Adding Injury to Insult: Forfeiture of Merchandise for Export Violations

2014/12/22

By: Stephen Wagner

You are a manufacturer of precision-engineered machinery.  Several weeks ago, a shipment of very expensive merchandise was detained by Customs as your freight forwarder was exporting it from the country.  It seems that you were late filing your commodity data in your EEI and one of the machines actually required a license for export, which you didn’t have at that time.  You are working to obtain the proper license and you understand you may be fined by CBP for the AES violation.

In today’s mail, however, you received a notice of seizure from Customs stating that they have seized the machine for “attempting to export” the merchandise “contrary to law.”  The machine is valued at over $100,000.  This seems like an extreme sanction for what really amounts to a paperwork violation.

Can the Government do this?  And what can you do about it?

The power of the federal Government – by and through U.S. Customs and Border Protection (CBP) – to detain and inspect merchandise arriving at the border of the United States for export (or import) is almost without limitation.  CBP also has the authority under numerous federal statutes to seize and forfeit merchandise that violates certain laws.  For example, Title 22 of the United States Code (U.S.C.), Section 401, “Illegal exportation of war materials,” states:

Whenever an attempt is made to export … articles in violation of law, or whenever it is known or there shall be probable cause to believe that any … articles are intended to be or are being or have been exported or removed from the United States in violation of law, [CBP] may seize and detain such … articles.  (22 U.S.C. § 401 (a).)

This forfeiture provision is used primarily in the ITAR context.  For merchandise falling under the Export Administration Regulations (EAR), CBP has a similar authority under 19 U.S.C. § 1595a(d):

Merchandise exported or sent from the United States or attempted to be exported or sent from the United States contrary to law … shall be seized and forfeited to the United States.

CBP exercises this power pursuant to Title 19 (U.S.C.) as the agency at the border charged with enforcing the laws of numerous agencies including DDTC, BIS and OFAC.  Recently, all of these enforcement agencies have been using their power to seize and forfeit merchandise with fervor.  In the Government’s fiscal year ending September 30, 2013, the Bureau of Industry and Security reported that forfeitures had increased to more than $18 million, up from approximately $5 million in Fiscal Year 2012.

In the case described above, the late filing of the Electronic Export Information (EEI) in the Automated Export System (AES) subjects the entire shipment to seizure.  Also, failing to have the proper license for the machine at the time of its export subjects that machine to seizure.

What can a company facing seizure and forfeiture do?

In the event of a seizure, CBP will issue a letter to the exporter and other parties known by CBP to have an interest in the seized merchandise setting forth the grounds for seizure and forfeiture and describing the alternatives that such parties have in the matter.  These alternatives include voluntarily abandoning the merchandise, filing a petition to have CBP adjudicate the matter administratively or requesting that CBP refer the matter to the United States Attorney for judicial forfeiture proceedings.

This letter, called a “Notice of Seizure,” must be read and understood very clearly by the exporter.  In particular, the notice will give a 30-day deadline for responding.  If the exporter misses this deadline, then the merchandise will be administratively forfeited to the Government, and the exporter will have relinquished its rights to contest the seizure and forfeiture.

In determining the best approach to respond to the Notice of Seizure, it is critical to consult with qualified legal counsel.  If your company’s in-house attorney is not skilled at dealing with seizures and forfeitures, the company should consult with an outside counsel who has such experience, as the laws, regulations and procedures applicable in forfeiture cases and arguments to be made in petitions and in litigation with the Government are not the standard civil litigation practice with which your general counsel or usual outside counsel may be familiar.

Options available to exporters

Depending on the facts of the case, we typically recommend that exporters facing seizure and forfeiture actions file a petition with CBP and pursue the case administratively.  In the petition, there are many arguments an exporter can make as to why the sanction of seizure and forfeiture should be mitigated and the merchandise returned by CBP.  CBP addresses many of these arguments in its Informed Compliance Publication, “Mitigation Guidelines: Fines, Penalties, Forfeitures and Liquidated Damages.”  Additional helpful information on seizures and forfeitures in general is available from CBP in its publication “Customs Administrative Enforcement Process: Fines, Penalties, Forfeitures and Liquidated Damages.”

Depending on the specific grounds for the seizure (i.e., the laws alleged to have been violated), the facts of the matter and the compliance record of the exporter, in many cases, CBP will mitigate the seizure and return the merchandise upon the payment of a penalty along with the administrative costs of the case (i.e., storage and processing charges).  Exporters typically are also asked to sign a release and hold harmless agreement.  The penalty itself can vary significantly depending on the value of the seized merchandise, the exporter’s prior compliance record and the presence of “aggravating factors,” such as criminal conviction(s) relating to the export transaction, repetitive violations of the same law or evidence of intent to violate or evade export control laws.

The benefit of seeking administrative relief from the seizure in the form of a petition to CBP is that the exporter usually will still have its judicial remedies available, in the event that CBP does not mitigate the seizure and/or return the merchandise.  In other words, if an exporter is unsatisfied with the relief offered by CBP, it can still take the case to federal court for adjudication.  It should be noted, however, that federal litigation can be very expensive and can be a very time-consuming process.  It would not be unusual for an exporter to spend $100,000 in legal fees and take 18-24 months or more for an entire judicial forfeiture case to play out in federal court.  In contrast, CBP will adjudicate most administrative petitions in no more than 3-6 months (depending on the complexity of the matter), and such processes typically cost companies only a fraction of the cost of litigation.

In the event the exporter chooses to pursue judicial review of the seizure, there are many additional arguments that could be made to contest the seizure.  In addition to all of the other arguments raised in the petition in favor of mitigation, as alluded in the letter above, a company could argue the severity of the seizure/forfeiture penalty is excessive in light of the infraction.  Under the 8th Amendment to the U.S. Constitution, “excessive fines [shall not] be imposed…”  Moreover, depending on the particular facts of the case and the value of the merchandise involved, the U.S. Attorney may not want to prosecute the forfeiture action, meaning that a favorable settlement could be reached.

Whatever course an exporter decides to take in a seizure and forfeiture action, it must act with forethought and it must act decisively.  Not only do you have only 30 days to respond to the notice of seizure, but the actions you take (including the petition you file) become part of your compliance record with CBP and the agency whose laws, regulations or requirements have been violated (e.g., BIS, DDTC and/or OFAC).

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