Friday Q&A

Today I spoke at a seminar put on by the International Trade Club of Chicago. The topic was internal reviews and prior disclosures. Three hours listening to me seems like a lot, but I think it went well enough. I took a new approach on my PowerPoint slides. It is a long story, but I am convinced that in the hands of the unskilled (like me), PowerPoint can suck the life out of a presentation. I've been doing some reading about this and I tried to emulate Stanford professor Lawrence Lessig today. Basically, I had no bullet points, no charts, no slide transitions, and no fancy fonts; just a few key words for each thought. Anyway, I think it was OK. I'll have to keep practicing the method.

We had lots of good questions. Rather than find a search engine phrase for my Friday question, I'll just give you some from the meeting this morning.

Why do I have to worry about privilege for an internal review?

Because you may not want to turn the results over to Customs when they come knocking. That's it.

Customs often starts an audit by asking about prior reviews and to see the results. If you do a review as part of normal management activity (which you should), the results are non-privileged. If the review is done under the direction of counsel for the purposes of securing legal advice, the results can be privileged. Note that the underlying business information is not privileged. What is protected is the direction from counsel on what to look at, the final report that conveys the results to the lawyer, and the lawyer's advice on what to do about it. If you think there is a problem, it pays to make an appointment with your in-house legal staff and see if they think they want to initiate the review. The prospects of getting some of it protected by privilege may be appealing.

Can I still do a disclosure after an audit starts?

Yes. You can make a disclosure up to the time Customs records that it has received information indicating that a violation has occurred. That is the official initiation of an investigation. You can make a disclosure after that, provided you can prove you had no notice of the investigation. It is often hard to prove a negative, but it can be done. To make matters worse, certain things create a presumption that you knew about an investigation. Those things include: inquiries from a Special Agent, a pre-penalty notice, or a seizure of merchandise.

An audit, including a Focused Assessment, is not an investigation and does not give you reason to believe an investigation has been commenced. So, if you happen to be sitting with an auditor going over some data and watch the auditor get all excited about some terrible error, go ahead and get that disclosure in. You still have the right to do it.

Can a disclosure ever make things worse?

Yes, in at least two ways. First, if your disclosure is incomplete or in some way invalid, it will not protect you. Instead, it will serve as a tip to Customs that something is wrong and they should start an investigation. Word to the wise: don't make a disclosure casually. It needs to be done right.

Also, if you make a disclosure of error X covering the past five years and then continue making error X for the next five years, you are looking at least at a gross negligence penalty. In the worst case, it could be fraud because once you made the disclosure, you knew it was wrong and continued to knowingly provide false information. That is bad.

On that happy note, Happy New Year to those of you on that calendar.


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