U.S. importers and exporters of any size aren’t immune from audits as the U.S. Customs and Border Protection (CBP) steps up enforcement of customs compliance. It’s not just fraud the CBP is looking to correct. Poor recordkeeping, mistakes, and uncorrected discrepancies in your import or export dealings—including myriad process or info gaps among trading partners—can result in fines while increasing your chance of a customs audit.

Mistakes in the customs process aren’t cheap. CBP can impose fines up to $10,000 per entry for recordkeeping infractions. Depending on the level of negligence found by CBP—whether negligence, gross negligence, or fraud—penalties on dutiable imports range from .5 to 8 times the value of the loss of duty. But CBP imposes the most penalties for infractions on non-dutiable, non-revenue items. Again, depending on the level of the violation, infractions on non-dutiable items range from 5 percent to 20 percent when negligence is found, on up to 50 percent to 80 percent of the value of the goods when fraud is involved.

The hidden costs of customs violations come steep: freight delays, lost productivity as staff researches the infraction, and potential loss of trade privileges. International shippers can take steps to minimize their risk for an unsuccessful audit by examining their trade transaction flows and processes. Here are common trade-related errors to avoid as identified by CBP during audits:

  1. Manufacturing Assists: Items supplied directly or indirectly and free of charge or at a reduced cost for use in connection with the merchandise. Examples are materials, components, tools, molds, and engineering or design work undertaken outside the United States. The cost of the assist is dutiable.
  2. Additions to Price Paid or Payable: Modifications to the price of the goods is very common in an import transaction. Issues such as missing or damaged cargo can lead to a reduction or addition to the price actually paid by the importer rather the price claimed at time of entry.
  3. Non-Dutiable Costs: Various costs that are not subject to duty payments. For instance, assembly and maintenance services after importation.
  4. Country of Origin: Just because something was shipped from a country doesn’t mean it was made there or that the importer can claim this exporting nation as the country of origin. Know the country of origin for products.
  5. Classification: Inaccurate product classification can lead to disastrous outcomes regarding import compliance. The incorrect use of special trade program terms is just one example. Special trade program eligibility is often predicated on the Harmonized Tariff Schedule (HTS) being applied to the goods.
  6. Free Trade Agreements: Wrong or inaccurate interpretation of special trade programs. Does the product really qualify? What means/processes and justification did the importer use to determine that the goods qualified? Do you have the proper documents on record at time of import to support this claim?
  7. HTS Chapters 9801 and 9802: Outlines the rules for re-importing goods of U.S. Origin. CBP requires tangible proof that the product was originally manufactured in the United States and that they were not advanced in any way while abroad. Not complying with the provisions of these chapters is an easy way to trip up in an audit.
  8. Related-Party Transactions: The price paid for a good when the buyer and seller are related parties. For example, a transfer price arrangement where the participants are part of the same organization.
  9. Recordkeeping: You are responsible for keeping trade transaction records for five years. Corporate guidelines should be followed. CBP audits for consistency and compliance.

Avoiding these deadly pitfalls only begins the conversation of best practices in trade compliance. For more guidelines to improve your trade-related processes that can lower your risk of a CBP audit or how to prepare for one, see the C.H. Robinson Worldwide white paper Get Ready for a Customs Audit.

Please take a moment to post questions or comments you may have.