Any company that imports or exports products, food, or raw materials, will want to pay attention to an important change that could affect how they do business and put them at greater regulatory risk.
By the end of 2016, the U.S. Customs and Border Protection (CBP) will require that all cargo shipment details be reported through ACE (Automated Commercial Environment), a new customs processing system. This use of this system, aimed at automating and consolidating border processing, brings with a number of challenges for both importers and exporters. ACE will be available to nearly all federal agencies, many of which have previously only dealt with paper submissions received after a shipment’s arrival. With the new portal, regulators will be able to review electronic data in real-time, collecting and analyzing it in new and unprecedented ways. This could lead to a rise in enforcement actions in the international trade industry as government agencies hunt for everything from smuggling and money laundering to copyright infringement.
We spoke to Susan Kohn Ross, a partner with Mitchell Silberberg & Knupp about the challenges posed by the ACE implementation.
Could you tell us more about ACE and why it may be problematic?
With customs and border protection and homeland security investigations, a lot of their talent has been retiring and they have been hit with a brain drain. CBP is responding by organizing its workforce into what are called Centers for Excellence and Expertise, or CEEs, that are industry focused [leverage internal expertise in a specific sector, for example pharmaceuticals]. They are very open about saying that one of the reasons they want to do it is that it gives them an institutional method to make sure that the knowledge gets handed down from, or handed off to, one set of experienced folks to the younger folks and so on.
One of the tools that all of the federal agencies are being handed is ACE, a computer system that customs has had in development for a very long time. When it is fully operational, which is supposed to be by the end of 2016, all of the data for all the imports and all of the exports is going to be reported through that system.
Now, this is nothing new for Customs on the import side. They’ve been getting that data for years. Where this has the potential to become a real headache for companies is that other agencies have either not received the information electronically at all, or gotten only a little bit of it. For the most part, they have been getting everything on paper, which also means they are getting it long after the fact. It has been very labor intensive for them to go through and figure out if something was correctly declared or not. Now, they are going to be able to do it instantaneously because they will have access to the new system. But one of the things that I don’t think has been on companies’ radar as it much as it ought to be is what happens with little glitches and mistakes, things that, in the past, you would have gone, ‘Oh no, I need to go fix that.’ You would have a chance to fix it, but that may no longer be the case.
I had a case a number of years ago where the fellow who reported a shipment just keyed it wrong. He reported it as 1 million, but when he looked at the file the next morning realized it was supposed to be 2 million. He was on the phone to try to fix it when the customs guys walked in and the goods were seized. That was an anomaly three or five years ago, but I’m concerned it is going to become far more common.
You overlay that with the Department of Justice’s “Yates Memo,” which articulated a policy that they are not going to give companies cooperation credit unless they give up all the information about the individuals who conducted the malfeasance, and you can quickly see that this has the potential to be quite problematic for companies, even those that are well-run and have good systems. People make mistakes.
Could you elaborate on the concerns that come with more regulators having immediate access to the data?
I’m not as concerned about Customs, because they are used to seeing this data. I’m concerned about all the other agencies who have never seen this data before in real time. Now, all of a sudden you are gong to have, for example, folks within the Department of Agriculture, able to look at the documents in real time.
In the past, you have been able to provide paper documents. Now, you are going to have to key in the permit number. What happens if somebody unintentionally transposes the numbers? There is a potential for some headaches, both at the initial stage of getting goods released and certainly after all the data has been submitted, and we may begin to see some really interesting enforcement actions.
Customs has said in their own publications that if a mistake is the result of a repetitive computer error that they don’t consider it a violation of the law, as long as it’s not the result of anything improper. You could, for example, have something that gets keyed into the system that is a wrong classification, but it’s not like anyone is doing anything nefarious. It was a keying error. It was a programming error.
What could happen is that some agencies really don’t understand how the import or export process works. They assume something is going on based on their experience, which is fine, but at that point they should then go to the people who actually know importing and exporting, like Customs and Border Protection, and have a dialog with them to understand what it is they are looking at in the data. Unfortunately, what tends to happen, and I’ve seen this time and time again, is that I spend time on the phone with investigators, at the client’s expense, explaining to them that they are looking at.