person who can describe the incident that led to the Notice and the corrective actions taken by the company. The meeting may take place in the TSA attorney's office or nearby conference room. Documentation is usually presented to the TSA attorney identifying and describing that the violation did not occur, or listing the mitigating factors to reduce the penalty if there was a violation.

The TSA attorney has the authority to settle the case at the informal conference, and many cases are settled at this time. Payment may be made to TSA by check, credit card or wire transfer within 60 days after receiving the Final Notice setting forth the agreement in writing from the TSA. If the case is not settled, the alleged violator may still demand a hearing before an Administrative Law Judge.

Another new and generally unknown policy of the TSA is its Voluntary Disclosure Program. The TSA has created something similar to what the U.S. Customs and Border Protection (CBP) and the Bureau of Industry and Security (BIS) have long had, and that is a formal voluntary disclosure program whereby if an apparent violation is disclosed to the TSA, then no penalty will be issued by the TSA. The requirements of receiving such an excellent benefit are: (1) the violation must have been inadvertent, (2) once discovered, the violation must have been promptly reported to the TSA, (3) the violation must have been immediately terminated once discovered, and (4) corrective action must have been taken or is being discussed. Please note that a voluntary disclosure cannot take place during an inspection by a TSA officer.

In conclusion, the TSA Investigative and Enforcement Procedure Regulations at 49 CFR Part 1503, as amended and effective August 20, 2009, are consistent with the other agencies within the Departments of Transportation, Commerce, and Homeland Security. The TSA Voluntary Disclosure Program provides more generous benefits to the violator than other Federal agencies. The TSA done a pretty good job in drafting and issuing regulations and then implementing them to address the GAO concerns stated in 2002. As a relatively new agency with new and changing regulations, the TSA seems much more interested in compliance with its security regulations than collecting money from the companies it regulates. And that's the way it should be.

For more information about this topic, cargo screening requirements, and TSA regulations and requirements generally, please attend the Air Cargo Security Summit taking place in Orlando, Florida, on October 27-28, at which I will be a guest speaker.