June, 2015
Customs seizures and forfeitures
Mark K. Neville, Jr.
Seizure and forfeiture of imported goods is a little known corner of the customs enforcement campus and that is to be reckoned a good thing. After all, importers should be able to freely move their goods across borders, subject of course to all of the formalities that attend such transactions.
For the most part, importers get to do just that, and seizure and forfeiture are out of mind. Most importers never give a thought to this topic because such an event is so extraordinary and only pertains to importers on the fringe, right?
Still, something out of the ordinary could occur and in that eventuality the importer’s goods—even those of law-abiding importers-- are liable to be seized. It’s a good idea for the importer to know how and why such a thing can happen. So, here we go.
In the first place it is important to know that the violator is the property itself. Enforcement is an in rem proceeding against the property itself. This is the origin of so many court cases with the “funny” names, such as US v. 164 Pieces of Jewelry2 or One Lot Emerald Cut Stones and One Ring v. US.3
To initiate the seizure, CBP must have probable cause to believe that there is a violation of the customs laws that specifically provides for seizure and forfeiture or another law enforced by CBP. Note that not all violations of the customs laws will trigger seizure and forfeiture. An example of a customs law that provides for such an enforcement remedy is Section 497 of the Tariff Act of 1930,4 a passenger’s failure to declare merchandise. Another example is the seizure and forfeiture of counterfeit goods.5
An example of a law enforced by CBP that is enforceable by seizure and forfeiture at the border is the Department of Fish and Wildlife (DFW) program under the Endangered Species Act6 for articles that are subject to the Convention on International Trade in Endangered Species (CITES), such as articles made with certain animal skins or feathers. Another example of a CBP enforcement of another agency’s laws is the seizure and potential forfeiture7 of undeclared “monetary instruments” over $10,000 from arriving or departing passengers. A failure to declare on a form FinCEN 105 the possession of $10,000 or more in monetary instruments at the time is a violation of the Currency or Monetary Instrument Report requirement of the Bank Secrecy Act, for which CBP is the enforcement agency.8 As a third example, we might point to a seizure of goods for exportation or attempted exportation contrary to law.9 Of course, this refers us to CBP’s enforcement role over exports to accompany its more immediately recognizable task in enforcing the import laws.
In general, there are several categories of goods subject to seizure:
If a petition for relief were pursued, however, the property owner will be seeking to take advantage of the CBP authority to remit or mitigate the seizure that lies in Section 618.17
The Notice of Seizure will normally state that the petition must be filed within a 30-day period, but this period might be extended by CBP. In fact, there is no specific customs form for a petition although, not surprisingly, the regulations18 do specify that certain basic information must be set forth—the date of the seizure, a description of the merchandise, facts justifying the relief sought and proof of the petitionable interest in the goods. Obviously it is good sense to cite to the reference used by the Fines Penalties and Forfeitures (FP&F) office at CBP.
In the course of filing its petition the property owner will be hoping to take advantage of the Mitigation Guidelines published by CBP. They will seek to invoke the mitigating factors which set forth those circumstances justifying relief and, of equal importance, they will want to show that there are no “aggravating factors” which militate against relief.
Aggravating factors will include such facts as a criminal conviction relating to the subject matter, repetitive violations and evidence of intentionality. For example, in the case of seized monetary instruments, the Guidelines take cognizance of several possible mitigating factors such as language barrier, inexperience in traveling and cooperation by the petitioner with the Customs investigation above and beyond that normally expected. In addition, proving a legitimate source of the seized funds is especially crucial--without such proof, the owner will never see them again.
But even if no nexus to illegal activity is present and the money is returned, it is invariably the case that some amount will be retained by the government upon remission. Where the amount seized is less than $15,000 a monetary penalty of $500 will be assessed.
In fact, that is the general rule—remission of the seizure, i.e., the return of the goods will always come with strings attached. The property owner will have to sign a hold harmless letter, pay storage costs and normally pay a monetary penalty which is a function of the dutiable value of the property. As an example, for remission of goods that have been introduced contrary to law, the following table will apply
Second, all of this talk of property rights, ownership interests, violations of federal statutes, district court actions and the like should have led you by now to the point where you have concluded that it makes sense to consult with an experienced attorney if and when there has been a seizure. For a property owner to go it alone, or to seek the counsel of a professional from any other discipline makes very little sense.
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For the most part, importers get to do just that, and seizure and forfeiture are out of mind. Most importers never give a thought to this topic because such an event is so extraordinary and only pertains to importers on the fringe, right?
Still, something out of the ordinary could occur and in that eventuality the importer’s goods—even those of law-abiding importers-- are liable to be seized. It’s a good idea for the importer to know how and why such a thing can happen. So, here we go.
Seizure and Forfeiture
First, there are two types of seizures. In the first, the law itself provides for forfeiture, and the first step is the seizure of the imported good. If the seizure ripens to forfeiture, the title to the goods passes to the government. In the second type of seizure, which is quite exceptional, the government can seize the goods in order to secure payment of a civil penalty.1 We shall discuss only the first such type.In the first place it is important to know that the violator is the property itself. Enforcement is an in rem proceeding against the property itself. This is the origin of so many court cases with the “funny” names, such as US v. 164 Pieces of Jewelry2 or One Lot Emerald Cut Stones and One Ring v. US.3
To initiate the seizure, CBP must have probable cause to believe that there is a violation of the customs laws that specifically provides for seizure and forfeiture or another law enforced by CBP. Note that not all violations of the customs laws will trigger seizure and forfeiture. An example of a customs law that provides for such an enforcement remedy is Section 497 of the Tariff Act of 1930,4 a passenger’s failure to declare merchandise. Another example is the seizure and forfeiture of counterfeit goods.5
An example of a law enforced by CBP that is enforceable by seizure and forfeiture at the border is the Department of Fish and Wildlife (DFW) program under the Endangered Species Act6 for articles that are subject to the Convention on International Trade in Endangered Species (CITES), such as articles made with certain animal skins or feathers. Another example of a CBP enforcement of another agency’s laws is the seizure and potential forfeiture7 of undeclared “monetary instruments” over $10,000 from arriving or departing passengers. A failure to declare on a form FinCEN 105 the possession of $10,000 or more in monetary instruments at the time is a violation of the Currency or Monetary Instrument Report requirement of the Bank Secrecy Act, for which CBP is the enforcement agency.8 As a third example, we might point to a seizure of goods for exportation or attempted exportation contrary to law.9 Of course, this refers us to CBP’s enforcement role over exports to accompany its more immediately recognizable task in enforcing the import laws.
In general, there are several categories of goods subject to seizure:
- Prohibited merchandise (such as counterfeit goods)
- Restricted merchandise (such as goods subject to FDA or DFW control)
- Undeclared or smuggled merchandise (such as monetary instruments over $10,000).
- Articles used to facilitate illegal importation (such as an auto or a boat used in smuggling)
Forfeiture
There are two potential routes for a seizure to progress to forfeiture of the goods. The first is an administrative forfeiture, via Section 607 of the Tariff Act,10 and it applies to the following classes of goods:- A forfeiture value of $500,000 or less11
- Prohibited goods
- Conveyances for transporting or storing controlled substances or listed chemicals12
- Undeclared monetary instruments in any amount13
Importer Options?
Due process demands that the importer whose goods have been seized does have options. Let’s correct that—due process protects the rights of the party with an ownership or financial interest in the goods, which may or may not be the importer. Note to our friends who are laymen rather than ordained customs experts—importer of record status is broadly defined in the United States practice to derive from persons with a significant financial interest in the imported goods.15 For ease of reference, let’s call the person with the property interest the property owner. Let’s add a further correction—the property owner of prohibited goods generally has no options. For goods subject to administrative forfeiture, once a Notice of Seizure is received by the property owner, the owner will recognize that he has a few options. The Notice advises that these include:- Doing nothing, in which case the government will begin forfeiture proceedings on the scheduled date by publishing notice in a newspaper
- Requesting that forfeiture be commenced earlier
- Filing a petition for relief (with a waiver of immediate institution of forfeiture proceedings)
- Making an offer in compromise to settle the case16
- Filing a claim and posting bond for a referral to the US Attorney’s office to begin judicial forfeiture
Petition
Most of the time the property owner will either do nothing and acquiesce in the loss of the goods or will file a petition for relief. One reason why the property owner may elect to do nothing is where the owner calculates that his chances of success may be quite limited, as is the case with articles seized for DFW violations, for example. Another reason is where the value of the seized goods is less than the costs associated with the effort to regain them. In such cases, the “why throw good money after bad” line of cost/benefit reasoning may kick in.If a petition for relief were pursued, however, the property owner will be seeking to take advantage of the CBP authority to remit or mitigate the seizure that lies in Section 618.17
The Notice of Seizure will normally state that the petition must be filed within a 30-day period, but this period might be extended by CBP. In fact, there is no specific customs form for a petition although, not surprisingly, the regulations18 do specify that certain basic information must be set forth—the date of the seizure, a description of the merchandise, facts justifying the relief sought and proof of the petitionable interest in the goods. Obviously it is good sense to cite to the reference used by the Fines Penalties and Forfeitures (FP&F) office at CBP.
In the course of filing its petition the property owner will be hoping to take advantage of the Mitigation Guidelines published by CBP. They will seek to invoke the mitigating factors which set forth those circumstances justifying relief and, of equal importance, they will want to show that there are no “aggravating factors” which militate against relief.
Aggravating factors will include such facts as a criminal conviction relating to the subject matter, repetitive violations and evidence of intentionality. For example, in the case of seized monetary instruments, the Guidelines take cognizance of several possible mitigating factors such as language barrier, inexperience in traveling and cooperation by the petitioner with the Customs investigation above and beyond that normally expected. In addition, proving a legitimate source of the seized funds is especially crucial--without such proof, the owner will never see them again.
But even if no nexus to illegal activity is present and the money is returned, it is invariably the case that some amount will be retained by the government upon remission. Where the amount seized is less than $15,000 a monetary penalty of $500 will be assessed.
In fact, that is the general rule—remission of the seizure, i.e., the return of the goods will always come with strings attached. The property owner will have to sign a hold harmless letter, pay storage costs and normally pay a monetary penalty which is a function of the dutiable value of the property. As an example, for remission of goods that have been introduced contrary to law, the following table will apply
- First offense with mitigating, but no aggravating factors: payment of 10-30% of the dutiable value of the seized goods.
- First offense with aggravating factors or second offense with no aggravating factors: payment of 30-50% of the dutiable value of the seized goods.
- Second offense with aggravating factors or third/subsequent offense: payment of 50-80% of the dutiable value of the seized goods.
Conclusion
There are two points to make. First, seizures and forfeitures are an integral part of CBP’s enforcement activities which generally involve other agencies’ agendas fully as much as Title 19, the customs and trade laws. Even in this brief discussion we have seen references to DFW, to the export laws, the Bank Secrecy laws and we have also seen a reference to intellectual property rights (counterfeit goods).Second, all of this talk of property rights, ownership interests, violations of federal statutes, district court actions and the like should have led you by now to the point where you have concluded that it makes sense to consult with an experienced attorney if and when there has been a seizure. For a property owner to go it alone, or to seek the counsel of a professional from any other discipline makes very little sense.
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1. 19 USC § 1592 (c) (14). Seizure of the goods is justified when the violator is insolvent, outside the jurisdiction of the US, when seizure is otherwise essential to protect the revenue of the US or to prevent the introduction of prohibited or restricted merchandise.
2. 785 F.Supp. 885 (D. Or 1991).
3. 409 US 232 (1972).
4. 19 USC § 1497 (a) (1). Note that this subsection also provides for the levy of a civil penalty against the passenger.
5. 19 USC § 1526 (e).
6. E.g., 16 USC § 1538 (c) (1), 50 CFR § 23.52.
7. Pursuant to 31 USC §5317 (c) (2).
8. Be careful. The law defines “monetary instruments” in terms that extend beyond cash, including currency, personal checks (endorsed), travelers checks, gold coins, securities or stocks in bearer form valued at $10,000. So it is not just cash.
9. 19 USC § 1595a (d).
10. 19 USC § 1607.
11. CBP must ascertain the domestic value of seized merchandise per 19 USC § 1606.
12. 19 USC § 1607 (b) assigns the definitions applied by Section 802 of Title 21, US Code, to these two latter terms.
13. Such seizures of monetary instruments fall within the protections of the Civil Asset Forfeiture Reform Act of 2000, Pub. L. 106-85, which are not germane to this discussion.
14. 19 USC § 1608.
15. See Neville, “The right to import goods,” 25 JOIT 24 (Oct. 2014).
16. Per Section 617, 19 USC § 1617.
17. 19 USC § 1618, 19 CFR Part 171, § 171.0 et seq.
18. 19 CFR § 171.1.
19. Per 19 USC § 1308.
20. Per 19 USC § 1526 (e).
3. 409 US 232 (1972).
4. 19 USC § 1497 (a) (1). Note that this subsection also provides for the levy of a civil penalty against the passenger.
5. 19 USC § 1526 (e).
6. E.g., 16 USC § 1538 (c) (1), 50 CFR § 23.52.
7. Pursuant to 31 USC §5317 (c) (2).
8. Be careful. The law defines “monetary instruments” in terms that extend beyond cash, including currency, personal checks (endorsed), travelers checks, gold coins, securities or stocks in bearer form valued at $10,000. So it is not just cash.
9. 19 USC § 1595a (d).
10. 19 USC § 1607.
11. CBP must ascertain the domestic value of seized merchandise per 19 USC § 1606.
12. 19 USC § 1607 (b) assigns the definitions applied by Section 802 of Title 21, US Code, to these two latter terms.
13. Such seizures of monetary instruments fall within the protections of the Civil Asset Forfeiture Reform Act of 2000, Pub. L. 106-85, which are not germane to this discussion.
14. 19 USC § 1608.
15. See Neville, “The right to import goods,” 25 JOIT 24 (Oct. 2014).
16. Per Section 617, 19 USC § 1617.
17. 19 USC § 1618, 19 CFR Part 171, § 171.0 et seq.
18. 19 CFR § 171.1.
19. Per 19 USC § 1308.
20. Per 19 USC § 1526 (e).
Mark K. Neville, Jr., LL.M. is a Principal of International Trade Counsellors and may be reached at mkneville@itctradelaw.com. He has served as an adjunct professor at The University of California, Berkeley’s Haas School of Business and NYU’s Stern School.