Canada: CBSA Revamps Customs Penalties

Last Updated: February 6 2008

Article by Greg Kanargelidis & Elysia Van Zeyl, © 2008, Blake, Cassels & Graydon LLP

Originally published in Blakes Bulletin on Blakes Bulletin on International Trade - February 2008.

The Canada Border Services Agency (CBSA) recently announced much-anticipated changes to the Administrative Monetary Penalty System (AMPS). The changes will result in a wholesale revamping of the existing AMPS penalty regime. While the current AMPS came into effect in October 2002, plans are in the works to essentially replace the existing rules with an entirely new and improved system which should be more acceptable to traders.

AMPS as an Incentive for Customs Compliance

AMPS is a comprehensive regime of sanctions intended to encourage compliance with trade and border legislation in Canada. Under this system, a monetary penalty can be assessed against any person who contravenes the Customs Act (the Act), the Regulations, the Customs Tariff or who breaches a term of a licence issued under the Act. AMPS penalties may be levied on importers, exporters, brokers, carriers and warehouse operators, up to a maximum of C$25,000 per instance. The penalties are intended to be corrective, rather than punitive.

The system uses a structure of graduated penalties, designed to reflect the severity and frequency of the contravention. Currently, there are 246 different contraventions, and these are listed in a document entitled the "Master Penalty Document". The Master Penalty Document contains the details of each contravention, including a "backgrounder" which sets out the manner in which each contravention will be addressed by the CBSA.

From a policy perspective, the introduction of AMPS was considered necessary for several reasons. The previous system for customs enforcement was perceived as outmoded and inflexible, with an over-reliance on seizures and ascertained forfeitures. Furthermore, increased adherence to the rules and classification structure in the Customs Tariff were essential for obtaining accuracy in the collection of trade statistics. Finally, a more accurate system for classifying and accounting for goods can be useful in developing appropriate trade policies and advantageous for international negotiations.

CBSA Review of AMPS

In late 2005, the CBSA initiated a review of the system in response to ongoing concerns raised by importers, exporters, customs brokers and CBSA staff. This review involved an examination of the complexity of the penalty structure, the number of penalties, ambiguities in the backgrounders and possible adaptations to accommodate stakeholder concerns regarding the operation of the system. As a result of this review, the CBSA has adopted a number of recommendations aimed at enhancing the system.

Refining the Number and Complexity of Contraventions

In addition to the overwhelming number of contraventions, it was felt that the penalties were unclear, overly complex and that there was a significant amount of duplication. In response to this concern, the CBSA has recommended that the current contraventions be collapsed and streamlined. The recommendations suggest the number of contraventions will decrease by 50% or more, and there will be increased clarity regarding what contraventions apply under certain circumstances. The CBSA will also be drafting new backgrounders pertaining to the modified contraventions. These new backgrounders will be drafted in plain language in an effort to ensure they are understandable to those without customs expertise. The new contraventions and penalty amounts will reflect a risk-based approach. Contraventions will be assessed on the risk associated with the potential harm of non-compliance (i.e., health, safety, security and prosperity). The penalty amounts associated with each contravention will also be anchored by a risk-based analysis.

Introduction of Third Party Liability

Of particular importance to brokers and other service providers, the recommendations highlight an intention on the part of the CBSA to seek legislative changes authorizing the application of penalties to third parties. This recommendation is in response to situations under the current system where broker-error has resulted in penalty assessments against clients. Although an evolving practice is for brokers to pay the penalties assessed against their clients, the penalty remains as part of the client’s compliance history. The current wording of the legislation does not permit the CBSA to levy penalties on parties that act on behalf of others with legal obligations under the customs legislation. Because the penalty remains as part of the client’s compliance history, it can lead to elevated sanctions against the client for any future instances of non-compliance. The intent behind this proposed revision to AMPS is to ensure that importers and exporters will not be adversely affected by contraventions for which they are not at fault.

The details of how third party liability will operate in practice have not yet been determined. There is speculation that a Notice of Penalty Assessment (NPA) will continue to be issued initially against an importer. However, when the third party voluntarily accepts responsibility for the error, the NPA will be "corrected" to list the name of that third party, rather than the importer. What remains to be seen is the process for resolving situations where both the third party and the importer deny liability for the non-compliance.

Volumetrics Pilot Tests

Due to a concern that certain importers, exporters and transporters are more vulnerable to AMPS because of the high volumes of customs documents prepared and calculations and declarations made, requests have been made for certain accommodations based on a high percentage of compliance. As a result of these requests, the CBSA will be exploring ways to introduce volumetrics in the AMPS to account for clients with exemplary compliance records. The volumetrics pilot test will take into account the rate of compliance, over a defined business period, relative to the total amount of trade activity. This should be welcome news particularly to couriers and other carriers.

Streamlining of Appeals Process

A measure that will provide some relief to those who have received an NPA under AMPS, is the CBSA’s recommendation for streamlining of the appeals process. This is in response to a concern amongst those affected that the timeframes between the NPA and a final decision were simply too long. This delay resulted in a financial impact for those affected where the penalty was upheld a significant amount of time after its issuance.

Certain timeframes established by legislation (e.g., a person who receives an NPA has 90 days to request redress review under section 129(1) of the Act) are unlikely to change. However, there will be an internal effort by the Recourse Directorate to speed up the timeframes associated with delivery of decisions by the CBSA and by the Minister.

Creation of a National Framework to Review AMPS Penalties

All customs regions in Canada originally had a committee to review AMPS penalties. However, concerns were raised that this decentralized system introduced the potential for inconsistencies between regions. Thus, the CBSA recommended the establishment of a National Framework. The National Framework will be used in all regions as a means of achieving consistency and accuracy in the review of AMPS penalties. Not every penalty will be reviewed pursuant to the National Framework. Further, the degree of review will depend on the level of risk associated with the penalty. The anticipated date for implementation of the National Framework is April 2008.

Publication of Quarterly Reports

Another one of the recommendations proposed by the CBSA is the publication of quarterly reports. These reports will be used to monitor, analyze and report the penalties assessed under AMPS. The reports will provide statistics, examine trends and make recommendations for future improvements. Public versions of these reports will be made available via the CBSA’s Web site. This is part of an effort by the CBSA to provide AMPS stakeholders with greater information. The first of these quarterly reports is expected to be published in April 2008.

Look For Changes in 2008

It will take time for the recommendations proposed by the CBSA to be fully implemented. A number of technological adaptations must be made to CBSA’s automated system in order to accommodate the new contraventions. Legislative changes, third party liability for example, will take some time to review and approve. Further study is necessary in some areas, the volumetrics test pilot for example, before a decision can be made as to the measure’s viability. It is expected that these changes will be rolled out starting in 2008 and extending into 2009.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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