New risks for those involved in cross-border trade

In December 2011, adjustments were made to the Russian Federal Law On customs tariffs, the changes coming into force in the same month. Despite the fact that this law was supposed to be of a merely technical nature, bringing a range of laws into compliance with Customs Union terminology, it contains a number of substantial amendments that increase risks for persons involved in cross-border trade.

Federal Law No. 409-FZ dated 6 December 2011 On amending specific items of Russian federal legislation (which came into force on 7 December 2011), has amended the Federal Law On customs tariffs. All rules have been excluded fr om it that relate to determining the customs value of goods (these issues are now governed solely by the Agreement dated 25 January 2008 On determining the customs value of goods moved across the customs border of the Customs Union). Also amended is the Russian Code of Administrative Offences (the “CoAO”), specifically its chapter 16, establishing criminal liability for violations of customs rules. There is an increased limitation period, raised fr om one year from the date on which the administrative offence was committed to two years, applicable to liability for a violation of the customs legislation of the Customs Union and Russian customs legislation.

The Federal Law does not directly specify whether the effect of this rule extends to violations committed before 7 December 2011. In our opinion, by virtue of article 1.7(2) of the CoAO it may be applied only to administrative cases regarding a breach of customs rules committed after 7 December 2011. However, clarifications of the Federal Customs Service (FCS) regarding the application of a 3-year time lim it for customs control to be carried out once goods are released does suggest that the FCS may be expected also to extend the effect of the amendments to violations committed before that date.

However, business people have even more questions regarding the adjustments made to article 16.2(2) of the CoAO, which establishes liability for making inaccurate declarations. The previous version provided for liability for inaccurate information being given about goods if such information affected the amount of customs duties and taxes. In accordance with article 181(5)(2) of the Customs Code of the Customs Union (the CC CU), such information includes the name, description, customs code under the Customs Union’s Commodity Classification for Foreign Trade (the CCFT CU), country of origin and customs value. Most customs experts are concerned that the express listing of the above information in the new text of the law is aimed at amending the case law that has developed regarding inaccurate information being given when goods are declared regarding their CCFT CU classification code when an accurate and full description of the goods is also given. However, from our point of view, the greatest threat lies in the fact that, under the new text, there is also liability for inaccurately stating “other information” that affects the payment of customs duty and taxes. Such information may include, in particular, the rates of customs duty, taxes and customs levies; benefits relating to customs payments, including tariff preferences; and exchange rates applicable when the amounts of customs payments are calculated. Accordingly, if there was previously no administrative liability for giving inaccurate information of the type stated above (including in error), such liability may arise now.

Moreover, in the new draft of article 16.2(2) of the CoAO, it is stipulated that a breach has been committed even if customs payments have not been paid but inaccurate information given when goods were declared may serve as a basis for an exemption from or reduction in the amount of customs duties or taxes. This version applies when a person is charged with an administrative offence based on such circumstances before goods are released, when previously case law did not favour the customs authorities in this regard. An example is when the customs authorities uncovered, as goods were declared, inaccurate information that affected the amount of customs payments that were due and the amount not paid was made up before the goods were released. In such situations, courts proceeded on the basis that the elements of the offence were definitively in place only when negative consequences had actually occurred as a result of the offender giving inaccurate information about goods it had declared; this was when the state budget suffered loss as a result of customs duties or taxes not being paid. However, since the customs payments were made in full before the goods were released, the elements of the offence were not in place. Now, it seems, the FCS has eliminated the grounds for courts to set aside resolutions of the customs authorities in cases concerning administrative offences. We do not exclude the possibility of case law changing with regard to such cases.

In addition, we believe that the substance of the offence (as provided for in article 16.2(2) of the CoAO) is absent in the actions of the declarant or the customs representative if the company on its own account revealed that inaccurate information had been declared and this had affected the amount of customs payments, if the company then contacted the customs authority with a written application to amend the customs declaration, stating reasons for this. This would testify that steps had been taken to fcomply with customs law. The lawfulness of this conclusion is confirmed by case law. However, it seems more correct for such an approach to be reflected in legislation. The Kyoto Convention, to which Russia became a signatory a year ago, and article VIII of GATT require that legislation provide for an exemption from liability, or for proportionate and just penalties for violations which are committed as a result of errors. In the Russian administrative code, the lower lim it of the penalty if goods are re-graded owing to a mistake of a foreign supplier is 100% of the goods! To this end, it is proposed to stipulate that there is no liability if, before the customs authority uncovers the inaccuracy of information asserted in a customs declaration, the declarant itself has stated the discrepancies, including when goods have already been released.