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Handling Import Violations In A New Enforcement Era. ABA Section of International Law 2009 Spring Meeting. Panelists. Alan C. Cohen , Regulations and Rulings -- Penalties Branch, CBP, Department of Homeland Security Patricia M. McCarthy , Commercial Litigation Branch, Department of Justice

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Handling Import Violations In A New Enforcement Era


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    1. Handling Import Violations In A New Enforcement Era ABA Section of International Law 2009 Spring Meeting

    2. Panelists • Alan C. Cohen, Regulations and Rulings -- Penalties Branch, CBP, Department of Homeland Security • Patricia M. McCarthy, Commercial Litigation Branch, Department of Justice • David H. Laufman, Kelley Drye & Warren, LLP • Carol Fuchs, International Trade Counsel, Tyco International • Teresa M. Polino, Hogan & Hartson LLP • Geoffrey M. Goodale, Foley & Lardner LLP (Moderator)

    3. Hypothetical Fact Pattern • You are General Counsel of a large company. Your phone rings and the excited employee at one of your plants says: “This is the facility manager at the main plant. FBI and ICE agents have just burst in with a search warrant and said they are going to take our computers and documents, and they are asking our employees questions. What should we do?”

    4. What To Do When The Government Shows Up With A Search Warrant • The Government’s objectives • The Corporation’s Interests • Outside counsel’s perspective • In-house counsel’s perspective

    5. Surprise Government Visits • Be prepared: • Provide written guidelines • Designate contact person and alternate • When officials appear: • Ask for ID and any authorizing documents • Contact appropriate personnel, including Law Dept. or outside counsel

    6. Surprise Government Visits (cont.) • During the visit: • Treat officials with courtesy and professionalism • Meet in area separate from records; provide escort • Determine scope and negotiate “rules” • Follow legal guidance for answering questions and providing documents • Take notes: • Questions asked and responses provided • Employees interviewed • Documents reviewed/taken • BE TRUTHFUL - NEVER MISLEAD, DECEIVE OR LIE

    7. Surprise Government Visits (cont.) • Access to books and records: • Understand legal authority • Provide copies, if possible; keep inventory • DO NOT DESTROY, CONCEAL OR DELETE RECORDS • After the visit: • Prepare privileged memo to the Law Department • Mark as draft • Include only facts, not opinions or conclusions • Follow up with action items

    8. Reasonable Care • Requesting advice, prior to importation from recognized Customs expert • Providing full disclosure to expert of all facts and circumstances • Relying on the expert advice to file entry • Good faith, professional disagreement as to classification - not a violation

    9. Compliance Programs • Precluding enforcement problems • Evaluating program effectiveness • Benefits under the federal Sentencing Guidelines

    10. Customs Compliance Programs How Do You Know If You Have A Good One? • Tone at the top • Organizational structure and staffing • Supply chain, logistics, finance, tax, legal, other • Compliance v. operations • Geographical scope • Authority and seniority

    11. Customs Compliance Programs How Do You Know If You Have A Good One? (cont.) • Policies, internal controls and procedures • Use FA process as roadmap • Must be documented • Tools and templates • Automation • Training • Live sessions, webinars, on-line • Separate training for senior management, specialized topics • Interaction, e.g., quizzes, voting, games • Training records and centralized database

    12. Customs Compliance Programs How Do You Know If You Have A Good One? (cont.) • Audits and self-assessments • Risk assessments • Internal v. external resources; “peer review” • Detailed templates/checklists – but not too detailed • Reporting results and implementing corrective actions • Reporting violations • Anonymous or confidential “hotline” without retaliation • Voluntary disclosures to government

    13. Discovery Of A Violation What should a company do if an import violation is discovered? • Determine and implement corrective action if the violation is on-going • Conduct an internal investigation to determine cause, scope and effect of violation • Consider whether a prior disclosure should be filed

    14. Prior Disclosure – The Eight Step Program • Manner of address • Specify ports of entry • Define the scope of the Prior Disclosure • class or kind of merchandise involved in the disclosed violation • entry number(s) OR ports of entry and the approximate dates of entry • Provide the “What, How and When” of the violation – • What were the material false statements, omissions or acts involved in the disclosed violation • How these occurred • When these occurred

    15. Prior Disclosure – The Eight Step Program (cont.) • Provide the information or data that should have been provided in the entry • Calculate actual loss of duty covered by the prior disclosure and • Submit duties with Prior Disclosure OR • State that the duties will be tendered within 30 days of a request by Customs • Agree to provide unknown information within 30 days of your initial disclosure (Note: Extensions of this 30 day period are discretionary with the FP&F Officer) • Manner of filing

    16. Prior Disclosures19 U.S.C. 1592(c)(4) and 19 C.F.R. 162.74 • Disclose the circumstances of the violation: a) identify class/kind of goods; b) identify import; c) specify material falsities; d) provide true, accurate info/data • Before or without knowledge of commencement of formal investigation of violation (commencement document); and • Tenders actual loss of duties: at time of PD or within 30 days after written notification of loss calculation

    17. Prior Disclosures (cont.)CBP Forms 28 & 29’s • Creation of CBP Form 28 or 29 may serve as commencement of a “formal investigation,” depending on contents • Did import specialist have a reason to believe there has been a violation? • Does language communicate to importer that CBP suspects a violation? • Communicate that CBP is looking beyond the cited entry? • If content of CF 28/29 initiates a “formal investigation,” importer’s receipt creates presumption of knowledge

    18. Refusing To Waive Statute Of Limitations • 19 C.F.R. § 162.78(a): If less than one year remaining when prepenalty notice is issued, time to file a petition and have oral conference reduced to 7 business days • FP&F notifies Penalties Branch • 19 C.F.R. § 171.2(e): If less than 6 months remaining when penalty notice assessed – 7 business days to petition and have oral conference • 19 C.F.R. § 171.64: No supplemental petition if less than 1 year remaining • Chief Counsel and DOJ notified

    19. “Contesting” Penalties • Administrative process - 19 U.S.C. § 1592(b) • Prepenalty response – oral conference at port • Petition and oral conference at HQ • Oral conference – waived if not requested • 19 C.F.R. §§ 171.61 - 171.64 – supplemental petitions • If don’t like results, then do nothing. Government must sue and has burden of proof.

    20. Options In Dealing With A Final Civil Penalty Decision • Penalty is not self-executing – absent resolution, CBP refers matter to DOJ to bring enforcement action • Prior to referral: • Satisfy demand • Attempt to settle with CBP: Waiver of SOL • Bring affirmative action • But may not affect penalty decision even if classification challenge successful • “Trayco” gap allowing court of federal claims jurisdiction is narrow

    21. Options In Dealing With A Civil Penalty Decision • After referral: • Attempt to settle with DOJ • Waiver of SOL • Provide financial information informally if relevant to ability to pay • DOJ makes independent decision whether judgment is probable • If DOJ commences suit: • Agency penalty is reviewed denovo • Consider whether to waive attorney-client privilege if relevant to defense

    22. Notable Civil Penalty Cases • Ford Motor Co. I [463 F.3d 1267 (Fed. Cir. 2006)] • Ford Motor Co. II [463 F.3d 1286 (Fed. Cir. 2006)] • National Semiconductor Corp. [547 F.3d 1364 (Fed. Cir. 2008)] • Optrex America, Inc. [560 F. Supp. 2d 1326 (CIT 2008)] • Yuchius Morality Co. [26 CIT 1224 (2002)] • Tikal Distributing Corp. [970 F. Supp 1056 (CIT 1997)] • Brotherhood Int’l Corp. [294 F. Supp. 2d 1373 (CIT 2003)] • Bridalane Fashions, Inc. [32 F. Supp. 2d 466 (CIT 1998)] • Pentax Corp. [125 F.3d 1457 (Fed. Cir. 1997)] • Trayco, Inc. [994 F.2d 832 (Fed. Cir. 1993) ] • Forest Products Northwest, Inc. [453 F.3d 1355 (Fed. Cir. 2006)] 5722145

    23. Contact Information • Alan C. Cohen (202) 325-0062 alan.c.cohen@dhs.gov • Carol Fuchs (202) 350-6907 cfuchs@tyco.com • Geoffrey Goodale (202) 672-5341 ggoodale@foley.com • David Laufman (202) 342-8803 dlaufman@kelleydrye.com • Patricia McCarthy (202) 307-0164 Patricia.McCarthy@usdoj.gov • Terry Polino (202) 637-5616 tmpolino@hhlaw.com