CBP Statute of Limitations Waivers – Overview of Issues and Operation

Many trade practitioners that have had experience with a CBP prior disclosure or penalty action have encountered a request by CBP to execute a Statute of Limitations (SOL) waiver.   These are usually accompanied by a request for the importer to provide a corporate resolution or the equivalent evidencing the authority of the SOL waiver signatory to sign the waiver on behalf of the importer / company.

Background

The statute of limitations provisions are provided under 19 U.S.C. Section 1621 and with regard to Section 1592 penalty actions and Section 1593a (penalty for a false drawback claim) provide:

 (1) in the case of an alleged violation of section 1592 or 1593a of this title, no suit or action (including a suit or action for restoration of lawful duties under subsection (d) of such sections) may be instituted unless commenced within 5 years after the date of the alleged violation or, if such violation arises out of fraud, within 5 years after the date of discovery of fraud . . .”

Customs Directive No. 4410-014 further provides that the “date of the alleged violation” is the date of entry:

Under 19 USC section 1621, Customs ability to recover a penalty or forfeiture of property under section 1592 may be forever barred UNLESS the section 1592 judicial complaint is filed with the Court of International Trade within 5 Years:

B. from the date the alleged violation was COMMITTED (which is usually the date of the entry) if the violation resulted from GROSS NEGLIGENCE or NEGLIGENCE … 

Importantly, CBP guidance further provides “the  issuance of a pre-penalty or penalty notice will not toll, i.e., suspend the statute of limitations. The statute will continue to run until a Complaint is filed in the Court of International Trade.”

Therefore, while a pre-penalty or penalty notice would serve to place the importer on notice of an investigation and preclude the filing of a prior disclosure, it does not serve to toll the statute of limitations.

CBP SOL Waivers

CBP typically requests a SOL waiver when less than one year remains on the five-year limit to assess penalties or damages, or during extended negotiations for prior disclosures.

In nearly all cases encountered by this writer, the SOL waiver agreement provides for a two-year term during which the importer agrees not to exercise a statute of limitations defense with regards to claims by Customs with respect to the entries covered by the SOL waiver.

Representative language as follows:

Importer hereby waives the period of limitations contained in 19 U.S.C. 1621 and any other applicable statute(s) of limitations with respect to ___________ Customs & Border Protection (CBP) entries of ________________ dated between ________________, and entered at the Port of ___________ for a period of two (2) years. The two (2) year period for this initial waiver commences with the date of execution. Importer agrees that it will not assert any statutes of limitations defense in any action brought by the United States Government concerning the entries designated above with respect to the two (2) year period for which the statute of limitations is hereby waived.

The above language makes clear that the SOL waiver agreement only provides that the importer will not assert a statute of limitations defense while the agreement is in force.  That is, from the date of signature, until the expiration date two years from the date of signature.  After the passage of the two-year period, unless another SOL waiver is signed (a “subsequent waiver”) the is no further restriction on the importer’s right to exercise a SOL defense related to any entries that are past the five-year statutory period as of today’s date.  

This would not appear to be confusing or controversial, however in at least one case it appeared CBP incorrectly believed the SOL waiver language above served to extend the statute of limitations by the time period referenced in the SOL agreement.  

In that case an importer had received a penalty notice related to multiple Customs entries for certain undeclared antidumping duties.  Because a certain number of  entries had close to one year left under the applicable five-year SOL period, CBP requested a two-year SOL waiver from the importer to permit the orderly resolution of the claims.  The importer agreed and executed an SOL waiver with the above language.  Due to extended negotiations and the passage of time, CBP requested a subsequent two-year waiver and the importer complied, however disposition of the matter continued on for several more years.  

Then one day (after the expiration of the subsequent SOL waiver) the importer received a notice of summons and complaint from the Court of International Trade brought by the U.S. Department of Justice related to the penalty action.  Significantly, only two of the original entries were included in the complaint, and the oldest of these two had an entry date exactly nine years from the date the complaint was filed.  The balance of the entries in the original action were now more than nine years old.  Unless this was a significant coincidence, this indicated a belief that the two two-year SOL waiver agreements had extended the five-year period by four more years.  

The importer then argued that the SOL waivers only operated to require the importer to waive its right to an SOL defense during the two-year term of the waiver agreement, or any subsequent SOL waiver term.  As the subsequent waiver had expired well before the DOJ lawsuit, the importer was no longer bound by the terms of the waiver and could exercise a SOL defense to the penalty claims.  On this basis the DOJ agreed to dismiss the claim.

It is important to note that if alternation language was incorporated into the waivers that  served to extend the statutory five-year period rather prohibiting the importer from exercising its right to assert a SOL defense during the two-year term of the agreement, the result would have been quite different. 

Signing a Waiver / Exercising a SOL Defense

Either due to workload, changes in staffing of CBP matters, or otherwise, it is not uncommon for CBP to permit an SOL waiver to expire, or in certain enforcement matters for CBP to assert first time claims involving multiple entries where some of the entries are past the five-year SOL period.

In either of the above cases, CBP may request the importer to sign an SOL waiver that would prevent the assertion of an SOL defense with regard to the expired entries.  In these cases, it can become a judgment call, especially where CBP’s claims involve a significant number of entries that are not expired and cooperation regarding all entries may make the most sense.  However, only in rare cases would it be advisable to execute a SOL waiver when all or most of the entries have expired.

At the end of the day, when the facts strongly weigh in favor of exercising a SOL defense, importers should not hesitate and should recognize that the policy of SOLs is rooted in fairness for all parties and to promote prompt resolution of legal claims.  Further, importers / company management should recognize their fiduciary obligation to preserve their company’s corporate assets and to only pay legally valid claims, and it would be departing from this obligation by tendering on claims that are no longer valid according to CBP statutes.

If you have any questions or would like to discuss any of the above information, please do not hesitate to contact Paul Fudacz or any of BLG’s trade attorneys.

This article is for informational and / or discussion purposes and is in no way intended to constitute legal advice and in no event should it be relied upon as such.