Archive | August 2012

Cleveland Metropolitan Bar Association, International Law Section Fall/Winter Schedule

As Chair of the Cleveland Metropolitan Bar Association, International Law Section, I am pleased to announce the upcoming Fall/Winter meeting schedule. 

I want to extend a thank you to each area practitioner (and a colleague from Toronto) who has given a presentation and led a discussion at our meetings this past year on topics ranging from doing business in China and Brazil to compliance with the FCPA, choice of law, and litigating Canada-U.S. disputes.  I chipped in with an update on economic sanctions.  I also want to thank each of you who have attended the ILS meetings and continue to support our growing Section, helping to make it a valuable and vibrant Section. 

The Fall/Winter meeting schedule kick off on September 6 with “What Every Lawyer Should Know About Export Controls:  From Compliance to Investigations.” The presenter will be Special Agent Jake Oakley, U.S. Department of Commerce, Bureau of Industry and Security, Office of Export Enforcement and the meeting will be at the CMBA offices.

On October 4, Michael Garvin, Partner at Hahn Loeser, will lead a discussion on “Global IP Enforcement Strategies:  A Litigator’s Perspective.”  The meeting will be held at Hahn Loeser. 

Larry Crowther, Partner at Wegman Hessler will give a presentation on “Preparing and Negotiating International Supply Agreements.”  The meeting will be held at Wegman Hessler on November 1

We will end 2012 with Rob Whittall, CPA, ACA, Partner at Dyke Yaxley, LLC, providing a unique presentation on “Navigating U.K.-U.S. Tax Issues.”  The meeting will be held on December 6 at the CMBA Offices.

Each meeting begins with lunch at noon, followed by a 1.0 CLE presentation and discussion.  Meeting notices and registration information will follow in the coming weeks  We will not have a January meeting and presentation on the first Thursday of the month due to the holidays.

Lastly, please save February 7, 2013 for a special half-day CLE morning program.  Details are being worked on, but 3 panel discussions are planned.  Anyone interested in helping to plan or present at the meeting, please should contact me early at or calling at 216.928.3474.

I look forward to growing the International Law Section with your support and hope to see you at our upcoming meetings.



Court of International Trade Upholds Dismissal of Customs Negligence Penalty

This month the U.S. Court of International Trade denied the Government’s motion for reconsideration of the Court’s prior dismissal of a Customs penalty claim based on negligence.  The dismissal was based on failure to exhaust the administrative remedies.

As the doctrine indicates, before proceeding to court to recover on a penalty claim, Customs has to “perfect” each penalty claim that the Department of Justice pursues recovery on in the Court of International Trade.  If Customs fails to do so, the Court lacks jurisdiction over the claims that are not “perfected” administratively.

In U.S. v. Nitek Electronics, Inc., Case No. 11-00078, the Government argued in its motion for reconsideration that the Court clearly erred in its prior decision to dismiss the negligence penalty claim.  Prior to addressing the arguments, the Court noted that “mere repetition of unsuccessful arguments is an improper use of [a motion for reconsideration] and a needless delay to finality.”

The Court rejected the Government’s primary argument that because penalty actions are brought de novo, the fact that Customs did not impose a negligence level penalty in the administrative proceedings is not a bar to bringing the claim in court for the first time.  The Court immediately pointed out that the Government raised this same argument in its response to Nitek’s motion to dismiss.  The Court was no more receptive to the argument the second time around.

The Court explained that § 1592(e)(1) allows it to decide the appropriate remedy “without being tethered to the claim imposed below,” and that the statute merely “indicates the lack of deference the Court affords Customs’ penalty determinations.”  It went on to explain (again) “that § 1592 creates a cause of action for the government not to impose a penalty claim but to recover a penalty already imposed at the administrative level.”  This means that “[t]he precise penalty claim Customs imposed for one of these three levels of culpability is thus central to the Court’s review,” citing prior decisions that held the scope of de novo review is limited to those issues considered in the proceedings before Customs.

The Court reviewed a long line of Customs penalty decisions that showed exhaustion of administrative remedies is routinely required before proceeding in the Court of International Trade.  This led the Court to find the Government “is simply incorrect in asserting lack of any controlling law on the issue of exhaustion in de novo proceedings.”

The Court also rejected (for a second time) the Government’s “lesser included offense” argument.  The Government argued that it met the statutory requirements and that Nitek was on notice of a negligence penalty claim because the elements of that claim are included in the Government’s claim for gross negligence.  But the Court noted that the Government could still not cite to any authority “that demonstrates that the criminal doctrine of lesser-included culpability applies to the (vastly distinguishable) context of civil penalties imposed pursuant to § 1592.”

Finally, the Court rejected the argument that its decision to dismiss the negligence level claim encroached on the Department of Justice’s ability to “independently evaluate Customs’ penalty claim prior to instituting § 1592 actions.”  The Court’s response to this argument was predictably simple: “It seems, however, that the predicament DOJ faced could have been avoided had Customs imposed a claim for gross negligence and negligence, thereby perfecting each claim.  The Court has entertained § 1592 actions to recover penalties Customs imposed for alternative levels of culpability.”  In other words, Customs should have known better and asserted alternative culpability level claims administratively so the Justice Department could bring seek to recover on those claims.

This decision makes it almost certain that companies and other culpable parties for Customs penalty cases will see Fines, Penalty & Forfeiture asserting (“perfecting”) alternative culpability level claims administratively with more regularity.  While fraud and gross negligence penalty cases certainly have “shock and awe” value, Customs risks losing those claims altogether if the Justice Department determines the evidence is not sufficient to prove them.

Therefore, Customs will need to perfect a negligence level penalty claim administratively in nearly every case to avoid outcomes like Nitek.  In some instances, this could help importers facing Customs penalty liability because it brings into play a lower penalty level exposure which might be more attractive, at times, than having to defend against the risk of a higher level penalty even if the evidence does not appear to overwhelmingly favor Customs.  Interesting strategy scenarios may play out where FP&F does not assert a negligence level penalty administratively.  Does this open the possibility for the importer’s counsel to suggest or even negotiate the inclusion of a negligence level penalty?



Upcoming Presentations in Buffalo and Cleveland Focus on U.S. Export Controls

In September, Jon Yormick will speak on U.S. export controls and offer guidance on compliance measures organizations must take in this era of investigations, enforcement, and increased penalties.

On September 19 in Buffalo, Jon will address the American Immigration Lawyers Association Upstate New York Chapter at its dinner meeting, “What Upstate NY Immigration Lawyers Should Know About Export Controls.”  His presentation will focus on the I-129 Part 6 Certification requirements and the role of immigration counsel in export controls compliance.  Jon will discuss specific issues regarding compliance with the deemed export rule, including dual/third-country nationals, TN and B-1 visa, and staffing company concerns.  He will be joined by Jim Trubits of Mohawk Global Advisory Services.  The meeting will be held at the Protocol Restaurant and be videotaped for Lawline CLE.

Two days later, on September 21, Jon will speak at the Ohio Aerospace Institute’s Industry Roundtable meeting on “Busting Myths of DDTC Registration.”  He will debunk misconceptions and misunderstanding about registration and provide guidance on what aerospace, defense, technology companies and universities need to know about registering with the Department of State, Directorate of Defense Trade Controls (DDTC) for items and technical data on the U.S. Munitions List and provide an update on Export Control Reform (ECR).

CBP’s New Transfer Pricing Policy Goes into Effect

Last week, a new rule finalized U.S. Customs and Border Protection (“CBP” or “Customs”) went into effect regarding transfer pricing.  This marks a new policy for CBP and offers companies involved with related-party sales opportunities for post-importation adjustments to the price of the imported goods.

Historically, CBP allowed post-importation price reductions on the entered value only where the adjustments were made according to a formula in place prior to import and written transfer pricing policies and there was no “control” in the adjustments.  Under the new policy, CBP will accept an importer’s use of transaction value in related-party sales if a specific 5-factor test is met, summarized as follows:

1.  A written “Intercompany Transfer Pricing Determination Policy” must be in is in effect prior to importation that takes into account Internal Revenue Code § 482 (Allocation of income and deductions among taxpayers)

2.  The U.S. taxpayer importing company uses its transfer pricing policy in filing its income tax return, and  adjustments under the policy are reported in the income tax return; 

3.  The transfer pricing policy states specifically how the transfer price and adjustments are determined as to all products covered by the policy;

4.  The company maintains and provides accounting details in its books and financial statements to support the claimed adjustments in the U.S.; and 

5.  No other conditions exist that may affect the acceptance of the transfer price by CBP.

If these factors are met and it can be shown that the relationship between the importer and exporter influenced the “price actually paid or payable,” Customs will now allow importers to make both upward and downward post -importation adjustments into account to determine the “transaction value,” used for entry purposes.

Importers are reminded that under this new post-importation adjustment policy, CBP strongly recommends participating in its Reconciliation Prototype Program, although it is not required for use of the new policy.  

For companies engaged in a large volume of related-party import transactions, the new transfer pricing policy provides greater opportunities for duty savings and even duty refunds.

Tax advisors and companies needing assistance with this new Customs transfer pricing policy and any other U.S. Customs issues can contact Jon Yormick, or calling Toll Free (Canada & U.S.), +1.866.967.6425, or +1.216.928.3474. 

Vessel Certificate that Goods Allowed to Enter Oman Leads to Antiboycott Penalty Settlement

A recent Antiboycott penalty settlement serves as a reminder that U.S. parties have a dual obligation under the Antiboycott regulations and must diligently work with outside agents, such as document preparation specialists, to comply.

The Office of Antiboycott Compliance, Bureau of Industry and Security (OAC), alleged that in June, 2007, Polk Audio, Inc., a Maryland company, the company intended to “comply with, further or support an unsanctioned boycott” and failed to report the request that it “engage in a restrictive trade practice or boycott.”  In the May 17, 2012 Proposed Charging Letter, the OAC alleged that Polk Audio’s “document preparation specialists” provided a vessel certificate to “persons in Oman” that certified the “vessel carrying the goods is allowed to enter the ports of Arab States/Oman.”

The second charge – failure to report – explained that the vessel certificate request originated in a letter of credit issued by HSBC Bank in Oman.  By failing to report this request, Polk Audio allegedly violated the Antiboycott regulations a second time.  The proposed charges were settled for a relatively minimal $8,000, not an uncommon amount for an OAC settlement.

This minimal settlement amount, however, should not be shrugged off by U.S. parties.  First, exporting companies should confirm that their export compliance management program addresses the Antiboycott regulations; specifically, the dual duties – reporting a request to engage in a boycott, and not complying with that request.  The OAC has all the details on the BIS website at,  As this settlement shows, companies that export on letters of credit need to carefully review the terms for language that requests actions that violate the Antiboycott regulations and when outside agents handle letter of credit review and preparation, exporters must be sure those agents are familiar with the regulations as well.

Also, the minimal settlement in Polk Audio was in connection with a single transaction occurring 5 years ago.  Large volume exporters to and those bidding on tenders and responding to RFPs in Middle East countries should be particularly diligent in their compliance efforts. Just 2 years ago Daewoo Auto settled 59 Antiboycott violation charges for $88,500.  So these penalties can add up quickly.  Many companies may need to conduct an internal review of their transactions in the past 5 years and consider a voluntary self-disclosure regarding any Antiboycott violations that may be found.

At the recent BIS Update 2012 Conference, it was noted that the OAC tends to see over-reporting by some companies.  It is not a violation to over-report questionable Antiboycott requests; rather it is a sign of a robust export compliance program.  It was also noted that the OAC can assist U.S. companies by working with different governments to exclude offending language found in tenders, RFPs, and other documents.

For assistance with issues regarding the Export Administration Regulations, including the Antiboycott regulations, please contact Jon Yormick, or call Toll Free (Canada & U.S.), +1.866.967.6425, or +1.216.928.3474.