Total penalties issued in the amount of $20 million to Ford for gross negligence and negligence.
The Court of International Trade addressed the need for companies to both establish and follow Customs compliance programs in two recent cases, U.S. v. Ford Motor Company, Slip Op. 05-86 and U.S. v. Ford Motor Company , Slip Op. 05-87. These harsh and costly decisions may send shivers down the spines of many importers as Ford was found grossly negligent in the first civil case and negligent in the second civil case with total penalties issued in the amount of $20 million.
Each case involved the car manufacturer's failure to report dutiable assists to Customs that were related to products the company imported into the U.S. in the late 1980's and early 1990's.
The first case, Slip Op 05-86, involved Ford's failure to declare to Customs some 204 engineering purchase orders that related to certain tooling and die equipment that the company had imported from Japan . This tooling and die equipment had been shipped to Michigan where a U.S. company, Ogihara America Corporation, related to the tool and die manufacturer, Ogihara Iron Works in Japan , performed stamping of panels for Ford. The tooling and die equipment had been drop shipped directly to Ogihara America with Ford acting as the importer of record for 11 entries of the equipment. The total value of the tooling and die equipment declared to Customs was approximately $63 million.
At the time of entry, the value declared was considered "provisional" by Ford as there were additional dutiable elements of the value, i.e. the 204 engineering purchase orders that were not part of the value declared at entry. The Court determined that Ford was grossly negligent in failing to report the engineering purchase orders and determined the penalty amount of $3 million. A finding of gross negligence resulted from the fact that the company had written procedures on how to process shipments with "provisional" values and they failed to follow such procedures. They also noted that the company had made "minimal efforts" to respond to Customs' Requests for Information concerning the values on the entries.
In their lengthy decision, the Court stated that "importers should not let their Customs obligations go to the wayside as Ford did here." Also, in issuing the penalty of $3 million they stated that "the penalty must be high enough to deter others from committing these Customs violations."
In the case of United States v. Ford Motor Company, Slip Op., 05-87, the Court of International Trade determined that Ford Motor was negligent for failing to declare millions of dollars worth of assists and indirect payments in entries of its vehicles and vehicle parts over a five year period. Based upon this finding, the Court issued a penalty at the maximum amount for negligence, two times the loss of revenue, i.e., $8.5 million, with the resulting amount of $17 million.
By background, in May, 1991, Customs had informed Ford that they were opening an investigation of the company concerning assists and indirect payments to foreign suppliers.
As a result of this, Ford commenced a thorough review of its import entries for the statutory five year period and tendered approximately $8 million to Customs based upon its duty calculations for the various assists and price adjustments paid to suppliers. Ford claimed that they should be afforded voluntary prior disclosure treatment but Customs denied it as they had already been advised that they were under formal investigation. The Court agreed with Customs on this point.
In this case, Ford offered evidence of the compliance measures the company had in place, including a compliance manual that had been reviewed by Customs. The Court noted these compliance measures but stated the following in determining whether or not the company was grossly negligent:
The compliance measures relieve Ford from gross negligence only if:
1. such mechanisms set forth procedures and guidelines that, if followed, ensured Ford's fulfillment of its statutory duties, and 2. Ford made a good faith effort to follow its internal compliance measures.
In the decision, the Court found that Ford had established the first criteria as Customs had positively reviewed its manual. However, they found that the evidence did not show that Ford had made a good faith effort to follow its internal compliance procedures. For this reason, they determined that Ford had not used reasonable care and were thus negligent. As the loss of revenue was determined to be $8.5 million, they issued a penalty in the amount of $17 million, or twice the loss of revenue.
What do these decisions mean to importers? First and foremost, companies must establish a Customs compliance program. According to the Court, if a company does not establish procedures and guidelines to ensure that it fulfills its statutory duties, it can be considered gross negligence. Secondly, when establishing a compliance program, ensure that the procedures are ones that employees will in fact be able to follow. Merely drafting a manual and posting it on the company's internal website will not fulfill the requirements and in fact will hurt the company if its determined that the company has not followed the procedures. Finally, once such a program has been established, it must be periodically reviewed and audited to ensure that the procedures are in fact being followed. Don't let what happened to Ford, happen to your company!