Canada Initiating Compliance Verifications Against Exporters
The Canada Border Services Agency (“CBSA”) has issued formal notice that it is stepping up enforcement against exporters regarding their obligations to properly report exports from Canada with new audits focusing on exports of product moving in transit through the United States. It is understood that particular, although not exclusive, attention will be paid to automotive exports moving through the United States to Mexico and other countries.
Reporting requirements have long been a potential source of confusion for exporters of product from Canada. All who export to the United States should be carefully reviewing their reporting practices to ensure they are in full compliance with Canadian law and consider whether they ought to be coming forward to disclose violations during CBSA’s “grace period” in order to avoid the imposition of penalties.
Canadian and non-resident exporters of goods from Canada are subject to reporting requirements under the Customs Act and its Reporting of Exported Goods Regulations. CBSA’s guidelines for export reporting are set out in Memorandum D20-1-1, “Exporter Reporting” (September 1, 2015).
There are several exemptions from export reporting, including for non-restricted commercial goods valued at less than CDN$2,000 and for non-restricted goods exported to the United States. Non-restricted goods are goods the export of which is not restricted, controlled, regulated or prohibited by Canadian legislation. Goods controlled for export under the Export and Import Permits Act and its Export Control List are considered to be restricted goods for export reporting purposes.
On November 16, 2015, CBSA issued Customs Notice 15-035: “Voluntary Disclosure of Unreported Goods Transiting Through the United States to a Subsequent Country” (the “Notice”), a copy of which can be accessed here. The Notice states that CBSA is aware of a large number of businesses that have been exporting goods through the United States to Mexico and other countries without making proper export declarations.
Because the ultimate destination of such goods is a country other than the United States, the Notice states that such exports must be reported if their value is CDN$2,000 or more. In the case of such goods that are controlled and do not fall under a General Export Permit, the appropriate permit, license or certificate and an export declaration must be presented to CBSA prior to the export, regardless of the value of the goods.
Grace Period for Exporters to Voluntarily Disclose
According to the Notice, CBSA will be commencing compliance verification activities on June 1, 2016 to determine whether exporters have complied with these reporting requirements. There will be a six month grace period starting December 1, 2015 during which exporters may come forward to CBSA to voluntarily disclose export reporting violations in order to avoid penalties.
Exporters are expected to use the Voluntary Disclosure process described in Memorandum D11-6-4, “Relief of Interest and/or Penalties Including Voluntary Disclosure” (October 1, 2015). Among other requirements, such disclosures must be voluntary and complete. In the case of a disclosure for exported goods, it is considered to be complete if it includes “all incidences of non-compliance up to six years prior to the disclosure in addition to the current year.”
The Notice also states that goods exported after the issuance of the Notice will not be covered by the grace period. Presumably, an exporter who has not yet had a compliance verification initiated against it will be able to include non-compliant exports in a voluntary disclosure submitted in accordance with the requirements of Memorandum D11-6-4 regardless of whether such exports occurred before, during or after the grace period, although the Notice is not clear on this point.
CBSA has a number of options for penalizing exporters for failure to comply with their reporting obligations. Exporters may be subject to Administrative Monetary Penalties, detention and seizure of goods to be exported, and ascertained forfeiture. In the case of an ascertained forfeiture, CBSA may impose penalties up to the total value of the exported goods.
CBSA may also pursue criminal prosecution when it is of the view that an additional deterrent is warranted due to the seriousness of the offence.
Canadian and non-resident exporters should be reviewing their export practices during 2015 and the previous six years to confirm compliance with export reporting requirements, and in particular with respect to exports to the United States that subsequently transit through to other countries. If any non-compliance is discovered, careful consideration should be given to potential penalty exposure and determining whether a voluntary disclosure is appropriate in the circumstances.