Failure to Maintain Records Leads to Duties and Penalties for Importer

Sep. 6, 2022
By: Pietro N. Bianchi

On August 26, 2022, CBP Headquarters released ruling H289595 involving a shoe importer (“Importer”) who allegedly employed “guesswork” in reporting the quantities and classification of merchandise in its entries and withdrawals from its bonded warehouse. While withdrawing merchandise to discontinue use of the bonded warehouse, Importer provided CBP with records that did not reflect its actual inventory. CBP determined that Importer could not rely on its records to file withdrawals, because those records failed to correspond to Importer’s actual physical inventory. Importer was eventually found liable to pay duties, taxes, and fees on all merchandise it imported and entered into its bonded warehouse, including merchandise that was improperly withdrawn or unaccounted for at liquidation.

According to the ruling, CBP Officers conducted multiple on-site compliance reviews prior to penalizing Importer. On May 4 and July 30, 2015, CBP conducted on-site compliance reviews of Importer’s bonded warehouse and identified ten regulatory violations that needed to be rectified to maintain the warehouse’s bonded status. After a September 29, 2015 compliance review, CBP determined that none of the ten regulatory violations had been rectified and noted “a major disconnect between how goods [we]reentered . . . into the warehouse, the personnel responsible for pulling the goods for [withdrawals], how the [inventory records were] updated as a result, and how the company communicates [] information to the broker.” Thereafter, Importer voluntarily suspend bonded warehouse operations and started withdrawing merchandise to empty out and then discontinue use of the warehouse. In September 2016, CBP conducted two compliance reviews with personnel specializing in textile and footwear classification and found that the regulatory violations previously identified still had not been rectified.

During these final reviews, Importer provided CBP with records indicating that the sole remaining merchandise from a protested entry were 3,596 pairs of shoes classified under HTS subheading 6402.99.7990. CBP did not find a single pair of shoes they believed were classifiable under that subheading. Instead, they found 1,225 pairs of shoes they believed were classifiable under subheading 6402.99.3115, and 963 pairs of shoes classifiable under subheading 6402.19.1520. CBP found these 2,188 pairs of shoes were unaccounted for in Importer’s inventory records. CBP instructed Importer to file withdrawals based on the actual physical inventory and not based on its records. Since Importer’s actual physical inventory did not match its records, CBP determined that Importer’s records were unreliable and explained Importer could not rely on its inventory records to file withdrawals.

Since Importer allegedly failed to rectify numerous violations of Customs Regulations concerning recordkeeping and handling of bonded merchandise, the Director found Importer had not rebutted the presumption of correctness accorded to CBP’s quantification and classification of the 2,188 pairs of shoes that remained unaccounted for in Importer’s final withdrawal and found Importer liable to pay duties, taxes, and fees on all merchandise it imported and entered into its bonded warehouse, including merchandise that was improperly withdrawn or unaccounted for at liquidation. Importers who intend to challenge any CBP compliance reviews need to have properly documented records and adequate procedures to succeed in asserting their claims.

If you have questions about the record keeping, procedures needed to maintain a bonded warehouse, or documentation of transactions do not hesitate to contact an attorney at Barnes Richardson, & Colburn LLP.