Voluntarily disclose customs errors to cut penalties by up to 90%.

Navigating U.S. Customs and Border Protection (CBP) enforcement can be daunting for importers from Latin America. Violations such as misclassification, undervaluation, or incorrect country of origin declarations can lead to significant penalties. However, CBP offers a powerful tool for penalty mitigation: the Prior Disclosure program. This guide explains how LATAM importers can use Prior Disclosure to reduce financial exposure while maintaining compliance with U.S. trade laws.

What CBP Prior Disclosure Covers

CBP Prior Disclosure allows importers to voluntarily disclose a violation before CBP discovers it. In exchange for coming forward, the importer may receive substantial penalty reductions—often to as little as 10% of the maximum penalty for non-fraudulent violations. This program encourages self-policing and cooperation, benefiting both importers and the agency.

The program applies to violations of 19 U.S.C. § 1592, which covers material omissions or false statements in customs documentation. Common triggers include incorrect HTSUS classification, inaccurate valuation, failure to report assists, and errors in country of origin marking. Importers from Latin America frequently face scrutiny in sectors such as textiles, agricultural goods, and manufactured products.

To qualify for penalty mitigation, the disclosure must be voluntary, timely, and complete. Voluntary means the importer must disclose before CBP has begun an investigation or audit. Timeliness requires the disclosure to be submitted promptly after the error is discovered. Completeness demands full disclosure of all material facts, including the nature of the violation, the affected entries, and the estimated loss of duties.

Importers should be aware that Prior Disclosure does not eliminate penalties entirely for fraudulent conduct. For violations involving fraud, the maximum penalty reduction is limited to 50% of the maximum penalty. Non-fraudulent violations, such as negligence or gross negligence, can see reductions to just 10% of the maximum penalty. This distinction makes early detection and disclosure critical.

Who Needs to Consider Prior Disclosure

Any importer who discovers an error in their customs filings should consider Prior Disclosure. This includes LATAM companies exporting to the U.S., U.S. importers sourcing from Latin America, and customs brokers acting on behalf of foreign suppliers. Industries with complex tariff classifications, such as electronics, machinery, and textiles, are especially prone to errors.

For example, a Mexican electronics exporter who misclassified components as finished goods may owe additional duties. By filing a Prior Disclosure, they can correct the error and pay only the reduced penalty plus the underpaid duties. Similarly, a Colombian flower importer who undervalued shipments due to currency fluctuations can mitigate penalties by disclosing the mistake.

Step-by-Step Compliance Process

The process begins with a thorough internal audit of import records. Importers should review all entries for the past five years, focusing on classification, valuation, and marking. Once an error is identified, the importer must calculate the loss of duties owed to CBP.

Next, the importer prepares a written disclosure letter addressed to the CBP Fines, Penalties, and Forfeitures (FP&F) office. The letter should include the importer's name, entry numbers, a description of the violation, the duty loss calculation, and a statement that the disclosure is voluntary. Supporting documentation, such as corrected entries and payment for the underpaid duties, must accompany the letter.

After submission, CBP reviews the disclosure and may request additional information. If accepted, CBP issues a penalty notice with the mitigated amount. The importer then pays the penalty and the underpaid duties, and the case is closed. The entire process can take several weeks to months, depending on the complexity of the violation.

Timelines and Costs

Timing is crucial. Importers should file the disclosure as soon as the violation is discovered. Delays can result in CBP initiating an investigation, disqualifying the disclosure from penalty mitigation. The statute of limitations for CBP to assess penalties is five years from the date of entry, so disclosures should cover entries within that window.

Costs include the underpaid duties plus the mitigated penalty. For non-fraudulent violations, the penalty is typically 10% of the maximum penalty, which is the loss of duties plus a statutory penalty. For example, if underpaid duties are $10,000, the maximum penalty could be $40,000, and the mitigated penalty would be $4,000, plus the $10,000 in duties. Interest may also apply.

Additional costs include internal audit expenses, legal fees, and potential broker fees for filing corrections. While these costs can be significant, they are far lower than the full penalties that could be imposed if the violation is discovered by CBP.

Common Mistakes That Delay or Derail Disclosures

One frequent mistake is failing to disclose all affected entries. Partial disclosures may be rejected, leaving the importer exposed to full penalties. Another error is submitting a disclosure after CBP has already started an audit or investigation. Importers must monitor CBP communications carefully.

Mischaracterizing the nature of the violation is also problematic. For instance, claiming negligence when the facts suggest gross negligence can lead to a higher penalty. Importers should work with experienced customs attorneys to accurately assess the violation level.

Failure to pay the underpaid duties at the time of disclosure is another common pitfall. CBP requires payment along with the disclosure letter. Delaying payment can result in rejection of the disclosure.

Finally, ignoring the requirement to correct all future entries. After disclosure, importers must implement compliance measures to prevent recurrence. CBP may monitor subsequent filings, and repeated violations can lead to stricter enforcement.

Regional Variations for LATAM Importers

Latin American importers face unique challenges. Currency fluctuations can lead to valuation errors, especially in countries with volatile exchange rates like Argentina or Venezuela. Importers must use consistent exchange rates as required by CBP regulations.

Trade agreements such as USMCA, CAFTA-DR, and other FTAs require strict origin documentation. Errors in certifying origin can result in penalties for preferential duty claims. Prior Disclosure is particularly useful for correcting such errors without losing trade benefits.

Additionally, cultural differences in recordkeeping practices can impact compliance. Many LATAM companies maintain paper records, making audits more difficult. Transitioning to digital systems can improve accuracy and facilitate timely disclosures.

How Coppermont Can Help

Coppermont specializes in bridging the gap between U.S. regulatory requirements and LATAM trade operations. Our team of customs compliance advisors works with importers to conduct risk assessments, identify potential violations, and prepare robust Prior Disclosure submissions. We coordinate with local counsel and customs brokers to ensure all documentation meets CBP standards.

Our advisory services include training on classification and valuation best practices, audit readiness reviews, and ongoing monitoring of regulatory changes. By partnering with Coppermont, LATAM importers can minimize penalty exposure and maintain smooth cross-border trade. Contact us today to discuss your compliance needs.