New Penalties for False Drawback Claims

January 1999

On November 25, 1998, the Customs Service implemented a nationwide operational drawback "selectivity" program, as a first step in Customs' ability to assess penalties for the filing of false drawback claims. Drawback is the refund of duties (and in some cases taxes, HMT and MPF) paid on imported merchandise on the basis of subsequent exportation, or destruction, of articles connected to the imported merchandise. Any person who files a false drawback claim now may be fined. This is the first time Customs has been authorized to impose monetary penalties when someone fraudulently or negligently files a false drawback claim. Customs plans to structure drawback penalties into three categories according to the same levels of severity found in ordinary Customs penalties under 19 U.S.C. ) 1592: negligence, gross negligence, and fraud. Non-fraud violations will receive a warning, but repetitive problems and fraudulent claims will be punished. Penalties can be as high as three times the amount claimed and are the exclusive civil remedy for drawback violations. Regardless of whether a monetary fine is assessed, if the drawback violations have the effect of depriving the United States of revenue, Customs may require its restoration. Repetitive violations are subject to additional penalties.

To offer duty drawback claimants some safety from penalties for inadvertent errors, Customs has also instituted a voluntary Drawback Compliance Program. Once certified, participants in the program may avoid penalties for faulty claims, provided there is no evidence of fraud or repeated violations. Many companies have voiced concerns, however, that there is too little benefit to be drawn from the Compliance Program, and participation is expected to be small.

The new disciplinary authority granted to Customs makes duty drawback management critical. The penalties are substantial and can hurt a company if claims are filed incorrectly.