ILMA Compoundings February 2017 - 12

INDUSTRY RUNDOWN

International Insight
U.S. Customs' New
Audit Policy: Could
it Be a Checkmate in
Two Moves?
By James Eggenschwiler
Without much splash, U.S. Customs and Border Protection
(CBP) recently revised its approach in a way that garnered
little press. Its method involved refocusing existing resources
and methods that more efficiently identify discrepancies and
more easily catch importers off guard. The change: a mere
policy adjustment on audits that begins by CBP sending
"informed compliance letters" that strongly encourage importers to "proactively monitor" their compliance and reference
a list of Import Compliance Publication available at the CBP
website. This seemingly benign reminder, however, seems to
function like a harmless move of a knight into position - one
move away from placing the opponents' king in "check."

PRIOR PRACTICE
The primary method by CBP to date is the Focused Assessment
process. This is essentially an audit which is often preceded by a
lengthy questionnaire. While this method is particularly onerous,
its use as a primary step lowers the risk of its occurrence to the
average importer. There are two primary reasons for this.
The first reason is that the Focused Assessment must be
performed in conformity with Government Auditing Standards.
Known as the "Yellow Book," these standards impose the need for
significant resources to be applied to each engagement. A wide net
of details must be documented to fulfill requirements for objectivity,
fairness and reasonableness of the inquiries, the data gathered and
related findings - not to mention penalties. Appropriate consideration of all facts must be affirmatively demonstrated.

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The second reason is a natural consequence of the first: compliance with the Yellow Book naturally requires CBP to expend considerable resources of time, personnel and cash each time it selects
an importer for a Focused Assessment. The internal justification
criteria associated with this requires that CBP only pursues those
importers that promise the most valuable enforcement results -
either in terms of penalty value or precedent.

THE NEW POLICY
In response to this dilemma, CBP devised a new policy approach
that isolates specific entry-related infractions without conducting
a Focused Assessment. Instead of a formal "audit," CBP uses details
in the importer's Automated Commercial Environment (ACE)
account to identify potential weaknesses and compliance issues and
pursues an informal action plan that zeroes-in on the details and
confirms any related blemishes through what amount to litigation
discovery techniques.
Step One: In August 2016, importers began receiving the
informed compliance letters. The letters continue to be sent. They
are based on preliminary review by CBP staff of each recipient
company's ACE account. The point of this review is to glean
indications of potential inaccuracies and indiscretions on the part
of the importer during the import transaction process and related
recordkeeping.
The letters do not accuse of wrongdoing, nor do they necessarily
suggest specific details where problems are suspected. Instead, CBP
advises of the availability of compliance resources at its website and
strongly urges the importer to self-review and self-disclose. This latter point of self-reviewing and self-reporting ACE account entries
and details is the first move by CBP toward "checkmate."
Step Two: Following the letter, separated by an undetermined
time frame, CBP will contact the importer by phone or email
to conduct a Quick Response Audit/Audit Survey. This process
involves CBP's use of the importer's ACE account data and other
risk segmentation techniques to prepare a questionnaire (an audit
survey conducted by phone or email) concerning specific import
transactions, related methods of compliance and the function of
internal controls during that import process. The term "questionnaire" is a bit of a misnomer. Think witness stand. The answers

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ILMA Compoundings February 2017

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