CBP Liquidated Damages, Penalties, & Fines…oh my!

How to Avoid and Mitigate U.S. Customs Liquidated Damages and Penalties

Did you know that U.S. Customs can assess penalties up to 3x the value of goods if you fail to export or destroy FDA refused merchandise timely? On top of FDA compliance concerns associated with FDA detained and ultimately refused goods, numerous other costs including testing, storage fees, shipment delays, and more, it is important to avoid liquidated damage penalties by complying with the terms of the FDA refusal notice.

However, if you do receive a liquidated damage case, you are likely wondering what it is and what to do next. We’ll provide information here on how to tackle liquidated damages claims.

 

What is a U.S. Customs Liquidated Damages Claim, also known as Notice of Penalty or Liquidated Damages?

U.S. Customs may assess liquidated damages because an importer of record (IOR) or the IOR’s Licensed Customs Broker (LCB) did not satisfy one or more conditions of importation and/or the terms of the customs bond, such as the redelivery of merchandise.

One such example that we see often as it relates to FDA compliance is where CBP will issue a Notice of Redelivery following an FDA Refusal of Admission, which requires the IOR to export or destroy merchandise that is deemed violative of FDA regulations within 90 days of the date of FDA refusal. The FDA refusal means that FDA has determined that the shipment is misbranded or adulterated, and cannot be reconditioned. The agency issues an FDA refusal of admission, representing final agency action, and requires the shipment to be redelivered to U.S. Customs and exported or destroyed under FDA and/or Customs supervision.

If the IOR does not follow the specific guidelines established by U.S. Customs and FDA (or any other federal agency that has oversight over the product) or breaches the terms of the customs bond, Customs can assess a liquidated damages claim. This is usually issued from the port at which the violation occurred, and can be based on violations from other federal agencies (e.g. FDA, EPA, USDA). The liquidated damages claim or penalty is typically up to three times the entered value of the goods, or the value of the customs bond securing the import (e.g. \$50,000). By statute, CBP has authority to require bonds to ensure protection of revenue or to assure compliance with any provision of law that CBP is authorized to enforce.

As an update on notification procedures, CBP has advised that as part of a new FDA Refusal notification process, CBP will leverage the new ACE forms application for the issuance of the CBP Form 4647 Demand for Redelivery which will then be sent via the ACE portal (or mailed to the importer if the importer has not opted to receive forms electronically through the portal). A copy of the CBP form 4647 will also be emailed to FDA and the Customhouse Broker (broker) if the importer has not designated the broker to receive it via the ACE portal. CBP and FDA have advised that the issuance of the CBP form 4647 Demand for Redelivery via the ACE forms module will provide consistency and will allow trade users to view, respond and manage electronic versions of the forms.

 

How to Mitigate Liquidated Damage Penalties

While CBP is not required to grant relief in any specific case, a Company can submit a petition for relief from liquidated damages, which can include mitigation or cancellation of the penalty amount, usually within 60 days of the Notice of Penalty of Liquidated Damages.

This involves reviewing the specific facts and circumstances of each individual case and assessing whether CBP guidelines will support mitigation or cancellation of the penalty amount. With the assistance of legal counsel, a Company will identify and draft legal arguments for relief or cancellation of the penalty amount and file this petition with U.S. Customs. Typically, a Company has a few opportunities to submit a petition should prior ones be denied. However, it is important to present a robust initial petition to avoid additional delays and fees.

A Company can also seek an Offer-in-Compromise if the Petition(s) have been denied. This provides an opportunity for the Company to tender an amount to U.S. Customs to settle the case.

Garg Law has assisted many companies in mitigating and cancelling claims of liquidated damages, penalties, and negotiating settlements with U.S. Customs. For questions or assistance on navigating Notices of Penalty, Liquidated Damages Claims, or Offers-in-Compromise, please contact us at info@garg-law.com.