One year later, ISF has unfinished business
Contrary to industry expectations, U.S. importers have experienced relatively little hardship since the U.S. government began requiring importers to transmit 10 data elements in advance of vessel loading for security screening purposes.
The smooth implementation so far is a byproduct of extensive outreach by U.S. Customs and collaboration with international shippers in the years leading up to the Jan. 26, 2010 enforcement date, which was preceded by a one-year dry run to help both sides familiarize themselves with a new system.
Although the Importer Security Filing has proven less disruptive than anticipated, especially with regard to postponed shipments due to incomplete data, there are still a number of latent issues that trade specialists want to iron out. The top item on their agenda is shortening the statute of limitations for ISF penalties.
Customs and Border Protection has received more than 7.7 million electronic ISF forms from importers since the start of full enforcement, acting program director John Jurgutis said at the Nov. 9 meeting of the Commercial Operations Advisory Committee.
More than 90 percent of shipments comply with the filing deadline — 24 hours prior to cargo loading on a vessel — compared with an 80 percent on-time filing rate last summer, he said. The advance filing enables CBP to run the data through its automated analytics system that matches shipment characteristics against criminal and terrorist risk factors, such as country of origin.
Only 2.5 percent of ISF forms are rejected for being inaccurate or incomplete, Jurgutis added.
CBP has eased anxiety in the trade community through its decision so far to not issue any liquidated damages for ISF violations, place indefinite holds on cargo until documentation is in order, or order non-compliant shipments from being loaded at the foreign port.
The agency originally said it would not start issuing damage claims associated with ISF filing mistakes until the fourth quarter of 2010. Liquidated damages is a Customs term that means an importer or its agent failed to meet the conditions of a bond, such as filing complete, accurate and timely documentation. They are technically different from penalties, which are issued in response to smuggling and other direct violations of law. The so-called ’10+2′ rule — the other two data streams are submitted by ocean carriers — allows for liquidated damages of $5,000 per violation, which could reach $10,000 on a shipment if amendments to the ISF are filed with errors.
Early on CBP simply issued warnings to importers with errors or shipments that arrived without an ISF. That posture quickly changed to one in which officers detain non-compliant containers for X-ray scans. The procedure adds time to the clearance process and the importer is subject to paying the cost of the scan, but is less onerous than other potential enforcement mechanisms.
The primary area of concern for industry representatives on COAC is the six-year window that CBP has under the law to find an ISF violation and issue damages. CBP officials have said they plan to deal with violations as quickly as possible and not comb through years-old records looking for administrative mistakes. They have suggested that the primary reason for the six-year window is in case the agency needs to show a track record of non-compliance by a serial violator of the rule rather than going after a company for an error on a specific ISF transaction.
‘CBP has been very clear that we don’t expect to keep going backwards to identify issues about compliance and levy liquidated damages,’ Jurgutis said. ‘Hopefully, everyone is judging us by our actions to date. We have not been going back and utilizing our ability to issue liquidated damages. That said, we always reserve the right, if certain companies purposely are trying to evade giving us this information, to take action.’
But trade compliance experts want to get that reassurance in writing, fearing that without bringing finality to the process their companies have an open liability hanging over them that impacts insurance or cash reserve plans.
Karen Lobdell, an international trade consultant on COAC, expressed disappointment at the lack of a compromise that would alleviate the ‘tremendous amount of exposure’ on importers. There is no security benefit, she said, to penalizing a company for a rule violation so long after the fact.
The surety bond industry, which acts as the guarantor of payments owed to CBP under import regulations, faces $300 billion of exposure on its books over six years, Colleen Clarke, vice president of surety at Roanoke Trade Services, said at the meeting. Insurance companies simply want a statement that CBP will not seek damages more than a year after an ISF is filed, she added.
Others have pointed out that delay in notifying companies of their violations means companies can continue making mistakes that otherwise could be corrected.
Meanwhile, CBP eventually plans to stop e-mailing ISF progress reports to importers or their customs brokers as soon as a database can be created for all parties to access their own information, Jurgutis said.
Progress reports are issued to ISF filers to help them identify compliance problems. The reports aggregate transactions to quantify how a filer is doing, but doesn’t specifically indicate the mistakes made on each form. CBP earlier acquiesced to industry requests and created reports in Excel format for companies in the Customs-Trade Partnership Against Terrorism’s top two tiers so they can manipulate the data within their computer systems for better analysis, but importers wanted the agency to go further so they can create more granular reports.
Jurgutis said the goal is for importers and their agents to access the data warehouse through the Automated Commercial Environment Web portal. ACE is the system being developed to process trade functions and handle communications between multiple agencies and the shipping public. ACE also allows importers to run reports on their customs data to better understand their entry and compliance history on a port, regional or national basis.
The ISF database will allow filers to extract the transactional data they need and customize reports, he said. The information will also be available on a more real-time basis, compared to weeks later, so companies can make sure they are compliant and avoid shipment delays.
‘The trade is very eager to get that information so that they can in turn make sure that they are compliant and that they are able to identify appropriate gaps in their processes and procedures to avoid any potential delays or penalties,’ Lobdell said.
The database, however, is contingent on further development of ACE, which has experienced chronic delays and has to first meet other priorities. Lobdell said the data warehouse will start as a separate system and eventually get pulled into ACE.
In a follow-up interview, she said CBP will soon test it on a trial basis with Tier 3 C-TPAT importers and gradually expand availability to more participants. Details about how and when all traders will have access to the database are still sketchy, she added.
She stressed that CBP shouldn’t terminate the periodic progress reports until all importers have access to the data warehouse.
The trade community would also like CBP to develop metrics showing what percentage of container examinations in ports are for ISF-related infractions versus other security or trade regulation issues to see how the rule is impacting the flow of trade, she said. ‘ Eric Kulisch
