date/issue: special quest/january 2010 new web merlin

The Quest Newsletter is published quarterly and is designed to provide critical information in the transportation industry. Avalon Risk Management is not responsible for the accuracy or reliability of information contained in articles. The reader/user assumes all risk in the use of such information.

150 NORTHWEST POINT BOULEVARD • 4TH FLOOR • ELK GROVE VILLAGE, IL 60007

PHONE: (847 ) 700-8100 • FAX : (847 ) 700-8116 • www.avalonrisk .com

As a follow up to our Web Merlin™ ISF Training Webinars, Avalon is proud to announce that effective tomorrow, Jan. 21, 2010, Web Merlin will allow for the issuance of Importer Security Filing (ISF) Appendix D bonds. Our portal offers a streamlined approach to issuing ISF Bonds and transmits the bond directly to CBP to support your compliance with the ISF rule once flexible enforcement ends on Jan. 26, 2010. Web Merlin also allows the user to issue CBP Form 301 Single Entry Bonds for Unified Filings. The Revenue Division has confirmed that the bond limit when used for a Unified Filing is the required amount (value + duties, taxes and fees or three times the value if another government agency is required) + $10,000. To assist our valued customers in issuing ISF Bonds, we have prepared the following:

• A step-by-step Training Manual available electronically • A one-page “Quick Tips” reference guide • A copy of our Webinar Q&A. • If you would like to listen to a recording of our informational ISF Webinar originally presented

Dec. 18, you may do so by visiting http://www.avalonrisk.com/questnewsletter/emailblasts/ISFWebinar/Avalon%20ISF%20Webinar%202009-12-18.wmv and note that Windows Media player will be required.

• Sample Importer Letter

Space is still available for our Web Merlin ISF Training Webinars offered on Thursday, Jan. 21 and Monday, Jan. 25. You may sign up by visiting http://www.avalonrisk.com/questnewsletter/emailblasts/WebMerlinWebinar/index.html Web Merlin continues to provide the best surety automation in the industry and will assist in managing your ISF compliance with underwriting automation, compliance messages and e-mail notification of ISF Bonds. We are currently programming Web Merlin to accept collateral online via EFT or credit card transaction in instances when it will be required. This will ensure quick and timely issuance of ISF-D Bonds to support your operation. To obtain a secure Web Merlin login and password, contact your Avalon representative or request a login at www.avalonrisk.com/WebMerlinRequest.aspx.

Date/Issue: Special Quest/January 2010

Title: New Web Merlin™ release to allow for ISF Bond issuance

Author: Andriana Davis, Product Manager, Avalon Risk Management

of 2

The Quest Newsletter is published quarterly and is designed to provide critical information in the transportation industry. Avalon Risk Management is not responsible for the accuracy or reliability of information contained in articles. The reader/user assumes all risk in the use of such information.

150 NORTHWEST POINT BOULEVARD • 4TH FLOOR • ELK GROVE VILLAGE , IL 60007


For more information, please contact your local Avalon office or Andriana Davis, Product Manager at (847) 700-8087 or at [email protected]. A list of our North American offices may be found at www.avalonrisk.com.

Enter your

current secure

username and

password,

........Demo User

Then click

“Login.”

The same login

works for the

ISF-D Bond.

Avalon can

Aestablish Admin

rights to limit

or expand Web

Merlin modules

and reportsand reports.

Filing an ISFFiling an ISF

Appendix D

Single Bond

• Click on Bond tools.

• Scroll to “[SEB] Add New (ISF-D) for a one-time single transaction bond used for a single ISF transmission.

• Please Note: You must also issue a separate CBP 301separate CBP 301 Single Entry Bond to process the Entry at a later time. Select [SEB] Add New (CBP 301) at that time301) at that time.

Processing ISFProcessing ISF

Appendix D single

Transaction Bonds

I t I f ti b ll d f• Importer Information can be pulled from Customs Data and stored for future use in “My Importer Database” for repeat transactions.

Aggregate Exposure Limit: Monitors the• Aggregate Exposure Limit: Monitors the maximum number of ISF-D single transaction bonds that may be issued for a particular importer.

• Once completed click “Request Bond• Once completed, click Request Bond Number” and will provide the Bond Reference Number for ISF Transmission.

• If the bond needs underwriting approval, it will automatically be referred to Avalon’swill automatically be referred to Avalon s Underwriting Department for approval within 24 hours.

• Red asterisks note required fields for ISF bond issuance and underwriting.bo d ssua ce a d u de t g

• The following slides detail the required information for each section.

Broker & PrincipalBroker & Principal

Information

• Broker Information: Select Avalon Account# and Atty-In-Fact to pull existing information.

• Principal Information: Input Importer Number and select a Pull Data From Option.- My Importer Database will

pull importer information on file in Web Merlin for your existing SEB importer y g paccounts. Will also store information for repeat transactions.

- Customs Data will query CBP data to pull importer details on file.

- Load Importer Data will pre-populate Principal Information based on the Pull Data option you select. Verify information for accuracy and complete remaining questions.

• Importer Contact Name: At least one of the following contact methods for the importer arefollowing contact methods for the importer are required: phone, e-mail or fax.

• Importer ISF Aggregate Exposure. Monitors an importer’s ISF-D aggregation and refers to Avalon’s Underwriting Department for approval once levels exceed $50 000approval once levels exceed $50,000.

• Blue Information Icon offers pop-up tips and suggestions in Web Merlin to assist you.

Bond Information

• Activity Code is pre-populated at 16 – ISF

• Bond Amount is pre-set at $10,000 minimum amount$10,000 minimum amount

• CHB Reference Number should be input if you want this to appear on your invoice to reconcile billing. This is your internal file number for ISF purposes.

USER TIP: Brokers may enter the portal • Port of Entry pre-populates a list of

commonly used ports, with the ability to show all and select from drop down.

• Vessel Departure Date should be the date of departure for the vessel destined

y3-5 days in advance (with an estimated Vessel Departure date and ISF Filing/Effective date) to ensure their bond is approved by underwriting so it may be issued in time for the ISF transmission.

Before the bond is submitted to CBP, the user must to the United States and not any feeder vessel. CBP requires an ISF to be filed 24 hours prior to the Vessel Departure Time.

• ISF Filing/Effective Date is the date you submit the transmission to CBP and

,confirm the departure date and filing date.

It is estimated that underwriting review and approval will take 24 hours and we will continue to automate all underwriting requirements online to support a 24/7 operation

receive an acknowledgement with a unique ISF confirmation number.

• “Known Violations” where the ISF Filing/Effective date is after the Vessel Departure Date will be referred to Avalon’s

support a 24/7 operation.

pUnderwriting Department and will require full collateral in the amount of $10,000 for the bond to be issued.

UnderwritingUnderwriting

Information

• Underwriting questions help us understand the importer’sunderstand the importer s history (new vs. repeat client).

• Pre-populated dropdowns inform us of the history with ISF transactions.

• When completed, Click “Request Bond Reference No.”

• When required by Underwriting, the application will note the ppsix-year statute of limitations that applies to ISF claims, along with a link to our collateral policy.

• If the bond does not require underwriting approval, the page will refresh to allow input of the ISF Confirmation number and e-mailing of the bond to CBP (slide/page 11)

Referrals toReferrals to

Underwriting

• After clicking, “Request Bond Reference Number,” if there are anyReference Number, if there are any underwriting issues, the box to the right will provide reason for underwriting referral or requirements.

• Typical underwriting referrals include: yp gKnown Violations, Non-Resident Importers, Importers in Bankruptcy or those sanctioned by CBP.

• The box will note the reason for the underwriting referral.

• Click “Submit to UW for review.”

• The user will receive status updates d il tifi ti f U/Wand e-mail notifications from U/W.

• Users may enter bond information 3-5 days in advance to ensure prior approval to filing the ISF transmissiontransmission.

Bond SerialBond Serial

Number and

ISF Transaction

Number

• After the user has completed entering bond information or saved a draft, it will appear in the SEB ISF-D Bond List accessible from the “Bond Tools” tab.

• From this list, the user will select the ISF-D Bond to input the unique ISF Transaction Number that is provided by CBP when the ISF transmission is accepted.

• CBP requires the ISF Transaction Number to appear

th ISF D B d ton the ISF-D Bond to automatically e-mail the bond to CBP’s Revenue Division.

• This will also include a list of bonds being reviewed bybonds being reviewed by underwriting or items that need additional documents and those submitted to CBP.

Entering ISFEntering ISF

Transaction

Number in Web

Merlin

• When the user clears the underwriting validation, the bond will be assigned a unique Bond Serial Number that should be used as the Surety Bond Reference Number when transmitting your ISF electronically.

• You must also transmit Activity Code 16, Bond Type 9 and the Surety Code with your ISF transmission.

• After CBP has received and accepted the ISF the filer ill recei e a niq e ISFISF, the filer will receive a unique ISF Transaction Number from CBP, which must be affixed to the bond.

• CBP states the ISF Transaction Number can be obtained in 15 seconds.

• Bonds waiting to be submitted to CBP will note “Approved/Ready for Submission” and be located at the top.

• Click on the Bond Serial Number to enter the ISF Transaction Number and e mailISF Transaction Number and e-mail electronically to CBP.

• Bonds listed “Submitted to CBP/Billing Pending” have been completed.

Entering the ISFEntering the ISF

Transaction

Number in Web Merlin

• Users will see their unique bond serial number located at the top and middle of the screen.

• The bond status will note: “Approved/Ready for Submission” once it has cleared underwriting or if the user has submitted a bond that does not need approval.

• The user will need to verify the Vessel Departure Date and ISF Filing/Effective Date i th t th h h d l ithin the event these have changed along with noting if the B/L was valid in ABI.

• After the user has transmitted their ISF in ABI or designated program, enter the ISF Transaction Number that CBP has provided and Click “Save and submit to CBP.”

• Bond details will be listed below

W b M li t ti ll• Web Merlin automatically e-mails the bond to [email protected]

Entering the ISFEntering the ISF

Transaction

Number in Web Merlin

• After clicking “save and submit to CBP” the bond status (yellow box) at the top will change.

• The user will be able to view and print the submitted bond PDF by clicking the button at the bottom of the screen.

ISF Appendix D Bond

• Users will be able to see an image of the bond to print andimage of the bond to print and file for their records

• The bond will be populated with the ISF transaction number and all of the required information per CBP regulations.

Completed Bond

• The completed bond will be listed in the SEB ISF-D bond list, accessible from the “bond tools” tabbond tools tab.

• The status will change to “Submitted to CBP/Billing Pending”

• The bond will be billed three• The bond will be billed three days after the date submitted to CBP.

• To delete a bond because an ISF has been withdrawn, ,please provide confirmation of the withdrawal status and Avalon can cancel the billing.

• A later version of Web Merlin ill t l t bilit twill contemplate ability to

update this status in your Bond List once CBP has provided further process guidance.

Web MerlinWeb Merlin

ISF Features

Web Merlin will continueto provide the bestpautomation in the industryand will assist inmanaging ISF compliancewith the following benefits:

• Automatic E-mail Notification of ISF Bond to CBP and requestor.

• ISF Aggregation• ISF Aggregation management.

• ISF Compliance Messages.

• Automation of Underwriting Process.

• Acceptance of Collateral Real TimeReal Time.

Please contact your local Avalon office for more information or a Web Merlin login.

https://webmerlin.avalonrisk.comhttps://webmerlin.avalonrisk.com

Please submit any Web Merlin issues to [email protected] or contact our Web Merlin Help Desk at 847-700-8140.

Please submit any bond underwriting questions to [email protected]

or contact The ISF Hotline at 847-700-TISF (8473).

Premier Provider of Innovative Insurance and Surety Solutions

ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON | LOS ANGELES | MIAMI | NEW YORK | SAN FRANCISCO | SEATTLE | TORONTO

www.avalonrisk.com

150 Northwest Point Boulevard | 4th Floor | Elk Grove Village, IL 60007

Phone: (847) 700-8100 | Fax: (847) 700-8116 | www.avalonrisk.com

Form B309A REV 2010/01/20

ATLANTA | BOSTON | CHARLESTON | CHICAGO | HOUSTON | LOS ANGELES | MIAMI | NEW YORK | S AN FRANCISCO | SEATTLE | TORONTO

1. BROKER INFORMATION• Account #: Use drop down menu to select your location.

Once selected, information should populate, please review.• Atty-In-Fact: Use drop down to select the correct signer.• Requestor: Use drop down to select requestor.

WEB MERLIN QUICK TIPSThe following guide is designed to save you time when generating ISF Appendix D Single Transaction Bonds via our Web Merlin secureInternet portal. Contact your local Avalon office if you have any questions regarding Web Merlin.

2. PRINCIPAL INFORMATION• Importer Number: Enter IRS or Customs assigned number. Hyphens must be used. • “Load importer data” can pull information from CBP (for first-time importers) or the

user’s importer database created by Avalon.• The Importer ISF Aggregate Exposure/Limit is the maximum number of ISF-D Single

Transaction Bonds that may be issued far a particular importer. If the importer hasexhausted his/her authority, the bond will be sent to Avalon’s bond underwritingdepartment.

• Importer Name: May use letters, numbers, dash, period, comma, and “&” sign. • At least one of the following contact methods are required: phone, e-mail or fax.• Red asterisks note required fields, blue “i” buttons offer pop-up tips.

3. BOND INFORMATION• Brokers may enter the portal 3-5 days in advance (with an estimated

Vessel Departure Date and ISF Filing/Effective date) to ensure theirbond is approved so it may be issued in time for the ISF transmission.

• Before the bond is submitted to CBP, the user must confirm the VesselDeparture Date and ISF Filing/Effective date.

• Underwriting review and approval is expected to take 24 hours.• CBP requires filing 24 hours prior to Vessel Departure. Please use the

date of the vessel bound for the United States and not a feeder vessel. • “Known Violations” where the ISF Filing/Effective date is after the

Vessel Departure Date will require full collateral for the bond to beissued.

5. SUBMITTING THE BOND TO CBP• After the user clicks “request bond serial number,” the screen will

automatically refresh and if having cleared underwriting validation, theuser will be able to submit the bond to CBP.

• The screen will note the Merlin serial which is the required Surety BondReference Number that must be submitted at the time of ISFtransmission.

• After the user successfully transmits an ISF to CBP, they will receive aunique ISF Transaction Number. The number should be returned to youby CBP within 15 seconds and it must be entered onto the ISF-D bondwhich Web Merlin allows.

• Enter the ISF Transaction number into the noted box, verify dates andB/L information, then click “save and submit to CBP.”

• Web Merlin automatically e-mails the bond to [email protected]. • The bond will be billed in three days.

1

2

3

4. UNDERWRITING INFORMATION• Underwriting questions help us understand the importer’s history (new

vs. repeat client, history of ISF transmissions). • Importers on sanction, those who filed for bankruptcy or those with

bond claims will require underwriting approval.• For an importer’s first ISF-D, a signed Application/Indemnity is required.• Note: ISF does not liquidate and has a six-year statute of limitations.

4

5

If you have any questions, please contact our Web Merlin helpdesk at [email protected] or (847) 700-8140 or The ISF Hotline at (847) 700-TISF (8473).

ISF WEBINARS – DEC. 16, 18, 2009 and Jan. 4, 7 and 8, 2010

Web Merlin™ ISF Training Webinars – Jan. 14, 15, 2010 This Q&A was prepared for informational purposes only to provide a summary of the Q&A discussions from the ISF Webinars. Please send an e-mail to [email protected] if you have any further questions.



Form B223A rev 2010/01/20

Page 1

BOND QUESTIONS

Q1. If an importer has a $50,000 continuous bond, do they need a separate ISF Bond?

A: No, the Activity Code 1 Import Bond in the minimum $50,000 amount is sufficient to cover ISF activity. At this time, CBP has not revised its current formulas for determining the Activity Code 1 Bond Amounts. Liquidated damages can only be assessed up to the bond amount. In the case of a $50,000 continuous bond, this represents the maximum liquidated damage claim CBP can assess during any one annual bond period.

Q2: What is the benefit to an ISF-D Continuous Bond?

A: It was originally suggested that an ISF Appendix D continuous bond would be advantageous to larger importers who already have continuous import bonds in amounts higher than $100,000. Since the ISF-D continuous bond minimum is set at $50,000, importers were thought to be better served by obtaining a separate bond that would limit ISF penalties to $50,000 per annual period, rather than the full amount of their C1 bond at $100,000+. CBP has decided that this is not the case. The agency, when seeking to collect liquidated damages, has stated that they will be able to collect under both 301 and the ISF-D bonds. For this reason, if one bond is exhausted, CBP will be able to collect from the other bond. Bond verbiage has been updated so if a filer has several CBP Form 301 bonds (i.e., C1 Importer/Broker Bond, C2 Custodial Bond, C3 International Carrier Bond), CBP would seek to collect from any/all in the event that liability is exhausted under the primary bond identified in the ISF. Should you still require an ISF-D Continuous bond, no letter of application is required by CBP and bonds may be submitted to [email protected]

Q3: If an importer has a $50,000 continuous bond, can CBP sanction the importer if there are liquidated

damages that exceed the amount of the bond? For example, if an importer has a continuous bond effective 1/26/10 through 1/25/11 and pays $50,000 in liquidated damages for that bond period due to ISF violations, can Customs come back against the bond period at a future date and sanction the importer for not paying? Someone on the Webinar indicated they were aware that CBP did this.

A: Liquidated damages for entry or ISF violations can only be assessed up to the bond amount since the definition of a liquidated damage claim is violation of the bond contract itself. Thus, a liquidated damage can never exceed the amount of the bond for the importer or the surety. As the surety, we will deny liquidated damage claims when the bond amount is saturated because it has already paid other liquidated damage claims assessed during the bond period. In the above described scenario, CBP could not claim more than $50,000 for liquidated damage violations that occurred during the bond period from 1/26/10 through 1/25/11. In the case of ISF Bonding, the importer is limiting its liability to $50,000 per continuous bond period vs. $10,000 per ISF Bond in a single transaction environment. It should be noted that an importer’s obligation to pay duties is absolute and never limited by the bond amount. In addition, if an importer is assessed with 592(d) penalties for fraud or negligence, this is separate from liquidated damage claims and is not limited by the bond amount. When duties are not paid, a liquidated damage claim is also assessed for violating the bond contract and not paying the duties on time in accordance with CBP regulations. If an importer is on sanction, it is typically as a result of non-payment of duties which are absolute and never limited by the bond amount.

The above details were verified with CBP and our Customs Attorney from Sandler & Travis, Glad & Ferguson.

Q4: When must a bond be on file? At time of ISF or Entry?

A: A bond must be on file at the time of ISF to cover the ISF transaction.



Form B223A rev 2010/01/20

Page 2

Q5: Does the importer also need an Activity Code 3 International Carrier Bond (C3) to file for ISF?

A: No, only an AMS Filer needs a C3 Bond and that bond is also sufficient for an AMS filer to handle ISF transmissions. For ISF, an importer must be bonded in only ONE of the following ways:

1) Activity Code 1 Continuous Import Bond (C1) that covers both Entry and ISF Activity. This option is encouraged for any importer with more than 5 import transactions per year.

2) Activity Code 1 Single Transaction Bond (S1) can only be used to bond a Unified Entry, which requires both the ISF and Entry to be processed at the same time 24 hours prior to vessel departure. This bonding option will not be used often since only 2-3% of ISFs are filed on a unified basis with the Entry.

3) Separate ISF Appendix D Continuous Bond in the minimum amount of $50,000 per annual period. This bond is not necessary if the importer already maintains a C1 Bond on the standard 301 bond form.

4) Separate ISF Appendix D Single Transaction Bond for each ISF transaction in the minimum amount of $10,000 per bond. This option should be used for importers that have less than 5 import transactions per year including DDP shipments and/or one-time importers. There will be a flat, minimum premium for these bond types which will be higher than standard given the adverse selection that will develop.

Q6: For larger importers that have multiple bonds, is it best to use the lowest valued bond amount?

A: According to the ISF Rule, an importer can use any one of the following continuous bond types to meet the ISF bonding requirements:

1) Activity Code 1 Continuous Import (C1) Bond 2) Activity Code 2 Continuous Bond Carrier (C2) Bond 3) Activity Code 3 International Carrier (C3) Bond 4) Activity Code 4 Foreign Trade Zone (C4) Bond

As previously stated, CBP, when seeking to collect liquidated damages, has stated that they will be able to collect under both 301 and the ISF-D bonds. For this reason, if one bond is exhausted, CBP will be able to collect from the other bond. Bond verbiage has been updated so if a filer has several CBP Form 301 bonds (i.e., C1 Importer/Broker Bond, C2 Custodial Bond, C3 International Carrier Bond), CBP would seek to collect from any/all in the event that liability is exhausted under the primary bond identified in the ISF.

Q7: Is the unified bond amount on a single transaction on the 301 bond form different than a single transaction ISF Appendix D bond when used for a unified filing?

A: Yes, when issuing a Single Entry Bond on the standard CBP 301 Bond form to cover a Unified ISF and Entry, the bond amount should continue to be determined at Value + Duty + $10,000 to cover the ISF. If another government agency is involved on the entry, the bond amount should continue to be 3 times value + $10,000 to cover the ISF. The ISF Appendix D Single Transaction bond is always set at $10,000 minimum.

Q8: Can we use a Single Transaction Appendix D bond to clear the shipment?

A: No. A Single Transaction Appendix D bond is only used for securing the ISF. The importer will need to obtain an Activity Code 1 Single Transaction Bond on standard CBP Form 301 to clear the entry. If the importer already has an Activity Code 1 Continuous Import Bond (C1), there is no need to secure an ISF Appendix D Bond as C1s may be used for both the filing and clearing of entries. Unless it is a Unified Filing, the ISF-D Bond would need to be obtained first to secure the filing, the entry would be second.

Q9: Will we always use Activity Code 16? I’ve seen 99 in other publications.

A: The ISF Appendix D Bond, whether single transaction or continuous, will always be filed as Activity Code 16. CBP noted Activity Code 99 in its FAQ on its Web site and this has not been updated since September 30, 2009. ISF filers are advised to always use Activity Code 16 for all ISF activity and this will automatically default in our Web Merlin software.



Form B223A rev 2010/01/20

Page 3

Q10: Is the effective date for the filing of ISF bonds is based on date of export? In other words, shipments

that sail on January 25 do not require a bond, but shipments that sail on or after January 26 do require a bond?

A: NCBFAA are advising everyone as a precaution – if the vessel is being loaded on or after January 23, 2010, to file the ISF with bond information. It is their understanding that CBP will be flexible the first few days because of the confusion.

Q11: When do we purchase the single transaction bond for ISF?

A: Users will need to “purchase” a single transaction ISF Appendix D bond before the ISF is transmitted to CBP. We would suggest that brokers log into the Web Merlin portal and enter bond information 3-5 days before it needs to be transmitted so there is ample time should any additional underwriting and/or collateral be required. Once it has cleared underwriting, the user will be able to update the Vessel Departure and ISF Filing/Effective Dates. Once the user submits the bond to CBP, it will be billed in three days.

Q12: What is the $50,000 aggregate limit on ISF Appendix D Single Transaction Bonds? If an importer

files more than five ISF-Ds with another broker, does that mean I can’t issue them as well? Is this required so the importer has to purchase a continuous bond?

A: The $50,000 aggregate limit means that brokers may issue five Single Transaction Appendix D bonds for a given importer (at $10,000 per bond). This limit is tied to the importer, not the broker. When an importer has exhausted their underwriting authority, requests to increase this amount will be evaluated on a case-by-case basis. It is assumed that the importer will obtain a $50,000 continuous bond to limit their liability after reaching $50,000 in liability from ISF-D Single Transaction Bonds. Initially we will have a flexible underwriting position during which we will be monitoring principal aggregation closely. For any principal you anticipate needing more than five single ISF-D bonds, please take all steps necessary to convert them onto a continuous CF301 as soon as possible. If they cannot be converted timely please contact our underwriting department for special acceptance for a higher aggregation limit.

Q13: Can we still obtain a bond if filing a late ISF?

A: Web Merlin allows the user to complete a bond submission even if the ISF is filed after the vessel has departed during the gradual phased in enforcement period through April. The importers will be referred to Avalon’s Underwriting Department for review for any future bond requests and to ensure compliance with future shipments. If there are continued violations, collateral will be required. Collateral will be accepted via Cash, ACH or Credit Card to expedite bond issuance.

Q14: Will the surety handle protest mitigation of penalties as a measure of self-protection?

A: Yes, as a matter of self-protection when a claim escalates to formal demand on surety (status 3600), the surety will take all measures possible to mitigate claims. It is, however, incumbent upon the bond principal to make reasonable efforts to mitigate their claims and manage their exposure before it gets to this advanced stage in the claim process. A bond is not insurance and the importer of record as the bond principal is fully and ultimately liable for any and all liquidated damage claims.



Form B223A rev 2010/01/20

Page 4

UNDERWRITING QUESTIONS

Q1: What is the cost of an ISF bond?

A: Rates are determined on an individual basis and have been distributed to customers. Please check with your local Avalon office.

Q2: How can the Customs Broker as the ISF Filer be exposed to liquidated damage penalties from ISF?

A: Customs brokers as filers should not be held liable by CBP since the importer of record is ultimately liable for the timely and accurate filing of all ISF activity. This, however, does not prevent the importer from holding the customs broker liable for any perceived mistakes in handling the ISF transmission. Because brokers are filing 85 to 90 percent of all ISFs, the importer is also relying on their customs broker to assist in meeting ISF requirements. It is recommended that customs brokers use the most current NCBFAA Power-of-Attorney and Terms and Conditions of Service to mitigate exposure from offering ISF services. The NCBFAA has updated these documents to encompass ISF business. Customs brokers are encouraged to secure signed copies of the most current forms from any customer for which they are handling ISF business. Customs brokers should also verify that their Errors & Omissions policy would respond to claims arising from the ISF-related work on behalf of their clients.

Q3: What liability do I assume when entries are filed under my (the broker’s) bond?

A: The NCBFAA does not recommend brokers to file ISFs or entries under their own bond as they will take on the full liability of the importer. The importer of record is ultimately liable for the timely and accurate filing of all ISF activity. If you obligate your own continuous broker bond for the filing, you assume the full liability of the importer of record and all liquidated damages or penalties will be made against you and it will be your responsibility to pay them.

Q4: Can importers be pre-approved one week to one month in advance to get an idea of the underwriting requirements. It often takes one day to receive financials?

A: Yes. Web Merlin allows the user to request approval multiple days or weeks in advance. When the user has estimated filing and departure dates, they may be entered into the portal and verified before the bond is submitted to CBP. We encourage early requests for ISF-D single transaction bonds to avoid possible late filing penalties.

Q5: Will underwriting be available 24/7 for brokers who have to work late and/or on the weekends?

A: Avalon understands the importance of timeliness in relation to ISF. We encourage customs brokers to reach out to their clients to obtain all information necessary to do timely and accurate filings and keeping in mind that prior underwriting approval may be needed for the bond. Avalon will provide a 24-hour turnaround time on bond submissions on working days in the United States, provided all bond documentation is received timely. We will be monitoring our underwriting and submissions to determine if any changes need to be made in our normal business hours and will also be automating Web Merlin to fully handle the underwriting process and accept collateral online to support a 24/7 operation.

Q6: If we are waiting on underwriting, can we file the ISF without the bond reference number?

A: No. It is required that the bond reference number be submitted to CBP with the ISF in order for CBP to assign and return the unique ISF Transaction Number that must be printed on the ISF-D Bond.

Q7: What type of financial statements are required? When do we request collateral? What is full collateral?

A: Financial statements should be for the most current fiscal year end report. If the financial statements are more than 6 months old, underwriters will likely request that an internal or CPA interim statement be provided for review. It is preferred that these financial statements be audited or reviewed. Financial statement instructions will be provided by Avalon’s underwriting department when these are requested. Upon underwriting review, a notification in Web Merlin will also advise of any collateral requirements. Full collateral is the full amount of the ISF Appendix D Single Transaction Bond, (i.e., $10,000).



Form B223A rev 2010/01/20

Page 5

Q8: What about ISF Bonding for Foreign Importers?

A: We recognize that many foreign importers may require the Appendix D Single Transaction Bond for DDP shipments and/or one-time shipments. Our underwriting will vary on a case-by-case basis depending on the controls the customs broker has in place to manage this business and/or prevent loading when the ISF information has not yet been received. We anticipate that lower volume importers may have difficulty complying with the ISF requirements and that this will lead to liquidated damage violations. In those instances, we will require collateral to secure the ISF bonding obligation.

Q9: I am a Southern Border broker and my clients do not have U.S. offices. With ISF Bonding, I could

lose business. How can I work to keep my clients in the ISF environment?

A: Our Southern Border clients are encouraged to speak with our LA or Houston office to review your current list of importers to see who can qualify for a Continuous Import Bond to meet the ISF requirements and what your ISF Bonding needs will be for foreign importers so we can work with you to mitigate the exposure.

Q10: How will Avalon evaluate the broker’s ability to place a hold on shipments?

A: Avalon will be evaluating a customs broker’s overall ability to assist in minimizing ISF violations. Placing a “hold” on a shipment that does not meet the ISF requirements prior to vessel departure is just one means of doing so. We rely on our customs broker clients to be our eyes and ears during the underwriting process. In cases where the broker does not know the importer or have any prior working relationship, we ask our clients to consider that importer’s ability to meet its ISF requirements and bonding obligations. In those instances where the importer cannot, Avalon will require collateral to secure the ISF bond obligation.

Q11: If the importer has never filed an ISF, will Web Merlin submit this to underwriting?

A: No. This is for Avalon’s reference to determine the importer’s history. Items that will trigger a referral to underwriting include:

• Known Violations where the Vessel Departure Date is after the ISF Filing/Effective Date • Non-resident importers (not based in the U.S., it territories or possessions, or Canada) • Importers who have filed for bankruptcy or are under sanction • Importers with unresolved or paid bond claims.

Q12: How do we obtain information on whether the importer’s previous ISFs were late or untimely? Will

this information go to underwriting review? Does Avalon have any historical data? If the importer of record has multiple filers for ISF, how will we know the accuracy? Will the customs broker be held accountable?

A: To obtain an ISF Progress Report, ISF Filers must register at [email protected] and include your Filer Code and full contact details. CBP currently allows Tier 3 C-TPAT members the opportunity to register with CBP to receive their ISF Progress Reports directly from CBP. All other ISF importers must obtain a copy of their ISF Progress Report from their authorized ISF Filer. Progress Reports provide monthly information on whether the importer’s ISFs have been late or untimely as well as accurate. In Web Merlin, this information is not mandatory at this time given the phased-in enforcement period and is the only information we have to determine I the importer has received Warning Letters since we do not receive these from CBP, nor does the surety receive any ISF download at this time. The customs broker is not held accountable for this information, however, our brokers receive underwriting authority to write ISF-D bonds with a clean history and any known violations that will trigger liquidated damages during the enforcement period should be referred to Avalon’s Underwriting Department for approval.

Q13: What if the onboard date was incorrectly given at the time of applying for the single transaction ISF

Appendix D Bond and we discover later that the onboard date was actually after the filing date?

A: Avalon’s underwriters will review and collateral will be required for any known violations.



Form B223A rev 2010/01/20

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BILL OF LADING QUESTIONS

Q1: What is the correct Bill of Lading for ISF?

A: Please review CBP’s FAQ on Bills of Lading (page 10-11), which states in part:

“The House Bill of Lading is defined as a bill of lading issued by a Non-Vessel Operating Common Carrier or Freight Forwarder to a customer as a receipt for the goods being shipped with other cargo as one consignment. The Master Bill of Lading is defined as an ocean bill of lading issued by a Vessel Operating Common Carrier covering at least one or more underling house bills of lading. CBP is requiring only the number for the bill of lading at the lowest level (i.e., the regular straight/simple bill of lading or house bill of lading) and not the Master Bill of Lading Number.”

The bill of lading number must be provided to CBP as part of the ISF. The ISF needs to be submitted at the lowest bill of lading level (i.e., house bill of lading or regular bill) that is transmitted into the Automated Manifest System (AMS). The bill of lading number is the only common link between the ISF and the customs manifest data. If the carrier creates and transmits a regular bill of lading number on behalf of a non-automated NVOCC, the ISF filer must submit the regular bill of lading number that was transmitted into AMS as part of the ISF.

From a transactional standpoint, the system will allow an ISF Filer to update an existing ISF with a new bill of lading number. The ISF Importer, however, is ultimately responsible for the timely, accurate, and complete submission of the Importer Security Filing.”

Q2: I am not receiving the Bill of Lading until two days after the vessel has departed. What do I do?

A: Securing the correct Bill of Lading 24 hours prior to departure is a challenge for the industry. We had asked the NCBFAA to comment on this issue and they have advised that obtaining the Bill of Lading will be a challenge for NVOCCs who are not automated and not transmitting the Bill of Lading electronically through AMS. This will be an issue for co-loaded shipments as well. Communication with your customers and supply chain partners will be important, and everyone will need to be aware that the Bill of Lading is required 24 hours prior to vessel departure. The Bill of Lading must represent the lowest denomination of the cargo, which means the House Bill of Lading must be transmitted. If you are handling co-loaded shipments, you will need to work with your co-loader to secure the Bill of Lading more than 24 hours prior to vessel departure in order to transmit the ISF 24 hours prior to vessel departure. The Bill of Lading can be updated after ISF transmission, however the expectation is the correct House Bill of Lading should be on file 24 hours prior to vessel departure. As noted in CBP’s FAQ, “the ISF Importer is ultimately responsible for the timely, accurate, and complete submission of the Importer Security Filing.”

Q3: I am having trouble matching the Bill of Lading to the ISF. I continue to receive messages that Bill of

Lading is still not on file and co-loader cannot verify the Bill of Lading number. What do I do?

A: This again stems from the fact that co-loaders are not transmitting the AMS electronically to secure the Bill of Lading in advance. You will need to evaluate what co-loaders you are working with and explain to your shippers and importers the difficulty you are going to have with ISF if the Bill of Lading information cannot be received once ISF is enforced effective Jan. 26, 2010. It is the importer of record that will bear the cost of noncompliance if the Bill of Lading number is not obtained in a timely fashion.

Communication and outreach is necessary. Reach out to your shippers and importers to explain that they need to have a better handle on their supply chain and who they are working with since compliance with ISF is the importer’s responsibility. Non-automated NVOCCs or co-loaders will need to improve their ability to provide Bill of Lading details in advance of the shipment. If you are having difficulty obtaining Bill of Lading information, please call CBP and let them know the difficulty you are having. Alternatively, you can reach out to the various Shipper groups that the NVOCC or co-loader is a member of. The Bill of Lading can



Form B223A rev 2010/01/20

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be updated in the ISF transmission once obtained, and CBP ultimately wants the Bill of Lading information with the ISF transmission. How CBP will treat this once ISF enforcement goes into effect remains to be seen and it is best to be prepared and compliant with the ISF rule. According to CBP’s FAQ, “the ISF Importer is ultimately responsible for the timely, accurate, and complete submission of the Importer Security Filing.”

Q4: If the Bill of Lading can be updated with the ISF transmission, will CBP assess penalties?

A: CBP has not specifically indicated how it will respond if the Bill of Lading is not provided timely, however it is best to conform to the ISF Rule by the Jan. 26, 2010 enforcement date. CBP has indicated they will begin full enforcement at this time and being to assess liquidated damages, doing so retroactively from the enforcement date if necessary. According to CBP’s FAQ, “the ISF Importer is ultimately responsible for the timely, accurate, and complete submission of the Importer Security Filing.”

This said, it is best to transmit an ISF even if the Bill of Lading is missing and/or incorrect since CBP will likely place “holds” on shipments that arrive without a prior ISF notification. Since CBP has indicated that one of the factors they will take into account when mitigating ISF liquidated damages is whether the importer has been working to file ISFs during the phase-in period, it is likely best to try to comply with the ISF Rule than not comply at all.

Q5: For those ISFs filed and accepted with “NO BILL ON FILE,” do we wait until it says “BILL ON FILE?”

A: It is CBP’s position that it is better to file the ISF timely than not at all. The bill of lading number can be updated up until 24 hours prior to arrival.



Form B223A rev 2010/01/20

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WEB MERLIN QUESTIONS

Q1: When will Web Merlin be up and running?

A: Web Merlin will launch Jan. 21, 2010. A live Web Merlin demonstration is scheduled for that day at 1 p.m. CST as well as Monday, Jan. 25. You can sign up for either of these Webinars at http://www.avalonrisk.com/questnewsletter/emailblasts/WebMerlinWebinar/index.html

Q2: Will Web Merlin prioritize ISF Bond underwriting requests based on ETD?

A: Yes, this has been implemented into the portal’s workflow. We understand the time constraints placed on customs brokers throughout this process, and our underwriting department will be proactive and issue bond approvals as timely a manner as possible.

Q3: Will Web Merlin be available in Firefox?

A: Web Merlin is most widely used and tested in Internet Explorer at this time. We have tested Web Merlin in Firefox v3.5.7 with no issues. If you do experience any difficulties, please e-mail [email protected]

Q4: Is the “Merlin serial” the same as the ISF confirmation number?

A: No, the Merlin Serial is a unique reference number assigned by the Surety. To use an ISF Appendix D Bond to secure the filing, CBP requires that an electronic copy of the bond be created and sent to CBP within 12 hours of an accepted filing. This involves multiple steps as follows:

Step 1: The ISF filer must note the usage of an ISF-D Single Transaction Bond by indicating this during the ISF transmission. The filer must include the Surety Bond Reference Number that appears on the bond. This is the Merlin Serial Number. Step 2: After CBP has received and accepted the ISF, the filer will receive a unique ISF Transaction Number back from CBP, which should take about 15 seconds. This is the ISF Transaction Number that must be affixed to the bond. The filer must go back into Web Merlin (or minimize the screen and switch back from their ABI system) and enter the ISF Transaction Number in Web Merlin. The numbers are distinctly separate and confusing the two will result in an error.

Q5: Is the surety bond reference number aka “Merlin serial” unique to the importer?

A: The surety bond reference number is a unique serial number that is used for surety company tracking purposes. The number will never be the same for any importer or any transaction.

Q6: Do we have to update the information in Web Merlin every time we write an ISF-D Single Bond?

A: No, Web Merlin will record the basic importer and underwriting information, only the information that will vary for each ISF transaction will be required each time.

Q7: I’m a broker with four brokerage offices but 25 nationwide; can we all use Web Merlin?

A: Yes. Web Merlin can be set up at the corporate or regional level. Corporate users can also assign the functionality in Web Merlin so only certain features are available to designated personnel.

Q8: Will there be a capability of printing a copy of the bond to provide to the customer in a billing

package?

A: The requestor is automatically copied when the bond is e-mailed to CBP and you can also retrieve PDF images of the ISF-D bond from Web Merlin’s Bond List.



Form B223A rev 2010/01/20

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Q9: Please explain how the ISF Transaction Number is added. Please explain the timing on how

everything is filed.

A: It begins with CBP’s requirement of an ISF to be filed 24 hours prior to vessel loading at a foreign port. Each ISF must be secured by a bond, so therefore, when an importer files evidence of ISF Appendix D Single Transaction bond, that bond must be sent to CBP within 12 hours of an accepted filing.

After CBP has received and accepted the ISF, the filer will receive a unique ISF transaction number from CBP. This ISF transaction number must be included when the ISF-D bond is submitted to CBP. An electronic copy of the bond containing the unique ISF transaction number must be created in pdf or tif format and e-mailed to [email protected] within 12 hours of receipt of the unique ISF transaction number. Once you enter this unique ISF transaction number in Web Merlin, it will automatically e-mail the bond to CBP with a copy to the requestor.

Q10: Will Avalon notify the National Targeting Center?

A: Yes, Avalon will e-mail a copy of the bond to [email protected]. When the user enters the unique ISF Transaction Number into Web Merlin, the user will click the button marked “Save and Submit to CBP.” This will automatically e-mail a copy of the bond to the designated address with a cc: to the filer.

Q11: I have never used Web Merlin before. Is this the same as submitting bonds to CBP?

A: We are aware that customers may file single entry bonds in their ABI system and continuous bonds with our Centralized Bond Unit. Your local Avalon office can assist you with obtaining a Web Merlin login and password and provide any local training as needed. We have also distributed a step-by-step guide to issuing ISF-D Bonds.

Q12: What happens if we have to delete an ISF?

A: If the ISF has been withdrawn, you can provide this confirmation to Avalon so we can delete the billing for an ISF Appendix D Bond. At this time, the ISF Appendix D Bond is automatically e-mailed to [email protected] from Web Merlin with a cc: to the requestor and there is currently no protocol provided by CBP to recall this message once it is submitted.



Form B223A rev 2010/01/20

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GENERAL QUESTIONS

Q1: If an importer receives a shipment without its knowledge and ISF is not filed, what will happen?

A: Importers will ultimately be responsible for the actions of their suppliers. If an ISF is not transmitted, CBP will likely place a “hold” on the shipment and the importer will be subject to a liquidated damage claim for late filing of an ISF. In known violations of this nature, Avalon will require collateral to write the bond. It is the importer’s responsibility to know their supply chain so there are no unexpected surprises and comply with ISF requirements 24 hours prior to vessel departure.

Q2: How do we handle trans-loaded shipments? Does Avalon want the first or last transload?

A: The ISF is required to be filed 24 hours prior to the container being loaded on the vessel destined for the U.S. (the mother vessel), not the feeder vessel.

Q3: What are the ISF Requirements for HHG/PE?

A: CBP’s FAQ specifies Exemptions on page 17, which states in part:

“As a matter of policy, certain types of ISF coded transactions will not require a bond to cover the ISF requirements. The bond requirements have been waived for the following ISF coded transactions: Type 3 – Household Goods (HHG)/Personal Effects (PE): This ISF transaction type should be used for all HHG and PE shipments. This includes shipments for returning military members, other U.S. governmental personnel and their families. No bond is required.”

Pages 22-22 of CBP’s FAQ provide specific instructions for filing ISF for HHG and PE shipments. Q4: Who is the ISF Importer of Record for Immediate Exportation (I.E.) and Transportation and

Exportation (T & E) in-bond movements that require the ISF 5?

A: The party that is transmitting the ISF to CBP is considered to be the ISF Importer for these transactions. If a customs broker transmits a T&E on behalf of a client, the customs broker is the ISF Importer. This was also confirmed by the NCBFAA’s recent ISF Q&A. Please also refer to CBP’s FAQ on pages 43 and 45 for further detail.

Q5: If I use the flexible filing option, and later find that the information was correct as entered, am I

required to update the ISF?

A: If you utilize a flexible filing option (FR = Flexible Range, FT = Flexible Timing, or FX = Flexible Range and Flexible Timing) indicator in the initial transmission, then you must send an ISF with the CT = Compliant Transaction indicator to finalize the transaction. Failure to do so could result in liquidated damages. Please consider whether you need to use the flexible filing option since you can always update an ISF with more current information, but to be timely it must be done so 24 hours prior to vessel departure. Failure to file accurate information on a timely basis could result in liquidated damages.

Q6: For consolidated entries that have one importer of record but 50 consignees, how many ISF entries

need to be filed?

A: One ISF can be filed with multiple consignees reported or multiple ISFs can be filed.

For more information on ISF or a Web Merlin demonstration, contact your local Avalon office.

A directory is available on our Web site at www.avalonrisk.com

For any ISF Underwriting questions, please call The ISF Hotline at (847) 700-TISF (8473) or e-mail [email protected]

Date Importer Name Attn: Contact Address City, State, ZIP RE: Importer Security Filing – Full Enforcement Jan. 26, 2010 Dear Importer: As you may know, full enforcement for the Importer Security Filing (ISF, commonly known as “10+2”) will begin on Jan. 26, 2010, and U.S. Customs and Border Protection (CBP) will begin issuing liquidated damage penalties for non-compliance with ISF requirements. Under the ISF Ruling, importers are liable for a maximum of $10,000 per ISF transmission for the following reasons:

• Late Filing: $5,000 if the ISF is not filed at least 24 hours prior to vessel departure. This includes untimely filing of an ISF update and/or flexible ISF option.

• Inaccurate Filing: $5,000 per inaccurate and/or incomplete ISF if any of the data elements are missing. This includes if the Bill of Lading is missing and/or does not match with the ISF transmission 24 hours prior to vessel departure. The Bill of Lading must provide the lowest denomination of the cargo (i.e. House Bill of Lading).

• Amended Filing: $5,000 for any inaccurate ISF update including an incorrect update to a flexible filing.

Responsibility for Liquidated Damage Penalties Relies with Importer of Record Ultimate responsibility for ISF and correctness of the data rests with you as the importer of record. Customs Bonds are not insurance and do not relieve an importer of obligations to comply with CBP regulations, which state that importers are required to post a bond “to protect the revenue of the United States and to assure compliance with any pertinent law, regulation or instruction.” The surety company issuing the bond guarantees that the importer will comply with CBP regulations. If the surety is forced to pay CBP because the importer receives a claim for liquidated damages, the surety has the legal right to demand reimbursement from the bond principal and file legal proceedings if necessary to do so. ISF Bonding Obligations All ocean importers are required to maintain a bond to guarantee ISF compliance. The ISF bond is not insurance and the importer is fully responsible for any ISF penalties as the bond principal. To limit your liability for penalties resulting from ISF violations, we advise you to apply for a Continuous Import Bond by completing and signing the enclosed application and indemnity agreement that is required by our surety company. The bond amount is based on 10% of your annual duties and fees, subject to a $50,000 minimum bond amount. Limiting Your Exposure to ISF Penalties If you do not secure a Continuous Import Bond, under Customs regulations you will be required to post and pay for a separate ISF Bond subject to a $10,000 bond minimum for each filing. The multiple aggregation of each ISF Bond increases your exposure to ISF penalties, which can be assessed up to $10,000 per any one ISF transmission. Although the importer of record is liable for any ISF penalties, you can minimize your exposure by securing a Continuous Import Bond. Once a Continuous Import Bond is in force, it will renew each year unless terminated and also covers all your entry activity through any Customs port. Don’t Delay, ISF Enforcement Is Here Obtaining a Continuous Import Bond will expedite your Entry and ISF requirements and be more cost-effective for your operations. Please do not delay since ISF enforcement will promptly begin on Jan. 26, 2010, and your Continuous Import Bond must be on file with CBP before this date. Customs requires 10 days notice to review your application and put your bond on file so your application must be returned as soon as possible. Should you have questions regarding ISF enforcement, please do not hesitate to contact one of our import specialists. Sincerely, Customs Broker

date/issue: special quest/january 2010 new web merlin

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