Liquidated Damages

Liquidated damages are a noteworthy element of the importing process when something has gone awry.  A breach of bond conditions will result in these liquidated damages being assessed by US Customs and Border Protection (CBP) after liquidation has occurred.  No bond condition is immune to the effects of a liquidated damages claim once breached, and these claims are assessed fairly often.  For that reason, it is a good idea to keep due diligence in mind, and study the causes of these claims as well as their proper mitigation.  As always, CBP provides detailed explanations on these matters.  Feel free to take a moment to read this primer to kick-start your education, but refer to CBP and/or a licensed customs broker before making any decisions.

The cause: breach of bond conditions

There are several import bond conditions which, when breached, will result in a liquidated damages claim. This list is not inclusive, nor does it apply to every type of Customs bond. There are many different types of Customs bonds, each with their own unique bond conditions.

Agreement to Pay Duties, Taxes, and Charges. When duties are paid late, or not paid at all, this will result in liquidated damages.  Failure to pay the duties beyond this point will only exacerbate the situation.

Agreement to Make or Complete Entry. Failure to file the entry summary in a timely manner (or failure to file) will also result in liquidated damages assessment.

Agreement to Produce Documents and Evidence. If merchandise is released conditionally before all required documents are produced to CBP, liquidated damages can be assessed for failure to produce the necessary documents.

Agreement to Redeliver Merchandise. Also, if CBP demands that goods be re-delivered into their custody and an importer fails to do so, a liquidated damages claim will be filed.

Reimbursement and Exoneration of the United States. Exonerate the United States by taking responsibility for your importing actions, need we say more?

 

What to do if you receive a liquidated damages claim

There are a few roads that may be followed in handling a liquidated damages claim, depending on the circumstances.

Pay the claim:  Importers can, of course, pay the claim within the time prescribed. Importers have 60 days from the date of the mailing of the notice of the claim in which to pay. Payment of the claim relieves the importer of the right to petition. Thus, if you pay, you cannot petition.

Petition the claim:  Importers can choose to petition a liquidated damages claim. Importers, again, have 60 days from the date of the notice in which to petition. The petitioning process is drawn out in our recent article “Customs Bond Penalties Explained.”

Option 1 Resolution:  This is akin to settling out of court and is only available in some cases.  If a case is given an Option 1 mitigated amount, it is usually in the importer’s best interest to pay; for, if an Option 1 amount is petitioned and that petition is subsequently denied, the importer owes an additional $100.

When importers receive a liquidated damages claim, it is important for them to gather as much information as possible, consult a professional for advice, and act quickly to avoid further fees.  Keeping up with compliance, and mitigating claims are vital fundamentals of an importer’s due diligence responsibilities.