Throughout the course of business, especially businesses involved in international supply chain processes, the issue of recordkeeping becomes prominent. Many trade professionals may be unaware of the guidelines and regulations for keeping records of shipped merchandise. However, US Customs and Border Protection (CBP) does not view ignorance of the rules as a rational reason for not complying with such rules. Before you find your business in the midst of a legal battle over penalties, fines, or other punishments for not adhering to the recordkeeping requirements, take the time to understand the following six points.
According the CBP, records refer to any information regarding importation, the transportation of merchandise into the US, drawback claim filing, the completion of a NAFTA export Certificate of Origin, documentation for the collection of taxes and fees for the CBP, and statements and other documentation. Furthermore, this data may be in electronic or digital format and include any items, such as computer software licenses, which are required to access such information. Ultimately, everything with information relating to the supply chain processes must be kept.
In 1993, the CBP enacted the Modernization Act (Mod Act) to clarify requirements for recordkeeping, which would alleviate the burden of trying to determine which records were to be kept. Remember this occurred prior to the rise of computers and storage software in many offices, so this Act pertains to the physical copies of records. However, the Mod Act also set forth which organizations, businesses, and tradesmen were required to retain records, what exceptions exist, and information pertaining to the method of storage of such records.
According to the Mod Act, anyone who imports merchandise into the US or a US territory is subject to the recordkeeping requirements unless he or she is an international traveler carrying non-commercial merchandise. For example, someone bringing back a few “souvenirs” from an international destination for personal use is not required to keep records. Furthermore, a person is not required to keep records if the merchandise does not contain technical data, equipment, or molds and if he or she controls the terms of such importation. However, even this type of imports requires declaration upon entry.
Every business owners knows the value of keeping detailed records for extensive time periods. Yet, the same business owners may also be considering their options for the destruction of records to free up computer storage space, physical storage space, or enhancement and organization of existing business practices. Generally, records for commercial-grade merchandise in international trade must be kept for a minimum of five years. However, some specific types of records may have shorter record-retaining requirements.
When in doubt of the length of time to retain records relating to international trade, err on the side of caution and retain all records for at least five years. Digital versions of records may be kept in cloud form unless the records are required to be kept in original format.
If a record-keeper uses an alternative storage method that has been approved by the CBP, according to section 163.5 of the CBP Regulations, he or she does not need to retain the original format of such records. Although such alternative storage methods are acceptable on a case-by-case basis, some additional requirements exist that may require original format of records be kept for a minimal time frame. For example, records for Federal agencies outside of the CBP jurisdiction may have unique requirements for recordkeeping. However, all records must be stored in a manner to enable immediate retrieval upon lawful request by any governing entity. In most cases, you should retain original records for a period of at least 120 days unless you fall into an additional jurisdiction of another Federal agency.
Every business uses digital storage as a way to improve productivity and enable rapid record retrieval and sorting. If your business would like to begin using an alternative method of recordkeeping, you must provide written notice to the Director of the Regulatory Audit Division in the CBP at the following address: 2001 Cross Beam Drive, Charlotte, North Carolina 28217-2856
Within the notice, you must include the specific storage device to be used and you must ensure it meets privacy and security standards, especially if the merchandise could be a threat to national security. Furthermore, the alternative recordkeeping method must have a standardized method of retrieval, the method must be able to be reviewed by the CBP upon request, the original format must be kept for 120 days, the records must be able to be transferred into a hard copy upon request, and the system must be tested once per year internally. If you fail to notify the CBP of the implementation of such a recordkeeping system, you may be subject to fines of up to $100,000, or 75% of the net value of the merchandise.
Although the sheer number of specifications and directions for recordkeeping spans hundreds of pages, you can ensure your business meets the CBP requirements by following each of the above-discussed points. By implementing the changes above and ensuring accuracy within each aspect of recordkeeping, you can keep your financial stakeholders happy, as well as the governing authorities.
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