One of the most talked-about topics, whether with your neighbor or over dinner with friends, is the current proposed tariffs. Every media organization produces content daily covering the Tariffs and their developments.
Some attorneys reading this may think: “Why is my court bond broker discussing these? I have had enough of the talk about Tariffs!” Many clients have contacted my office to ask about Continuous Importer Customs Surety Bonds (19 CFR 113.62) (Activity Code 1). Some have had a bond for $50,000 for a couple of decades and are now seeing a more than 10-fold increase in the bond amount they need.
The minimum bond amount is $50,000 for this obligation. The calculation of a Continuous (Activity Code 1) Importer Customs Surety Bond is as follows: 10% of the annual duties, taxes, customs, and fees the importer expects to pay in the next 12 months. The amount is subject to change, so your customs house broker, who can calculate your anticipated requirement, should confirm the amount needed for your bond. Many clients elect to have a buffer added to their bond amount. Customs house brokers should stay up to date about the developments regarding the tariffs and, ultimately, the bond you need to have on file. You should never rely on your insurance or bonding agency to confirm the bond amount — especially given the ever-changing legal landscape and the almost daily changes to the law.
The bond amount is essential!!! Every surety must issue a bond in a specific amount. The bond itself cannot be unlimited. The surety charges an annual bond premium, a % of the bond amount. If the bond is too small or insufficient, US Customs and Border Patrol can deem your bond insufficient, which could result in your bond being canceled. Let’s say that you purchased a $500k bond in January. In March, US Customs and Border determined that the bond was too small and should be 2 million, they will deem it insufficient for future imports. You will then need to purchase a 2 million dollar bond and pay a new premium. The premium paid on the prior bond is nonrefundable. Separately, there are costs, time, and effort associated with the cancellation, in addition to possible legal ramifications and delays in importing your products. The delays can become a major headache and a significant expense you do not want to deal with. Adding a buffer to the bond amount will increase the annual bond premium, which will be significantly less than running into problems caused by having a too-small bond. Additionally, importer custom bonds stack liability if cancelled and re-written, this creates additional exposure for both you and the surety.
Once you have confirmation of the bond amount, call my office, and I will walk you through the process of obtaining the bond. In addition to the bond amount, you should know whether you have an existing bond. My office can look at your existing bond by using the importer’s tax ID number (EIN). We can then see if your current bond is still active. The bond is an extension of credit. The bond is not insurance. The surety will require a financial statement to underwrite the bond. The statement should contain a balance sheet and a profit and loss statement. An audited financial statement is preferable, but not required.
The bond liability can stack if you do not settle your annual duties, taxes, and fees. Changing surety companies multiple times can be problematic. Choosing the proper surety to work with is essential. My office always works to steer the client toward a surety that will support them throughout the bond term, including the tail liability.
A client contacted me this week requesting a bond between $500,000.00 and $5,000,000.00. Previously, the company needed a minimum bond of $50,000.00. Since the imported products are subject to tariffs, the annual payments to Customs and Border Protection will increase substantially. The client is currently working with their attorney and customs house to determine the bond amount, which is why there is such an extensive range. My office is providing terms for the bond with $500,000.00 increments so that the client has an illustration to help them decide how to proceed best.
Give me a call or email me today to start the process of applying for your bond.
Neil Pedersen
PEDERSEN & SONS SURETY BOND AGENCY, INC.
15 Maiden Lane Suite #800
New York, NY, 10038
212-227-7277
neil@courtbondnow.com
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