Inspections, Compliance, Enforcement, and Criminal Investigations
9-12 - Bond Actions
To increase the effectiveness of FDA's import operations by appropriately utilizing the CBP bond provisions, in conjunction with FDA's enforcement discretion, in an effort to deter the distribution of imported articles prior to FDA release.
Sections 801(b) and 536(b) of the Federal Food, Drug, and Cosmetic Act and 21 CFR 1.97 provide for the delivery to the owner or consignee of a lot offered for entry into the United States, pending a decision to admit the lot upon the execution of a bond (commonly referred to by FDA as a "redelivery bond"). This bond is filed with the Customs and Border Protection (CBP) and provides for the payment of liquidated damages in the event of default. (The individual or firm posting the bond is referred to as the "Importer of Record.")
This bond contains a condition for redelivery of the lot, or any portion thereof, upon demand of CBP and also a provision for the performance of conditions as may be legally imposed for the relabeling or other action necessary to bring the article into compliance or rendering it other than a food, drug, device, or cosmetic.
FDA district personnel have and may utilize enforcement discretion when evaluating cases of bond violations and penalty recommendations. While it may be accurate to state that FDA "rarely mitigates", it should be pointed out that districts have at their disposal, and may wish to exercise, enforcement discretion when, in their judgment, appropriate circumstances are present. Some examples of appropriate circumstances are stated in Penalty Recommendation.
Importers are not specifically required by law to hold a shipment in any given location once a bond has been filed, pending a decision by FDA whether or not to sample. However, in the event FDA decides to collect a sample, CBP can require, under terms of the bond, that the importer return the entire shipment or any portion thereof for sampling, if the shipment has left the port area. If unable to redeliver upon demand by CBP, the importer is subject to assessment of liquidated damages.
In advising importers who inquire about making immediate distribution of any entry, district personnel should recommend that distribution be withheld pending an Agency decision on admissibility. Generally speaking, a bond violation occurs when the importer fails to redeliver merchandise, upon CBP demand, that has been distributed for sale before sampling and/or release by FDA, or before an authorized FDA representative expressed that the merchandise may proceed without FDA examination.
Following are examples of situations which may, if the merchandise is not redelivered on Customs demand, result in bond violations:
- Distribution of a shipment before FDA has decided whether or not to sample;
- Distribution of a shipment after FDA has elected to sample but before the sample(s) can be collected;
- Distribution of a shipment that appears to be violative, before or after the receipt of a Notice of Detention and Hearing;
- Distribution for sale of a shipment before FDA can inspect and/or sample the merchandise that was relabeled or reconditioned pursuant to an approved Application For Authorization To Relabel Or To Perform Other Action under 801(b) of the Federal Food, Drug, and Cosmetic Act (Form FD-766);
- Distribution of a shipment for which a Notice of Refusal of Admission has issued.
As soon as it appears that one of the above situations may have occurred, FDA district personnel should report the situation in writing to the CBP Port Director, as an investigation may be initiated by CBP to determine whether a bond violation has occurred. The report to CBP should be strictly factual, with enough background information for CBP to accurately assess the case. The report should, at this point, contain no recommendations nor should it judge the case before the importer of record has had an opportunity to present evidence. The District should offer CBP full cooperation in conducting any investigation that is considered necessary.
If an importer has distributed a shipment before FDA has determined whether to sample or after a Notice of Sampling has issued but before the samples are collected, the written report should ask CBP to require redelivery for sampling purposes.
If, at the time of the aforementioned report to CBP, the shipment had been sampled and a Notice of Detention and Hearing had already issued on the shipment, a Notice of Refusal of Admission should be issued. The Notice of Refusal of Admission should be executed in the usual manner.
NOTE: A Notice of Detention and Hearing and Notice of Refusal of Admission are not required in cases where FDA has not sampled the shipment.
Where the articles are distributed prior to FDA sampling, FDA should consider following up in domestic channels, for example, by collecting official domestic samples. Where samples have been collected by FDA and are shown to be violative, and the goods are not redelivered, FDA may consider recommending seizure, or some other action, to remove the violative product from distribution channels.
If CBP, after review of FDA's report along with any other information, determines that the articles are not entitled to admission, CBP may issue a Notice of Redelivery (CBP Form 4647) to the importer of record. If redelivery is not made within a specified time (currently 30 days) CBP regulations provide for the issuance of a Notice of Penalty or Liquidated Damages Incurred and Demand for Payment (CBP Form 5955A). CBP has amended the amount of liquidated damages to be assessed to three times the value of the restricted merchandise not redelivered (19 CFR 113.62(k)) and increased the amount of the bond required for such entries to three times the value of the merchandise (CBP Directive 3510-03, 1/14/91). These amounts are current as of the date of the issuance of this RPM. Check CBP regulations for current amounts. The Notice (Customs Form 5955A) will generally request liquidated damages in the amount prescribed by regulation for the undelivered merchandise, plus duties. This Notice gives the importer of record an opportunity to object to the action if he or she feels there are extenuating circumstances, and to explain in a written petition why he or she should not be subject to the stated penalties.
The importer of record generally will submit a petition to CBP to either void the Notice of Penalty and Liquidated Damages or will offer to pay a lesser amount. If there are mitigating circumstances, CBP and FDA may agree to the payment of a lesser amount. See 21 CFR 1.97(b).
If the importer of record refuses to pay the amount agreed upon by CBP and FDA, the importer has the option of presenting the case to a CBP Court. Generally, if the Court rules for the government, the importer must pay the original amount of liquidated damages.
When the importer of record is a customhouse broker and not the ultimate consignee, a plea is frequently entered for cancellation of liquidated damages on the basis that the broker had no part in the distribution of the merchandise. It should be emphasized that any importer of record has agreed to the obligations set forth in the bond, most importantly, redelivery. If such bond holders were excused from their obligations, the bond provisions would be unenforceable, and the distribution of imported goods prior to release would be encouraged. It may be pointed out to customhouse brokers that their assumption of the responsibility of importer of record was entirely voluntary. By filing the entry as importer of record, the customhouse broker assumes all obligations under the bond.
In evaluating a bond action case, it should be remembered that the bond penalty is intended to make the unauthorized distribution of articles unprofitable. Very often penalties are so small that such penalties, in effect, encourage the illegal distribution of future imported lots.
In the absence of any aggravating factor, the following mitigating factors may be utilized in determining if mitigation is warranted. Districts do have enforcement discretion to consider mitigation under other circumstances.
- The merchandise was exported after detention but prior to the issuance of a Notice of Refusal of Admission because the importer was not aware he/she was supposed to wait for the Refusal before exportation. The importer is able to supply documentation that the specific merchandise detained was, indeed, exported.
- A shipment was released by CBP under an Immediate Delivery Entry (I.D.) and distributed prior to FDA release because it was the initial entry subject to the Federal Food, Drug, and Cosmetic Act by the importer who was not aware of FDA requirements.
- Conditions out-of- control of importer - Examples:
- An entry is stored in a public storage warehouse pending FDA clearance but is inadvertently shipped even though the importer has issued instructions to hold the merchandise until further notice. The importer must be able to document the issuance of such instructions, which must be verifiable by FDA.
- A shipment being held pending FDA clearance is stolen or damaged or destroyed in an accident. FDA personnel should obtain written documentation of the theft or accident from the importer before considering recommending mitigation.
- It is the responsible party's first/only failure to redeliver within two (2) years, and the firm's cooperation with FDA has been positive in providing access to records, initiating recalls, etc.
- There exists either a non-violative FDA analysis or "acceptable" private laboratory analysis for which audit sample is not available. NOTE: repetitive failure (more than once within two (2) years) to have audit samples available constitutes an aggravating factor. (See Aggravating Factors below.)
- Importer has an excellent compliance history with the district.
- The importer has had only one or two bond offenses since doing business in the FDA district, constituting a small percentage of the importer's total entries which FDA has chosen to examine; and
- The importer has an excellent recorded history of entering product in compliance with the Act and has fully cooperated with FDA while in business in the FDA district; and
- The importer makes a reasonable attempt to retrieve the entry as soon as it is brought to his/her attention.
Districts are reminded that the enforcement discretion available to you may be utilized when determining whether or not to mitigate bond penalties based on other factors the district deems pertinent.
Although often used by importers in the past as "extenuating circumstances," the following are not considered examples of true mitigating circumstances:
- The amount of merchandise missing;
The seriousness of the violation.
Note - FDA may consider a firm's history of previous bond violations to show that the importer (e.g. broker serving as importer of record) was aware of FDA and CBP procedures, and that mitigation may not be appropriate.
In addition, there are some aggravating factors which would generally preclude any mitigation. These factors follow.
- Attempt to deliberately evade FDA surveillance.
- Un-redelivered product has resulted in injury or poses a risk to the public health.
The "redelivery bond" is a CBP requirement and the mitigation process is a CBP procedure. Therefore, FDA will not consider mitigation until a mitigation petition is filed with CBP and forwarded to the district for evaluation.
As with the basic decision to mitigate, districts do have enforcement discretion, based on their judgment and evaluation of the facts, to determine the degree of mitigation. The following general guidelines should be considered in determining the amount of mitigation:
- In instances involving the documented exportation of the merchandise, first time importers, and situations out of control of the importer, (see items A, B, and C in Penalty Recommendation) districts can, based on their evaluation of the facts in the petition, agree to mitigate the penalty to a nominal amount or recommend no penalty.
- In all other instances, districts should generally consider mitigating the penalty to the level of the value of the non-redelivered merchandise. The degree of mitigation can vary depending on the district's evaluation of the facts in the petition. However, except for those instances noted in item 1. of this section, mitigation below the value of the non- redelivered merchandise should be considered only in exceptional circumstances.
If the districts have doubts concerning the amount of the penalty recommendation, they should submit the case to the Division of Import Operations, OEIO/DIO for review and advice.
Until this functionality is available in OASIS, each district shall maintain a log of bond violations and assessment of penalties, in the event that it becomes necessary to check on the past violations of an importer of record. The specific format for such a log is at the district's discretion; however, it should contain at least the following information when available: Name and address of the importer of record; product involved; value of merchandise not recovered; penalty paid; date of action; sample number; reason for the detention; and concise reason for the bond action. It is no longer necessary to send a list of bond actions to DIO.