To PEA or not to PEA: Post-Entry Amendments vs. Prior Disclosures

If you are an importer or are involved in the importing business, you know that Post-entry Amendments (PEAs) are used to correct import data errors with US Customs and Border Protection (CBP).  From my perspective, PEAs are risky.  Customs (not CBP, but Customs, as it was known at the time) launched the PEA program eleven years ago.  It was a test program then and it remains a test program today.  It was to last for one year, but Customs extended the program several times.  Not only is it a test program, it is voluntary and CBP (the new Customs) has not issued any PEA regulations.  Yes, I know.  CBP has issued countless notices and instructions, but these are not the same as regulations. 

The PEA program is thus not a real program and importers are free to ignore it.

My last sentence is a bit of a farce, isn't it?  Importers are pretty much expected to participate, and they are doing so in growing numbers with never a thought as to the risks involved.  Why worry?  You file and pay electronically.  CBP is happy and importers are happy.

For all I know, there is an iPhone/Android app on the horizon.   

You may ask, who, except a persnickety Luddite, would have a problem when an otherwise cumbersome bureaucracy uses technology to cut through red tape?  Me.  While I may not exactly qualify as a Luddite (a group not known to blog), I confess that I am alarmed by government programs that lack safeguards.

PEAs are not the only CBP program that is both alluring and risky.

Take C-TPAT, for example.  It is a voluntary program from CBP of roughly the same age as PEAs, which means it’s been around for quite a bit.  And yet, there are no reported court cases interpreting C-TPAT.  If you helped as many companies with C-TPAT as I have, you know that the lack of case law cannot be attributed to elegant program design or user-friendliness.  CBP is not Apple.  More likely, the lack of litigation means that aggrieved parties find no statute or regulation to invoke in their defense.  CBP has huge discretion in deciding who to let in, at what level, and who to kick out.  What happens when CBP makes a mistake?  Sure, the program has an appeal process, but the ultimate arbiter is C-TPAT itself. 

I have a problem when federal programs assume that all the mistakes will be made only by citizens.  I also grow suspicious when a government program, like PEAs, never seems to grow past the “test” phase.  Dr. Phil might diagnose CBP as having commitment issues. 

CBP can penalize you if it does not like your PEAs?  CBP warned people of this potential when it launched the PEA test program eleven years ago.  In its Federal Register notice, CBP said,

"The test is open to all importers who elect to follow the procedures set forth in this document for correcting already filed entry summaries prior to liquidation.  However, a participant making and amending entries under these procedures will be subject to the usual penalties, liquidated damages, and other administrative sanctions for any Customs law violations."

Will CBP penalize you?  If so, when?  Always.  Never.  Sometimes.  Who knows.

The unbridled potential for penalties is why I prefer prior disclosures over PEAs, at least when an importer owes duties in any substantial amount.  Prior disclosures protect you against penalties and against overreaching by CBP.  More precisely, an importer is likely to see any penalty greatly reduced when it files a properly drafted and timely prior disclosure.  You may challenge CBP all the way to the Court of International Trade and beyond if necessary.  PEAs offer no protection and no such opportunity.  You are left to CBP’s whims.  

At this point, some people will say something like:  If you have nothing to hide, you should not mind PEAs.     

Here is my reply:  To a carpenter wielding a hammer, everything looks like a nail. 

In case this metaphor went over your head, the nail is the importer filing PEAs and the carpenter is CBP.  Wham!  I am not suggesting that CBP has an evil intent.  I am saying that it is an enforcement agency, built to collect duties and penalties.  It carries out this mandate automatically and instinctively (if it didn’t, taxpayers wouldn’t be getting their money’s worth). CBP and importers often disagree on what qualifies as a penalty or duty, and importers often win out through or because of the court system.  Even in there is no litigation, the threat of litigation keeps CBP honest.  The agency knows that it can be corrected by a superior, impartial authority, which explains why CBP loves when importers hire lawyers.

In case that last statement went over your heard, I was being snarky.  No government agency anywhere on earth likes to deal with attorneys, which explains and justifies the worth and merit of my fine profession.  It also explains why ours is the only profession mentioned in the US Constitution. 

But I digress.  

CBP should not complain when importers file prior disclosures instead of PEAs, and the agency should never, ever penalize an importer for doing so.  In its informed compliance publication on prior disclosures, CBP breathlessly exclaims: "The official policy of CBP is to encourage the submission of valid prior disclosures!"  Did you notice the exclamation mark?  It’s no minor flourish.  I can’t recall CBP or other government agency ever using an exclamation point.  It is as much out of character as an emoticon (like (:^)) and reflects CBP's official enthusiasm for prior disclosures.  CBP does not stop there.  It recognizes that the filing of voluntary disclosures is a mitigating factor for an importer facing a penalty.  CBP also dangles an enhanced voluntary disclosure procedure to entice importers to enlist in the Importer Self-Assessment (ISA) program.  

Unlike PEAs, voluntary prior disclosures are not a test program.  They are codified in real, made-in-the-USA regulations and statutes. 

Sometimes CBP says things like, "we do not penalize an importer for filing PEAs."  The funny thing is that CBP never reduces this promise to writing or regulation.  It certainly has never withdrawn its threat to penalize importers when they file PEAs.  Until the agency takes these steps, prior disclosures are often a better, safer option. 

Prior disclosures rock!!!! :-)

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