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The Importance of Understanding Bond Stacking

April 30, 2024 Zuleika Medina

stacks of money

Importing goods into the U.S. can be a complex process that requires attention to detail regarding customs regulations, tariffs, and compliance requirements. Understanding the responsibilities associated with importing goods is important in order to mitigate risks and unforeseen expenses. The concept of bond stacking is one such responsibility.

Bond stacking liability refers to the number of open bond periods an importer has to cover potential duties, taxes, and fees, as well as any claims associated with importing goods. This liability holds significant importance for importers, as it directly impacts their financial obligations and compliance with customs regulations.

Once a continuous bond is filed, it renews on a yearly basis on its anniversary date until it is terminated. Every year the bond renews, a new period of liability is created. This can also happen if U.S. Customs (CBP) issues an insufficiency notice to the importer demanding an increase to the bond. The principal and surety are “joint and severally” liable to U.S. Customs for activity under the bond. Every year the bond is in effect and has open exposure, the bond liability increases and “stacks” on each other.

A bond is considered open when there are unliquidated entries, even if the bond is terminated, since there is a potential for claims. Each entry is reviewed for final “acceptance” or acknowledgment by CBP. Once the entry is reviewed and is liquidated, CBP will take one of the following actions:

  •  CBP agrees with estimated values, duties, taxes and fees at the time of entry with “no change”
  • CBP reviews and determines a refund of duties is due back to the importer
  • CBP disagrees with estimations at the time of entry and determines additional duties are due

Under 28 USC 2415, the statute of limitations CBP has to take action against Customs bonds is six years from the date the right of action accrues, i.e., the date of breach of the bond condition. Therefore, liability under a bond can remain open for several years, especially with AD/CVD entries, as they usually have liquidation suspended for years. All entries within a bond period must be liquidated/reliquidated with no open claims, protests, or petitions for the surety to consider a bond period exhausted. Once a bond period is exhausted, the stacking liability is decreased.

 Bond Stacking Example

The graphic below demonstrates how quickly an importer’s liability can add up.

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The Importance of Forecasting

In 18 months, the importer’s liability increased to almost $3 million. When CBP issued the first insufficiency notice, the notice was for the minimum amount the bond could be increased. A few months later, CBP determined the increase was insufficient, and a second insufficiency notice was issued. As a best practice, the importer should analyze its bond importing activity to forecast the next 12 months of entry activity. This will help determine if they should increase their bond limit higher than the minimum amount Customs demands and avoid further bond changes down the line.

Increasing a bond multiple times in under a year and having a large stacking liability requires going through the Underwriting process each time an insufficiency is issued. Most sureties will request financial documents to determine the importer’s financial wherewithal. There is a strong possibility that collateral will be required for one or multiple bond periods.

We encourage customs brokers to work closely with their import clients to review their import activity and decide if their bond is sufficient. If you have any questions, please do not hesitate to contact your local Avalon representative.

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The Quest Newsletter is designed to provide critical information in the transportation industry. Avalon Risk Management is not responsible for the accuracy or reliability of information contained in articles. The reader/user assumes all risk in the use of such information.