It's common for importers to rely heavily on the services of their customs brokers. Customs brokers are knowledgeable professionals licensed by U.S. Customs and Border Protection ("CBP"). They are "plugged in" to CBP's computer systems, and get real-time updates on changes to regulations and practices. Brokers do a complicated job with precision and speed. But there's a limit to how much importers should rely on them.
IMPORTER OF RECORD
Under U.S. Customs laws and regulations, the importer of record (the actual owner or purchaser of the imported goods) is responsible for all aspects of compliance, including the correctness of entry information and the payment of duties. See 19 U.S.C. 1484(a)(1). In fact, your customs broker is merely your representative before the agency. It works much the same way as your tax return. Your accountant may prepare the return, but if extra taxes are owed, it's not your accountant who will be paying them.
Under Customs law, the penalty statute (19 U.S.C. 1592) is generally used against importers for false statements, acts, or omissions that affect compliance. (There are separate statutes generally covering brokers' conduct.) The importer also has specific recordkeeping responsibilities. Importers are required to keep customs records (entries, invoices, purchase orders, etc.) generally for five years. The penalties for not being able to produce these records are often greater than the penalties for negligence in making the entry.
As the importer of record, your company is the principal on the surety bond that is used to secure the entry of goods and payment of duties. If the duties are not paid, or if CBP finds that additional duties are owed, the importer of record, not the broker, is the responsible party. The insurance company that underwrites the bond will go to great lengths to make sure that the responsible party pays its debt.
SUPERVISION OF BROKERS
Because the importer is responsible for all aspects of compliance, it is incumbent on the importer to provide accurate information and answer any questions the broker has in service of preparing the entry. Given sparse or incomplete information, and given the time pressures facing all brokers, there is a natural tendency for brokers to do the best they can with the information available. This can result in imported goods being misclassified, merchandise value not being correctly declared, and customs violations occurring.
Customs brokerage is a competitive business, with a big emphasis on keeping the importer / customer happy. Pressures like these, along with insufficient supervision and communication from the importer, can lead the broker to err on the side of duty savings. For example, we've seen situations where brokers appear to automatically claim NAFTA preference on goods from Canada or Mexico, even if the importer didn't tell them to. NAFTA preference is not automatic; there are specific and complicated rules in play. Similarly, some brokers tend to use the duty free "U.S. Goods Returned" provision for merchandise returning from the U.S., even if the required documentation is not present.
These "favors" some brokers do for their importers are anything but favors! Duty free claims such as these increase the likelihood of Customs scrutiny of an importer, and if they were made incorrectly, they will subject the importer to bills for increased duties, as well as civil penalties under the fraud statute. Moreover, it's important to keep in mind that while most import transactions are paperless and are not subject to an in-depth review by CBP officials, during a Customs audit (or even a routine post-entry inquiry), the same transactions will be reviewed with a heightened level of scrutiny, and reviewed for complete adherence to regulatory requirements. Simply put, it's easy for the broker to err on the side of duty savings. But it's equally easy for CBP to question such activities, and even easier for them to issue bills for additional duties and to assess penalties.
Even if the broker is only trying to help you, they're human and can make mistakes. It's your responsibility as the importer to check their work. You can do this yourself, or hire someone to do it for you. Many brokerages have consulting operations that offer such services. It's best, however, to have the work checked by someone other than the person who initially performed the work. (And as you might expect a law firm to point out, only when such consulting and internal audit work is performed by a law firm is it protected under attorney-client privilege.)
Your customs broker is a valuable part of the team. But YOU must be part also.