Executive Order to strengthen customs enforcement imposes restrictions on foreign importers

Foreign IOR definition

The EO imposes several new requirements that are of significant concern for non-resident importers. Under the EO, “Foreign IOR” is defined as an entity lacking one or more of the following attributes: (i) U.S. organization or principal place of business; (ii) physical presence with “significant business activity”; (iii) sufficient domestic assets/real property; or (iv) U.S. controlling beneficial ownership. CBP defines “sufficient domestic assets” based on the “size and scale of the overall operations of the company and whether the entity is an instrumentality of a foreign manufacturer without a substantial United States presence.”

While this provides an initial framework understanding of a Foreign IOR, significant detail on this standard is left to be determined by CBP.

Key substantive changes affecting Foreign IORs

In addition to restricting Foreign IORs’ ability to import into the United States, the EO contemplates the following limitations on Foreign IORs:

• A Foreign IOR must be (a) validated under CBP’s Customs Trade Partnership Against Terrorism (CTPAT) or (b) use a CTPAT-validated customs broker;
• A Foreign IOR must rely on single-entry bonds by default, with continuous bonds restricted unless specifically approved by CBP; and,
• A Foreign IOR must adhere to more stringent bond requirements, with CBP having discretion to determine adequacy of bonding or a “minimum level of tangible domestic assets”

Taken together, these changes impose significant new obligations on non-resident importers.

Other policies affecting all importers

The EO would also expand reporting and compliance obligations for all IORs, regardless of whether the IOR is domestic or foreign. These additional obligations include requirements that an IOR provide CBP with additional data and identification information like anticipated import volumes, the year the entity was organized, beneficial ownership disclosures, business affiliation disclosures, and domestic asset disclosures. The EO also contemplates that CBP may request any other information that it deems necessary.

Furthermore, the EO instructs CBP to require submission of foreign customs documentation and to revise its mitigation guidelines, requiring a minimum penalty floor of not less than 50 percent of the assessed penalty. This significantly tightens the mitigation discretion by the agency relative to the DHS mitigation guidelines reimplemented in 2023, which authorize CBP officers to weigh aggravating and mitigating factors when encountering individuals who do not pose a threat to national security, public safety, or border security. While the EO does not eliminate CBP’s ability to consider aggravating and mitigating factors, it constrains that discretion by establishing a minimum penalty threshold.

Additionally, the EO instructs CBP to impose a “good standing” requirement and directs CBP to define the term based on the IOR’s and its affiliates’ history of compliance with U.S. customs and trade laws and regulations and payment of required customs liabilities, among other relevant considerations. The EO directs CBP to prohibit IORs that are not in “good standing” from importing directly into the United States, “or otherwise conduct activities directly related to the importation of goods, including designating a customs broker to act as IOR on their behalf.” This is a sweeping and novel requirement that could significantly restrict an IOR’s ability to import.

Timeline for implementation

As a general matter, much of the substance of these policy changes—including the specific criteria for determining entities that are considered “Foreign IORs”—are left to CBP. While some of these deadlines are six months away, others (including certain threshold issues that may have immediate implications for non-resident importers) are expected “promptly.”

A summary of the actions required of CBP under the EO is detailed below.

1. CBP must promptly:

• Impose restrictions on Foreign IORs’ use of informal entries, and
• Require Foreign IORs to use formal entry (e.g., CTPAT validation or use of CTPAT-validated and licensed broker)
• Limit continuous bond usage for Foreign IORs

• Submit proposals to the President for statutory changes to strengthen customs enforcement authority (likely covering bonding, penalties, and importer eligibility).

• Impose a requirement for IORs to submit documentation that was filed with the foreign customs authority prior to the export to the United States, and CBP must align its data collection with origin-country filings to improve verification;
• Revise mitigation guidelines to establish a penalty floor not less than 50 percent;
• Implement procedures to expedite seizure and disposal of non-compliant imports, increase bond requirements for high-risk shipments, and remove barriers to voluntary abandonment; and,
• Improve transparency by establishing “various requirements, standards, and practices” (e.g., annual enforcement transparency reports from CBP).

• Revise regulations to require minimum domestic assets and/or bonding for all IORs, increase minimum bond coverage levels. and ensure that the bond/asset requirement applies to all entries;
• Require IORs to submit enhanced identification data (including all data described in the section above—e.g., beneficial ownership);
• Define and enforce IOR “good standing” criteria and deny import privileges to non-compliant IORs;
• Update the IOR registry and create risk-based tiers based on compliance history and audits; and,
• Implement enhanced vetting for importers (including Foreign IORs), customs brokers, and freight forwarders.

No fixed deadline:

• CBP must develop requirements for supply chain data, certifications, and foreign tax disclosures.

Ongoing:

• CBP is directed to increase audits, bond enforcement, restrictions on in-bond movement, and penalties on brokers for inadequate due diligence, and
• Establish a penalty mitigation floor of 50 percent and increase application of “maximum penalties” for certain types of violations.

These new enforcement directives impose significant obligations and compliance requirements on all IORs, both resident and non-resident, and will materially affect the ability of Foreign IORs to import into the United States.

Foreign IORs should assess their ability to adapt to these new requirements—including, in the short term, whether their customs brokers are CTPAT-approved. U.S. companies should also be aware of the impact these changes may have on DDP arrangements for imports.

Authored by Jonathan Stoel, Craig Lewis, Nicholas Laneville, Gregory Van Hawk, and Dexter Woods.