To Bond or Not to Bond…

Entry Bonds, Liquidated Damages and 10+2

Roanoke Trade Services, Inc. presents

David F. Jordan, CHB, CPCU, CCS

Vice President, Surety Compliance & Liaison

Customs Bonds & 10+2

• Bonds/liquidated damages in 10+2 – If or when? – CBP consulted many trade groups when

planning• Did not mention bonds or LD

– Spoke only of “no-load messages”

• Did not consult sureties/surety associations whatsoever

– Many trade groups oppose bonding of ISFs• Some (including all sureties commenting)

oppose all bonds in 10+2 context• Some oppose bonding of filers only

– Why the opposition?• LD or any other monetary assessment does not

accomplish the purposes of the SAFE Port Act of 2006

– Keep dangerous materiel from our shores

• Can drive up bond costs & complicate underwriting

Customs Bonds & 10+2

In light of broad opposition, will bonds/LD be a part of the final

rules or will they not?

Customs Bonds & 10+2

• Questions/what to expect if CBP goes ahead and makes Customs Bonds part of 10+2– How will bond Activity Code 1 Continuous Bond

(CB) amounts be set?• Right now, LD exposure is not addressed in setting CB

amounts• Will the basic 10% formula be changed?• With or without value reporting in ISF, how will

sufficiency be determined?

Customs Bonds & 10+2

– How will bond Activity Code 1 Continuous Bond (CB) amounts be set? (Continued)

• What about “Importer” CB amounts vs. “Filer CB amounts?

• Will a CHB (or another type of “Filer”) have to report aggregate client values to establish the amount of its own “Filer Bond”?

Customs Bonds & 10+2

• What about STBs?– With new, additional, LD exposures, will the formulae

go up?

– If value is not part of ISF reporting, how will bond sufficiency be determined?

– Exactly how does a paper STB work with an Electronic ISF filing requirement?

• eBond presently scheduled for ACE/ESAR 3.4, some time in 2011

– Will STBs become too cumbersome to remain viable in the entry environment?

– What are CHB revenue implications if STBs go away?

Customs Bonds & 10+2

• Liquidated Damages (LD) – how much/ against whom?

– Consequence of violation – LD equal to “value” of goods

– As proposed, while the “Importer” is responsible for ISF, both bonds (“Importers” & “Filers”) contain precisely the same LD provisions

• Note that requirement of “Filer Bond” is new

– Proposed rules don’t spell out how decision to assess LD against one party vs. the other

– Proposed rules don’t preclude assessing LD against both

Customs Bonds & 10+2

• Whatever happened to “no-load” messages?

– Not mentioned in NPRM

– Nothing in NPRM says no-load messages many not be transmitted

– Nothing in NPRM guarantees that the transmission of a no-load message makes Importers or Filers “LD-proof”

Customs Bonds & 10+2

• Just who is the “Importer”?

– Per proposed 19 C.F.R. § 149.1(a), etc., “the party causing goods to arrive within the limits of a port in the United States”

• Will probably (usually) also be “importer of record” but how many other interpretations can there be?

– Could more than one entity meeting this description be liable for LD?

• What if CBP feels that a party other than the importer of record is culpable in some way?

Customs Bonds & 10+2

– What about mitigation guidelines?• Required by Omnibus Trade and Competitiveness Act of

1988, but cannot be published in advance of the rule to which they apply

– Will LD for simple clerical error be the same as for a fraudulent transmission?

– Penalties vs. LD• Activity Code 1 bonds do not now cover penalties – prime

example 19 U.S.C. § 1592(a)

• Even if CBP feels a monetary assessment scheme is needed in addition to no-load, un-bonded assessments would make more sense

Customs Bonds & 10+2

• Underwriting and rating implications

– Percentage of bonds (STB or CB) currently requiring surety/surety agent approval

– How will a surety/surety agent quickly/efficiently qualify “Importers”?

– If a surety/surety agent cannot underwrite each ocean importer, how will it cope with a significant increase in LD exposure?

Customs Bonds & 10+2

• Who will the filers be?

– Mostly CHBs, presumably

• What about the others?

– NCBFAA and others want restrictions

– How will non-CHBs be qualified?

Customs Bonds & 10+2

• How will this affect Carnets?– “Ocean only” for now, but what about later?

– Carnets that are ocean tend to be large, complicated moves (symphony orchestras, circuses, large shows, etc.)

• How difficult to come with all 10 elements (including HTSUS subheading to at least the six digit level)?

• By the way, is or isn’t classification “customs business”?

Customs Bonds & 10+2

• What about the “2” in 10+2?– Information under more direct control of Filers

(carriers)?– Fewer players– Activity Code 3 bonds (international carrier bonds)

already have penalty bonding provisions

Customs Bonds & 10+2

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