Canada: What To Expect When The CBSA Calls To Verify Canadian Customs Compliance

Last Updated: August 14 2019
Article by Cyndee Todgham Cherniak

The Canada Border Services Agency ("CBSA") conducts verifications (also known as audits) to verify that an importer of goods has complied with Canadian customs and import laws. Importers self-report relevant and detailed information about their imports either directly or through customs brokers on a B3 Canada Customs Form and other forms. The CBSA conducts verifications to ensure that the information provided is correct and that the importer has paid the correct amount of customs duties, excise duties, antidumping/countervailing duties and sales taxes.

There are 3 main types of verifications:

  1. valuation verifications;
  2. tariff classification verifications; and
  3. origin verifications.

All three types of verification follow a similar process or steps. The steps in a typical verification are:

  1. Pre-verification: The CBSA conducts these steps before the importer is contacted. The CBSA conducts a risk assessment and selects importers for audit randomly or on a targeted basis. The CBSA may have reviewed some of your transactions and may already believe that there is non-compliance (based on incomplete information);
  2. Initiation of verification: The CBSA assigned to the file will usually sends the importer a letter outlining the type of verification the CBSA plans to conduct, the period under review (could be a year) and asking for communications to begin. The CBSA may list transaction numbers and ask for complete information packages to be sent, including the B3 Customs Form, and B2 Adjustment Requests, the commercial invoice, the packing list, the shipping documents, proof of payment, any permits or licenses, etc.). The CBSA sometimes calls the importer to ask whether the letter was received and seeks a name of a person with whom the CBSA should direct all future correspondence. The CBSA communicates primarily by mail/courier, email and telephone;
  3. Questionnaires: Depending on the type of verification, the CBSA will send the importer a questionnaire (e.g., a valuation questionnaire, an origin questionnaire, a NAFTA verification questionnaire: tariff change; a NAFTA verification questionnaire – transaction method, a NAFTA verification questionnaire – net cost method, a Non-Resident Importer Systems Review Questionnaire) to complete and submit within 30 days;
  4. Questionnaire response: The importer will answer the questionnaire and provide detailed information to the CBSA. It is very important to put together a team and answer the questionnaire carefully. Anything you write can and will be used against you. Be as complete as possible. This a good opportunity to not only tell the CBSA that you are compliant with Canadian laws, you can show the CBSA you know your Canadian obligations and you have implemented policies and procedures to comply. If you are not sure what the CBSA wants when it asks certain questions or where are the legal pitfalls, hire Canadian legal counsel to help you provide the best answers possible;
  5. Review of questionnaire responses: The CBSA will review the questionnaire responses and ask follow-up questions in the form of a supplemental questionnaire. Review the follow up questions carefully because they contain hints as to what the CBSA is concerned about. It is very important to answer supplemental questions carefully and precisely. Provide back up information (e.g., documents, screen shots, diagrams, flow charts, etc.) to prove that you are compliant. If you are not sure what the CBSA is asking, hire Canadian legal counsel to help you provide the best answers possible;
  6. Site Visit: The CBSA will come to your business for a day, a week or longer to verify the information provided in the questionnaire response and any attachments and will select import transactions to review in greater detail. The CBSA often sends an agenda prior to the visit. The agenda can be very detailed setting out exactly what the CBSA officers wish to accomplish and receive or can be very vague. The site visit is another excellent opportunity to show the CBSA that the importer is compliance with Canadian customs and import laws. It is prudent to plan for the site visit ahead of time by reviewing all correspondence and documents provided to the CBSA, but also identifying what the importer wants to show the CBSA. During the site visit, a log should be maintained for all documents provided to the CBSA and copies of all documents should be duplicated for the importer's records. During the on site verification, a record should be maintained concerning questions asked by the CBSA and answers provided. Usually, during the last day of the site visit, the CBSA will provide a debrief if issues are identified;
  7. Follow-up: After the site visit, the CBSA may ask additional questions. The importer may also follow-up with the CBSA and provide additional documents requested during the site visit and relating to issue discussed during the site visit and debrief. Importers should take advantage of every opportunity to demonstrate compliance with Canadian customs and import laws or to get to the right result if issues are identified;
  8. Interim Report: The CBSA will issue an interim report with their preliminary findings and will give you 30 days or more to provide additional information or submissions about the legal positions that the CBSA plans to take. It is possible everything is fine and there is nothing that needs to be done. It is also possible that the CBSA will take the position that the importer is not compliant with customs laws and that the importer will have a significant liability. If the importer disagrees with the CBSA's interim report findings, they should write a response within the 30 day deadline or ask for an extension. It is less time consuming to correct misunderstandings before an assessment is printed by the CBSA. If you need legal counsel to help prepare a response based on legal principles and case law, get the help you need;
  9. Final Report: The CBSA will issue a final report and if non-compliance is found, the CBSA will ask the importer to self-correct within 90 days as the CBSA's Final Report is considered to be a "reason-to-believe" that the importer has made errors. The CBSA will provide details about the non-compliance and indicate the time period to be covered by the self-corrections;
  10. Self-Correction: The importer will be given 90 days to prepare and send to the CBSA auditor a B2 amend or blanket amend making all the corrections requested by the CBSA in the Final Report. It is important for the importer to obtain a FIRM report from the CBSA officer or through ATIP as quickly as possible. 90 days is not a long period of time. If the importer does not file the self-corrections (individual entries or a B2 blanket adjustment), the CBSA will issue higher penalties and impose interest. It is common for the importer to have questions during the self-correction process and lines of communication should remain open with the CBSA officer. If the self-correction is not correct, the CBSA officer can issue a higher level of administrative penalties for each incorrect entry;
  11. Detailed Adjustment Statement: The CBSA will review the B2 amends or B2 blanket adjustment and prepare a detailed adjustment statement indicating the amount of duties and taxes owed;
  12. Notice of Penalty Assessment: The CBSA will issue a Notice of Penalty Assessment for any administrative monetary penalties (AMPs") determined to be payable as a result of the non-compliance and issues that were identified during the verification;
  13. Appeals: If the importer disagrees with the decisions of the CBSA, the importer may file an appeal/appeals and/or a judicial review;
  14. Compliance Program: If the importer has identified non-compliance, the importer should take steps to address the CBSA's concerns for the future imports (even if the importer does not agree with the CBSA's Final Report). If the importer's non-compliance continues, the CBSA will issue AMPs at a higher penalty level (it gets more expensive). The CBSA officer may contact the importer again and conduct another verification to ensure that the past practices have been corrected. As a result, ongoing internal compliance audits are prudent.

There are other less common steps in a CBSA verification, such as the requirement for an advance ruling with respect to a specific legal issue.

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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