In only three months the U.S. Importer Security Filing, also known as ISF or 10+2, will go into full effect. Many importers are still unaware of the consequences of non-compliance, or have simply been postponing implementation. Now, facing a January 26, 2010 deadline for full compliance, it is really “high time” for action.
Basis of ISF
The Importer Security Filing is based on the USA’s SAFE Port Act of 2006. U.S. Customs and Border Protection (CBP) published its ruling on the Importer Security Filing on November 25, 2008. Similar to the 24-Hour Advance Vessel Manifest (AMS) rule, C-TPAT, Container Security Initiative (CSI), and other security measures, ISF is designed to improve national and international security.
Since January 26, 2009, all U.S. importers (definition also amended by CBP for this ruling) have been required to electronically submit 10 data elements, plus bill of lading numbers, 24 hours prior to the loading of containers and break bulk cargo onto ocean vessels at the origin port. The ocean carrier must also file 2 data elements – the vessel stow plan and the container status messages. This is the “+2” of 10+2. The key or connector to the ISF, the AMS, and the customs entry is the house bill. The 24-hour advance “timing” is based on the AMS filing and container status message data.
Since the beginning there has been a degree of resistance on the part of importers as well as their vendors / suppliers because ISF technically changes many Incoterms. Under ISF for example, if CBP sends a “Do Not Load” message to the ocean carrier, an FOB shipment cannot be loaded. Even though the shipper fulfills all his normal and acknowledged duties under Incoterms the shipment cannot “cross the ship’s railing” and be considered “Free-On-Board”.
This ISF information must be filed for all ocean shipments entering, or even just transiting the USA, including shipments going into Free Trade Zones (FTZ). For In-Transit or FTZ shipments only 5 of the 10 data elements must be filed (please contact me if you are interested in a comparison chart of the individual breakdown of data elements for these shipments).
Filing the ISF
U.S. importers may choose to file this information themselves, or contract with an agent to do this for them. However, only those entities certified for transmitting electronically to U.S. Customs via AMS (normally forwarders and NVOCCs) or ABI (customs brokers) interfaces may submit the actual ISF filing. Obviously most ISF filings will be submitted via a “Filing Agent”, much the same as most customs entries are filed by a customs broker. Either way, legal culpability for filing in an accurate and timely manner remains entirely with the importer.
The best ISF filing programs support web-based, user-level access, allowing both electronic download or manual input of data by the shipper (or its supplier / vendor), and allowing the importer or customs broker to verify / edit data prior to filing. This is a very important aspect as U.S. Customs will later compare the ISF filing with the actual customs entry to verify accuracy of the importer’s ISF data.
Acquiring and submitting the ISF Data
Much of the required ISF information has historically not been available until later in the time-line of events, as the export and commercial documents have typically been issued well after the shipment was loaded and placed in transit. U.S. importers must work with and educate their foreign-based suppliers regarding the new information requirements, and develop a method to submit or provide this information to their Filing Agent in a timely fashion. This “need” is critical because fines of $5,000 per incorrect or late filing can be issued.
Because of the change in information and document flow ISF compliance requires, U.S. Customs has allowed a period of “flexible reporting” and “flexible enforcement” ending January 26, 2010. This is when fines, penalties, and “Do Not Load” messages will begin.
Flexible Reporting –
The actual manufacturer or supplier, country of origin, HTSUS (U.S. customs tariff classification), and final ship-to party may not be accurately known 24 hours before the cargo is loaded. Until January 26, 2010 importers will be permitted to submit an initial response based on their knowledge or data available at the time of filing. They must then update the ISF with accurate information no later than 24 hours prior to arrival at the first U.S. port.
Flexible Enforcement –
CBP will refrain from assessing fines or penalties as long as the importer is “showing good faith” in filing accurate and on-time ISFs during this period. CBP has begun issuing “report cards” documenting current accuracy and timeliness, and expects continued importers compliance improvement.
The “flexible reporting” and “flexible enforcement” period ends January 28, 2010, when CBP will begin issuing fines. They will then also issue “Do Not Load” messages via AMS to the carriers, effectively “stranding” containers at origin.
ISF Penalties and Mitigation
CBP has now released their guidelines for determining and levying ISF penalties and what it considers potential mitigating circumstances regarding severity of the penalties.
The ISF ruling and guidelines on penalties and mitigation are written vaguely. They provide CBP almost unprecedented discretion and a wide range of actions in both assessing and resolving claims of infraction. In fact, CBP may simply allege failure to file, incomplete or incorrect data, and treat as breach of the importer’s bond; i.e. the importer failed to comply with U.S. import laws and regulations.
First offenses are subject to fines and penalties (liquidated damages) up to us$5,000, and may increase with subsequent violations. The most serious violation is obviously failure to file and blatant deception.
Major offenses under ISF include failure to file, filing late, filing inaccurate information, failing to file updated information, and failure to withdraw a filing the importer has learned is inaccurate.
Published mitigating factors for importers include:
- Evidence of good faith progress providing ISF data during the “flexible period”
- Relatively low number of violations compared to total ISF filings
- ISF failure due to reasons beyond the control of the importer (i.e. carrier had to divert ship to another port)
- Faulty ISF data was based on commercial or shipment information from another party but within normal international commercial acceptance.
Cancellation of ISF fines and penalties may be possible if the importer can demonstrate it was not able to verify the data before the filing and / or it was reasonable to believe the information was true, and corrective action has been taken. Up to 50% reduction of fines is possible if the ISF importer is C-TPAT certified.
Published aggravating factors are:
- ISF failures were intentional deception, part of smuggling, or supporting violations of other import laws or regulation
- Consistent faulty data or violation for the same data field
- Consistent multiple errors on the same ISF
- Obstruction or failure to cooperate with Customs investigations of any violation