As U.S. Customs and Border Protection (“CBP”) endeavors to improve enforcement of U.S. trade laws, the option of imposing a single entry bond (“SEB”) requirement on certain types of shipments (or with respect to certain importers) has become much more important. CBP’s enforcement initiatives are, by necessity, largely retrospective in nature. When the agency suspects that an importer has entered merchandise through artifice or error in circumvention of law, it must conduct an investigation to prove that suspicion. In the interim, a problem is presented with regards to future importations made by the importer. By requiring additional security for future importations, CBP can both mitigate any harm that may accrue from an importer’s fraudulent or erroneous activities while, at the same time, incentivizing the importer’s full cooperation in the agency’s investigation.
In the context of widespread evasion of payment of antidumping and countervailing duties, CBP’s ability to impose SEBs to counteract unlawful behavior by importers is an essential enforcement tool. Paper entities are often used as importers to facilitate evasion schemes precisely because such entities can easily disappear and avoid any consequences for their actions once CBP’s investigation is complete. Because it imposes a burden on the importer, the imposition of an SEB requirement substantially limits the amount of merchandise that can be imported through fraud once CBP begins an investigation. The same is true for any other circumstance where CBP faces an investigatory burden. For these reasons, SEBs are crucial in a regulatory environment that depends upon voluntary importer compliance through the exercise of reasonable care and informed compliance.
With enhanced emphasis on SEBs, this particular enforcement tool has been subject to multiple challenges in federal court. Last week, the U.S. Court of International Trade issued a temporary restraining order preventing CBP from enforcing a requirement that each shipment into the United States imported by U.S. Auto Parts Network, Inc. (“U.S. Auto”) be accompanied by an SEB at three times the value of that shipment. CBP had imposed the SEB requirement after seizing vehicle grilles and associated parts imported by U.S. Auto, alleging that these parts bore counterfeit trademarks of original automobile manufacturers.
In the memorandum accompanying the order, the Court concluded that U.S. Auto faced irreparable harm in the face of the SEBs because the requirement “will cause it significant financial detriment resulting in likely closing its business.” The Court appeared to accept U.S. Auto’s assertion that “it has not been able to find a surety that will cover the bond requirement without full collateral, and the business cannot sustain itself on domestically-sourced inventory alone.” Based on these findings, the Court held that the balance of hardships lie with the importer and not with CBP, because U.S. Auto “is facing the closing of its business, loss of reputation, loss of customers, and other potentially permanent consequences due to the enhanced bond requirements.” The dire consequences pleaded by U.S. Auto are similarly applicable to virtually every other importer that relies upon importation and the sale of those imports as their principal business activity and is unable to demonstrate credit-worthiness to a surety in the face of a broad SEB requirement. This is peculiarly and particularly true for shell companies that exist only for the purpose of importation. And, in consequence, the entities most likely to be engaging in fraudulent evasion of U.S. trade laws are also, coincidentally, the most likely to benefit from any analysis that emphasizes the existential threat posed by a surety’s pricing determination in response to an SEB requirement imposed by CBP. In the absence of a fulsome explanation to the contrary, because the commercial service provided by sureties is the issuance of security for a fee, a refusal by sureties to issue SEBs in the absence of full collateral may reasonably be interpreted as confirmation of the risk posed by the importer’s activities. This is particularly true where paper importers and shell companies are involved, as the determination of the terms upon which a surety will issue an SEB are highly likely to be dramatically different than the terms upon which a large, established company with broad commercial operations will be offered a similar bond. Nevertheless, in the Court’s analysis of whether it should restrain CBP’s ability to implement an SEB, a private third party’s assessment of the severe risk associated with the importer is converted into support for the importer’s efforts to prevent enforcement action.
Even if the Court were to broadly accept U.S. Auto’s line of argumentation in other cases, the importer would still have to demonstrate that it was likely to succeed on the merits of its claims in order for a federal court to enjoin or otherwise restrain CBP’s enforcement actions. With respect to U.S. Auto, the Court noted that CBP had asserted that only roughly one percent of all of the company’s imports involved allegedly counterfeit goods, yet the SEB requirement applied to all of the company’s imports. The Court concluded: “Customs’ action of imposing an enhanced, punitive bond on all of Plaintiffs’ imports, when it actually should be directed towards only 1% of imports, is an abuse of discretion that is contrary to Customs’ mandate.” While prohibiting CBP from enforcing its blanket SEB requirement, the Court authorized the agency to “impose a single entry bond at three times the shipment value proportional to the percentage of allegedly infringing goods contained in the shipments . . . .”
The analysis adopted by the Court appears to apply a rule of proportionality as a limitation upon CBP’s discretion to impose SEBs. This would, in turn, imply that CBP is obligated to narrowly tailor any SEB requirement such that it is tied to some objective measure of the illicit activity believed to have taken place in the past. Whether such an approach has merit or not, as a practical matter, the grant of a temporary restraining order in these circumstances further encourages aggrieved importers to seek judicial review of the appropriate scope of individual CBP enforcement actions.
But, regardless of its breadth, an SEB requirement does not prevent an importer from continuing to import merchandise. Rather, the importer is required to post additional security – obtained from a private party source – to support its activities. As an enforcement tool, SEBs present an attractive alternative to other forms of enforcement that would require expedited assessments of penalties, seizures, or the institution of criminal prosecutions. Limits on CBP’s discretion to impose SEBs, particularly limits that dramatically narrow the scope of any SEB requirement that might be issued, will force the agency to pursue other enforcement options that are likely to be even more disruptive to trade.