This morning, both Peter Quinter and Melissa Groisman lectured before a group of 250 manufacturers and exporters in Bogota, Colombia to teach them the legal requirements of exporting to the United States under the very recently implemented US-Colombia Trade Promotion Agreement. The lecture focused on the customs procedures for accurately completing the Certificate of Origin and to evaluate how merchandise qualifies as "originating" to get the free trade benefits. The seminar was sponsored and hosted by the Colombian government's trade promotion agency, ProExport Colombia, and will be followed this week with more seminars in the cities of Cali, Medellin, and Barranquilla. For more details on the seminar series, visit http://www.gray-robinson.com/news.php?ACTION=view&ID=2097.
Melissa after giving her presentation.
Melissa and Peter taking questions from the audience
Ifyour 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 theInternational 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.
Comments or questions, click below, or contact me directly.
Peter Quinter, Partner in Charge, Customs and International Trade Law Group,
You may legally carry or mail any amount of money you want into or out of the United States, but if it is more than $10,000 at one time, you better first report it to U.S. Customs and Border Protection. Otherwise, you risk U.S. Customs taking it from you, and never getting it back. Why? Because your failure to report the international transportation of money is a violation of the Currency and Foreign Transaction Reporting Act.
All too often, I am contacted by a distraught American ciitizen or resident returning from a trip overseas, or a foreign visitor to the United States, who was unaware of the laws regarding currency reporting. The person was asked by a U.S. Customs officer upon arrival at the international airport if he or she was carrying over $10,000. When the passenger honestly answer "yes", or the U.S. Customs officer believes the passenger may be lying about the amount of money being transported, the passenger and his or her luggage are examined. If over $10,000 in monetary instruments, including travelers checks and U.S. or foreign money, is discovered, and the required form, FINCEN Form 105, has not been filed with U.S. Customs, all of the money is likely to be seized on the spot by U.S. Customs.
A formal Seizure Notice will eventualy be issued by U.S. Customs to the passenger, and the passenger may hire a customs attorney to pursue the administrative petition process to get the money (or most of it) back. Proof of the legitimate source of the money and proof of the legitimate intended use of the money are required in communicating with Customs. Eventually, after several months, Customs may return typically 90% of the money.
It is an expensive mistake to not report to U.S. Customs when either carrying, mailing, or receiving over $10,000 internationally. Please read U.S. Customs and Border Protection's "Currrency Reporting" flyer and look at theFINCEN Form 105 and its instructions before attempting to transport over $10,000. There are no customs duties, taxes or other fees paid to U.S. Customs for the international transportation of the money; it is merely a reporting requirement to U.S. Customs.
U.S. Customs and Border Protection's very successful Customs-Trade Partnership Against Terrorism (C-TPAT) program has over 12,000 members in the United States. Most C-TPAT members are importers and customs brokers, but also terminal operators and air and ocean carriers. If not getting your cargo examined at the port of entry by CBP or getting "front of line service" by CBP was not enough of an incentive to join C-TPAT, then here is a really good reason for multinational companies doing business in the United States and Europe.
The similar program in the European Union to the United States's C-TPAT is called "Authorized Economic Operator" (AEO). CBP and the European Union just signed a mutual recognition agreement so the benefits are mutual. A C-TPAT member in the United States gets the trade priveleges of an AEO in the European Union and vice versa. The intention of both programs is to secure the international supply chain, and with the Governments' limited resources, allow Customs officials to target non-member shipments arriving at the border which are considered higher risk.
The bottom line is that if a company was considering joining C-TPAT but was on the fence about its advantages versus disadvantages, there is now a big advantage if that same company has import or export cargo operations within the European Union. Put another way, it is a 2-for-1 deal.
Getting started to be a member of C-TPAT is easy. The application process for importers, customs brokers, air and ocean carriers is almost identical through the C-TPAT Security Link Portal Online Application. Yes, there are a lot of requirements, and some paperwork, and there will be a visit to your company by a CBP Security Supply Chain Specialist, plus some ongoing updates to the portal by your customs attorney or other consultant, but in the end, I believe the benefits are worth it.
The U.S. Food and Drug Administration (FDA) almost daily issues "Import Alerts". A recent one that affects many seafood importers was issued on May 1, 2012, is Import Alert #16-81, and is entitled "Detention Without Physical Examination of Seafood Products Due to the Presence of Salmonella." The Import Alert identified hundreds of specific companies from countries all over the world. Any seafood from those listed companies on the "Red List" will not be allowed to enter the United States, but instead be detained because of the suspected presence of salmonella pursuant to 21 USC 801(a)(3).
Fortunately, there is a procedure to clear the seafood through FDA for any automatically detained seafood, even if it is on the Red List. Although many people mistakenly believe that adulterated food may come from certain countries such as China, the truth is that there are hundreds of companies listed from countries including Korea, Japan, Thailand, India, Philippines, etc. An importer must establish to the FDA that the particular shipment of seafood has been tested using the Salmonella Analyses described in the Bacteriological Analytical Manual (BAM), 7th Edition (1992). Use of a private laboratory familiar with food testing for FDA import procedures must be contacted, and samples obtained, submitted, and analyzed by the food testing laboratory. A laboratory report must then be issued by the private laboratory to the FDA. Once the FDA laboratory reviews the report and determines that the particular shipment is not adulterated with salmonella, the FDA Compliance Officer at the local port where the food is being detained will authorize the release of the shipment through an FDA Notice of Action. Otherwise, the seafood will be "refused" by the FDA, and, within 90 days, must be destroyed under FDA supervision or exported from the United States under the supervision of the U.S. Customs and Border Protection (CBP). An attorney familiar with both CBP and FDA import procedures often works with the importer to coordinate the activities of the private laboratory with the local FDA Compliance Officer.
Moreover, there is a specific procedure for foreign suppliers identified on the Import Alert's Red List to be removed from detention without physical examination through a request to the FDA's Division of Import Operations and Policy (DIOP). That means that a foreign manufacturer or supplier of seafood can permanently get off the Red List so that the seafood it ships to the United States will automatically proceed through FDA without being detained and examined. The process may take several weeks to several months before the FDA issues a decision on the request for removal from the Red List.
The U.S. exported $14.3 billion in goods to Colombia last year and imported $23.1 billion, according to the U.S. Commerce Department. The trade deal, approved by the U.S. Congress in October of 2011, will add as much as $1.1 billion to U.S. exports when it takes full effect, according to estimates from the U.S. International Trade Commission.
On May 15th, over 80 percent of U.S. exports of consumer and industrial products to Colombia will become duty-free, including agricultural and construction equipment, building products, aircraft and parts, fertilizers, information technology equipment, medical scientific equipment, and wood. Also, immediately more than half of U.S. exports of agricultural commodities to Colombia will become duty-free, including wheat, barley, soybeans, high-quality beef, bacon, and almost all fruit and vegetable products.
Although Colombia has been a trading partner with the U.S. for years, the rules and requirements will change immediately for importers and exporters and those rules are extensive. Specifically, as in other Free Trade Agreements ("FTA"), gathering the appropriate documentation and maintaining the right records evidencing the country of origin of goods is critical in order to qualify for COTPApreferential treatment. A common mistake made by U.S. importers of Colombia goods is relying on the simple fact that a good is being exported from a Colombian company as evidence that a good is Colombian. This is not enough under COTPA's provisions and could expose you to detention and seizure of your goods and penalties and fines for your company from U.S. Customs and Border Protection. Be sure to contact a qualified professional to ensure compliance with these rules and requirements and start benefiting from the FTA as soon as possible.