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The Need
for Regulatory Defense
Combined
Transit Liability (CTL) Program
Understanding the regulatory requirements and exercising due
diligence in performing transactions with the U.S. Customs
and Border Protection (CBP) is crucial to avoid customs
fines and penalties for both brokers and importers. The cost
of legal defense and fines can be costly. In a recent case,
the U.S. Court of International Trade (CIT) held CBP can
issue and collect monetary penalties in excess of $30,000
under the broker statute 19 U.S.C. §
1641 for failure to exercise responsible supervision and
control regarding transactions with CBP.
The customs house broker (CHB) in this case failed to
correct 45 entries submitted to Customs despite Notices of
Action, warning letters and CBP training. As a result,
Customs assessed five penalties against The CHB totaling
$75,000. When the fines were not paid the Government filed
with the CIT an action to recover the amount. At issue was
the meaning of a phrase in the broker statute 19 U.S.C. §
1641 reading “a monetary penalty not to exceed $30,000 in
total for violations of the broker statute.” The CHB alleged
that the statute bars the government from collecting more
than a single penalty, not to exceed $30,000, for all
violations under Section 19 U.S.C. § 1641 preceding the
issuance of the pre-penalty notice.
The court noted that the statue was purposely vague on the
scope of the broker penalty and Custom’s interpretation
should be given “Chevron deference.” This means since
Customs construed and applied its statuary grant of
authority in a reasonable manner, a great amount of
deference is owed to an agency’s interpretation of its own
regulations. The CIT held its decision to allow the separate
broker penalties that totaled more than $30,000, even though
the underlying violation was the same for the various
entries involved. It’s possible that this case may be
appealed – which means additional legal fees for the broker.
This case clearly points out a need for Avalon’s Combined
Transit Liability (CTL) Policy that includes Regulatory
Defense.
Avalon’s Regulatory Defense coverage would assist a Customs
Broker who is in a similar situation. While the policy would
not pay the fine itself it is obvious that significant legal
expenses were incurred to defend this penalty since the
action proceeded to the Court of International Trade. The
Regulatory Defense coverage would have paid these legal fees
in full and without the application of a deductible if First
Dollar Defense was also purchased with the policy.
The CTL program combines Errors and Omissions (E&O)
insurance with Cargo Legal Liability insurance with optional
coverage. The optional coverage, Regulatory Defense, would
cover defense costs for fines and penalties assessed against
you by CBP and various government agencies for regulatory
violations. Along with Regulatory Defense other optional
coverage includes:
-
Worldwide
Coverage- covers legal defense if a lawsuit is filed
against you outside the U.S. or Canada.
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First
Dollar Defense- your deductible does not apply to
attorney fees to defend your claims above your
deductible.
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Special
Contracts – option to extend coverage for declared value
or increased liability
Find out more, select
CTL Policy or
application.
For further information, please contact Chris Wade, National
Accounts Manager in our CBU Department or Gale Lawton,
Surety Manager at Avalon’s corporate headquarters. Chris
Wade can be reached at 847-700-8180 or via e-mail at
cwade@avalonrisk.com. Gale Lawton can be reached at
847-700-8070 or via e-mail at
glawton@avalonrisk.com. Of course, please do not
hesitate to contact one of our nine regional offices
throughout the U.S. To view a directory of Avalon’s office
locations, please visit our Web site at
www.avalonrisk.com.
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