On June 3, President Trump signed an Executive Order (EO) titled “Strengthening Customs Enforcement.” The order mandates an increase in import enforcement through both agency action and legislation.
While much of the details will be clarified through the rulemaking process, there are several key actions and timelines worth noting, particularly as they relate to importer compliance, financial accountability, and bonding requirements.
The goals of the Executive Order (EO) include:
- Protecting national security
- Promoting lawful trade
- Ensuring timely collection of duties
- Modernizing systems and processes
- Bolstering compliance mechanisms
- Increasing transparency
- Protecting Americans and the domestic economy
What We Know So Far
Many of you have asked about the impact of the EO on customs bonds and what to expect.
A significant portion of the order will be subject to rulemaking. According to the White House Fact Sheet, the Department of Homeland Security (DHS) and Customs & Border Patrol (CBP) will engage stakeholders through the standard rulemaking process, giving affected parties an opportunity to adjust operations as needed.
That said, we can provide some initial observations, starting with a timeline of key actions.
Key Timeline & Required Actions:
Within 45 Days (July 18)
The Secretary of Homeland Security shall:
- In consultation with other relevant agencies, submit recommendations for legislation to strengthen customs enforcement.
Within 90 Days (September 1)
The Secretary of Homeland Security shall:
- Require submission of documentation previously provided by foreign importers to foreign customs authorities prior to exporting to the U.S.
- Expedite and enhance seizure and disposal of non-compliant imports.
- Revise mitigation standards, including:
- Establishing a minimum penalty floor of no less than 50% of the assessed penalty
- Establishing a minimum liquidated damages floor
- Eliminating mitigation for repeat offenders
Within 180 Days (November 30)
The Secretary of Homeland Security shall:
- Require IORs to maintain a minimum level of tangible U.S. assets, bonding, or both.
- Increase minimum bond coverage requirements.
- Require expanded IOR disclosures (ownership, business affiliations, assets, import volumes, etc.)
- Prohibit foreign IORs from filing informal entries.
- Prohibit foreign IOR use of continuous bonds unless compliance is demonstrated and they are either CTPAT-validated or use a CTPAT-validated customs broker.
- Require IORs to remain in good standing with CBP.
- Remove inactive IORs and implement risk-based tiering based on compliance history.
- Establish enhanced and recurrent vetting procedures across all import intermediaries, including foreign IORs and their affiliates, customs brokers, custodians of bonded merchandise, and freight forwarders.
Additional Mandates
Updated Definition: U.S. Importer of Record (IOR)
A U.S. IOR is defined as:
- A U.S. citizen/permanent resident or U.S.-organized entity.
- Maintaining its principal place of business in the U.S. at a physical location where significant business activity is conducted.
- Having controlling beneficial owner(s) who are U.S. citizens or lawful permanent residents, or, for entities, owning significant tangible assets in the U.S.
Impact on Customs Bonds
- More claims expected: Increased enforcement by CBP will likely lead to more frequent and larger claims against bonds. Time will tell what impact this will have, but once the rulemaking process begins, we will have a better ability to assess the magnitude of the impact.
- Stricter Underwriting: Increased claims activity will drive more stringent underwriting and will put upward pressure on rates.
- Mitigation Changes: A revision in mitigation standards will also create additional and potentially larger claims. On its face, the language of the EO regarding the new 50% mitigation floor appears to only apply to true penalties, while liquidated damages may be subject to a separately established “liquidated damages floor”. It is uncertain what that amount will be and whether it will apply to administrative matters like entries that are filed and paid late. It is also possible that CBP will determine that a single 50% standard should apply more broadly. This portion of the EO may not require rulemaking to be implemented. The ultimate impact will depend on the breadth of the application.
- Increased bond coverage: This is a certainty. The rulemaking process will clarify whether this means an increase in minimum bond limits, changes to the sufficiency formula, or both. It is also possible different bond requirements may apply across importer types (foreign IORs, new importers, higher risk companies, etc.)
- Single Entry Bond mandate: Foreign IORs who do not meet CBP qualifications and the CTPAT requirements will need to utilize single entry bonds. This will be difficult, as immediate stacking exposure will quickly increase with each entry, which will necessitate collateral.
- Industry Benefit: Efforts to eliminate shell importers, particularly those offshore who conceal their true identities, would benefit sureties, if successful. These importers have negatively impacted the industry and have caused significant claims activity.
What to Consider Now
Much of the above remains subject to rulemaking, and we will be able to assess more accurately once the rulemaking process beings. The mitigation guidelines will be particularly important to monitor.
As a precautionary measure:
- Immediately assess late entry filings and late payments.
- Work with clients and internal teams to reduce compliance gaps wherever possible.
Next Steps
We will provide additional updates as more information becomes available. In the meantime, if you have questions or would like assistance, please do not hesitate to contact your Avalon representative. You may also email us at letsconnect@avalonrisk.com.