Customs and International Trade Law Blog : International Trade Lawyer & Attorney : Becker & Poliakoff Law Firm : Customs Law, Border Protection

How often do you think U.S. Customs and Border Protection (CBP) officials have heard an importer say, “. . . but I didn’t tell the manufacturer to put that trademark on there”? Ignorance may be bliss, but CBP will not accept that excuse as an acceptable reason to allow counterfeit merchandise to enter into the United States, or even allow it to move in-transit through the United States. This, however, is the often heard explanation when an importer does not do its due diligence.

There are a few steps every importer should take prior to doing business with a new manufacturer or importing into the United States a new product.

A reputable manufacturer should, and ultimately will, provide a sample. Inspect the sample thoroughly. If it is an electronic item, you may want to go as far as taking it apart to make sure that the inner workings do not contain any trademarks or logos or copyrights which either you did not request or the manufacturer is not licensed to produce. If your sample is different than the merchandise shipped, then you can at least say to CBP, “This is not what I ordered. I have a sample of what I was supposed to receive," and the correspondence with the manufacturer to support your claim. Even if you do not  get your merchandise back from CBP, it is important to understand that you may use your due diligence as a mitigating factor if and when you are fined by CBP.  Fines are routinely issued by CBP pursuant to 19 U.S.C. 1526(e) and equal the Manufactured Suggested Retail Price (MSRP).  Companies which or persons who get such fines may get them reduced by filing a Petition.  Knowing the factors that CBP considers when reviewing the Petition is critical.

Licensing agreements (on paper) can be falsely produced by anyone with a computer and printer. Just because a manufacturer shows you what appears to be a license while attending a reputable tradeshow, does not mean it’s valid.

Just keep the following in mind. Ask for a copy of the licensing agreement, and don’t take a manufacturer’s word that they have a license, verify. Obtain references or work with reputable manufacturers. Don’t think that you’re just getting a great deal, because if it’s too good to be true, then it probably is!  Many trademark and copyright owners maintain websites which list the approved companies authorized to manufacture products with the protected trademarks or copyrights.

And lastly, don’t think that you won’t get caught. Remember, it’s CBP’s job is to protect both you and the economy.  Counterfeits are not limited to cheap handbags at the flea market, but auto parts and aircraft parts,  and many more items that you would not want to be substituted (think medicines).

If a hold, detention, or worse yet, a seizure by CBP occurs at any port in the United States, an importer should promptly contact a customs attorney to file a Petition to attempt to persuade CBP to release the seized merchandise.  Common trademark and copyright counterfeiting is for Bluetooth, Microsoft, Intel, Apple, Underwriter's Laboratories (UL), and Tetris.  Petitions should contain specific information and attach certain types of documentation to convince CBP that it made an error in the initial seizure.  The Customs and International Trade Department attorneys of Becker & Poliakoff are very knowledgeable and experienced in these matters, and may assist companies with the process.   

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The past few days, I have been in Washington, D.C. meeting with several members of the U.S. House of Representatives to discuss issues of vital importance to the international trade community.  As part of the annual Government Affairs Conference (GAC) of the National Customs Brokers and Forwarders Association of America, Inc. (NCBFAA), I met with the highest level of the U.S. Customs and Border Protection, the Federal Maritime Commission, and spent an entire day on Capitol Hill.  The Representatives were interested in, and understood the importance of, international trade and the role of customs brokers and freight forwarders in that process.  We spent a lot of time talking about some of the details of the Trade Enforcement Act of 2009 (H.R. 496) and the Senate version's Customs Facilitation and Trade Enforcement Reauthorization Act of 2009 (S. 1631) which will hopefully re-balance the historical mission of U.S. Customs to regulate trade as much as it is to "secure the border".  We also discussed at length the Export Control Improvement Act (H.R. 3515).  The Food Safety Enhancement Act of 2009 that recently passed the House. (H.R. 2749) and exempts customs brokers from the onerous civil penalty provisions (up to $250,000 for inadvertent violations and $500,000 for knowing violations by importers) will still need to go to conference between the House and Senate versions, so that also was high on our list of priorities.  Just because imported food is determined by the FDA to be adulterated or contaminated and is refused entry into the United States should not result in a penalty against the customs broker who likely never even had possession of or saw the food.

Separately, most interesting was meeting with the Trade Counsel of the House Committee on Ways and Means and Staff Counsel for the Senate Finance Committee who were actually drafting the language to include in the Customs Reauthorization Act. Much discussion centered around Customs' delays in issuing detention notices to importers, Customs officers issuing defective and incomplete notices, delays by Customs in issuing formal Seizure Notices to importers, and the amount of time it sometimes takes Customs in making decisions on Petitions filed by importers, brokers, and lawyers in seizure cases.

In meeting with Robert (Bob) Jacksta, Deputy Assistant Commissioner for the Office of Field Operations, he stated that at this time U.S. Customs had 993 Import Specialists, and 21,000 CBP Officers (formerly called "Inspectors"). He stated there were 200 Importer Self-Assessment (ISA) members.  For C-TPAT, Mr. Jacksta stated there were about 9,400 certified members, which included 4,300 importers, 2,500 carriers, 811 customs brokers, , and 917 foreign manufacturers. Altogether, C-TPAT members comprised 51% of the value of imported merchandise into the United States.

Some very interesting statistics cited by Mr. Jacksta included a 4.6% marine cargo physical examination rate by Customs.  Also, the number of land border crossings by truckers with Mexico and Canada are down about 20% from a year ago.

I have noticed some new terminology recently used by both DHS and CBP officials. Both Daniel Baldwin, Assistant Commissioner, Office of International Trade, and Kimberly Marsho, Director, Office of Trade Relations, used the phrase "management by account".  Mr. Baldwin announced the creation of an Import Product Safety Center located in Washington, D.C., and staffed by CBP and U.S. Consumer Product Safety Commission (CPSC) personnel.  Ms. Marsho stated that the annual Customs Symposium would take place December 8-10, 2009, in Washington, D.C. at the Convention Center, and that an announcement would appear on the CBP website "in a couple of weeks".

Richard DiNucci, Director, Secure Freight Initiative, Office of Field Operations, CBP, who is leading CBP's Importer Security Filing initiative, commonly known as"10+2" or "ISF", reported that the compliance rate for ISF Filing is now over 95%, and that enforcement (i.e. penalties or liquidated damage claims) against importers will be issued starting in January 2010.  Most errors are invalid HTS numbers or invalid country codes. 1/3 of the ISF filers are C-TPAT members.

Finally, Kevin Delli-Colli, Acting Assistant Secretary for Export Enforcement with the Commerce Department's Bureau of Industry and Security, discussed the benefits of filing a voluntary self-disclosure (VSD) with the BIS to avoid the $250,000 penalties assessed against companies and individuals who violate the export controls laws and Export Administration Regulations (EAR) of the United States.  BIS is aggressively pursuing investigations and penalties against companies, and individuals, who do not obtain a license when required, or violate the terms of a license.  BIS penalties are now more often being assessed against international freight forwarders for aiding or abetting the illegal export of merchandise.

In summary, the GAC was an informative and rewarding experience.  The Florida Customs Brokers and Forwarders Association (FCBF), led by President Cari Cossio, and other NCBFAA Chapters from around the country, represented the international trade community well to our Congressional representatives. 

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Whenever you cross the border of the United States, you are subject to a border search. Borders include international airports and seaports, in addition to land crossings with Mexico and Canada.  U.S. Customs has authority to search persons and things that cross the border  - your car, your private yacht, your private jet, your luggage, and yes, even your mobile phone, laptop, and iPod.     In an August 27, 2009 press release, United States Department of Homeland Security (DHS) Secretary Janet Napolitano set forth some guidelines to the U.S. Customs and Border Protection (CBP)and to the U.S. Immigration and Customs Enforcement (ICE) about searching electronic media devices. 

The new guidelines are considered vital to DHS's mission in "detecting information that poses a serious harm to the United States, including terrorist plans... or possession of child pornography and trademark or copyright infringement."  Interestingly, the press release stated: "Between October 1, 2008 and August 11, 2009, CBP encountered more than 221 million travelers at U.S. ports of entry.  Approximately 1,000 laptop searches were performed in these instances - of those, just 46 were in-depth."  The DHS website provides examples of when the searches of electronic media devices resulted in arrests of individuals transporting the devices.

Civil libertarians have long been concerned about U.S. Customs' authority to search electronic media, considering it a possible invasion of privacy.  As one commentor publicly said to Secretary Napolitano "You and your government are paranoid!"  Sen. Feingold (D-WI) stated during 2008 Congressional hearings on this issue: "When the Government looks through the contents of your laptop, is that just like looking through the contents of a suitcase, car trunk, or purse? Or does it raise dignity and privacty interests that are more akin to an invasive search of the person, such that some individualized suspicion should be required before the search is conducted?"

Section 5.1.2 of the U.S. Customs Directive No. 3340-049 issued on August 20, 2009 states "In the course of a border search, with or without individualized suspicion, a Customs officer may examine any electronic device and may review and analyze the information [contained therein]."  And what about if the information is perfectly legal, but confidential, perhaps containing medical information, or sensitive business information.  No worries, says the Directive, it will remain confidential by Customs, and the information will be destroyed within 5 days thereafter.  Customs says it will keep statistics of such searches.

The concept of a border search is that no probable cause, or any cause whatsoever, is needed by the Customs officer to stop and search persons or things at the border.  That has been the law of the land since this country was founded and U.S. Customs was created.  To allay any such concerns, and to educate international travelers, DHS took the unprecedented step of simultaneously issuing a "Privacy Impact Statement".  This is a remarkable document.  Moreover, the electronic media device search policy will be monitored by DHS's Office of Privacy which is led by Chief Privacy Officer Mary Ellen Callahan.

 I wrote about this issue in the Customs and International Trade Bar Association's Spring 2008 newsletter.   I was also extensively quoted in the September 2008 PC Today magazine article "entitled "Notebook Search and Seizure: What Can Happen & What You Can Do".    The concerns I expressed in those articles remain.  I am encouraged by Secretary Napolitano's and Acting Customs' Commissioner Jay Ahern's approaches to this sensitive issue, and hope that the DHS' Office of Privacy and Inspector General both vigorously scrutinize the actual implementation of this new Directive. 

P.S. I still wonder, what happened with the people and laptops for the approximately 1,000 laptop searches that Customs performed this past year, and what does it mean that a laptop is searched "in-depth"?

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If your company ships hazardous materials (a/k/a "HAZMAT"), a single misstep could cause your business to incur hundreds of thousands of dollars in penalties.

In fact, every day HAZMAT shippers are slapped with penalties issued by the Federal Aviation Administration (FAA)--and the penalty amounts sometimes reach seven figures or more.  

If you think "well, I made only one mistake--I won't get caught," or if you think you can talk yourself out of getting a penalty like you do a speeding ticket, think again.  When the FAA investigates an incident and issues a penalty, you can bet what you think is just one violation will quickly become multiple violations. 

FAA regulations require proper marking, printing, labeling, describing, packing, and classifying HAZMAT. Also, there is another set of regulations for the training of employees and recordkeeping of shipments.  Understanding the FAA's policies and procedures in HAZMAT penalty cases is a necessary first step to mitigating what can be exorbitant penalties.

The FAA issues the penalties for violations of the Department of Transportation Hazardous Materials Regulations (HMR) found at 49 CFR Parts 171 to 185 pursuant to the Federal Hazardous Materials Transportation Law, 49 U.S.C. Sections 5101 to 5127.  The FAA penalties have increased from $10,000 to now $50,000 for each violation of the HMR that occurred after August 10, 2005.  It is common for the FAA to issue a penalty for hundreds of thousands of dollars against a company for illegally shipping, or even attempting to ship, a HAZMAT on an aircraft, including shipments provided to FedEx, UPS, or DHL.  Penalties are often issued against any shippers, including Fortune 500 companies and even foreign companies shipping cargo to the United States. Penalties may be issued by the FAA if the HAZMAT is not packaged, marked, classed, described, documented, or in condition for shipment as required by regulations. 

The FAA HAZMAT Penalty Procedures

The most common scenario occurs when an undeclared HAZMAT shipment is provided to an airline, and the airline reports the suspected violation to the FAA.  An FAA Special Agent with extensive experience in HAZMAT is immediately dispatched, and the Agent conducts an inspection and investigation of (a) the shipper, (2) the freight forwarder, and/or (3) the airline.  The Agent often interviews, and obtains written statements, from persons involved in the incident.  The Agent then submits a Report of Investigation to the nearest FAA legal office, called the Office of the Regional Counsel for review by its lawyers. The FAA lawyers then decide whether or not the violation should result in a written warning or a civil monetary penalty, and if so, what the amount of the penalty should be, and to which individual or company should the penalty be issued. 

The FAA attorney then formally issues a "Notice of Proposed Civil Penalty" against the company or person who shipped or attempted to ship the HAZMAT. The Notice is usually addressed to the President or CEO of the company, and it specifies the facts and circumstances of the violation, cites the applicable sections of the HMR, and concludes with a demand for payment of the civil penalty. 

The FAA offers the alleged violator some choices in a standard form attached to the Notice. Basically, your options are to (1) pay the penalty in full, (2) deny any violation and ask for a formal hearing, (3) make an offer of settlement, (4) ask for a telephonic and/or in-person informal conference with the FAA attorney to explain what happened and negotiate a lower, or no, penalty, or(5) allege financial inability to pay the penalty.  The form must be completed and returned to the FAA attorney within 30 days with the selection of one of the choices above, and officially identifying the name and contact information for the attorney representing the company which received the penalty from the FAA.

I have handled many FAA HAZMAT cases from all over the United States. I have also lectured extensively on the topic of "Mitigating Civil Penalties Issued by the FAA For HAZMAT Violations", including at the Dangerous Goods by Air 2001 Conference & Exhibition (February 14, 2001) sponsored by the International Air Transport Association (IATA), Keeping Dangerous Goods Safe in a Secure World (May 1, 2003) also sponsored by IATA, and Dangerous Goods Symposium for Instructors (November 9, 2006), sponsored by Labelmaster.

In the many cases that I have handled, I have always requested an informal conference with the FAA attorney.  Requesting a formal hearing before an Administrative Law Judge should only be used when the FAA attorney is completely unreasonable in negotiating a settlement when there is a violation.  The FAA has issued a FAQ for attorneys unfamiliar with the formal hearing process regulated by 14 CFR Part 13.  Informal conferences give the company an opportunity to explain to the FAA its version of what happened and why it happened, and to allow the company, through its attorney, to present mitigating factors to reduce what otherwise may be a huge penalty.

Good Arguments to the FAA

The FAA has certain criteria set forth at 14 CFR Section 13.16(c)  that it uses to evaluate the amount of a penalty. They generally are categorized as:

(1) the nature, circumstances, extent, and gravity of the violation;

(2) the degree of culpability, and history of prior violations, and the ability to pay; and

(3) "such other matters as justice may require".

What is not stated is perhaps more important, and that is what corrective action has been taken by the company to prevent a recurrence of a similar violation.  The extent and timing of such corrective action are significant factors in successfully mitigating penalties.  A violation that occurred because of reasonable reliance on incorrect information from another source may be another successful argument.  Companies should always seek mitigation pursuant to the Small Business Regulatory Enforcement Fairness Act (SBREFA).  Finally, companies should consult the current Hazardous Materials Sanction Guidance Matrix found at Appendix A to 49 CFR Part 107.

Bad Arguments to the FAA

The FAA assesses penalties against companies and persons who "knowingly" commit a HAZMAT violation.  Arguing that an employee of the company that illegally shipped the HAZMAT should not subject the company to the penalty is not a persuasive argument to the FAA attorney. Arguing that the airline did not know it had accepted the illegally shipped HAZMAT is equally unsuccessful because the FAA regulations require the shipper and the airline to exercise reasonable care, and therefore, it should have known that the shipment was an undeclared HAZMAT or has some other particular violation.

Concluding the FAA Case

After the informal conference has completed, and hopefully a reasonable settlement was achieved, the FAA attorney will issue a formal "Order Assessing Civil Penalty" which restates the agreed facts, the relevant sections of the HMR which the company admits to violating, and the amount of the agreed settlement penalty.   The penalty may be paid within 60 days to the FAA by electronic payment or paper check.

 Some Things to Remember

1.  Educate and regularly train employees on HAZMAT;

2.  Immediately get a knowledgeable attorney involved as soon as a HAZMAT incident occurs which could lead to an FAA investigation and penalty.  Communicating with the assigned Special Agent during the investigation, and then the attorney within the Office of Regional Counsel before the issuance of a penalty can be critical; and

3.  Take corrective action before the FAA issues its recommendations to do so.

With the penalties now $50,000 for each HAZMAT violation combined with more than 100 Special Agents within the FAA's Office of Hazardous Materials, and a priority of the FAA to enforce hazardous materials regulations, 2009 and 2010 are very likely to be record years for collection of penalties by the FAA.

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On September 9, 2009, the South Florida chapter of the Organization of Women in International Trade (OWIT) will host Ambassador Juan Miguel Gutierrez Tinoco, the Consul General of Mexico. This month, OWIT-South Florida’s focus is Mexico at our monthly luncheon. The luncheon will take place at the Sofitel Hotel from 11:30 to 1:00 p.m. I hope you make it!  Register here.

Did you know Mexico is the third largest trading partner of the United States? Mexico’s top import into South Florida is gold, up by 184.17% according to World City’s 2009 Miami Trade Numbers.

Save the Date!

Please save November 12, 2009, for our annual International Business Women of the Year (IBWOY) awards luncheon, honoring exemplary women in the South Florida international trade community.  While the details are being fine tuned, I can say that we are doing something different this year. Typically, we raise money for a scholarship for a university student.  However, this year, so many of us have been touched by cancer.  We recently lost Bunny Schreiber, a beacon in the South Florida trade community, and one of our own Board members is currently fighting cancer. Therefore, this year we would like to raise money for breast cancer awareness and will donate proceeds of our silent auction to the Susan G. Komen foundation. If you have any items you'd like to include in the auction, or are interested in sponsorship, please contact me.

I have to say, I personally have truly enjoyed being a Board member of OWIT for the past four years, and hope you too will get involved!  We'd love your feedback for future events, and would appreciate new faces on our committees!

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