On November 16, 2015, the Canada Border Services Agency (CBSA) issued Customs Notice 15-035 in response to its growing concern that goods transiting through the United States to a subsequent destination are going unreported. There are limited reporting requirements associated with goods exported to the U.S., but if their final destination is another country and/or they merely transit through the U.S., they must be fully reported.
Notice 15-035 should prompt two reactions from exporters:
- First, exporters should carefully consider whether they have made unreported exports in the previous six years.
- Second, exporters should be alert to the fact that the CBSA intends to step up enforcement against unreported goods through applying its trade verification authority.
A Recap on Reporting Requirements
As a general rule, section 95 of the Customs Act requires exporters to report all exports to the CBSA by submitting export declarations. The Reporting of Exported Goods Regulations set out certain exceptions to this general rule, allowing the following categories of goods to be exported without being reported: (i) personal household effects (i.e., non-commercial goods); (ii) commercial goods with a value under $2,000; (iii) goods exported to the U.S.; (iv) goods for the personal or office use of diplomatic or mission personnel; and (v) personal gifts.
It is important for exporters to note that these exceptions apply only to "non-restricted goods". "Non-restricted goods" are goods that do not require a permit (under any Act of Parliament) in order to be legally exported. Goods requiring an export permit must always be reported, regardless of their use, their commercial value or their ultimate destination.
The Six Month Grace Period
Unlike non-compliance associated with importation, exporters are not relieved of penalties if they correct export declarations, or make them when they had not previously done so, within a specified period of time (for example, 90 days of having reason to believe they erred). Export reporting irregularities attract penalties unless they are corrected under the umbrella of a voluntary disclosure. The CBSA is offering exporters a six-month grace period during which the CBSA will not conduct export compliance verifications and exporters can voluntarily disclose export shipments which transited through the U.S. but went unreported. If properly prepared and filed, these voluntary disclosures will eliminate penalties otherwise attributable to failing to report.
The grace period runs from December 1, 2015, to June 1, 2016. Upon the expiry of this period, the CBSA will be conducting compliance verification and penalizing exporters who failed to properly report their exports. Exporters should be aware that the grace period only applies to goods exported prior to the issuance of Notice 15-035; goods exported after November 16, 2015, will be subject to the CBSA's usual compliance verification procedures.
Navigating the Voluntary Disclosure Process
Voluntary disclosures must include all unreported, non-exempt exports. When compiling voluntary disclosures, exporters should be guided by Memorandum D11-6-4, "Relief of Interest and/or Penalties Including Voluntary Disclosure". The key points to note are as follows:
- Voluntary disclosure applications must include all instances of non-compliance in the current year and for six years prior to the disclosure.
- The voluntary disclosure must explain (i) how the non-compliance occurred and (ii) either how its cause has been corrected or what measures the exporter has taken to reduce the risk of future non-compliance.
- An exporter's voluntary disclosure may be denied if a previous voluntary disclosure was granted for the same compliance issue.
As there is much at stake and there may be other non-compliance that should be addressed, including failure to obtain other government department licenses/permits or failure to comply with non-customs regulations relating to exporting from Canada, exporters should retain experienced legal counsel to fully evaluate and address export compliance matters. At minimum, exporters of goods transported through the U.S. should conduct internal reviews of their export reporting systems and related export practices.