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Recordkeeping requirements have been part of Customs regulations since the beginning of the Federal government. Over time, Congress and Customs and Border Protection (CBP) have modernized the requirements to meet the needs of the community and utilize modern technology. All importers should have a recordkeeping program to ensure every shipment meets the requirements. Failure to produce records to CBP can result in significant penalties.
Regulatory History
Recordkeeping requirements date back to the 1700s. Back in 1789 importers were required to provide Customs with two copies of their manifests, original bills of lading, and even swear an oath as to the accuracy of their records. Failure to produce records or take the oath would result in a fine of five hundred dollars. Even the people working on the ship, if they were unloading it illegally, would face forfeiture of the goods, a $400 fine, and their names would be published in the local State gazette.
Later, Congress put in place more stringent measures to ensure compliance. In 1863, the "Act to prevent and punish Frauds upon the Revenue, to provide for the certain and speedy Collection of Claims in Favor of the United States, and for other Purposes" began requiring three copies of invoices and penalties jumped to a maximum $5,000 for making fraudulent records or concealing/destroying them along with up to two years in prison.
Today, Customs may impose a penalty of up to $10,000 for negligent failure to comply, and up to $100,000 for willful failure to comply.
The A1A List
Significant changes to recordkeeping requirements occurred in 1993 with the passage of the Customs Modernization Act ("Mod Act"). The Mod Act amended various provisions of customs laws including granting CBP the authority not to require the presentation of records at the time of entry. However, in exchange for this revision, the Mod Act set forth special recordkeeping and production requirements for certain entry records identified by CBP in the "(a)(1)(A) list" (named after section 509(a)(1)(A) of the Tariff Act). Under the Mod Act, CBP is required to compile a list of all records required by law or regulation for the entry of merchandise and then publish the list.
If a record is on the "(a)(1)(A) list," importers must maintain the record and be able to produce it on demand.
How CBP Defines "Records"
The definition of records is found in 19 CFR Part 163.
"Records" means any information made or normally kept in the ordinary course of business which pertains to the following activities:
- Any importation, declaration or entry'
- The transportation or storage of merchandise carried or held under bond into or from the customs territory of the United States;
- The filing of a drawback claim;
- The completion and signature of a NAFTA export Certificate of Origin pursuant to Part 181;
- The collection and payment of fees and taxes to CBP; and
- Any other activity required to be undertaken pursuant to laws or regulations administered by CBP.
The term "records" includes, but is not limited to:
- Statements, declarations, documents;
- Electronically generated or machine readable data;
- Electronically stored or transmitted information or data;
- Books, papers, correspondence;
- Accounts, financial accounting data;
- Technical data; and
- Computer programs necessary to retrieve information in a usable form
Parties Subject to Recordkeeping Requirements
If an individual or business imports merchandise into the United States, they are subject to CBP's recordkeeping requirements. More specifically, the following persons are required to keep records and make them available to CBP:
An owner, importer, consignee, importer of record, entry filer or other person who:
- Imports merchandise into the customs territory of the United States;
- Files a drawback claim;
- Transports or stores merchandise carried or held under bond; or
- Knowingly cause the importation or transportation or storage of merchandise carried or held under bond into or from the customs territory of the United States;
- An agent of any person described above; or
- A person whose activities require the filing of a declaration or entry, or both.
Many importers mistakenly believe their brokers keep records on their behalf. While brokers do keep records, they have their own legal requirements for recordkeeping and it is not their responsibility to keep records for their customers. Additionally, a broker generally does not have access to internal business records that may be within scope of the recordkeeping requirement.
Recordkeeping Requirements
Importers should have plans in place to ensure compliance with the two primary recordkeeping requirements: retention time and method of storage.
Retention Requirements
As a general rule, any record as defined above must be kept for 5 years from the date of entry, if the record relates to an entry, or 5 years from the date of the activity which required creation of the record. There are several exceptions to this rule, including:
- Records relating to drawback claim must be retained until the third anniversary of the date of payment of the claim;
- Packing lists must be retained for a period of 60 calendar days from the end of the release or conditional release period, whichever is later, or, if demand for return to CBP custody ("redelivery") has been issued, for a period of 60 calendar days either from the date the goods are redelivered or from the date specified in the demand as the latest redelivery date if redelivery has not taken place;
- A consignee who is not the owner or purchaser and who appoints a customs broker shall keep records pertaining to merchandise covered by an informal entry for 2 years from the date of the informal entry;
- Records pertaining to articles that are admitted free of duty and tax pursuant to 19 U.S.C. §1321(a)(2) and 19 C.F.R.10.151-10.153 (importations not over $800) and carriers' records pertaining to manifested cargo that is exempt from entry under the provisions of 19 C.F.R. shall be kept for 2 years from the date of entry or other activity which required creation of the record; or
- If another provision of the CBP Regulations sets forth a different retention period for a specific type of record, the other provision controls.
Practice tip: Examples of CBP regulations that set forth a different retention period are records relating to liquidation and records relating to USMCA Certificates of Origin or written representation from the producer. There is a retention period of three years from liquidation for records of use or disposition for certain goods whose rate of duty is dependent upon actual use. All supporting records relating to USMCA Certificates of Origin for exports must be maintained for 5 years from the date the certificate was signed.
Storage Requirements
Importers must maintain original records, whether paper or electronic, unless they have adopted alternative storage methods as set forth in 19 C.F.R.§ 163.5.
Importers may maintain records in an alternative format if they give advance written notice of the alternative storage method to the Regulatory Audit, U.S. Customs and Border Protection. The Director of Regulatory Audit has the authority to instruct the importer that they may not be maintained in that alternative format.
The written notice must:
- Be provided at least 30 calendar days before implementation of the alternative storage method;
- Identify the type of alternative storage method to be used;
- State that the alternative storage method complies with CBP standards
CBP has set forth standards for alternative storage methods in 19 C.F.R.§ 163.5. Methods commonly used in standard business practice for storage of records will generally satisfy CBP requirements. Methods include, but are not limited to, machine readable data, CD ROM, and microfiche. The importer must be able to retrieve records requested within a reasonable amount of time and have adequate provisions in place to prevent alternation, destruction, or deterioration of the records.
Finally, when using alternative storage methods, the importer must have operational and written procedures in place to ensure that storage process preserves the integrity, readability, and security of the information contained in the original records.
Producing Records
CBP may require the production of records even if the records were required at the time of entry. If a Customs officer makes an oral demand for records, it must be followed by a written or electronic request. The entry records must be produced within 30 calendar days of receipt of the demand. If an importer encounters a problem in complying with the demand, they should notify CBP within the 30 days and request additional time.
Consequences for Failure to Keep and Produce Records
Pursuant to 19 C.F.R.§163.6, a willful failure to "maintain, store, or retrieve" records requested by Customs could cost the importer 75% of the value of the import or $100,000, whichever is less.
If an importer could not produce records as a result of negligence, it's the lesser of 40% the value of the import or $10,000.
If the shipment qualifies for a special duty rate (such as under a Free Trade Agreement) and the importer is unable to produce the associated records, the general duty rate will then apply.
Conclusion
Recordkeeping requirements are an essential part of an importer's duty of reasonable care. While the requirements may seem tedious, tracking down records when Customs requests them can cost significant time and money. A recordkeeping checklist can easily be incorporated into an existing post-entry check procedure.
Originally published by Bloomberg Law
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