You have read about the perceived cost of compliance and the ramifications of not being compliant for the last two weeks in our Your Broker Knows blog. This week it is time for some happy news! What are the returns of investing in compliant trading activities?
To answer this questions, we are interviewing some of our team members who have many stories to tell!
Q: Do you have an example of a company who endured a Customs audit without receiving penalties as a result of their trading activities?
A: A few years back we worked on behalf of a client who was importing a large capital project into Canada. We cleared the project as one unit under a provisional entry. This is permitted when each part of the import would not work without the other.
The components were arriving from multiple suppliers located in various countries, at multiple ports of entry by boat, airplane, and truck, over the course of three years.
For theses types of entries, Customs requires the importer, to keep exceptionally detailed and accurate entry records for each shipment in the entry. As we were the customs broker, we kept these records for the client. Once entirely imported, the shipment records were submitted to Customs for audit. This value of this project was over $265,000,000.00 CDN. You can imagine how many pieces this import was made up of! The client passed the audit with flying colors! There were no delays, penalty payments, or entry corrections necessary. It was a complete success.
Q: What compliant activities did this company conduct which resulted in such a successful result?
A: Accurate and detailed records and procedures! It's surprising how many importers can overlook this aspect of compliance, yet it's one of the biggest problem areas. In this example, it was the entry records. But non-existent operating procedure can lead to compliance issues.
One of our clients received a sizable penalty when the person normally in charge of filling out the customs documentation for each shipment went on vacation. The vacation relief was not trained in this area and had no procedure to follow. The only guide they had to follow was past entry documentation. They copied the information for a past entries invoice, replacing the piece count and value, for the shipment they were scheduled to import. It later turned out that the shipment they copied was for a different commodity. They had inadvertently used the wrong commodity description and tariff classification. This resulted in an inaccurate duty payment. The fine assessed to them was steep. So...records are super important! And pro tip: file them by transaction number as that is how Customs will ask for them.
Q: Customs motto of "know before you go" are words we repeat to our clients often. What does it mean to you?
A: Oh sheesh, yes we do say that a lot! Know before you go is the equivalent of looking before you leap (in my college's words). Who takes the jump before looking at where they will land?!?
We give a lot of credit to new importers who check import eligibility through preliminary research before they make a purchase. Their research is not just online; they reach out to other importers to understand the reality of importing. They call a customs broker or freight forwarder to get a checklist of what they should do before attempting to import. They try to understand all parts of their supply chain - who is responsible for what. There is also value in working with vendors who have experience. Far too many times we clear urgent shipments from new importers who are denied entry for not having done this research.
A client of my colleagues was importing produce from overseas and did not do this research. It turned out that the shipment required a phytosanitary certificate, which they did not have and could not get. Customs destroyed the 6 palettes of produce. It's costly! That client lost money on the purchase and shipping of that produce. A little research and a lot of conversation can avoid this.
Q: In all your years in this industry, what is the best story you've heard with regards to a client being compliant?
A: There is one back when I first started in this industry that I will always remember. I was getting trained in a seminar when this example came up. I had just learned that Canada Border Services Agency would accept voluntary disclosure of an incorrect entry, provided that they do not find the inaccuracy first.
If a new client had provided us a product database which had even one incorrect tariff, it could result in years of incorrect imports. Customs can look back 7 years, which could result in a lot of incorrect entries.
Now, there is not too much an importer can do as far as lost revenues because, in this example, they would have sold the imported product under the assumption that the import costs were far lower than what they should have been if the correct tariff was assigned and used for declaration. However, there would be an opportunity to disclose this error and make the corrections to Customs.
Clients who find errors should always report and correct them to avoid a penalty that could be a detriment to their business.
Q: If you could give an importer one compliance tip, what would it be any why?
A: Oh my...seriously...just one?! I'm going to give a few.
Do your research, educate your staff, choose vendors wisely, complete paperwork accurately, audit your broker, and maintain your records.