CIT Rules Express Consignment CHB Failed to Exercise Responsible Supervision, Control
In U.S. v. UPS Customhouse Brokerage, Inc., the Court of International Trade ruled against UPS on the issues of misclassification of electronic merchandise; the failure to exercise responsible supervision and control of its customs business as required by 19 USC 1641 ("the broker statute"); and on the number of violations found and the monetary penalties assessed.
Sign up for a free preview to unlock the rest of this article
If your job depends on informed compliance, you need International Trade Today. Delivered every business day and available any time online, only International Trade Today helps you stay current on the increasingly complex international trade regulatory environment.
Misclassification Despite Customs and UPS Efforts
The CIT ruled that UPS had repeatedly misclassified electronic merchandise under HTS 8473.30.9000 (Other), a 'basket' provision1 for parts and accessories of automated data processing (ADP) machines that contain a cathode-ray tube (CRT).
In 1995, Customs had designated the communications industry as a Primary Focus Industry for its compliance measurement program, and over a number of years provided instructions and training to UPS and others on classification under this tariff number.
(Customs had also instructed the trade that 8473.30.9000 should almost never be used, and was a red flag to Customs to look at the entry.)
UPS engaged in internal compliance programs and training. However, as it was still misclassifying merchandise under HTS 8473.30.9000, UPS took the step of removing that tariff number from its electronic tape containing the entire HTS, which, along with further personnel training endeavors, resulted in a higher level of UPS compliance - 80% (from 55%) - when the national average compliance rate for express consignment carriers was only 65%.
CBP subsequently announced a new nationwide initiative directed at express consignment carriers to raise their compliance rate for HTS 8473 to 89% by 2000 and 95% by 2004.
UPS continued to remove 8473.30.9000 from subsequent electronic tape updates, until it forgot to do so with one update, and between January 10 and May 10, 2000, misclassified at least 42 entries under 8473.30.9000, which resulted in this action.
(Customs had decided that as a customs broker, UPS was responsible for the misclassifications, as opposed to the various importers of record, since UPS had been warned before and had received training on 8473.30.9000.)
Responsible Supervision and Control Not Limited to "Listed Factors"
The CIT also ruled that Custom's application of the broker penalty statute and associated regulations (19 CFR 111.1) was reasonable and as a result, should be deferred to.
As Customs determined that the ten 19 CFR 111.1 factors for considering whether responsible supervision and control existed were not exclusive, but only guidance to the agency and brokerage community, the CIT ruled that Customs may consider those factors, or look beyond them, as Customs did in this case, and consider the totality of the circumstances, on a case-by-case basis.
UPS Failed to Exercise "Supervision and Control"
The CIT also agreed with Customs that UPS' continued failure to remedy its shortcomings in 8473.30.9000 compliance after several years of identification, instruction, and warnings by Customs demonstrated by a preponderance of the evidence that UPS failed to exercise the control and supervision necessary to reasonably conduct its customs business.
Multiple Violations and Penalties
The CIT also deferred to Customs and agreed that UPS' misclassification in the 42 entries constitute multiple violations, rather than a single violation.
The CIT ruled that Customs may penalize a broker a maximum of $30,000 for any violation or violations of the statute in any one penalty notice, and adopted the penalties as calculated by CBP in the five penalty notices at issue (three $5,000 penalties and two $30,000 penalties, for a total of $75,000).
1 Also termed a "convenience" classification, as filers may use it to obtain release of the merchandise without determining its correct classification.
(See ITT's Online Archives or 09/20/07 news, 07092035, for BP summary of CIT's ruling that insufficient facts were presented. See ITT's Online Archives or 07/27/07 news, 07072730, for BP summary of CIT ruling that a trial was needed.
See ITT's Online Archives or 11/20/06 news, 06112015, for BP summary of CIT certification of interlocutory appeal (which was denied). See ITT's Online Archives or 09/15/06 news, 06091520, for BP summary of CIT's deference to Customs' interpretation of the statutory phrase "a monetary penalty not to exceed $30,000 in total for a violation or violations of" in 19 USC 1641(d)(2)(A).)
CIT Slip Op. 08-60, dated 05/28/08, available at http://www.cit.uscourts.gov/slip_op/Slip_op08/08-60.pdf