[Webinar] How to Handle a Claim on Your U.S. Customs Bond
Trade Risk Guaranty walks through the process of receiving a liquidated damages claim or a supplemental duty bill and how to handle a claim on your U.S. Customs bond.
Receiving a claim on your U.S. Customs Bond is a stressful process with the potential of costing a large sum of money to an importer. When an importer receives a claim on their bond for the first time, there is not a clear outline of what they should do next to resolve the claim.
In TRG’s latest webinar, we were joined by a member of our in-house claims team, Senior Bond Claims Specialist, Rachel Bauman, to lead importers through the best course of action when a claim is issued on your Customs Bond. In the webinar, Rachel covered the following topics:
- What are Liquidated Damages and what do they look like when issued?
- What to do when you receive a Liquidated Damage claim
- The top 4 causes of a Liquidated Damage claim
- What are Supplemental Duty Bills?
- How to handle a Supplemental Duty Bill when you receive one
For more insight into the process of entering goods into the United States, watch part 1 of this webinar: The Process of Liquidation and Entering Goods into the United States. Or check out our past blog post with an infographic illustrating the entry process: Importing in the United States: An Introduction.
Watch the Full Webinar About How to Handle a Claim on Your U.S. Customs Bond
View the Webinar Slides Below
— Trade Risk Guaranty (@TRG_Bond) September 29, 2017
Read the Full Transcript from the Webinar
Bond Claims Webinar Introduction
00:17 – I’m Nick Esposito, I’ll be your host today. I wear many hats here at TRG, but one of my favorite roles is that of an educator to both my fellow co-workers and you, my audience of importers, exporters, and other international trade professionals. Joining me today is Rachel Bauman who is TRG’s Senior Claims Specialist.
00:35 – This webinar is being presented by Trade Risk Guaranty Brokerage Services LLC or as we are commonly referred to as TRG. We’re located in the heart of downtown Bozeman, Montana. For those unfamiliar with Bozeman, Montana it’s nestled right above Yellowstone National Park in southwestern Montana. If you are ever in town don’t be shy! Stop on by the second floor of the historic Rocking R Bar building.
00:57 – Our direct-to-importer business model is unique to the Customs Bond and Cargo Insurance markets. We’ve grown our business over the last 25 years to encompass over 10,000 clients from all avenues of international trade. As an important disclaimer the information presented in this webinar is for information purposes only and is not intended and does not constitute legal advice.
01:17 – We will be recording this webinar and it will be available on YouTube for future reference. If you have any questions during the presentation, submit them via the questions section of the webinar interface. The questions will be reviewed and answered by myself or our team of licensed Customs Brokers at the end or shortly after the webinar. If you have any additional questions outside the webinar or if you’d like to be part of a community of trade professionals, join our Facebook group: International Trade Professionals – TRG. We regularly check the group for questions and encourage our members to start conversations amongst themselves if they have a common problem.
01:55 – All right, let’s pass the mic over to Rachel. Hi I’m Rachel! Today we are going to dive into two very important topics; Liquidated Damages and Supplemental Duties. This webinar will be focused on not just defining what these two things are, but also the process and timeline of how to handle these claims if and when they arise. If you have not had a chance to watch our previous webinar on the Process of Liquidation, I would highly encourage you to take a look at that or we also have a great blog post on the topic if you prefer that.
02:23 – We will begin today’s presentation with a brief look at the entry process timeline and how these types of claims fit into that. Then we will go into the timeline of a liquidated damages claim and discuss the most common causes for this type of penalty. Finally, we will get into the timeline of a supplemental duty bill and some best practices for when one is received by an importer.
What are Liquidated Damage Claims?
03:09 – So let’s take a quick look at where in the entry process these claims occur. So what are liquidated damages and when do they occur? Well despite their name, liquidated damages are actually issued as a result of the entry process and not as a result of the process of liquidation. Liquidated damages are predetermined penalties assessed against importers that have violated the conditions of their Customs bond. These penalties are issued by the port at which the violation occurred in the event an importer fails to adhere to the regulations set by CBP or the regulations set by other partner government agencies CBP enforces on behalf of. These are agencies such as the FDA, EPA, and so on.
03:53 – So let’s take a quick step back to explain Customs bond conditions. As we all know, in order to import into the United States you need to have a Customs bond on file with CBP. When an importer has a Customs bond in place they are agreeing to follow certain rules and regulations set forth by CBP. These are known as your Customs bond conditions. There are 13 conditions of a C1 US Customs Import Bond and every importer should be familiar with them. To read through them in full, refer to the Code of Federal Regulations; specifically, chapter 19 section 113 62. This can be found online using the link on your screen which we will also be sending out after this webinar. The eCFR can be pretty difficult to follow so we have a specific post on our company blog about the top 4 bond conditions that lead to claims which can be a great place to start.
04:37 – So when do liquidated damages occur? When an importer violates one of these conditions, a liquidated damage claim is received. Going back to the entry process we can see that liquidated damages are issued as a result of violations during the entry process and not during the process of liquidation.
04:58 – Now that we have defined what this type of claim is let’s dive into the timeline of receiving a liquidated damages claim and how an importer should proceed when one is issued. The timeline of a liquidated damages claim is relatively simple, at least when compared to other related timelines. When a liquidated damage claim is issued, an importer has 60 days from the issue date to resolve the claim.
05:20 – There are two ways to resolve these claims within that 60-day timeframe; to pay the claim or to petition it. Once an importer pays the claim Customs considers the case closed and resolved. However, if an importer believes a liquidated damages claim should not have been issued, they are able to petition the claim with Customs. When a petition is filed the 60-day due date is suspended until Customs issues a decision on the petition. A very important note on this timeline is that if an importer pays the liquidated damages claim, they forfeit the right to petition the claim. This differs from supplemental duty bills which we will be going over next. Therefore an importer must make a decision on how they will resolve the claim quickly so that proper steps can be taken within the 60-day timeframe.
What does a Liquidated Damage Claim Look Like?
06:34 – So this is the top half of 5955A form. Information to note on here is the case number in the upper right-hand corner. The first four digits of the case number are the year in which the case was issued, the second four or the next four numbers are the port code. So in this example that is for Newark. The body of the text which starts with ‘Demand is hereby made for payment of…’ details the violation.
07:04 – In this example, it includes when the entry was made when the entry documents and duty, taxes, and fees were due to Customs, how much was due to Customs, and how late it was submitted. The bottom portion of page one of a 5955A provides, primarily, details about the Customs bond. So when the bond was effective, the bond amount, the importer information, the surety information.
07:34 – The most important information on this part or on this portion of the 5955A is the paragraph that starts ‘If you feel there are extenuating circumstances…’ and this is where the contact information for the port is. This is where you would send payment or a petition. Also, the date on the bottom right-hand corner is the date that the case was issued. So the importer has 60 days from this date to resolve the case.
08:00 – Page two of a 5955A is not always included with the notice. It will contain the mitigated, or what’s often referred to as the Option One, the amount in the paragraph that starts ‘In accordance with part 172 of the Customs regulations…’. So in this example, the $104.00 is essentially the late payment penalty and that’s what’s due to be received by Customs within 60 days. And again, just as on the first page, the bottom portion of page two contains the same contact information and date information.
What are the Most Common Types of Liquidated Damage Claims?
08:50 – Number one is probably no surprise; non-payment. This is when an importer does not pay the duties, taxes, and fees due to Customs upon the entry of their goods. It is a violation of Customs bond condition 19 CFR 113.62(a): Agreement to Pay Duties, Taxes, and Charges. Customs will not mitigate the penalty until the estimated duties, taxes, and fees are paid.
09:13 – Number 2 is in violation of the same condition, a late payment. An importer must pay their duties, taxes, and fees within the time prescribed by law or regulation for most commodities. This is at the same time as they file their entry summary either at the time the goods are released if you have filed for immediate release or within 10 days of the release of the cargo.
09:35 – The third most common type of violation has to do with redelivery. In the event that CBP has conditionally release your goods from their custody, they have the right to demand redelivery. According to the conditions of your bond, the principal agrees to redeliver the merchandise to CBP in a timely manner. This is outlined in bond condition 19 CFR 113.62(d): Agreement to Redeliver Merchandise. If the goods are not returned in a timely manner or not returned at all, liquidated damages will be issued.
10:04 – Finally the fourth most common type of claim we see are violations of Temporary Import Bonds. TIB’s apply to goods that are being temporarily brought into the United States and then leaving without ever entering commerce. The most common example of this would be commodities brought in for a trade show. A temporary import under bond falls under a slightly different set of regulations and that’s actually 19 CFR 1039 and when these are violated a liquidated damages claim will also be issued.
What are Supplemental Duty Bills?
10:52 – Since this type of claim is a direct result of liquidation, which typically occurs within 314 days after the entry was made, it is not uncommon to receive a supplemental duty bill a year or more after the initial entry of the goods. This timeframe can be further extended if Customs has suspended or extended the liquidation of the entry.
11:12 – All right, now you have a better understanding of when a supplemental duty bill is issued. Now it’s time to go over the timeline for when an importer receives the supplemental duty bill. Before we do though I wanted to define a term we are going to be using as we go through the timeline and that term is ‘Demand on Surety’. A demand on surety is when Customs determines a bill issued to an importer will now also become a liability to the surety who issued the bond.
11:37 – The timeline for supplemental duty bills is vastly more complicated than the previous timeline for liquidated damages since there are many more due dates associated with this process. As an importer, you should know that many times a notice of a supplemental duty bill is first sent directly to your Customs Broker which at times results in the importer missing that it’s been sent at all. As far as Customs is concerned the start date for this timeline is when the claim is issued, not when the importer has received the invoice.
12:06 – Once a supplemental duty bill has been issued, interest begins to accrue after 30 days. This interest will continue to accrue at an annual rate of 4% every 30 days that the claim is not paid. If the claim has still not been resolved after 60 days, Customs will issue a formal demand to the surety. The importer of record or their broker or a trade attorney acting on their behalf has the right to protest the liquidation of the entry that resulted in a supplemental duty bill.
12:31 – A protest must be filed within 180 days of the liquidation of the entry. At TRG, our sureties have given until the 90-day mark to establish a plan of resolution. Now resolution can mean that the claim has been paid or that a plan of action has been communicated to the surety. If an importer plans to file a protest with Customs before the 180 day due date, they must communicate this with the surety so that the surety can be certain they do not neglect their obligation to Customs.
12:59 – As I just mentioned, the deadline to file protests with Customs is at 180 days and that is when the protest must be received by Customs, not postmarked and on the way. A protest by the importer will absolutely not be accepted at all after this date and the importer will be responsible for paying the original amount of the bill plus interest that has accrued.
What to do When You Receive a Supplemental Duty Bill?
13:39 – And here’s why; first off it takes the pressure off the surety completely. When you pay the claim, the surety knows that you have already satisfied your obligation with Customs. Meaning the demand to surety will not be issued at all. Now you can file your protest and only have to communicate with one party in the Customs bond contract; Customs themselves.
13:57 – A quick note here; remember that this is only the case with supplemental duty bills. Occasionally a liquidated damages claim will come with a penalty rate that is greater than what might actually be owed, so if you paid the claim immediately you may be overpaying CBP and once a liquidated damages claim is paid, you forfeit your right to petition.
14:21 – Secondly, unlike in the case of a liquidated damages claim, when the supplemental duty bill is paid, the importer is still able to file a protest within the 180-day timeline. All you have done is removed one of the parties, the surety, from the conversation. Also, payment of a supplemental duty bill does not imply that the importer agrees with the change in the liquidation of the entry that resulted in the bill.
14:41 – And finally,the biggest benefit of paying your claim immediately, is the interest. Not only will you not have to worry about the accruing interest on the outstanding payment, but the interest will actually accrue on the payment you made. Therefore, if a protest is decided in your favor, Customs will refund the original payment plus any interest that has accrued during the determination period.
14:58 – So in the event that you receive a supplemental duty bill, pay it immediately, filed a protest within 180-day timeframe, and the protest was decided in your favor after say… eight months. You would receive eight months of interest accrued at an annual rate of 4% every 30 days on top of your payment.
15:20 – The amount of time CBP takes to determine the outcome of a protest can greatly vary, in some cases taking years, so this interest can really add up against you if the bill is not paid upfront. So it may seem seem simple but truly the best way for you to protect your business from further loss is to pay a supplemental duty bill immediately upon receiving it.
How to Handle a Claim on Your U.S. Customs Bond Webinar Conclusion
15:52 – Alright, thanks for attending the webinar! We’ve got over 13,000 clients that we work with every day specifically discussing these complex topics and helping them navigate through the world of Customs. We’re an additional resource for them and their Customs broker and Freight Forwarder.
16:10 – So our model does help save time and money and our multi-year billing cycles are significantly less, usually, on the Customs bonds than what the average would be. Typically people are paying someone between $475 and $525 for their Customs bond and we’re down to $225 a year with our multi-year pricing on the 50k bond. You can continue to work with the broker or freight forwarder of your choice. And then our in-house claims assistants, Rachel and her team, also our other licensed Customs brokers are going to help you navigate any issues that come up along the way.
16:42 – If you do have any questions afterward, please reach out to either Rachel or me. My email is firstname.lastname@example.org. Rachel’s is email@example.com.
16:53 – Also check out our Facebook group International Trade Professionals – TRG and yeah I hope you liked it. Please reach out with any questions. Find us on Facebook, Twitter, Linkedin, Instagram. Thanks again!
Meredith Lambert • September 21, 2017
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