10+2 update: ISF bonds still in process by CBP

Avalon Risk Management continues its proactive approach to establishing clarity on the Importer Security Filing (ISF, commonly known as "10+2"). In an effort to provide answers to uncertain bond questions, the Customs Surety Executive Committee (CSEC), a subcommittee of the Commercial Operations Advisory Committee (COAC), discussed CBP's focus at its January meeting.

CBP will not be issuing liquidated damage claims until Jan. 26, 2010. CBP has stated that data gathering is their main focus, and there is even speculation that the bond my not be required on Jan. 26, 2009.

Bond amounts
There is still no decision on the bond amount for single or continuous bonds. Bond amounts are regarded by CBP as a "good question," which may be answered in a revised centralized bond memorandum. There may be a limit of one violation per ISF filing, which might mean that an ISF filing secured by a single entry bond could be limited to $5,000, but CBP has not provided a specific guidelines in this matter as of yet.

Continuous bonds
Existing continuous bonds (C1, C2, C3 or C4) will cover the ISF for importers, but there is no decision by CBP on which of the bonds would take precedence in covering the ISF filing or how the principal would designate one activity code instead of another. Riders will not be required. Since no claims or liquidated damages will be initiated until Jan. 26, 2010, CBP will not hold any continuous Customs bond accountable for violations under the ISF. The interim rule indicates that CBP prefers continuous bonds and will only accept SEBs on a "case-by-case basis" so it is still unclear what CBP's intent is.

CBP has not determined how to set the "effective date" for the continuous ISF bond, and there is even a possibility that ISF filings will be accepted without bond data. It is unlikely that the 301 form will be modified by adding a new Activity Code to allow designation for use to secure ISF filings.

Avalon has no plans to increase its bond rates during the phased-in implementation, and will monitor the implementation phase to determine how additional liquidated damages could impact bond rates.

Customs brokers obtaining their own bond
Many brokers are considering temporarily using their own C1 bond to satisfy the ISF filing requirements, while continuing to issue SEBs to cover the actual entries. Avalon anticipates that brokers will not want to take on this exposure once liquidated damages are enforced in 2010 especially since mitigation guidelines will not be published until after a final ruling. If the trend is for brokers to use their own import bond for the ISF filing and SEBs for the entry, Avalon is contemplating the development of a back-to-back bond which would indemnify the broker for liquidated damages assessed against the bond from the importer's negligence.

CBP expects to have an updated bond guidelines and an ISF Q&A available on their Web site shortly. Avalon is committed to supporting the concerns of the customs broker and other critical logistics providers who are affected by 10+2. Originally, we sought feedback from major associations of customs brokers, freight forwarders and Foreign-Trade Zones to ensure we understood our clients' concerns. Avalon then formally commented on the Notice of Proposed Rulemaking. We published the interim final rule in its entirety in our Nov. 24, 2008 Special Quest and co-hosted a detailed Webinar still available on our Web site www.avalonrisk.com.

We are a market leader with a more than 35 percent share of the U.S. Customs bond market. Our Customs surety program is underwritten by our sister company, Lincoln General Insurance Company. Avalon and Lincoln are both wholly-owned subsidiaries of Kingsway Financial Services, publicly traded on the NYSE under ticker symbol "KFS," so you can be assured of our financial stability and dedication to your industry.