Unfortunately I do not share that lack of concern. In the current climate of Government efforts to tighten control of the supply chain, reduce revenue leakage and to improve compliance, the significant changes to the INS to assist Customs' ability to issue Infringement Notices ("INs"), to introduce new offences subject to the INS and to increase the penalties payable all point to a new environment where the risks for importers, exporters and their service providers have been significantly increased.
The starting point for all of this is to be found with the INS which was introduced as part of the "Trade Modernisation Act" of 2001. The aim was to provide Customs with a more flexible system to punish offences and encourage compliance by way of IN which did not require Court action. This was consistent with the practice of other regulators and only applied to offences subject to strict liability – offences deemed to be of a less serious nature. The INS provisions in the Act were subject to extensive review before a Senate Inquiry which led to some changes including the development of a set of Guidelines to govern the issue of INs. Those Guidelines were also subject to consultation and development and the INS commenced and was available for use by Customs. While it was not used extensively, it is probably fair to say that the prospect of liability under strict liability offences able to penalised through the INS acted as an incentive to be compliant.
Shortly after the INS commenced the issue of INs in general was one of the topics discussed by the Australian Law Reform Commission ("ALRC") in its Report No 95 entitled "Principled Regulation: Federal Civil and Administrative Penalties in Australia". I was lucky enough to be a member of the Advisory Committee to the ALRC for the Report which included recommendations as to what would be included in a "model" INS. Subsequently the Federal Government developed "A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers" with the current edition being that of September 2011 ("Framing Guide").
However the issue of the use of the INS then became part of an ANAO Report into Customs border control efforts. That ANAO Report found that Customs issued an insignificant number of INs compared to the position of Canada (a reasonable basis for comparison) and collected a similarly insignificant level of penalties. One of the reasons provided by Customs was that the INS was too complicated for regular use and that the penalties were too low to operate as a real disincentive. The ANAO recommendation was that the INS be reviewed to make it was easier to use and to ensure penalties were reason not to offend. Customs promised to do so.
Some time shortly thereafter the previous Government embarked on its efforts to tighten the supply chain, prevent revenue leakage and increase compliance.
In that context, the previous Government introduced the "AusCheck Act" on which I have written and spoken in the past. Part of the AusCheck Act was to introduce a new regime for the INS so that it would be governed by a Regulation rather then the Guidelines. It also introduced new strict liability offences (including for breach of a customs brokers licence), increased the size of a wide number of penalties and also increased the maximum level of penalties under the INS from one – fifth of the level of penalties payable if the offence was prosecuted to one – fourth.
Regrettably the AusCheck Act was not subject to consultation due to a lack of time for its passage. However through Customs Notice 2013/52 Customs released a draft of the INS Regulation and as associated Guide which have been open for review and submissions. While some commentary has been that the new INS is of little concern I feel somewhat different about it as I made clear in my presentation to the recent CBFCA National Conference and as I will when I present on the topic at the CBFCA on line CPD session to be held on Wednesday 7 November 2012. So, for the record, some of my concerns are as follows
- Paragraph 5(2) of the new Schedule 1ABA of the Regulations provides that a notice can be issued either within 4 years after the alleged offence took place or 12 months after the alleged offence was detected. This is contrary to the Framing Guide which states that the ability to issue notices should be limited to within 12 months of the alleged offence. It does not align with to section 15B of the Crimes Act 1914 which requires prosecution to be undertaken within 12 months after the offence was committed. It also does not align with the current Guidelines where the ability to issue this way is limited to section 243T offences.
- Paragraph 12(c) of the new Regulations provides that the Schedule does not prevent the giving of 2 or more infringement notices to a person for an alleged contravention of an offence under the scheme. This is contrary to the recommendation made by the ALRC Report 95: Principled Regulation: Federal Civil and Administrative Penalties in Australia (as referenced in the Guide) to prevent administrative double jeopardy
- There is no mention of the ability to make payment by instalments in the Regulations or the draft Guide (another recommendation by the ALRC Report). Given that the increases in the penalties are substantial, are often imposed for a number of offences that occur due to a poor practice or system (which means multiple offences occur in a short period of time) and will most likely be issued to body corporates, I would like to see Custom's attitude towards granting payment plans
- The draft Guide at paragraph 6 refers to the issuing of a notice is to be restricted to "officers of relevant seniority and expertise". It would be beneficial to know what "relevant" means in this context. The reality is that this has been deliberately left vague. The Guidelines currently set out some specific requirements in terms of level of seniority and training to issue INs and then as to those who can consider applications for withdrawals of INs - the new Guide does not give us this detail or protection (as the ALRC recommendations suggest they should). This is unacceptable in my view
- The draft Guide sets out the same Customs officer who issued an IN may be the person who reviews the application for withdrawal of the IN. This is contrary to the current Guidelines and is also contrary to the recommendations from ALRC Report 95. In my view this is unacceptable
- The draft Guide does not set out a form of Notice to be used as the Guidelines do and ALRC 95 recommended. This means that other than fitting the provisions in the Act, there is no clear guidance on what a Notice should look like which is disadvantageous to both Customs and to those receiving the Notice
- The draft Guide gives significantly less detail on the specific types of criteria to be taken into account as to when an IN should/should not be issued. That is not helpful as it means that those affected and their advisers have less idea on the parameters which will lead to the issue/non issue/withdrawal of an IN which is not transparent and contrary to good practice (and the ALRC recommendations). This leaves open the status of the previous Guidelines - will they still be taken into account or be relevant?. It also leaves open the issue of considerations to be taken into account with the new ability to issue INs to a licensed customs broker for a breach of licence conditions
- I am still of the view that the Act, the Guidelines and the Guide are misleading as to the effect of payment of an IN. While the Act states that the payment of an IN does not constitute admission of commission of the offence and does not allow prosecution what none of those provisions disclose that Customs can (and has) used paid INs against parties for other purposes. For example, Customs used paid INs issued under section 33 to try and revoke a customs brokers licence. INs will be used more for these purposes as for breach of new and wider conditions on customs brokers - which when paid will then be used to revoke licences under the new, broadened ability to revoke/suspend licences. This remains, in my view, unacceptable
- It should be noted that the new level of penalties for the INS have increased to 25% of the penalty otherwise payable on prosecution for the offence – compared to 20% recommended by the ALRC and the Framing Guide
- The INS penalties allow for the application of the "corporate multiplier" so that the penalty can be multiplied by 5. Have a look at the terms of the Guide which sets out the levels of penalties which are very high for each offence. Let's hope that licensed customs brokers who are directly exposed have proper insurance and are indemnified by their employers and clients.
Ultimately in the context of all other developments, I think we can expect higher levels of penalties and risks. While compliance programs will assist in managing that risk, that will not provide total comfort as the associated offences are strict liability for which there are few defences. Add to that increased levels of flexibility to Customs to issue INs and potentially a lesser level of independent scrutiny and we have the ingredients for a significantly higher exposure to risk for all those in the supply chain.