The principle of proportionality of customs penalties

The principle of proportionality of customs penalties is one of the basic principles of the International Convention on the Simplification and Harmonization of Customs Procedures, better known as the Revised Kyoto Convention, which dedicates to it the Standard 23 of the Specific Annex H, Chapter 1.

The principle of proportionality of customs penalties is one of the basic principles of the International Convention on the Simplification and Harmonization of Customs Procedures, better known as the Revised Kyoto Convention, which dedicates to it the Standard 23 of the Specific Annex H, Chapter 1.

The Revised Kyoto Convention is an instrument aimed at promoting the approximation and harmonization of customs procedures and techniques worldwide. Adopted by the World Customs Organization (WCO) on May 18, 1973 and entered into force on September 25, 1974, it was amended on June 26, 1999 by an additional Protocol that adapted its contents to the new requirements of international trade and in particular to the use of new information technologies and innovative control methods, such as audit-based controls or risk analysis. The new version of the Convention, called the “Revised” Kyoto Convention, came into force on 3 February 2006, following the achievement of the minimum number of 40 ratifications required for it to be effective. Its structure consists of three main parts: 

  • the Body of the Convention, which contains the Preamble and other fundamental provisions relating to its scope, the procedures for accession by States and customs territories and the procedures for amending the text of the Convention; 
  • a General Annex, divided into 10 chapters, containing the definitions and basic principles on which the Convention is based, grouped into Standards and Transitional Standards applicable to all customs procedures; 
  • 10 Specific Annexes, numbered with letters from A to K, each of them dealing with a specific customs procedure and further divided into Standards and Recommended Practices. 

To become a party to the Convention, a country or customs territory must accept the body of the Convention and the General Annex in their entirety, while acceptance of one or more of the Specific Annexes (or separate chapters of the Specific Annexes) may be subject to reservations. If a Contracting Party decides to accede to a Specific Annex or to one or more chapters of a Specific Annex, the Standards contained therein become mandatory, with the consequence that such Contracting Party shall be obliged to introduce and apply them in its own legal system.

Both the Standards contained in the General Annex and in the Specific Annexes, gather a series of provisions whose application is considered necessary for the harmonization and simplification of customs procedures and practices. The Transitional Standards are – like the Standards – also mandatory, but differently from Standards can be implemented in a longer period (within 60 months from the date of entry into force of the General Annex in the territory of the Contracting Party, rather than within 36 months as in the case of the Standards). On the other hand, Recommended Practices refer to those provisions of the Specific Annexes which, although not binding, are considered a significant progress towards harmonization and simplification of customs procedures and practices and, as such, their implementation by Customs is deemed desirable by the Convention. 

All Annexes and Chapters in which the Convention is articulated, are in turn accompanied by implementing guidelines that are periodically reviewed and updated by the WCO to reflect current customs practices. Although these guidelines do not involve direct legal obligations on the signatories of the Convention, they provide important clarifications of its provisions, citing examples of good practice and concrete methods of application. 

Standard 23 of Specific Annex H, Chapter 1, of the Revised Kyoto Convention specifically refers to customs penalties arising from the application of customs settlement procedures, and reads as follows: “The severity or amount of penalties applied under an administrative regulation of a customs violation depends on the severity or importance of the customs violation committed and the history of the person concerned …”. The application guidelines of Specific Annex H, Chapter 1 of the Convention extend such a principle also to the investigative powers of Customs (which must therefore be conducted in such a way as to cause minimum inconvenience to trade and avoid disproportionate burdens on economic operators), as well as, in general, to all penalties applicable to the violation of customs legislation. The importance of this principle is such that Article 6(3).3 of the WTO Agreement on Trade Facilitation (TFA) reiterates the obligation for Customs to observe a criterion of proportionality in the application of penalties related to non-compliance with customs legislation, which must therefore be commensurate with the extent and seriousness of the infringement, as well as the degree of culpability of the offender. In addition, Art. 6(3)2 of the TFA introduces a principle of “subjective liability” borrowed from criminal law systems, according to which penalties applicable to customs violations can only be imposed on those who are responsible for the violation, so as to exclude cases of objective liability. This principle is commonly interpreted by the majority of Customs worldwide in the sense that only those persons directly involved in the offence, who have allowed the offence to occur, or who have failed to exercise the diligence and precautions necessary to prevent it, can be punished with a penalty or a fine, whereas in cases where a person voluntarily discloses to Customs the circumstances of a breach of a law, regulation or procedural requirement prior to the discovery of the breach, this fact should be considered as a potential mitigating factor when applying a penalty to that person (the use of the conditional implies that this principle is not mandatory under the TFA, although it is considered good practice).

The guidelines to the Chapter 1 of Specific Annex H of the revised Kyoto Convention further specify that the application of the principle of proportionality to customs penalties does not preclude the application by Customs of penalties of a certain severity in case of repetition of the customs violation, even if such violation, if considered in isolation, would have a minor scope. The principle of proportionality is also reflected in Standard 25 of Specific Annex H, which obliges Customs not to apply any penalties when the violation is a consequence of force majeure or other circumstances beyond the control of the person concerned, unless there is negligence or fraudulent intent on the part of that person. This provision, more precisely, is referred to all those situations in which the person concerned is fully aware that he is committing an irregularity, but is nevertheless obliged to do so because of circumstances beyond his control. An example is failure to comply with time limits imposed on the movement of goods under customs control which are caused by mechanical failure of the means of transport, bad weather or landing at an airport not authorized for the handling of goods due to an emergency. However, the Revised Kyoto Convention specifies that in all these cases, the person concerned must be able to demonstrate to the satisfaction of Customs the reasons and circumstances which prove that the situation was beyond their control. 

The principle of proportionality was introduced also in the Union Customs Code [Regulation (EU) No 952 of 9 October 2013] in Article 42 (Application of penalties), which states: ” Each Member State shall provide for penalties for failure to comply with the customs legislation. Such penalties shall be effective, proportionate and dissuasive”. The EU Customs Guidelines (Pathways to better Customs) further specify that a customs penalty is considered effective when it has a deterrent effect on economic operators that induces them to avoid the conduct to which the penalty applies (so-called “preventive function of penalties”). The concept of effectiveness is therefore closely linked to that of dissuasiveness. With regard to cases of force majeure, the principle set out in Standard 25 of the Specific Annex H is reflected in several provisions of the EU Customs Code, such as Articles 105, 121, 124, 137, 192 and 240, which provide for a series of exemptions that determine the non-punishability of certain conducts derogating from certain customs provisions, or the remittance in terms of those who have incurred a given forfeiture. Typical examples are the extinction of the customs debt for total destruction or irretrievable loss of goods due to unforeseeable circumstances or force majeure [art. 124(1)g], and the relief from the effects of the expiration of time of late requests for repayment and remission of duties (art. 121), which may give right to an extension if the applicant proves to Customs that it was impossible to submit such requests within the prescribed time limits due to unforeseeable circumstances or force majeure.

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