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Heavy penalties for administrative errors under pending “AMPS” legislation.

	This article was prepared by Universal Logistics Inc. and published in the September 2001 issue of Woodworking magazine.

Can you imagine paying $25,000 – or more – for a simple clerical error? That is a very real possibility after October 29, 2001, the target date for implementation of Canada Customs and Revenue Agency’s (CCRA) Administrative Monetary Penalty System (AMPS).

The purpose of AMPS “is to encourage importers, exporters and service providers to comply with rules and regulations issued by the CCRA by imposing penalties to violators of the Customs Act and related legislation” says the CCRA. Make no mistake; this is serious business. AMPS will be a major enforcement tool for the CCRA, derived of warnings, monetary penalties and the ultimate penalty – loss of import privileges.

Monetary penalties will be issued against errors, including simple errors with no intent to defraud. This means that even the smallest of clerical errors may be subject to a penalty assessed on either a scale rate or a percentage of the shipment value, depending on the infraction involved.

The penalty list contains approximately 190 items – most are on a graduated scale, so they will escalate if the number of infractions increases. Infractions will remain on your customs profile for up to 3 years.

It’s clear AMPS represents a tremendous shift in the way the government views the entire customs process. Gone are the days of ignoring an error because it was not worth the time to fix, or it would take too long to review. Importers will now be placed under the microscope and all customs-related functions and information will be subject to scrutiny. Also, the CCRA is shifting away from transaction-by-transaction reviews and into full-blown audits.

What can you expect? Customs will select an importer and will send an audit team to perform a Compliance Verification Audit. The audit team will walk through your internal procedures and systems for handling foreign purchases starting with the P.O. and proceeding through commercial invoicing, customs entry, general ledgers, receiving reports and final payment to your vendor. They will address how the importer deals with issues such as royalty payments, valuation for transfer pricing in related companies, receiving shortages or overages, and how these are reported to Customs for duty, tax and statistical data.

What if you haven’t been audited before? It is just a matter of time. You will be audited and penalized if your company is not fully compliant with CCRA rules.

You should also know AMPS comes with the CCRA’s Reason to Believe clause. This means if you have reason to believe an error has occurred, you have a 90-day window for voluntary adjustment (not subject to penalty) with a four-year obligation period. However, Reason to Believe is not defined as the point in time you find out about an error. If a policy, ruling or regulation has been issued and published by the CCRA, then you are deemed to have Reason to Believe and your 90-day window starts from day one of AMPS implementation.

To avoid penalties, you must start paying attention to the customs entry submitted by your broker, your own receiving reports and payments by your accounting department. That’s vital because the CCRA is not just looking at the bottom line (duty and GST), they are also looking at every detail on the customs entry. For example, penalties could be applied failure to make corrections of origin, tariff or values; failure to have a Certificate of Origin in your possession when claiming preferential origin status; or failure to keep proper books and records for prescribed time limits.

Two examples of common areas of non-compliance, plus the corresponding penalty as provided in the most recent draft of the AMPS Master Penalty Document:

Example #1

If a valid NAFTA Certificate of Origin is not on hand when claiming preferential treatment, the AMPS penalty on a graduated basis per importer infraction will be:

Invalid Certificates of Origin are one of the largest areas of non-compliance. If you are claiming the benefits of reduced duty under North American Free Trade Agreement (NAFTA) regulations, then you must have a valid NAFTA Certificate of Origin on hand. Anything less is not an acceptable document for proof of origin for goods originating in Canada, USA or Mexico.

Example #2

If a cash discount has been applied to the value on an import entry, but the supplier’s invoice had not been paid in time to actually allow for the discount, the AMPS penalty on a graduated basis per importer infraction will be:

For example, if the shipment in question was machinery valued at $250,000.00 CDN and it was the 3^rd penalty infraction – that would translate into a $50,000.00 penalty – a huge financial setback for even large companies.

At a minimum, all importers should take the following steps to avoid penalty:

• Ensure that a valid Certificate of Origin is in your possession when claiming benefits of NAFTA.
• If you believe a declaration is incorrect, make the necessary corrections within 90 days.
• Include a compliance statement on all purchase orders to ensure that your suppliers are preparing documentation correctly.

The bottom line is that the onus for total compliance is now on you, the importer. To protect your interests, get assistance from your customs broker – the best source for the latest information on the rules and regulations of the CCRA and how they apply to your business.

Here are some ways to prepare your company for AMPS:

Review internal procedures. Is your customs department speaking to your receiving department? Is your accounting department speaking to your customs department? When the CCRA selects you for an audit, all three departments will be reviewed. The CCRA will look for a link between these departments to ensure that what was declared on your import entry matches what was actually received and paid for. They will also look for an internal linkage from purchase order to the receiving report, import entry and supplier payment as a control measure.

Ask questions. If you are unsure of a particular detail on a customs entry or a CCRA procedure, ask your customs broker. Remember: you will bear the brunt in the event of an error, so it pays to keep informed.

Obtain rulings. Request that your customs broker obtain National Customs Rulings (NCR) for your imported products. NCR’s are issued by the CCRA and are published and binding to create a level playing field for all importers of similar goods. If tariff classification of your imported product ever comes into question, you will have the security that comes with knowing it is covered by an official Customs issued ruling.

Create systems. Systems should be in place to check and double-check that all customs related information provided by your supplier and in-house departments (customs, receiving, accounting) is accurate and complete. For example, if you receive a shortage/overage of freight, or have taken a discount from the supplier’s invoice, your customs broker must be notified.

If you find that an adjustment is required, notify your customs broker and have them submit a voluntary adjustment on your behalf. The cost of a voluntary adjustment is a small price to pay for compliance compared to the penalty for non-compliance.

Remember: your level of compliance will be reviewed, sooner or later, through a Compliance Verification Audit or a Customs Assessment Review that covers your entire import system, from purchase order through to supplier payment. Get ready now to comply – or pay the penalty for your errors. It’s your choice.

Brian Rowe, General Manager – Customs and Consulting
Universal Logistics Inc.
Telephone: 905-882-4880
Email: browe@universallogistics.ca