Article by Greg Kanargelidis, Blake, Cassels & Graydon LLP
Importers, brokers, carriers and warehouse operators have been subject to administrative monetary penalties (AMPS) for infractions of customs legislation and regulations, since October 7, 2002. AMPS imposes monetary penalties in proportion to the type, frequency, and severity of the infraction. Most penalties are graduated and take the compliance history of the trader into consideration.
The AMPS regime as originally implemented was subject to much criticism from the trade community, and the Canada Border Services Agency (CBSA) has responded by making numerous changes to the rules and procedures and also to the approximately 250 contraventions that may be assessed against traders. The AMPS regime has undergone many changes already and more changes are expected into the future. Given the constant tweaking and tinkering with the rules and contraventions, traders need to closely monitor the developments and evolution of the AMPS since the changes can have significant implications for importers and other traders.
The Six-Month Review
While amendments have been made regularly to the AMPS contraventions and to the CBSA’s "backgrounders" prepared for each contravention, the CBSA conducted a more formal Six-Month Review of the AMPS regime in 2003. A report was prepared which included a number of recommendations for changes. The report and recommendations were made public in February 2004. The recommendations have been arranged in three categories and the CBSA has announced an ambitious implementation schedule ranging from implementation within 6 months (i.e., by August 2004), within 6 – 18 months (i.e., by August 2005), and matters that are on-going.
Category One Recommendations
The Category 1 recommendations (i.e., those scheduled to have been completed by August 2004) have largely been implemented. The changes address many of the concerns and criticisms of the AMPS regime that were raised by industry. Certain issues remain unresolved. Changes of most concern to importers and traders include: the reduction of the penalty retention periods; cancellation of certain onerous contraventions; and maintenance of existing penalty reduction levels in the case of penalty reduction agreements. An issue not addressed to the satisfaction of industry is the elimination of the "whichever is greater" percentage of value penalties.
Penalty Retention Periods Reduced
The concept of penalty retention periods is necessary in order for the graduated penalty system to operate. Under the AMPS system, there are three penalty levels. A first assessment of a particular contravention is assessed at the first level, a second infraction at the second level, and the third and subsequent contraventions are assessed at the third penalty level. The AMPS regime originally called for a three year penalty retention period, meaning that a contravention would remain on a trader’s compliance history for 3 years before being erased. For large importers who invariably will incur contraventions from time to time, they would always be at the maximum (level 3) penalty level and this was perceived as punitive rather than corrective. The CBSA agreed and as a result the 3 year retention period was reduced to 1 year for all contraventions except those that apply in a compliance verification (audit) environment. This means that over 160 contraventions now have retention periods of only one year rather than three years.
Industry participants were also very critical of certain AMPS contraventions which were felt to be overly onerous. Chief among these was C003, which imposed a penalty for any errors in any of 9 data fields on the B3 Canada Customs Coding Form. The CBSA organized a Working Group to consider whether cancellation of C003 was warranted, and accepted the Working Group’s recommendation that this particular contravention be cancelled.
Penalty Reduction Agreements
Another recommendation that has already been implemented is the extension of the $1.00 for $1.00 penalty reduction available to traders who enter into a Penalty Reduction Agreement (PRA) with the CBSA. The original proposal was for the penalty reduction amount to be reduced to $0.50 for each $1.00 spent in improving systems. The PRA is a formal agreement between the CBSA and a trader which under certain conditions may reduce penalty amounts by $1.00 for each $1.00 invested in correcting systemic problems. The PRA is intended to operate as an incentive to invest in the correction of problems in a trader’s customs information systems. A PRA is potentially available where penalties assessed are $5,000 or more.
"Whichever is Greater" Penalty Stays
A suggestion by industry that was not accepted is the elimination of the "whichever is greater" penalty amounts. In this connection, certain of the penalty amounts assessed against traders are calculated as the greater of a flat amount (say, $100) or a percentage amount (say, 10% of the value for duty). As a result, the penalty actually assessed could end up being a very significant number depending on the value of the affected transaction. The CBSA reviewed those contraventions that included the "whichever is greater" formula and it was determined that no changes should be made and it is appropriate for the "greater of" formula to continue to apply.
Category 2 Recommendations
The Category 2 recommendations (i.e., those due to be implemented by August 2005) will serve to address additional criticisms by industry. These include: introduce volumetrics in the AMPS to account for clients with exemplary compliance records; and introduce penalties for suppliers and service providers that cause infractions.
The issue of volumetrics is raised by high volume importers. The argument is that these importers are exposed to more penalties than small volume importers on the theory that with more volume come more chances of inadvertent errors or other forms of non-compliance. The CBSA was encouraged to accept that total compliance for large volume importers is not possible and what is more appropriate is the adoption of a policy that would preclude penalties in cases where the importer has achieved a high rate of compliance in a specified period of time. The CBSA is seeking further input from industry on this issue and is considering further what changes to the AMPS regime can and should be made.
Third Party Liability
The AMPS regime results in most contraventions being assessed against importers rather than carriers, brokers, or warehouse operators. In fact, statistics show that up to October 2004, about 59% of all penalty assessments were made against importers. This is largely due to the fact that responsibility for compliance with Canada’s customs legislation rests with importers. However, it is also recognized that importers satisfy these obligations with the assistance of other traders such as licensed customs brokers and carriers. Where the contravention was caused by an error of the broker or carrier, it is unfair for the penalty to be assessed against the importer and for the contravention to be registered against the importer’s compliance history. There was general consensus as part of the Six-Month Review that third parties who are responsible for infractions should receive penalties, rather than the importer. As a result, the CBSA is considering this issue.
Category 3 Recommendations
The Category 3 recommendations provide for an ongoing review of AMPS contraventions with a view to improving the AMPS regime. A number of changes to the AMPS contraventions have been made since June 2004 and more are expected.
New C362 - General Export Permits
Contravention C315 is a contravention dealing with, among other things, the failure to properly complete an Export Declaration. The first level penalty is set at $1,000. This penalty was felt to be overly onerous where the sole infraction is the failure to indicate the General Export Permit number in the permit field of the Export Declaration (i.e., indicating that a formal export permit is not required). As a result, the CBSA has added new C362 to apply for errors of this nature, with a first level penalty set at $100.
C019 and C020 Cancelled - Failure to Report
In addition, C019 and C020 have been cancelled. These contraventions dealt with the failure to report imported goods. A number of problems were identified with these contraventions and there were concerns about the legal basis for their imposition. As a result, they have been cancelled and replaced with two new contraventions: C360 (for high value shipments) and C361 (for low value shipments). The new contraventions deal with situations where unreported goods are found during an examination based on a referral of the release request. Any C019 or C020 that have been appealed apparently are being cancelled by the Appeals Directorate.
Changes have also been made to several contraventions dealing with warehouses. In particular, C046, C047, C066 and C069 were amended to exclude reference to "sufferance warehouses" (they continue to apply only to customs bonded warehouses). The CBSA determined that a one year retention period only should apply to sufferance warehouse infractions; therefore, new C356, C357, C358 and C359 were added to deal only with sufferance warehouses.
Importers and other traders are still getting used to the new AMPS penalty regime. To its credit, the CBSA is working with industry and has demonstrated its willingness to make changes to the regime where changes are warranted. It is expected that the AMPS regime will continue to evolve for the foreseeable future. As a result, it is important for importers and other traders to continually monitor these changes and indeed, to bring to the attention of the CBSA any criticisms or suggestions that would serve to improve the AMPS regime and to further support its objective of encouraging compliance rather than being punitive.
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