Second Update on Recent Civil Penalties Action

Dear Friends,

We wanted to share with you a brief update on a court case that will impact how U.S. Customs and Border Protection (CBP) and the U.S. Department of Justice (DOJ) pursue penalty claims in the future.

Earlier this week, the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) issued its decision in United States v. Nitek Electronics, Inc.  You may recall that we first brought this case to your attention back in August 2012.  The case involved the enforcement of a CBP penalty in court.  In short, the case involved the question of DOJ’s role in the civil penalty context, and more specifically, whether DOJ’s role was to enforce CBP’s administrative decision, or whether DOJ was free to frame the case without regard to what was asserted at the administrative level.  The issue arose because CBP alleged that the importer acted with gross negligence (and only gross negligence) at the administrative level, but DOJ choose to pursue a penalty based on negligence in court.  Nitek argued that the Government had failed to exhaust its administrative remedies as to the negligence claim (since it was never raised at the administrative level) and that the Government was barred from doing so now by the statute of limitations.  The trial court agreed.  Now, so has the Federal Circuit.  A copy of the Federal Circuit decision can be found here.  It is worth a quick read.

We expect that any future CBP penalty actions involving gross negligence or civil fraud, will also now include the lesser levels of culpability as well to preserve the Government’s options in any future litigation (e.g., a penalty notice based on gross negligence will also allege negligence as an alternative level of culpability).  The case also serves as a reminder that companies should carefully consider whether to voluntarily waive the statute of limitations in any CBP proceeding.  CBP routinely requests importers to voluntarily waive the statute of limitations when prior disclosures are filed, at the outset of audits, etc.  It often does not explain very well (or at all) the consequences of providing such a waiver and can make it seem like doing so is required.  It is not (it is a voluntary act by the company) and, as Nitek shows, whether to do so should be considered carefully.

We hope this is helpful.  If you have any questions, please let us know.

Best regards,

Ted

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