Customs Modernization Act of 2023, the Metastasized Cancer of Regulatory Capture

For the last five years, a cabal of attorneys and trade compliance professionals have been plotting to destroy what’s left of U.S. customs law. Their primary goal? Cementing the legal underpinnings of the de minimis loophole and getting ahead of the backlash. This is necessary for them, because the exponential growth of de minimis shipments – now close to 3 million per day – has largely rested on a half-baked 1995 regulatory loophole and two U.S. Customs and Border Protection (CBP) “pilot projects”. To put themselves on firmer ground, the cabal has come up with the “Customs Modernization Act of 2023”. Passing this bill would accelerate the outsourcing of U.S. distributors and retailers while increasing contraband and narcotics imports. The sole beneficiaries are express shippers (FedEx, UPS, DHL) and e-commerce platforms that sell merchandise without taking ownership.

The Customs Modernization Act of 2023 cements the de minimis pilot projects, formalizing the ability of e-commerce platforms and express shippers to import without the liabilities and accountability of traditional importers. With it, the exponential growth in contraband and narcotics imports will continue unabated.

If you’ve never heard of de minimis, read “Falsehoods & Facts: The Truth About De Minimis“. In short, it’s a regulatory loophole created in 1995 that dispenses customs entry requirements for shipments if a foreign vendor claims the value as under $800 in their country.

Fair warning: the cabal uses boring language and even hosts boring – entirely scripted – public meetings to obfuscate what they’re up to. The aim is to generate generate years worth of mind-numbingly bland search results, discouraging scrutiny.

So with that in mind, let’s jump in.

The Cabal

The cabal enjoys privileged insider-access per Sec. 109 of the disastrous Trade Facilitation and Trade Enforcement Act of 2015 (“2015 TFTEA”). That provision created the “Commercial Customs Operations Advisory Committee” (“COAC”). COAC is an insider’s policy shop for the most powerful. It should not be confused with a traditional technical advisory group; CBP has one of those too.  (COAC should be abolished – but that’s another article).

A list of the organizations and businesses with representatives in the cabal is available on page 2 of this PDF. [Archive link here.]

Under the COAC Subcommittee framework, the cabal established secret working groups. How many working groups exist and who participated is unknown; no public list is available. These working groups flout the normal federal agency rule-making transparency requirements established by the Administrative Procedures Act. The COAC’s working groups also facilitate the regulatory capture of CBP headquarters personnel by giving the powerful organizations an ongoing evaluation of whom within CBP HQ is most compliant. Finally, the COAC gives an official agency-approved gloss to the cabal’s plan, as CBP staff sit in on all the working group sessions. Working group meeting minutes are not public.

As for the non-CBP individuals involved, they are typically either attorneys or trade compliance managers. This is highly problematic, because both groups are singularly focused on minimizing liability for their employer or client. The COAC was blasted by lawmakers when its representatives sent recommendations to weaken forced labor enforcement.

“21CCF” – a boring name for the Cabal’s de minimis plan

CBP and the COAC settled on “21st Century Customs Framework” (“21CCF”) as the name for their de minimis project, and it even has a mind numbingly boring webpage at CBP.gov. CBP officially announced it in late 2018 in the federal register. While neither de minimis nor Section 321 was named, deeper down in the announcement was the crux of the issue:

“CBP’s traditional legal frameworks were developed to primarily reflect containerized shipments and the supply chain to support such shipments, as opposed to small packages and business models built around e-commerce.“

Got that? CBP cautioned that our customs law does work for containerized shipments going to established importers, but it does not work for small individual consumer shipments. See our article “Small Package Shipment Imports Don’t Work: Evidence Pours In” for more on the problems, as well as an explanation of how things used to work before the de minimis loophole.

By 2018 though, e-commerce platforms and express shippers were leaning hard into the de minimis loophole, and the cabal knew they had to get ahead of it. 21CCF was a perfectly boring name to mask what this was all about.

The Cabal’s de minimis “pilot projects”

In the months that followed the 21CCF notice, CBP launched both a de minimis “Section 321 Pilot Program” and a “Type 86 Entry Test“. The 321 pilot was limited to three e-commerce platforms: Amazon, eBay, and Zulily. These platforms had already been facilitating de minimis imports, but without taking any responsibility for the shipment or even providing any data to CBP. Indeed, they had no mechanism to provide any data to CBP, because they did not claim to have any interest in the merchandise, which CBP expects of importers.

Having no data is ‘problematic’, so the Section 321 pilot was created to allow Amazon and eBay to provide data about merchandise to CBP – but without any responsibility.

The other pilot project, called “Type 86 Entry”, was framed as a ‘test’ (indefinite), despite de minimis shipments being exempt from entry requirements. Unlike the Section 321 pilot, Type 86 let express shippers and logistics firms voluntarily provide additional data about merchandise to CBP – again without accepting any responsibility. The benefit here was to avoid slow downs for shipments subject to other agency notification requirements. For example, children’s toys require pre-import notification to the Consumer Products Safety Commission (CPSC). If a customs officer standing by the conveyer belt at JFK Airport’s international mail facility happened to glance down and see the word “Toy” scrawled on a China Post package, he or she would be compelled to pull it aside and notify CPSC. With Type 86, that notification is automatically sent to CPSC, so CBP can “release on manifest” the toy into U.S. commerce, satisfied that its responsibility to notify CPSC has been met. CPSC said itself back in 2019 that they “anticipate that it will benefit little from the test and will continue to experience the data and targeting challenges” with de minimis shipments.

The pilot projects failed

No surprise the projects failed. Sal Ingrassia, former port director at JFK Airport (which had him overseeing about one-third of the de minimis entries to the U.S.), told an audience at CBP’s Trade Facilitation and Cargo Security Summit last year that “It was alarming to see we had so many violations” in the Type 86 pilot. And even when CBP asked a Type 86 participant to hold a shipment, 25% of the time they failed to do so and released it into U.S. commerce. Imagine if 25% of the trucks driving up to a port of entry simply flew by the customs officer without stopping. This is the lawlessness within a voluntary data pilot!

It gets worse. In September, 2023 International Trade Today reported that CBP broker management officials had “recently visited nearly a dozen different brokers who had filed more than one Type 86 entry for a package that CBP discovered contained fentanyl.” These are shipments where foreign vendors actually engaged a licensed U.S. customs broker to take advantage of Type 86’s expedited release, and used it to traffic fentanyl! And individual brokers were caught multiple times! Do you think you would be walking free if you signed up for Global Entry, and were caught multiple times at the airport international arrivals with fentanyl in your bag? But this is what happens when accountability is removed.

None of the above should be surprising. The Express Association of America even predicated as much, writing in a submission to CBP that: “A sophisticated shipper of illicit goods will find ways to provide the required information and thereby hide its true identity by appearing to meet the program’s requirements. An unsophisticated shipper of illicit goods will change its identity (name and address) every time it is caught and continue in business under a new identity.” (Comment ID USCBP-2019-0024-0049)

The pilots proved again what we already knew: electronic data submitted by those without accountability is junk

In 2018, the explosion of small package imports was well underway, including a tidal wave of fentanyl shipped from overseas into the United States via the mail. Congress responded by passing the Synthetics Trafficking and Overdose Prevention (STOP) Act. The premise of this law was that we must require foreign postal authorities to provide “Advance Electronic Data” with their mail packages so that CBP can somehow sleuth out and intercept the narcotics. This was doomed to failure, as was predictable. In 2018, the U.S. Senate’s own Permanent Subcommittee on Investigations staff report determined – per Finding of Fact No. 16 – as follows:

(16) The [Advanced Electronic Data] the Postal Service receives from foreign postal operators is of low quality. The data reviewed by the Subcommittee did not contain standard fields or address constructions. Sender name and address were rarely provided. At times, the data was a long line of illogical letters and characters.

Well, the law was passed, China Post has been providing digital data for 99%+ of its mail packages for the last several years, and nothing has improved. At the most recent COAC meeting on Dec. 13, 2023, CBP’s Troy A. Miller, CBP’s senior official performing the duties of the commissioner, told the cabal:

“Fentanyl has contributed to more than 100,000 overdose deaths in the United States over the last two years. Far too many of us have friends, family members, and colleagues who have been affected,” said Miller. “We know that a common pathway for fentanyl, precursor chemicals, and pill presses to get into the hands of transnational criminal organizations is through small package shipments, especially in air cargo. In fiscal year 2023, CBP cleared over one billion de minimis shipments,” he said. “While screening these shipments is incredibly challenging, CBP will continue to work with the COAC to achieve our dual mission of facilitating economic growth and trade while mitigating the risks that come with that growth.” (Emphasis added)

Also at this COAC meeting, it was announced that Christa Brzozowski, Senior Manager of Public Policy at Amazon, had been hired as the U.S. Department of Homeland Security’s assistant secretary of trade and economic security. The following week, a posting in the Unified Agenda indicated that CBP intended to propose a rule that would convert the pilot projects into permanent regulation. The swamp marches on.

How the Customs Modernization Act of 2023 makes things worse

Sec. 101 of the bill

Recall from above that the reason the pilot projects were necessary was because CBP had no way for parties not responsible or accountable for imported merchandise to submit information for that merchandise.

Sec. 101 of the bill modifies Section 484(a) of the Tariff Act of 1930 (“Entry of merchandise”) [19 U.S.C. 1484(a)] to explicitly allow “a party other than the party or agent” to provide data for the shipment. This destroys a central principle of customs law. The entire reason we demand that importers have a financial interest in the merchandise they import is because we want them to be knowledgeable about the import so they can answer questions about it. They should not have to defer to someone else!

So, what responsibility does the “other party” who is now providing info have? Well, they “shall ensure that the documentation or information is true and correct to the best of the knowledge and belief of the party”.

This is an absurdly subjective standard for customs. But to be extra sure that neither e-commerce platforms nor express shippers could ever be successfully prosecuted by DOJ absent extraordinary investigative resources and detective work by Homeland Security Investigations (HSI), Sec. 101 follows with an “Exception” that makes clear it’s not serious about the “shall ensure” part. Sec. 101 says the implementing rules shall:

“permit a party to provide to U.S. Customs and Border Protection documentation or information under clause (i)(I) on the basis of the reasonable belief of the party that the documentation or information is true and correct if the party is not reasonably able to verify the documentation or information.“

What this means is that if Amazon “is not reasonably able to verify” a Chinese vendors’ claim that a package of “buttons” isn’t a package of super-fentanyl, then all that matters is whether Amazon had a “reasonable belief” that the “information is true and correct”. In practice, this could never mean more than ‘were you aware this vendor was a fentanyl trafficker’.

#AllInADaysWork Recently, @CBP officers assigned to @JFKAirport's International Mail Facility discovered designer pills in a package manifested as "buttons."  After further testing, these deadly pills were discovered to be 20x stronger than Fentanyl! pic.twitter.com/M1182fYAoM

— Director of Field Operations, Francis J. Russo (@DFONewYork) May 9, 2023

So, no one is going to be successfully prosecuted.

But even if they were, the bill ensures they won’t be inconvenienced by the penalty! The penalties are a maximum $5,000 fine for the first violation, $10,000 for the subsequent. (This gets further weakened in Sec. 401.)

Here’s an example of where the penalty may come into play: assume FedEx was so reckless as to accept a fentanyl shipment from the dumbest drug dealer in Asia who used his real name despite having prior fentanyl shipments seized with his name on them. He didn’t think to use an alias the second time, and FedEx didn’t catch it. At that point, hopefully, FedEx could be fined the $5,000 because at that point, the reasonable belief standard could be overcome for packages from that particular dealer.

Section 101 though still has more protections for the carrier! The bill commands that Customs when developing processes for assessing the fine “shall give due consideration” as to “whether such documentation or information would facilitate the priority processing and expedited release of merchandise from customs custody”.

Basically, Sec. 101 says to Customs, “HEY – what if the information had been true, would it have been helpful to trade facilitation?”

Sec. 102 and 103 of the bill

In line with the above, these sections amend the record keeping requirements in Sections 508 and 509 of the Tariff Act of 1930. It adds “commercial or marketing platform or marketplace” to the traditional parties in an import: owner, purchaser, or agent of the owner/purchaser. E-commerce platforms will now have the legal framework to provide merchandise information, with no meaningful accountability for veracity, to share certain records with customs.

However, not contemplated in the bill is how CBP is supposed to summon someone outside of U.S. jurisdiction. This wasn’t an issue before, because prior to de minimis, all importers were required to already be subject to U.S. jurisdiction.

Sec. 302 of the bill

Currently, customs law has three standards for fraud and negligence, defined in Section 592 of the Tariff Act of 1930. These are: fraud (highest penalties, highest burden of proof), gross negligence (in between), and negligence.

Sec. 302 deletes “gross negligence”, leaving only simple negligence, and the much more difficult to prove fraud standard.

Sec. 401 of the bill

This section directly amends the de minimis provision, Section 321 of the Tariff Act of 1930, to do by legislation the vandalism currently done by regulation. And it recreates in Section 321 what the bill already did to Section 484(a) for entry more broadly.

But here, the theoretical penalty is weakened even further. Section 401 says that if Amazon or some such party was found to have not reasonably used the “my truth” standard with respect to an imported article, then they are “liable for a civil penalty in an amount not to exceed the amount that is 3 times the amount of duty applicable to the article.” THIS. IS. A. JOKE. Roughly 70% of all products enter the United States duty free. Three times Zero is Zero. The remaining 30% are overwhelmingly likely to face a duty of less than 5%.

Imagine Amazon’s fear of having to pay $6 because they “unreasonably” violated their “beliefs” and misclassified an item with a $2 duty.

Think any customs officer will ever waste their time on this? No. The penalties are a mirage to give legitimacy to anarchy.

This bill must die. Congress should return the de minimis threshold to the $5 it was in 1994, and undo the destructive 1995 regulation that enabled ‘manifest release’.