Import SURETY BONDS

TR/20/12 (02/03/2017) 1

A surety bond is a contract among at least three

parties.

The obligee – The party who is the recipient of an

obligation, CBP

The principal – The primary party who will be

performing the contractual obligation, Importer

The surety – who assures the obligee (CBP) that the principal (Importer) can

perform the task, Insurance Company

Surety BondsAll imported merchandise must be backed by some type of collateral (examples are cash or bonds) to ensure compliance with CBPs rules and regulations. Bonds required under Customs laws or regulation are generally referred to as Customs Bonds.

TR/20/12 (02/03/2017) 2

Customs Bonds are required for imported goods valued over $2500, or a commodity subject to Partner Government Agency (PGA) regulations, even if the goods are “duty free.”

Imported goods valued under $2500 may also require a bond should the port director deem one is necessary.

There are 12 different types of Customs Bonds distinguished by different Activity Codes:

Importer Bond

Activity Code 1

Drawback Bond

Activity Code 1A

FTZ Operator

Activity Code 4

ISF Bond

Activity Code 16

Customs Bonds

Mallory primarily works with Importer and ISF bonds, activity codes 1 & 16.

TR/20/12 (02/03/2017) 3

Customs Importer Bonds, Entry types

• Entry Type 1 - TEMPORARY IMPORTATION BOND• Entry Type 2 - WAREHOUSE• Entry Type 3 - AUTO• Entry Type 4 - ANTI-DUMPING/COUNTERVAILING DUTY• Entry Type 5 - FDA• Entry Type 6 - CHAPTER 98 / HTSUS 9802.00.80• Entry Type 7 - GSP/CBI• Entry Type 8 - GENERAL MERCHANDISE

Activity Code 1, the Importer

Bond, is further split into 8 different

categories, referred to as Entry Types:

Mallory works mainly with type 8, general merchandise.

TR/20/12 (02/03/2017) 4

Customs Importer Bonds, AD/CVD

CBP can also determine a single entry bond is required in addition to an importer’s continuous bond per entry.

In rare instances, CBP will accept a bond in lieu of cash at the time duties are due, but the order must not be in an issued status and the margin between all/each rate to date must be less than a 5% ratio.

A complete Bond Application/Indemnity form, an AD/CVD questionnaire, and Financial statements are required for the amount of collateral to be determined. The bond will not be issued without Avalon approval and collateral.

Due to the nature of ADD/CVD investigations, brokers and surety companies have a higher risk of liability. Continuous bonds covering AD/CVD importing goods have strict underwriting rules and require collateral.

Importer bonds covering AD/CVD commodities, ensure future AD/CVD rates, determined at the end of a set period review, will be paid by the importer or will be collected against the bond.

TR/20/12 (02/03/2017)

5

Guarantees CBP will collect all import duties, taxes, fines or penalties, if not from the importer then

from the surety who issued the bond.

Allows the surety to take legal action to recover from

the importer all monies that were paid on the

importer’s behalf.

Frees up the principals cash flow

Customs Importer Bonds

TR/20/12 (02/03/2017)6

The Importer Bond can be written for a single entry or to cover multiple

entries within a year.

An Import Bond covering multiple entries within one year

is referred to as a Continuous Bond.

An Import Bond Covering a single entry are referred to as

Single Transaction Bonds (STBs) or Single Entry Bonds (SEBs).

Customs Importer Bond, Cont.

TR/20/12 (02/03/2017) 7

Customs Importer Bond, Cont.

Whether continuous, single entry or ISF only, the importer agrees to the following conditions when purchasing a customs bond:

• To pay duties, taxes and charges• To make or complete entry

• To produce documents and evidence• To redeliver merchandise

• To rectify any non-compliance with provisions of admission• To allow for examination of merchandise

• To reimburse and exonerate the United States• To comply with Customs regulations on duty-free entries and withdrawals

• To comply with Customs regulations applicable to Customs security areas at airports• To comply with Importer Security Filing requirements

TR/20/12 (02/03/2017)8

Underwriting Guidelines

While any bond can be filed online via Web Merlin, certain parameters require approval by Avalon’s underwriter’s:

General merchandise -STBs for more than

$250,000 or Continuous bonds up

to $100,000.

ADD/CVD entries(Contact Compliance)

Auto for Non-conforming vehicles

FDA Restricted commodities

Chapter 98/9802.00.80 – Avalon must be

contacted if there is no US Manufacturer’s

Affadavit

TR/20/12 (02/03/2017)9

Collateral

If Avalon Underwriters determine collateral is required to secure a bond, a Letter of Credit (LOC) may be accepted. The wording must be identical to the sample Letter found in Avalon’s Bond Manual. A recap of Avalon’s Collateral Policy is found below:

For Customs Bonds, LOCs are held 180 days after liquidation of the last entry filed against the bond.

Avalon may extend this security timeframe in the event of liquidated damage penalties, increased duty bills, or unpaid premiums by the importer.

For ISF Bonds, the LOC is held for the 6 year statue of limitations as ISFs do not liquidate.

This policy protects Avalon for any unknown claims after the bond has been terminated.

TR/20/12 (02/03/2017)10

Bond Amount Cheat Sheet

See pages 8-9 of the Bond Manual found on Web Merlin for a complete Bond Amount Guide.

TR/20/12 (02/03/2017)

11

Continuous Importer Bond

Continuous Importer Bonds are:

Affordable

Cover all of an

importers entries and

ISFs for a year

Allow for electronic

entry processing

Are required for ACH, PMS,

or Reconciliation of duty payments.

Continuous bonds

guarantee the

payments of duties/taxes

up to the face value of

the bond.

Importers filing duty Drawback

receive refunds

faster when the importer

has a Drawback

bond on file.

TR/20/12 (02/03/2017) 12

Continuous Importer Bond Amounts

Continuous bonds amounts are based on 10% of duties, taxes, and fees paid in a 12 month period.

The minimum continuous bond amount is $50,000. If an importer expects to pay between $0 and $500,000, per year in duties, taxes, & fees, the minimum Continuous bond amount is sufficient.

Continuous bonds can be the most cost effective option for importer’s bringing in as little as 3 ocean shipments a year, considering the costs of single transaction bonds plus the costs of single ISF bonds required for each shipment.

Importers are recommended to get a continuous bond if they are going to bring in around 5 airfreight shipments per year.

Continuous Importer Bond, Cont.

*Web Merlin contains calculators for determining continuous bond amounts if needed.

TR/20/12 (02/03/2017) 13

A single entry importer bond covers one shipment in one port. A single Entry ISF bond covers one ISF Transaction.

Single Entry Importer Bonds

Single entry bonds can be referred to as Single

Transaction Bonds (STBs) or Single Entry Bonds (SEBs).

A Single entry bond covering an ACS Cargo Release entry is

referred to as a Single Transaction Bond (STB). STBs

will go away as ACS is decommissioned.

A single entry bond covering an ACE Cargo Release entry

is referred to as an eSTB.

A Single use ISF bond is referred to as a single ISF-D

Bond.

TR/20/12 (02/03/2017) 14

There are three basic rules to remember in figuring up Single Entry Bond Amounts:

1. For consumption entries the single entry bond

amount should be equal to the total entered value of the merchandise, plus all

applicable duties, taxes and fees.

2. For merchandise subject to PGAs or quota/visa

requirements, the bond amount should be for three

times the total entered value.

3. For unconditionally duty free merchandise, the bond amount can be reduced to 10% of total entered value.

Determining Single Entry Bond Amounts

*Remember to round the bond amount to the next nearest hundred, when applicable.

TR/20/12 (02/03/2017) 15

Determining Single Entry Bond Amounts, cont.

Additional Single Entry Bond Facts

Commercial shipments with a total entered value of less than $2500, and not subject to any PGAs, may or may not require a single entry bond at all. The local entry port director will make the call of whether or not a single transaction bond is required for these types of informal entries.

The goods cannot be subject to PGA requirements where the failure to redeliver may pose a threat to public health or safety, or, is subject to quota and/or Visa requirements.

Unconditionally free merchandise is generally defined as merchandise in which the corresponding Column One rate of duty in the HTSUS is Free and this duty free status is not predicated upon the fulfillment of any other conditions, requirements or criteria. Examples of unconditionally duty free goods would be merchandise classified in the HTSUSA under Tariff Headings 8801 through 8803; or in Tariff Headings 9701 through 9706, HTS.

Conditionally free merchandise is merchandise described in 19 CFR Part 10 of the Customs Regulations. Duty-free status of these goods is dependent upon the fulfillment of a condition or a requirement. If the condition is not met, the good reverts back to its dutiable tariff provision and status as defined in the HTSUS Chapters 1 through 97. Examples of conditionally free goods: U.S. Goods returned or goods subject to a free trade agreement such as NAFTA.

TR/20/12 (02/03/2017)16

Single ISF D bonds amounts equal $10,000 as this is the max penalty that may be issued against a single ISF Transaction

• Since a regular continuous bond covers ISF transactions, most importers purchase a continuous bond but there is an ISF continuous bond available to those that have a need for it, the amount is set at $50,000.

The ISF Bond guarantees compliance with the Importer Security Filing regulations. It maybe written as a single transaction or continuous.

• It’s purpose is to guarantee that ISFs are timely, accurate and complete as detailed in 19 CFR.

Importer Security Filing (ISF) Bond

TR/20/12 (02/03/2017) 17

Updating Importer Name & Address

1. Ensure a valid POA with the corrections is saved to the

importers org.

2. Email Entupdateorg@mallorygroup.com

with the importers org, the corrections that are needed, and a request for ENT to submit a 5106

Update request.

3. ENT will submit the request but it is up to you to follow up and

ensure the request is accepted by CBP by either:

a. Checking the ABI results on the customs messaging tab inside the

importers org. Or,

b. Running an importer bond query to check the corrections

have been made.

In 2015 Bonds became a paperless process between CBP and bonding companies. Besides eliminating the 10 business day turn around time for CBP to process continuous bonds manually, the process of updating the name and address on file with a continuous bond is now an electronic process as well. To change the spelling of a company name and/or amend an importers address, as long as the Importer’s EIN has not changed, only a 5106 update needs to be submitted. To submit a 5106 update, follow the below:

*If the EIN# changes, a term and replace request will need to be submitted in Web Merlin and a new org with new credit app and new POA will be required.

TR/20/12 (02/03/2017)18

Reading an Importer Bond Query

To read an importer bond query, review data returned in each section:

The EIN# queried.

The importer’s Name & Addresses on file with CBP and bond status. Remember CBP must have a physical address on file and not only a PO Box address.

TR/20/12 (02/03/2017) 19

Reading an Importer Bond Query

Results state

what type of bond results have been

returned.

The Surety

Code will be

specific to the Surety Company

who issued the

bond. Avalon’s,

for example,

is 035.

Type of bond. To

use a continuous bond for customs

clearances, the

bond type must be

an Importer

bond type.

Amount of bond, $50,000

USD is the minimum amount

for continuous bonds.

Entry Port Code

assigned to the

bond. The code

9900 is used to

represent all

available RLF entry

ports.

Effective Date

reports the date the bond was first

approved.

Termination Date

will return a

date only if the

bond has a set

termination date.

Number assigned

to the bond.

Sufficient indicates

if the current

bond amount covers

the value of goods

being imported.

Bond User

Status shows if

the importer’

s continuous bond is active.

Bond User

Termination Date is the date

the Importer

will no longer be active on the bond.

The results row provides such information as type, amount of bond, and activity status.

TR/20/12 (02/03/2017) 20

Mallory Alexander uses the following insurance company for surety bonds:

•Avalon Rick Management, Inc.•150 Northwest Point Boulevard, 4th Fl.•Elk Grove Village, IL.

Avalon Risk Management provides web based tutorials and a Bond Manual that will answer most questions:

• https://webmerlin.avalonrisk.com/• Email: teamshield@avalonrisk.com

Bond Underwriter/Mallory Contacts

Mallory Compliance team may be reached by email, Compliance@mallorygroup.com, should there be any questions you or your importer may have regarding Surety Bonds.

TR/20/12 (02/03/2017)

21