Recent Trade & Tariff Perspectives

November 2, 2022  |  Amy Rose  Manager, Trade Policy

port official inspecting containers 
CBSA Culpability Framework and What It Means to Canadian Importers

The Canada Border Services Agency (CBSA) recently intensified its focus on trade compliance. In this article, we will explore why and how CBSA is working to improve importer compliance, and what importers can do now to prepare. 

Why is CBSA improving compliance?

As part of a routine government agency audit in 2017, then Auditor General of Canada Michael Ferguson released the office’s report on customs duties collection. According to the report, the CBSA was essentially unable to accurately assess customs duties owed to the government on goods coming into Canada. As the findings highlighted, the CBSA did not and could not examine or sample every shipment coming into Canada.

Rather, the agency relied on importers to voluntarily file complete and accurate import accounting documents. According to the report’s findings, this self-assessment system may have allowed importers to be non-compliant with import rules and regulations, and insufficient descriptions on documents or data filed made it impossible for the CBSA to determine if correct duties were being paid.

A clear need existed for better control over programs. For example, the Office of the Auditor General (OAG) found some quota goods, e.g., chicken and dairy products, that should incur high duty rates, as well as goods subject to antidumping or countervailing duties that were entering without paying those duties. The insufficient controls also affected other areas, including the duty relief program in which goods intended for export are allowed to enter duty-free, but require significant tracking and inventory management.

In addition, in the report, the OAG acknowledged the CBSA faced staffing and resource challenges, and recommended some resources be re-deployed for improved financial impact. The recommendations also noted the need for meaningful deterrents to underpaying duty and taxes.

While the Office of the Auditor General could not estimate the full scope of lost duty revenue, the office clearly highlighted the high risk of losses to the Government of Canada, and that actions needed to be taken to improve importer compliance.

The CBSA agreed with the OAG’s recommendations, and appears to be following the recommendations, including reallocating resources and increasing Administrative Monetary Penalties (AMPs), among other actions.

Let’s take a look at changes the CBSA is making.

CBSA actions to improve duty control

Under the “self-assessment” system the OAG noted, an importer bears the responsibility to accurately declare:

  • Value for Duty, i.e., the value upon which the duty rate is assessed
  • Harmonized System (HS) Classification, which determines the duty rate
  • Country of Origin, which determines preferential tariff treatments that may apply

Under Sec 32.2 of the Customs Act, importers have 90 days   to file a correction if they have reason to believe an error has been made (in fact, importers are required to self-correct back to the date of the specific information giving them reason to believe to a maximum of four years). Required corrections not filed within 90 days incur reassessments and AMPs.

This obligation applies where additional duty/taxes are due, and where the correction is revenue neutral, i.e., no additional duties or taxes are owed. So, where goods are misclassified, but the correct classification possesses the same duty rate, that is a required correction under section 32.2 of the Customs Act, even though no additional duty or taxes are assessed.

If an importer overpays, however, there is no legal requirement to file a duty refund claim. Interestingly, and perhaps not surprisingly, the OAG report highlighted that refund claims comprised the majority of corrections filed by importers.

The CBSA has long relied on the Trade Compliance Verification program—aka, a customs audit—to monitor an importer’s compliance with these requirements. The CBSA uses statistical sampling to select importers at random for a verification audit. The agency also keeps (and publishes) a Verification Priority List of goods and industries, which are targeted for HS classification and valuation audits, because the CBSA perceives them to be at high risk for duty underpayment.

Another important factor the CBSA considers is an importer’s compliance or non-compliance history—those who have a history of non-compliance are subject to further monitoring and other verification actions.

Partly in response to the 2017 auditor general’s report, the CBSA has been working on a Trade Culpability Framework, referenced in the CBSA Departmental Plan for Fiscal Year 2020-2021, to guide operational efforts to nudge, direct or enforce compliance based on the relative risk that importers and their transactions represent.

Monitoring tools to expedite enforcement

As part of this, the CBSA deployed three new tools to monitor and verify importer trade compliance:

  • A Trade Advisory Notice (TAN) is described as a "nudge" to provide the importers with guidance where there is potential non-compliance. A letter is sent to an importer requesting the importer review its import declaration and sometimes provides references to public resources for guidance.
  • A Compliance Validation Letter (CVL) will be issued in instances where the CBSA suspects non-compliance has occurred. The importer will receive a letter outlining the issue and requesting additional information be provided to the CBSA within 30 days for review.
  • A Directed Compliance Letter (DCL) targets instances of known non-compliance. In this case, the importer will receive a letter with a monetary assessment of the alleged   infraction. In some cases, such as instances of suspected fraud, a DCL may lead to prosecution.

Today, these nudges, directions and enforcements are delivered through traditional mail. However, they will eventually be transitioned to direct electronic delivery through the CARM Client Portal.

For reference, the Trade Compliance Verification program currently used generally assesses an importer’s compliance for the previous fiscal period. With these new tools, CBSA now has options and means to assess and address non-compliance much sooner. Benefitting from artificial intelligence (AI) and data analytics, the new compliance enforcement tools also require fewer CBSA human resources, especially when compared to a full audit, and will allow the agency to more easily and quickly address issues as they arise.

With the new tools, the CBSA will have a clearer view of an importer’s compliance record, and, thanks to the “nudge, direct, enforce” program, the importer will have a clearer view of where they stand in terms of trade compliance.

That said, the Trade Compliance Verification audits will continue to be used, too. The results of these new tools will provide CBSA with better data on who to invest the time and resources in for a full audit.

In other words, importers should expect to interact more frequently with the CBSA and in new ways.

Preparing for the stronger compliance measures

So, what should importers do today to prepare? Engage your broker to help build your HS database, review your valuation, and identify where you may have compliance gaps.

In our experience, HS audits are the most common type of verification. It is critical to have a classification database (where feasible) or a classification policy in place to ensure you are submitting classifications consistently. For example, if the CBSA determines your goods should be classified in one tariff item, and you’ve been classifying those goods all over the place, that makes it extremely difficult to identify what entries require correction.

Valuation audits are often extremely complex and time consuming for both importers and the CBSA. It may take two years before the final audit report is issued. Importers are cautioned to work now with their customs service provider to identify any potential gaps in compliance.

Finally, it’s imperative that importers review each customs entry for accuracy and completeness. You want to find any errors before the CBSA does. Even though an error discovered due to a nudge may not result in an AMPs penalty, your compliance scorecard will be affected. The CBSA is and will continue to track nudges and their results. Keep your compliance scorecard as clean as possible and reach out to one of our Trusted Advisor® experts when you need help.


Our information is compiled from a number of sources that to the best of our knowledge are accurate and correct. It is always the intent of our company to present accurate information. C.H. Robinson accepts no liability or responsibility for the information published herein.

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