In the current global trade environment, importers are facing an unprecedented convergence of pressures. A sharp rise in new tariffs, the increasingly sophisticated data-mining of entry data by U.S. Customs and Border Protection (CBP), and a more aggressive government-enforcement posture have made even minor compliance failures potentially costly. In this context, the voluntary self-disclosure mechanism — long recognized by trade professionals as a key risk-mitigation tool — has taken on new urgency. For importers that uncover potential underpayments of tariffs, a properly executed voluntary disclosure can significantly limit financial liability, demonstrate good faith, and enhance the importer’s broader compliance program.
This article explores the evolving importance of voluntary disclosures, identifies the key benefits they offer and sets forth best practices for maximizing their effectiveness. By adopting a thorough and well-documented approach, importers can turn a compliance failure into an opportunity for strengthening their compliance environment, all while minimizing or eliminating the risk of penalties.
I. Drivers of the Rising Importance of Voluntary Disclosures
Several recent developments have converged to increase the strategic value of voluntary self-disclosures for importers:
- Tariff Escalation Amplifies Risk Exposure. The imposition of high tariffs under Section 232 (national security tariffs) and Section 301 (special China tariffs), along with elevated global and reciprocal tariffs covering every country (with some up to 50 percent) has magnified the monetary consequences of compliance failures. Errors that once triggered minimal duty corrections can now give rise to substantial liabilities. For example, a seemingly minor misclassification or undervaluation error may, when aggregated across multiple entries, result in significant unpaid duties and interest. Failure to apply the country-of-origin rules or United States-Mexico-Canada Agreement (USMCA) requirements correctly can have a major tariff impact, because failing to understand qualification rules can result in triggering certain Trump tariffs. Importers that fail to proactively correct customs errors may face unexpected bills for back-tariffs and additional penalties.
- Enhanced Data Analytics and Enforcement Algorithms. CBP has taken full advantage of the fact that importers are required to submit detailed tariff-related information in the Automated Commercial Environment system (more commonly referred to as ACE). Using sophisticated data mining and AI, CBP can flag anomalies in declared values, country of origin, classification, valuation, USMCA compliance, and other tariff-impacting data fields. Importers whose transactional data deviates from industry-sector norms, the entry declarations of their competitors, or historical patterns are increasingly subject to post-entry reviews, with CBP having the ability to confirm potential errors by issuing Form 28 Requests for Information or Form 29 Notices of Action.
- Increased Emphasis on Trade Enforcement. Federal agencies, particularly CBP and the Department of Justice (DOJ), have been directed to adopt a more aggressive enforcement posture. Executive orders and Presidential Proclamations have called for heightened tariff collection and stiffer penalties for trade violations. DOJ has increased staffing for trade-related enforcement action; anecdotal information from importers shows an increasingly aggressive enforcement posture. In this high-penalty, high-tariff environment, proactive disclosures are the best available option for limiting exposure and potentially costly penalties.
- Greater Possibilities for Whistleblower Actions. DOJ has announced that it will be increasing the use of the False Claims Act (FCA) to target tariff underpayments. FCA actions can be initiated by the government or in reaction to whistleblower tips. It is a certainty that plaintiff law firms will be looking to bring more of these cases to further implement the high-tariff, high-penalty, high-enforcement environment priorities of the Trump trade team. In this environment, FCA cases (and whistleblower payouts) potentially are much more lucrative.
II. The Legal and Strategic Value of Voluntary Disclosures
Voluntary self-disclosures offer a pathway for importers to resolve past import violations with significantly reduced or eliminated penalties, provided the disclosure meets certain procedural and substantive requirements. Given the high-tariff, high-enforcement environment detailed above, voluntary self-disclosures represent a significant form of risk reduction. The governing regulation, 19 C.F.R. § 162.74, specifies that voluntary disclosures made before the commencement of a formal investigation are a mitigating factor in CBP’s penalty determinations. In cases involving negligence or mistakes (as opposed to fraud), CBP generally issues no penalty at all if the importer discloses the violation, completes a comprehensive disclosure, and repays any back-tariffs owed (plus interest).
Key Benefits of Voluntary Disclosures Include:
- Penalty Mitigation: To achieve the most direct benefit of paying no penalty, the timing of the disclosure is critical; to qualify, a disclosure must precede any CBP investigation related to the disclosed conduct. Notably, a disclosure can still lock in voluntary self-disclosure credit even after receiving a Form 28 Request for Information or Form 29 Notice of Action, provided that CBP has not initiated a formal investigation.
- Demonstration of Good Faith: A voluntary disclosure signals to CBP that the importer takes its compliance obligations seriously. This can enhance the company’s credibility in future audits, inquiries, or applications for trusted trader programs, such as CTPAT.
- Control of Narrative and Scope: A disclosure enables the company to present the facts in its own words, control the disclosure of the violation, and propose corrective measures to prevent a recurrence of the issue. Proceeding as a voluntary self-disclosure allows a more proactive framing than allowing CBP to uncover the violation and draw its own conclusions, especially since, in the latter scenario, the importer likely is facing stricter deadlines and has less control over how the review unfolds.
- Strengthened Internal Compliance Framework: The process of preparing a disclosure typically involves developing a methodology to identify all import errors, a root cause analysis, a compliance systems review, and a corrective compliance action plan. In addition to allow the accurate completion of the customs review, these steps also allow the importer to improve internal controls and reduce the likelihood of future violations.
III. Best Practices for Effective Voluntary Disclosures
To maximize the benefits of a voluntary disclosure and ensure it is accepted by CBP, importers must ensure the completed disclosure is timely, complete, and supported by robust documentation. Below are key best practices for importers to consider:
- Timely Action and Use of Marker Letters. Importers should act promptly upon discovering a potential violation. If additional time is needed to conduct an internal investigation, the company should consider submitting a marker letter. This preliminary notice, submitted before any CBP inquiry has begun, preserves the company’s eligibility for penalty mitigation while allowing time to gather necessary data and conduct a thorough review.
- Monitoring CBP Correspondence. Even while thinking about filing a disclosure, importers must remain vigilant for signs that CBP may already be aware of the issue. Notices such as Form 28 Requests for Information or Form 29 Notices of Action may indicate that the agency has detected potential discrepancies. Even when such notices are received, the importer may still submit a disclosure, provided CBP has not yet initiated a formal investigation. Submitting a marker letter promptly after receiving such correspondence (i.e., before the response is due) can preserve the benefits of disclosure.
- Deciding on the Scope: Limited vs. Comprehensive Disclosures. Importers must determine whether to disclose only specific errors (a limited disclosure) or to conduct a full review and disclosure of all potentially affected entries over a full five-year review period. A limited disclosure may focus on specific ports, specific products or product lines, issues, or date ranges, and is appropriate when internal controls are strong and the issue is contained. A comprehensive disclosure, by contrast, should be undertaken when the scope of the violation is uncertain, when internal compliance controls have been weak, or when systemic issues are suspected. The choice involves a strategic balancing of legal risk, resource investment, and the desire for closure. If a limited disclosure path is chosen, importers should carefully identify whether any additional issues are noted during the review that would warrant expanding the scope of the limited disclosure or perhaps turning it into a full disclosure.
- Conducting a Thorough Internal Review. A rigorous internal review forms the foundation of an effective voluntary disclosure. The review should address:
- Nature and Root Cause of the Violation: Was the issue caused by misclassification, undervaluation, incorrect country of origin reporting, or other errors? What internal failures allowed the mistake to persist? Common root causes include inadequate training, miscommunications with suppliers, poor oversight of customs brokers, a poor or incomplete Customs Classification Index, or a missing transfer pricing study for related parties that meets CBP (and not IRS) standards.
- Scope of Affected Entries: The importer must identify all entries impacted by the violation. CBP generally disfavors extrapolations or estimates for full disclosures, preferring line-by-line documentation of affected transactions. The one exception is where statistical sampling is used, which requires following the CBP statistical sampling requirements (covered below).
- Time Period Covered: Full disclosures must generally reach back to the five-year statute of limitations. Companies should trace the issue to the first entry and not stop at the point of liquidation.
- Review of Similar Risks in Other Areas: Importers should examine whether the same or similar violations may have occurred in other business units, product lines, or types of entries. This requires coordination with global affiliates and other internal stakeholders. If necessary, this may lead to a limited disclosure covering a single business unit becoming a full disclosure, perhaps involving different importer of record numbers.
- Comprehensive and Transparent Documentation. CBP will evaluate the disclosure based on the clarity, transparency, and completeness of the submission. The disclosure should include:
- A narrative describing the events leading to the violation, its discovery, and the internal response.
- An explanation of the methodology used to identify and analyze affected entries.
- Detailed calculations of duties owed, with supporting analysis and spreadsheets.
- Any prior communications with CBP that are relevant to the issue, including the filing of and responses to post-summary corrections, protests against liquidation, and advisory opinion requests.
In addition, importers should be prepared to provide copies of all relevant documents, including invoices, purchase orders, bills of lading, contracts, commercial invoices, and other supporting information.
- Use of Statistical Sampling. In high-volume situations, importers may use statistical sampling to estimate the impact of the violation. This approach must meet CBP standards for reliability, representativeness, and ability to accurately extrapolate from the sample to the full universe of attributed entries. Best practices include:
- Consulting with trade statisticians or professionals familiar with CBP expectations.
- Clearly defining the population of entries.
- Using random sampling with proper stratification if necessary.
- Ensuring that confidence intervals and error margins are defensible.
- Explaining how projected liability was calculated from the sample data.
- Working through the CBP guidance regarding statistical sampling to show how each requirement was met.
- Internal and External Coordination. An effective disclosure typically requires contributions from multiple departments:
- Legal Counsel: To oversee the disclosure, prepare the narrative and Customs Manual (if needed), and maintain privilege where appropriate.
- Customs Brokers: To provide entry data and insights into declaration processes.
- Compliance Personnel: To lead root-cause analysis and ensure process improvements.
- IT and Data Teams: To extract, validate, and analyze relevant data.
- External Consultants: To support sampling and data review, or for remedial planning when internal resources are insufficient.
- Addressing Multi-Agency Issues. Some customs errors may have implications for filings with other federal agencies, such as the Food & Drug Administration, the Environmental Protection Agency, or the National Highway Traffic Safety Administration. A disclosure that addresses only CBP obligations, without considering related regulatory violations, may be insufficient. A comprehensive, multi-agency disclosure plan should be developed when other regulatory obligations are implicated.
- Including a Corrective Action/Customs Compliance Plan. CBP places significant weight on the remedial measures taken by the importer to prevent recurrence. A strong corrective action plan may include:
- Creating or updating a Customs Manual, standard operating procedures, or tariff management tools.
- Creating or updating a Customs Classification Index.
- Creating or updating a system for tracking and attributing assists (production-related aids provided by the importer to the foreign manufacturer).
- New or enhanced training for relevant personnel.
- Corrective entries or protests filed as needed, such as for entries falling within the Post-Summary Corrections period.
- Be Careful in Seeking Limited Disclosures. A common pitfall is disclosing only a limited set of issues when a systemic review shows that errors are more widespread. CBP expects disclosures to be complete and candid. Attempting to cherry-pick entries or downplay certain aspects of the violation can result in:
- Rejection of the disclosure or an investigation of entries outside the scope of the limited disclosure.
- Loss of penalty mitigation benefits for any entries outside the scope of the limited disclosure.
- Increased risk of future enforcement actions.
Where multiple types of errors are discovered during the review, it is often best to bundle them into a full disclosure, even if a limited disclosure initially seemed appropriate. Where this occurs, the importer should make a supplemental filing initiating a full disclosure to document the expanded scope of the disclosure.
- Follow Up and Confirm Closure. Even after a disclosure is filed, the process is not over. Importers should:
- Monitor the status of the disclosure with CBP.
- Respond promptly to any CBP questions or requests for additional documentation.
- Confirm that CBP is granting offsetting.
- Confirm that CBP has issued a closing letter or decision accepting the disclosure (which it may not issue if the disclosure shows a net overpayment after offsetting, which sometimes occurs).
- Retain all disclosure documentation in case of future audits or enforcement actions.
As the U.S. government intensifies enforcement of import regulations, the voluntary self-disclosure process has become an increasingly vital tool for responsible importers. A well-executed disclosure not only limits financial exposure but also signals institutional integrity and commitment to compliance.
To be effective, however, voluntary disclosures must be more than reactive acknowledgments of past errors. They must be timely, transparent, provide complete coverage of all errors, and be thoroughly documented. By following best practices — from a root-cause analysis and documentation to interdepartmental coordination and corrective action — importers can ensure that their disclosures achieve their intended purpose: resolving past violations while positioning the organization for a better-managed importing environment.