Subpoenas: What You Need to Know

A surprising number of our clients have received subpoenas in civil suits or from Federal agencies lately, and there tends to be a bit of confusion about what exactly the implied responsibilities are regarding subpoenas. As such, it seemed only appropriate to author a blog on the topic this week.

To start, let’s review what a subpoena is. Officially, a subpoena is a writ issued by a government agency to compel the production of evidence. Most often subpoenas will be issued by courts, although they can technically be issued by any court official, including lawyers. If a subpoena is being issued by a private party, such as a lawyer, it must be in relation to an active case. Otherwise, the subpoena will not be considered valid. This is not true for government agencies though; agencies have the ability to issue subpoenas for investigative purposes at any time. It is important to understand this distinction because you would not want to make the mistake of producing information in relation to a subpoena that is not actually valid.

It can be confusing when a client receives a subpoena from an agent of state government, or a state court, for information that is federally protected.   Customs brokers are beholden by law and regulation to keep their clients’ information confidential.   What if a state judge demands production of federal (Customs brokerage, for example) records?  This apparent conflict leaves people wondering exactly which agency they have a responsibility to: Federal licensing authorities and their regulations, or state courts and their rules? The answer is that you are subject to your state court judges. You sit within the jurisdiction of your state, therefore they have the power to make you produce even most federally protected documents. If state court judges are subpoenaing material for a strictly federal matter, they may not be able to do anything with the information obtained, but they do still have the power to make you produce it. This may seem counterintuitive, but it is important to understand how the system works.  This is especially important for federally licensed Customs brokers and freight forwarders to understand, as they will likely encounter this situation at some point in their careers.

One last important point to note is that when requesting you produce documents, most subpoenas will say you must appear “with” the required materials. However, it is almost never the case that you actually  need to physically appear. It is important to understand that subpoenas are not the same as depositions. With depositions, you are required to appear in person to give your recorded testimony; whereas with subpoenas, faxing or mailing the required information will almost always suffice.

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Please note: Contact your own legal counsel immediately should any of the above situations arise.  We are providing general information which may not be applicable to the actual situation you find yourself in.

Confidential Export Information

It is always important to ensure that you are completing international shipping documentation accurately.  One of the documents required for each single commodity  exported having a value exceeding $2,500 is a Shipper’s Export Declaration (SED).  SEDs essentially allow the Census Bureau to keep track of what is being exported from the United States.  Back when I started, in the Bronze Age, SED’s were yellow forms for most exports, and pink for goods in transit.  Today the SED filings are done via Census’ AES system, either via your link or on the web at AESDirect (https://aesdirect.census.gov/).  These filings are the means for compiling U.S. export statistics, which help the U.S. government in managing export control and, when compared to Customs’ entry information, generate balance of trade information.  Given that this information is used for critical national reporting measures, it is of the upmost importance that SEDs are completed both accurately and honestly.  To help promote honest reporting, SEDs are completely confidential.  As a result, you cannot be forced to produce copies of SEDs and you will never be required to disclose information reported within.  It cannot be disclosed to any party other than the Census: See 15 USC 30.60:

Confidentiality: The Electronic Export Information (EEI) contained in the Automated Export System (AES) isconfidential and is to be used solely for official purposes as authorized by the Secretary of Commerce.  The collection of EEI by the Department of Commerce has been approved by the Office of Management Budget.  Only the U.S. Principal Party in Interest (USPPI) or the USPPI’s agent may have access to its AES record.  It is prohibited to share the EEI Information with a Foreign Government or entity, or any other party for non-official purposes.”

The information you disclose on an SED is known as Electronic Export Information (EEI); this is the electronic data detailing your shipment which is collected by the government. There are certain regulations mandated when preparing an SED; to insure that you are in compliance with the requirements, please visit the guide published by the Census Bureau posted below. It is important to note that even though you cannot be forced to produce copies of an SED to any entity (with the exception of the United States government), you are still responsible for maintaining copies of shipping documents for a period of 5 years.  These documents are required to be kept for statistical purposes.  Be sure to download these excellent guides for your professional library:

Sources:

https://www.census.gov/foreign-trade/schedules/b/2011/correctwayforb.pdf

https://www.ups.com/media/en/sed_guide.pdf

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FDA Food Labeling Requirements

The Food and Drug Administration (FDA) is the entity responsible for monitoring and assuring that all foods sold within the United States are “safe, wholesome, and properly labeled.”  Because we get so many inquiries on the subject, I thought a blog on it would be appropriate.

There are various guidelines governing the way to properly label food products, and it is important to ensure you are operating within these regulations.  These rules apply not only to food produced within the United States, but also to food being imported from foreign countries. Here  we will examine a few general principles of labeling, but please be sure to visit the FDA’s Food Labeling Guide for further detail.  This site allows for the guide to be downloaded in various languages including English, Spanish, Arabic, Hindi, Chinese, and Japanese.

Before reviewing what should be included on an information label, let’s begin by discussing where exactly label statements must be placed. There are two important terms we need to understand here; the principal display panel and the information panel. The principal display panel (PDP) is defined as “the portion of the package label that is most likely to be seen by the consumer at the time of purchase.” The information panel is located directly to the right of the PDP, as seen from the perspective of a consumer facing the product.

labels1

These two sides of the packing will contain a lot of important information pertaining to your product.  According to the FDA,  the PDP must contain both the statement of identity and the net quantity statement for your product. Essentially, this means you need to include the name and amount of your food/product.  The information panel will contain more of the specific details.  The FDA requires that the information panel include “the name and address of the manufacturer, packager, or distributor, the ingredient list, nutrition labeling, and any required allergy labeling.”  These statements must appear together and without any intervening material separating them.

The formatting requirements of labels are very specific.  In general, the standard provided by the FDA is to “use letters that are at least one-sixteenth inch in height based on the lower case letter “o.” The letters must not be more than three times as high as they are wide.”  It is important to realize that while this is the general standard, different elements of the label will have their own specific requirements. For example, required type sizes for the statement of identity will be different from those for the Nutrition Facts label.

While we hope this post served as a good introduction, please visit the FDA page referenced above for the complete Food Labeling Guide; it will detail all requirements of FDA labels. For periodic updates on important topics such as this, subscribe to our blog today!

 

Source: “U.S. Food and Drug Administration.” Food Labeling Guide. 2013. Web. 22 Oct. 2015.

Fiduciary Responsibilities of Ocean Freight Forwarders Compared to NVOCCs

It is crucial to understand the type of relationship you have with someone, i.e. the duties and/or responsibilities owed to a party based on their interaction. Today we are taking a look at the fiduciary relationship, questions regarding which arise during Federal Maritime Commission (FMC) audits.  A fiduciary relationship is defined as, “a legal duty to act solely in another party’s interest.  Parties owing this duty are called fiduciaries, and the individuals to whom they owe the duty are called principals.”[1] Essentially, fiduciaries have a duty to act in the best interest of the principal, and this duty is breached when they make decisions based on self-interest or self-gain.   We are going to examine how this fiduciary relationship applies differently to the two types of FMC-licensed Ocean Transportation Intermediaries (OTIs): ocean freight forwarders compared to Non-Vessel Operating Common Carriers (NVOCCs).

A freight forwarder is a person or company which organizes export shipments. You can think of forwarders as travel agents for cargo; they book freight on a carrier on behalf of a client/shipper. A good forwarder will contact various carriers to find the most reasonable price for their client. They have a fiduciary responsibility to clients imposed on them by the FMC, meaning all decisions a forwarder makes must be in the best interest of the client.  Forwarders make their living based on a disclosed fee they charge; it covers the due diligence of shopping around different carriers as well as handling the booking and other documentation.  Ocean freight forwarders are required to disclose their fees along with the costs and any profit, and their invoices must invite inquiry.  See 46 CFR 515.32(d):

“The following notice shall appear on each invoice to a principal: Upon request, we shall provide a detailed breakout of the components of all charges assessed and a true copy of each pertinent document relating to these charges.” 

Since they are acting as an agent for a shipper and a fiduciary relationship does exist, there must be a high level of transparency with freight forwarders.

This is absolutely not the case with NVOCCs.  There is no fiduciary relationship between an NVOCC and its customer, and as a result they do not have to disclose their costs.  NVOCCs make their living by purchasing space on a vessel at a discounted price, and then reselling this space.  Vessel space is their inventory.  Since they are purchasing at a discounted price, NVOCCs create competitive advantage by reselling the space at a price lower than would the vessel operator.  Like anyone else selling from inventory, NVOCCs have no obligation to disclose the price they originally paid, and they are able to charge a mark-up when reselling.  NVOCCs have no fiduciary responsibility, but they do carry more liability because they issue contracts for carriage.  They must decide that the benefit of charging a mark-up is worth the additional risk imposed by the issuance of a bill of lading.

It is true that freight forwarders and NVOCCs interact and overlap in many ways, but it is critically important to understand the fiduciary difference in the types of relationships that exist between these two OTIs and their clients.

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[1] https://www.law.cornell.edu/wex/fiduciary_duty

New Customs Regulations Regarding Trademark Disclosure

On September 18, 2015, US Customs and Border Protection (CBP) published a final rule regarding the disclosure of information on goods suspected of bearing counterfeit trademarks or trade names. This new rule allows Customs to share more information with trademark owners about suspect goods. The most notable change is that Customs will share information was protected by the Trade Secrets Act. The new rule will become effective on October 19, 2015. Below is a description outlining the regulations of the rule, as well as the changes made regarding disclosure.

Detention

  • CBP may detain article suspected of bearing counterfeit marks for a period of up to 30 days
  • Within 5 business days from the date of detention, CBP will notify the importer in writing.
  • By this time (i.e., prior to the issuance of notice of detention), CBP may have disclosed to the trademark owner “limited importation information” such as
    • The date of importation
    • The port of entry
    • The description of the merchandise
    • The quantity
    • The country of origin

If CBP has not previously disclosed to the trademark owner “limited importation information,” it will disclose this information to the trademark owner concurrently with the issuance of notice of detention

7 Business Days After the Notice of Detention

  • If the importer fails to establish within 7 business days of the notice of detention that the detained merchandise does not bear a counterfeit mark, CBP may disclose the following additional information to the trademark owner:
    • Mark information that appears on the detained merchandise and/or its retail packaging (including labels), unredacted photos, images, or samples, serial numbers, dates of manufacture, lot codes, batch numbers, universal product codes, or other identifying marks appearing on the merchandise or its retail packaging (including labels), in alphanumeric or other formats.
  • The release of a sample to the trademark owner, subject to bond and return requirements

Any Time

  • Notwithstanding the above, CBP may disclose to the trademark owner:
    • Photographs, images, or a sample of the suspect merchandise or its retail packaging (including labels), provided that identifying information (such as serial numbers, dates of manufacture, lot codes, batch numbers, universal product codes, the name or address of the manufacturer, exporter, or importer of the merchandise, or any mark that could reveal the name or address of the manufacturer, exporter, importer of the merchandise, in alphanumeric or other formats) has been removed, obliterated, or otherwise obscured.
  • DISCLOSURE TO IMPORTER: CBP will disclose to the importer unreadacted photographs, images, or an unredacted sample of the imported merchandise.

Conditions Of Disclosure To Trademark Owner Prior To Seizure

  • Upon disclosure of such information, CBP will state that some or all of the information being released may be subject to the protections of the Trade Secrets Act, and that CBP is only disclosing the information to the trademark owner for the purpose of assisting CBP in determining whether the merchandise bears a counterfeit mark.

Seizure

  • Upon a determination by CBP that the imported merchandise bears counterfeit marks, CBP will seize it.
  • CBP will disclose to the trademark owner comprehensive information within 30 business days from the date of the notice of the seizure, including:
    • The date of importation
    • The port of entry
    • The description of the merchandise from the notice of seizure
    • The quantity as set forth in the notice of seizure
    • The country of origin
    • The name and address of the manufacturer
    • The name and address of the exporter
    • The name and address of the importer
  • Upon proper request from the trademark owner, CBP may provided photographs, images, or a sample of the seized merchandise and its retail packaging to trademark owner.

Among other things, the change means that a lot of previously confidential business information, especially that of suppliers and manufacturers, will be provided to trademark owners now. This will have a very bad effect on legitimate gray market importers, whose trade relies on supplier data being kept confidential. That detriment, in turn, will likely mean higher consumer prices as gray market supplies are decreased.

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Compliant NRAs for Federal Maritime Commission Purposes

Traditionally, Non-Vessel-Operating Common Carriers (NVOCCs) compete for shippers’ business by publishing the amount they charge in rate tariffs that are made available to the public. However, as of April 18th, 2011, the Federal Maritime Commission approved the use of Negotiated Rate Arrangements (NRAs) as a new method for NVOCCs to establish rates.  We constantly receive inquiries from NVOCCs seeking guidance on proper preparation of these rate quotations.

According to the FMC, NRAs are “written and binding arrangements between a shipper and a licensed NVOCC to provide specific transportation service for a stated cargo quantity, from origin to destination, on and after a stated date or within a defined time frame.”[1] If an NVOCC correctly meets the conditions of using an NRA, then they are no longer obligated to publicly publish the rate they are charging.  The five conditions of creating an NRA compliant with the FMC’s rules are as follows:

  1. NRAs are only eligible to be used by NVOCCs.
  2. A notice of using an NRA must be posted in the tariff.
  3. All tariff access charges must be eliminated. An NVOCC using an NRA must provide the public with access to its rules tariff (the document outlining the regulations governing the shipment) at no charge.
  4. The shipper and the NVOCC must agree to the use of an NRA in writing prior to the NVOCC receiving the cargo.
  5. NVOCCs must keep their NRA documentation on file for a minimum of five years. NRAs don’t have to be officially filed with the FMC, but the agency must be able to audit NRA records on demand at any time within the relevant time period.

This FMC regulation transformed industry practices for ocean transportation by allowing NVOCCs the opportunity to be exempt from the tariff rate publication requirements set forth in the Shipping Act of 1984. The only downside here is that NRAs are non-amendable, and as such they retain much of the rigidity of old Tariff Line Item rates.  NRAs are a great tool for confidentially agreeing on short-term rates with shippers, but a different rate agreement may be more beneficial for long-term use.

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[1] http://www.fmc.gov/news/negotiated_rate_arrangement_exemption.aspx

Cuba Travel: What You Need to Know

On September 21st, 2015 the Obama administration implemented numerous regulatory changes aimed at loosening U.S. business and travel restrictions relating to Cuba. Americans can now open business locations and bank accounts in Cuba, and it is now easier for cruise ships and other vessels to travel to the island. Efforts such as these to promote commerce are merely one step in a series of actions to improve relations with Cuba.

However, it is important to understand that not everything has changed. The President is using his Executive authority to eliminate certain regulatory prohibitions, but the infamous Cuban Embargo is law (Section 620(a) of the Foreign Assistance Act of 1961 (75 Stat. 445), as amended) and remains in place until Congress – and only Congress – repeals it. American tourism is still prohibited in Cuba, among other activities. Does this mean it is impossible for Americans to travel to the island 90 miles south of us? The answer here lies within the distinction that tourism is prohibited; travel is not. There are twelve categories of authorized travel to Cuba; these include things such as family visits, journalistic activities, educational endeavors, athletic competitions, etc. If you would like to see a full list of the approved reasons to travel, please click here.[1] If you can demonstrate that your trip includes one of these twelve authorized components, then it is significantly more likely your travel will be permitted. While Cuba remains off-limits to U.S. tourists, these newly loosened restrictions make it feasible that more Americans will begin legally making trips to the island. The question now becomes, with increased approved travel to Cuba, does the island have the necessary infrastructure? The recent Papal visit caused an overwhelming of the tourist infrastructure, if that is any answer. Increased travel means improvements will need to be made to accommodations, transportation, Internet connectivity, and more. All we know for now is that only time will tell how Cuba addresses these newly arising issues.

Another important distinction to recognize is that the embargo imposed in 1962 has not been lifted. This means that the majority of transactions between the U.S. and Cuba are still prohibited, including trade activities. As mentioned above, the embargo is a Congressional statute, and therefore it is not within the power of the President to change this. These regulatory changes are certainly a step in the right direction towards easing restrictions, but the embargo remains in place at the present time, with major business and tourism impediments intact.

 

[1] https://www.treasury.gov/resource-center/sanctions/Programs/Documents/cuba_faqs_new.pdf

Disclosing Terms & Conditions To Make Them Enforceable

It is common practice today for companies to post their Terms and Conditions (T&C) online, but the key to enforceability is ensuring that these terms are accessible by the customer. In the shipping industry, you are responsible for making customers aware of Terms and Conditions by either publishing access to them in the bill of lading or in an e-mail correspondence. There is a right and wrong way to go about doing this, so let’s take a look at some best practices.

If you want to enforce T&Cs on bill of lading, it is always safest to print the full terms on the reverse side. If you are emailing PDFs of the front only, making reference to the T&Cs there instead of printing them in full, there are some important points to cover. First, you must state clearly that the booking and the bill of lading are “subject to the terms and conditions to be found on [insert website]” and that the customer “hereby acknowledges and agrees to all the terms and conditions.” Also, you must be sure that the website you provide a link to is sufficiently accessible and operative. If you do not properly disclose the site or it is not operative at the time the bill of lading is issued, then the terms may not be enforceable.

On the other hand, you may choose to incorporate the T&C into an e-mail. The first step for this process is the same as the protocol for the bill of lading; you must state clearly that the booking and bill of lading are “subject to the terms and conditions to be found on [insert website]” and the customer “hereby acknowledges and agrees to all the terms and conditions.” Within the e-mail you must also provide an embedded link to the words “Terms and Conditions.” This will ensure that the T&C are reasonably accessible by customers, so long as the link you provide is operative. If not, issues of enforceability may arise. The best practice in this case is to send a copy of the full T&C with the e-mail; then there will be no question of whether or not they are enforceable. If you can program it, you ought to send out the T&C reverse side along with any email containing the front.

It is no surprise that companies often find themselves in legal grey areas as we continue to shift to an all-digital world. Gone are the days of paper forms and contracts, but the responsibilities of being transparent are still the same. The ability to enforce Terms and Conditions is imperative for good business practices, which is why understanding how to properly disclose them to customers is key.

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CAFRA Seizures

In 2000, the Civil Asset Forfeiture Reform Act (CAFRA) was signed into law. This act was passed as a response to a seizure system that had become rife with abuse as law enforcement agencies seized personal property from citizens, putting to their own use. CAFRA relieves individuals who have had their property wrongly seized by enacting a variety of reforms. Now, when merchandise is seized, it is categorized in one of two ways; as a CAFRA seizure, or as a non-CAFRA seizure. This seems simple enough, but what is the difference between the two?

In our area of practice, CAFRA applies to a seizure where an agency other than Customs is cited; this could include departments such as the Department of Transportation, EPA, the Food and Drug Administration, etc. As long as there is an agency involved other than Customs, it is considered a CAFRA seizure and more citizen-friendly rules are applicable. The exact opposite is true for non-CAFRA seizures; these are situations where the only regulations or statutes cited are those enforced by Customs. If the seizure is purely a Customs issue, then it will be considered a non-CAFRA matter, and more difficult standards are applied to release.

There are many entitlements and reliefs that come along with CAFRA classification, which is why it is of the utmost importance to understand what sort of seizure you are facing. Much of the protocol is differently in CAFRA cases. For example, if a person hires an attorney and it is determined their property was unjustly seized, under CAFRA they are entitled to reimbursement for all attorney’s fees by the government. The more you understand about The Civil Asset Forfeiture Reform Act, the more prepared you will be if your property is ever seized. If you would like to view the law in its entirety, please visit the following link:  http://www.gpo.gov/fdsys/pkg/PLAW-106publ185/pdf/PLAW-106publ185.pdf

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Money Seizures: What You Need to Know

When entering the United States, it is required that all passengers report any amount of money with them that is in excess of or equivalent to $10,000. If there is a failure to correctly report, this money can be seized.  This reporting requirement is a worldwide standard that the U.S. abides by.  It is important to note that this $10,000 amount applies to dollar equivalents as well, so if a passenger is traveling with the euro – or any other currency – equivalent of $10,000 this is necessary to report.

When entering the country, the form that you report this information on is the FINCEN105.  There are certain exceptions to this reporting requirement. For example, you do not have to report checks of any amount unless they are endorsed. Understanding the technicalities of this reporting requirement will make you a more prepared and aware traveler. Customs does have the right to ask you questions about the money you are reporting, but as long as you have properly disclosed all necessary information you can bring in any size sum you wish.  If you do report correctly, no tax or penalty can be levied on the money you bring in.

In the event that your money is seized, here is a brief overview of the process that you will go through to get it released.  Certain steps of this process are subject to variation in the amount of time they will take, but provided below is a general overview.

  1. You will receive a receipt with your case number.
  2. You will wait to be issued a Fines and Penalties Seizure Notice – this will inform you exactly which statutes you are in violation of. Once you have this information, you can begin to take the necessary steps to remedy the situation.
  3. You will file a Petition to remit the funds. This is where you give Customs the reason(s) the money should be returned. Essentially, you are detailing why you did not report the money originally. There are a variety of reasons that can be used in this explanation.
  4. Customs provides a Response. Receiving this response can take anywhere from a minimum of four months up until one year.  The Response is Customs’ answer to your request for the funds to be returned.  If the decision is made to return the seized money and you agree with the terms, which normally involve some deduction as penalty, it can take up to six weeks for the refund to be processed.

Subscribe to our blog today to always be informed on relevant topics such as this one.  Also, be sure to check back next week as we will be taking a more detailed look at this topic as we examine CAFRA vs. Non-CAFRA seizures.

For more information regarding The Mooney Law Firm, LLC and the services we provide, please contact us.