International Trade: Persistent Weaknesses in the In-Bond Cargo System Impede Customs and Border Protection's Ability to Address Revenue, Trade, and Security Concerns

While Customs and Border Protection (CBP) has not changed the information on the in-bond form, they do require additional information under the Importer Security Filing, known as 10+2, at the time of arrival. The information filed under 10+2 includes a more precise description of the cargo (the Commodity Harmonized Tariff Schedule of the United States number) and further identifies the entities involved in the movement of the goods. In addition, CBP indicated that in its new cargo system (ACE M1), they will eliminate the Form 7512 and link the in-bond application directly to the inward manifest, which means that all information related to that shipment will be fully available and visible for the in-bond movement.

While CBP did not require additional information for the in-bond form, it has taken steps to collect information on the cargo's HTS number at the arrival port (instead of port of entry). On November 25, 2008 CBP issued an interim final rule requiring both importers and carriers to submit additional cargo information to CBP before the before the vessel reaches the port of arrival in the United States. Among the additional information required is the cargo's HTS number at the 6-digit level (which may be provided up to the 10 digit level). The rule became effective on January 26, 2009. This additional information is collected as part of CBP's "Importer Security Filing" effort (also known as "10+2"), which collects advance information on 12 data elements in response to the Security and Accountability for Every Port Act of 2006 (Pub. L. 109-347, SAFE Port Act). This Act requires the Department of Homeland Security to promulgate regulations in order collect additional data elements for improved high-risk targeting before vessels arrive at U.S. ports.

The implementation of ACE is a long-term ongoing process expected to be finalized by 2011. Before GAO made this recommendation, CBP was not considering incorporating enhanced reporting capability in ACE to manage the in-bond system. However, in response to our recommendation CBP reported that it plans to establish requirements for ACE that include enhanced report capabilities that enable program managers to exercise more effective oversight over the in-bond process.

CBP explained that for technical reasons it is not possible to use the cargo selectivity functionality to improve tracking of in-bonds. Instead, it has addressed this recommendation by implementing a new security-filing proposal, commonly referred to as the "10 + 2," to obtain e-trade of advanced data for security and targeting purposes that will facilitate tracking in-bonds. The additional data will provide an enhanced informational profile of all imported cargo, including freight moved via in-bond procedures. Furthermore, the additional data (identifying the key parties to the transaction and the locations of specific events associated with the transaction) will also supplement the manifest filed by the carrier and enable CBP to make a more definitive risk assessment before the cargo is approved for transport to the port of entry. CBP believes the "10 + 2" security filing will address many of the security concerns raised relative to the limited information provided on in-bond form. In a report to congress, CBP reported that in addition to the new new security-filing process, ACE is being developed with improved tracking capabilities for all in-bonds in the system, as well as for tracking by carrier, with account-based tracking reports. ACE will allow for multi-modal tracking, which will allow CBP to better track cargo from beginning to end, including all in-bond transactions. Furthermore, Section 405 of the SAFE Port Act calls upon all federal agencies to participate in the International Trade Data System, which will also help with in-bond tracking because some cargo that currently moves in-bond is covered by specific regulations issued by other agencies and associated processes that may not be automated (e.g., paper permits). Having all federal import requirements automated through ACE will help ensure that all conditions of entry are satisfied before cargo can proceed to move under the in-bond process.

In the summer of 2008, as we recommended, CBP began collecting additional information and updating its Automated Targeting System (ATS) score to target in-bond cargo at the port of arrival, according to CBP Cargo Control officials. CBP changed procedures and began requiring in-bond importers to complete entry forms at the port of arrival rather than waiting to collect these forms at the port of entry. The data from the entry forms provided the additional data used to update the ATS score without the need for a revised in-bond form. In June 2008, CBP distributed guidance to field operations staff on how to use entry data in ATS for targeting in-bond and follow through with inspections. ATS now has an in-bond rule set to help CBP officers identify high-risk in-bond cargo at the port of arrival. Some ports have In-Bond Enforcement Teams; other ports use their normal cargo targeters/cargo analysis units. The composition of the targeting team is left to each port director. Targeting for all imports, including in-bond cargo, now occurs at all ports of arrival. We believe that the actions taken by CBP respond directly to our recommendation that CBP require additional information to update the ATS score at the arrival port to target high-risk in-bond cargo, rather than the destination port.

In response to our recommendation, the U.S. Customs and Border Protection's (CBP) Office of Field Operations conducted a query using their Automated Commercial System to determine the total number of in-bonds and trends covering three fiscal years. According to a memorandum CBP provided to GAO, the results provided the total number of in-bonds by specific types (IT - immediate transportation, TE - transportation and exportation, and IE- immediate exportation). According to CBP, the data also show that in-bond usage is steady, and is an important part of international trade. The numbers also show that most in-bonds are IT which means that the goods are transported to another U.S. port of entry where a consumption entry is filed, duty is paid, and final customs clearance occurs. One query provide the grand total for the number of in bond-transactions form 2006 to 2008 included a breakdown by type of in-bond and by mode of transportation, ocean, rail, truck, or air. These types of analyses provided CBP with information to manage the in-bond system that was not systematically available at the time of GAO's review.

CBP conducted an assessment of the problems with the in-bond system in 2008 and determined that the reporting system for in-bond did not properly report closed in-bond shipments due to a flaw in the programming language. CBP made the necessary programming changes to improve its internal reporting on in-bond transactions, and communicated the changes in a memo to the directors of field operations in July 2008. CBP officials also told us that the new module for in-bond transactions in the Automated Commercial Environment (ACE) would provide more information about in-bond shipments and would help program managers exercise more effective oversight over the in-bond process. The memo also makes recommendations for short-term and long-term systemic changes as well as process, regulatory and technology adjustments to improve CBP's monitoring of in-bonds.

In May 2008, CBP's working group developed proposed regulation changes to 19 CFR Part 18. These changes include (1) requiring importers to electronically notify CBP prior to diverting in-bond cargo to a new destination port and (2) reducing the transit period to 30-days for in-bond modes of transportation. The Assistant Commissioner of the Office of Field Operations submitted the working group's recommended regulation changes to CBP's Office of International Trade for internal review and considered the changes to be a high priority for the Office of Field Operations. Per a teleconference on August 21, 2008, CBP officials (Director of Cargo Control) and (In-bond Program Manager, Cargo Control) told GAO that CBP's Office of Rules and Regulations is currently reviewing the proposed regulation changes. The Director of Cargo Control was reluctant to estimate when the proposed rules would be made public, but estimated that Notice of Proposed Rulemaking (NPRM) would be published in the Federal Register within 6 to 8 months (e.g. around February or March 2009).

CBP has taken several steps to increase compliance in closing out open in-bond transactions in a more systematic matter, which has significantly reduced the number of open transactions. According to a CBP report to Congress, the number of overdue in-bond shipments is shrinking due to increased reconciliation and investigations of open in-bond shipments by CBP. Moreover, CBP expects the enhancements to the overdue in-bond reports in Automated Commercial System (ACS) will help reduce the number of investigations needed into overdue in-bond entries. In July 2008, CBP's Office of Information and Technology completed significant programming changes to improve the performance of the MO2 report,a report that assists CBP officers track and investigate overdue in-bond shipments. The programming changes allowed CBP to (1) accurately report the universe of overdue shipments, (2) administratively close all in-bonds more than one-year old and begin the process of assessing liquidated damages, and (3) ease the reconciliation of future in-bonds using M02 reports. These improvements resulted in a more systematic enforcement strategy by reducing the back-log of open transactions and the need for additional information from bondholders to help CBP monitor in-bond transactions.

CBP has taken several steps to increase compliance in closing out open in-bond transactions in a more systematic matter, which has significantly reduced the number of open transactions. In July 2008, CBP's Office of Information and Technology completed significant programming changes to improve the performance of the MO2 report, a report that assists CBP officers track and investigate overdue in-bond shipments. The improvements made to the MO2 reporting system have greatly enhanced CBP officer's ability to close open in-bonds target in a timely manner, inspect, and investigate overdue in-bond shipments. As a result of programming changes made to the MO2 reporting system, concerns about the need to prioritize closing in-bond records for shipments with high potential risks of security, law enforcement, and revenue loss have been addressed. The updated system closed all in-bonds more than one year old and continues to reconcile in-bonds in a systematic manner, eliminating the back-log of open transactions and enables CBP to focus its efforts on prioritizing in-bond shipments. In addition, these improvements resulted in a more systematic enforcement strategy by reducing the back-log of open transactions and the need for additional information from bondholders to help CBP monitor in-bond transactions.

CBP agreed with our recommendation and has taken steps to ensure that the Tinman program is consistently conducted by the ports. In June 2007, the Executive Director of Cargo and Conveyance Security sent a memo to the Directors of Field Operations citing our findings and directing all ports to complete the mandatory Tinman audits. Furthermore, the memo requires field office in-bond coordinators to submit monthly reports on the completion of Tinman audits to Program Manager of the Manifest and Conveyance Branch in headquarters.