Brief Review of ISF Discuss recent updates: Claims Enforcement Review of claims and Mitigation Guidelines Potential Impact of Claims Underwriting and

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2 Brief Review of ISF Discuss recent updates: Claims Enforcement Review of claims and Mitigation Guidelines Potential Impact of Claims Underwriting and Collateral Requirements System Updates and Web Merlin Demo

3 Notice of Proposed Rulemaking (NPRM) (January 2008) 60 day comment period, about 200 comments submitted Interim Final Rule (November 2008) Effective date: Jan. 26, 2009 CBP has adopted this Interim Rule as the Final Rule Flexible Enforcement Period Initially Jan. 26, 2009 through Jan. 25, 2010 Compliance delayed to provide trade sufficient time CBP wants data not to penalize; no claims Enforcement Period On June 7th, CBP announced via CSMS# , full enforcement begins July 9 th, 2013

4 The Importer Security Filing (ISF, commonly known as 10+2) is a U.S. Customs and Border Protection (CBP) regulation governing ocean imports to the United States. Requires importers and carriers to submit advance trade data to CBP. The importer must supply 10 newly required data elements. The carrier must supply 2 newly required data elements. The information must be transmitted no later than 24 hours before loading onto the ship.

5 Claims Enforcement will apply to ISF-10 and Carrier Requirements ISF-10 U.S. Bound Cargo (3461 Entries, IT, FTZ) 24 Hrs Prior to Lading* 1. Importer of Record Number 2. Consignee Number 3. Seller (Owner) name/address 4. Buyer (Owner) name/address 5. Ship to Party 6. Manufacturer (Supplier) name/address 7. Country of Origin 8. Commodity HTS-6 ASAP, But NLT 24 Hrs Prior to Arrival 9. Container Stuffing Location 10. Consolidator (Stuffer) name/address ISF-5 Transit Cargo (FROB*, IE, TE) 24 Hrs Prior to Lading* 1. Booking Party name/address 2. Ship to Party 3. Commodity HTS-6 4. Foreign Port of Unlading 5. Place of Delivery *FROB ISF-5 is required anytime prior to lading Additional Carrier Requirements Vessel Stow Plan NLT 48 Hrs After Departure* *Anytime prior to arrival for voyages less than 48 Hrs For all vessels carrying containers Container Status Message (CSM) Data Within 24 Hrs of Creation or Receipt Must be linked together as a line-item at the ISF shipment level *ISFs for exempt break bulk shipments are required NLT 24 hrs prior to arrival Blue elements are eligible for flexible filing options ISFs must contain the lowest bill of lading number (i.e., regular or house) as referenced in the Automated Manifest System (AMS).

6 CBP wants 100% compliance Importer Security Filings must be: 1. Complete 2. Accurate 3. Timely ISF Bond Obligations Commences 24 hours prior to vessel departure (right of action) Terminate when goods enter the first port of arrival or in-bond move, if there is no violation CBP has 6 years to assess a liquidated damage claim

7 ISF must be submitted electronically no later than 24 hours prior to loading of the shipment on the vessel CBP continues to use the vessel departure message minus 24 hours to establish timeliness since it is the closest available metric

8 ISF can be covered by any of the following activity codes found on the CBP Form 301: Activity code 1 Import or Broker Bond Single (S1) For Unified Filings Only Activity code 2 - Custodian Bond Activity code 3 International Carrier Bond Activity code 4 Foreign Trade Zone Bond Activity code 16 ISF Appendix D to 19 CFR Part 113 Single - $10,000 bond amount Continuous - $50,000 bond amount Single ISF-D bond is required to be submitted to CBP within 12 hours of acceptance of the Importer Security Filing.

9 CBP has recently confirmed that the liability of the bond cannot be transferred While Updates can be made to the ISF after vessel departure and up to 24 hours prior to arrival, the liability will remain with the ISF importer and bond obligated at the time the filing was required. Cancelling/Voiding ISF-D Bonds for a change in bond or principal, only if amended prior to 24 hours before loading in order to successfully transfer the liability. Some Exceptions: Duplicate Filings Can C1 replace the ISF-D on the filing? Revenue Division may consider this if the C1 was already in place at the time the bond was required. Waiting on CBP to provide a procedure for the process of cancelling ISF-D bonds.

10 CBP continues to advise that it is better to amend the ISF than to cancel/delete and re-file. If no other filing in place at the time it was required, the new filing will be late if done after 24 hours prior to vessel departure and subject to a liquidated damage. Shipment arrives and no filing was made. What happens now in enforcement? Withheld release ( ISF-10 LATE ISF-No Bond filing options will still be allowed; reference CSMS # ) Possible Examinations (all violation types) Possible comparison to entry data

11 Flexible Filings CBP continues to remind the trade that Flexible filings must be updated with a CT=Complete Transaction code 24 hours prior to arrival of the vessel to the US; this can result in a liquidated damage ISF does not liquidate or cancel. The statutory timeframe is 6 years. There could be claims for six years after the violation Collateral, in some, instances will need to be held for 6 years. However, if there was a claim on the ISF and it was handled or paid by the importer. Collateral release will be considered in those instances. Updated CBP FAQs will be forthcoming

12 CBP enforcement started on 7/9/13 and will not be retroactive Liquidated Damages will be issued for ISF-10 and carrier elements (stow vessel plans and container status messages) For now, CBP indicates that there is a $10K claim cap per ISF Filing. CBP has indicated that the biggest problems are non filing of ISFs and late filings of ISF All violations are on the table. Anything under 100% compliance is subject to liquidated damages

13 LA Port issued Public Bulletin on July 12 th which indicated that due to continued non-compliance of the ISF requirements, the Los Angeles/Long Beach port will now apply enhanced enforcement measures to improve ISF compliance. Effective July 15 th, the port will use cargo holds in ACE to address non-compliance with ISF. CBP will hold all noncompliant ISF shipments at the terminal until the required ISF is filed additional enforcement actions including Non-Intrusive Inspections (NII) and/or intrusive exams may be initiated. CBP may also assess a liquidated damage claim on these shipments.

14 New York/Newark Port issued a pipeline on July 19 th indicating that as a part of the updated enforcement strategy, liquidated damages claims may be assessed for failure to comply with reporting requirements. CBP may also withhold the release or transfer of cargo until all ISF reporting requirements have been satisfied. For carrier violations of the vessel stow plan requirement, CBP may also refuse to grant a permit to unlade the merchandise in addition to issuing liquidated damages penalties. List of updated codes to place non-compliant shipments on hold. Carriers, Terminal Operators and CES are responsible to hold shipments until appropriate release is posted. Unauthorized release or transfer of shipment will result in liquidated damages claims against the responsible entity.

15 Port of Seattle issued a Trade Information Notice on July 22 nd indicating that CBP, in all seaports falling under their purview, will place holds to address non-compliance with ISF regulation. CBP will hold all non-compliant ISF cargo shipments at their respective terminal until the required ISF data is filed. Additional enforcement actions such as NII and/or intrusive examinations may be initiated aside from assessment of liquidated damages claims. List of updated codes CBP is using for ISF holds.

16 Ports will be referring all potential claims to HQ for review. HQ will make sure that the referrals rise to violation level and the port will then issue the Liquidated Damages case HQ review will occur for a minimum of 12 months. HQ anticipates the principal getting the violations within days after the violation but there are too many variables to give specifics

17 Mitigation may be requested through the petition process as with other liquidated damages cases. CBP has advised that prior performance will be taken into consideration when reviewing claims for mitigation. Surety might request a copy of ISF report card. There are both mitigating and aggravating circumstances that CBP reviews in the petition process. These are referenced in the mitigation guidelines.

18 Vessel Stow Plans ($50K LD for each vessel arrival) Failure to File First Violation Mitigation between $5000-$25,000 (CBP may grant up to 50% additional mitigation if C- TPAT certified) Subsequent Violations Mitigation to no less than $25,000 (CBP may grant up to 50% additional mitigation if C- TPAT certified) Late/Inaccurate Filings First Violation Mitigation between $2500-$10,000 (CBP may grant up to 50% additional mitigation if C- TPAT certified) Subsequent Violations Mitigation to no less than $5,000 (CBP may grant up to 50% additional mitigation if C- TPAT certified) ****No Mitigation if CBP determines law enforcement goals were compromised

19 Container Status Messages ($5,000 LD for each CSM) Failure to File First Violation Mitigation between $1,000-$2,000 (CBP may grant up to 50% additional mitigation if C- TPAT certified) Subsequent Violations Mitigation to no less than $2,500 (CBP may grant up to 50% additional mitigation if C- TPAT certified) Late/Inaccurate Filings First Violation Mitigation between $500-$1,000 (CBP may grant up to 50% additional mitigation if C- TPAT certified) Subsequent Violations Mitigation to no less than $1,500 (CBP may grant up to 50% additional mitigation if C- TPAT certified) ****No Mitigation if CBP determines law enforcement goals were compromised

20 ISF Filings ($5,000 LD for each violation with a $10K cap per ISF Filing) Failure to File First Violation Mitigation between $1,000-$2,000 (CBP may grant up to 50% additional mitigation if Tier 2 or Tier 3 C-TPAT certified) Subsequent Violations Mitigation to no less than $2,500 (CBP may grant up to 50% additional mitigation if Tier 2 or Tier 3 C-TPAT certified) Late/Inaccurate Filings First Violation Mitigation between $500-$1,000 (CBP may grant up to 50% additional mitigation if Tier 2 or Tier 3 C-TPAT certified) Subsequent Violations Mitigation to no less than $1,500 (CBP may grant up to 50% additional mitigation if Tier 2 or Tier 3 C-TPAT certified) ****No Mitigation if CBP determines law enforcement goals were compromised

21 CBP has advised that ISF compliance has fallen from 90% to the low to mid 80% CBP advised that their data regarding filings is not broken down by element such as non filings, late or inaccurate filings Avalon s data shows that there is 25% rate of late filings If this trend continues, we will have known losses of 25% for all ISF-D bonds that are written. This data doesn t include any non or inaccurate filings since the sureties do not have access to this data from CBP. We are working with CBP to obtain this information.

22 Prior to 7/9, Web Merlin automatically referred the bond to the Underwriting Department. Some of the factors for referral to Underwriting Importer s history: bankruptcy, claims, etc. Aggregation of bonds already have multiple bonds Importers with a current Continuous bond on file Known Violations: Late ISF Non-resident Importer Collateral has been required in very limited situations. Web Merlin will now give the option to provide collateral online or refer to the Underwriting Department for review.

23 Collateral amount is automatically calculated based on Underwriting rules programmed. Collateral Amounts will vary for the bond depending on the Underwriting factors surrounding the bond request. Known Violations will require collateral. Liquidated damage claim is $5,000 per violation Collateral will also be required for non-resident importers not previously approved. Collateral will be a case by case review. Underwriting can evaluate the collateral needed based on the amount of the potential claim and mitigating factors. Web Merlin always provides the option to refer to Underwriting for review.

24 Web Merlin Online Collateral Payments Types: Credit Card ACH Automated Clearing House Payment Existing methods still available: cash, check, letter of credit. ISF Collateral Instructions provided each time collateral is requested. Importers can pre-post collateral with Underwriting for several future ISF bonds.

25 Principal s ISF history Is this the first late? ISF report card available? (Prior Performance Will Matter) Looking at our own ISF history with the importer: previous late ISFs? Are they C-TPAT Certified Tier 2 or 3? ISF information: Was it a Flexible Filing? Has CHB received all data elements required to complete the filing? Were any errors received when transmitting this filing? Non-ISF related Principal Information Broker s History with client Financial wherewithal of the Principal Will run Experian where available (only US principals) Current aggregation of bonds Claims history Mitigation Guidelines

26 Avalon Risk Management Underwriting Questions Group phone line: Gabriela Craver: Surety Underwriting Manager Claims Questions Web Merlin Technology Questions: Additional ISF Information Zuleika Medina: Surety Claims Manager CBP CBP ISF Page CBP ISF FAQs 7/9/2010 ISF Liquidated Damage Mitigation Guidelines Current Continuous Bond Formulas and Sufficiency Information

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28 Questions?

29 Thank you!