Contributing Lawyers

Canada

Cyndee Todgham Cherniak

United States

Susan Kohn Ross

Australia

Andrew Hudson



Well, it makes sense, sort of ---

Originally published in the Journal of Commerce - April 2010 -

At a recent trade association luncheon, a senior Customs manager from the Port of Los Angeles/Long Beach provided some statistics and background information about Customs operations. For fiscal year 2009, nationally, some 21.1 million containers were handled, 24.8 million entries were filed, 5.2 million cargo exams took place, plus 175,646 pest and soil agriculture inspections. 4.75 million pounds of narcotics were interdicted, 109.6 million conveyances were cleared, and 361.2 million passengers and pedestrians were processed and released. Additionally, there were 39,211 arrests.

To deal with potential risks, Customs relies on the oft described layered approach to security which includes advance information (24 hour, FAST, ISF), the National Targeting Centers, non-intrusive inspection equipment (including radiation portal monitors), CSI (where Customs is present at 58 ports which account for 86% of all the imported ocean cargo), C-TPAT and SFI. It is probably news to the Dept. of Energy, but SFI was reported to be focused on narcotics interdiction. The program is operational at Southampton, U.K.; Port Qasim, Karachi, Pakistan; Puerto Cortes, Honduras; Salalah, Oman; Busan, Korea and Hong Kong. As explained to the trade and our partner governments, SFI was supposedly focused on stopping weapons of mass destruction from coming into the U.S. Apparently, Customs equates stopping the flow of narcotics with national security.

At Los Angeles/Long Beach, with its 60 terminals and 147 berths, about 46% of the containers arrive, some 9.8 million boxes. The current statistic is a container moves in the Port every 7.4 seconds! $30.7 billion in duty was collected nationally, of which $7.7 billion was collected at Los Angeles/Long Beach.  One more interesting statistic is that of the $172 billion dollars worth of goods seized, $103 billion came from China. Any wonder China is at the top of everyone’s compliance headache list?

Nationally, Customs has a Business Resumption Plan. Should another event occur, whether national or regional, the first cargo to move will be that needed for national security. Next to move will be the cargo belonging to trusted cargo and trusted travelers. Such notices can be found at: www.cbp.gov/xp/cgov/trade/trade_outreach/bus_resumption/. Is there any better reason to join C-TPAT?

Against this backdrop, it is easy to understand and appreciate Customs’ constant vigilance. If there remains any question about possible threats, one need only consider the latest story circulating in the press about a Russian company which is offering for sale a cruise missile that fits into a 40’ shipping container. In order for the missile to operate properly, the container must be free on all sides, which means loading such a weapon on a standard container ship will not allow its proper operation. However, such containers could be put on smaller ships which means the “bad guys” have a better chance of really creating havoc. Imagine a vessel with such a device full of pirates off the coast of Somalia. What about such a weapon ending up in the hands of Al Qaeda? Both are horrifying thoughts. So far, no sale is reporting of this weapon, but can you imagine how much such a sale would complicate the operations of Customs, the Coast Guard and other maritime interests?

At the same time, in the face of all these good and noble actions, Customs can also be really boneheaded.  CBP has started a new trend. It is sending out Forms 1099-C, which are issued by a creditor to a debtor when a debt is forgiven. How could this possibly apply to a Customs transaction? Customs has apparently taken the position that if you settle a liquidated damages or penalty case for less than the face amount of the claim, the difference is a debt which is being forgiven and so generates income to the company. As a result, a 1099-C is issued. Tax attorneys and CPAs generally agree that Customs making a claim (through say a Notice of Liquidated Damages or Notice of Penalty) is far different than forgiving an agreed upon debt. One is an inflated claim (when measured against the published mitigation guidelines) and the other is an enforceable contract. Debt forgiveness is designed for just that – compromise of a debt, say a mortgage, a loan, or any other financial arrangement where the amount owed is set between the parties. None of those examples are comparable to what Customs is attempting to do here.

More information can be found on the IRS website at http://www.irs.gov/pub/irs-pdf/i1099ac.pdf. Could it be that Customs is hoping the trade will not fight this attempt to raise revenue? Guess again!

 

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