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HomeNewsLocal newsSep. 11 Attacks Prompted Feds To Pocket V.I. Customs Duties

Sep. 11 Attacks Prompted Feds To Pocket V.I. Customs Duties

For decades, the federal government collected customs duties and port fees on behalf of the territory, charging dearly for the privilege, but still turning over millions of dollars every year to the V.I. treasury and to the V.I. Port Authority. But after the Sept. 11, 2001 attacks prompted the creation of the U.S. Department of Homeland Security, and U.S. Customs became Customs and Border Patrol in 2003, CBP began pocketing nearly all the money it collected on behalf of the territory. And it continues to do so, despite a new agreement negotiated expressly to end this practice. With no indication CBP will change its behavior and few other options, Finance Commissioner Valdamier Collens has recommended the territory simply stop charging customs duties.

From 2011 through 2014, CBP, which gets more than $12 billion in federal funding every year, literally confiscated every V.I. dollar it collected, charging the USVI millions of dollars a year to run its own federal government operations, according to figures publicized by Gov. John deJongh Jr. in 2014.

At stake is roughly $11 to 12 million in revenue per year for the USVI. For example, in Fiscal Year 2012, CBP collected roughly $12 million in V.I. customs duties and kept every dime, charging the Virgin Islands more than $12 million in costs. That year, CBP charged the USVI more than $1.5 million for federal immigration inspection costs, almost $1 million in federal agriculture inspection costs, nearly $1 million to pay for overhead for its Washington, D.C. headquarters that year, plus another $3 million for its work enforcing federal customs laws, according to figures from Gov. John deJongh Jr.’s administration.

But the wholesale confiscation of V.I. revenues has hardly been limited to a single year. According to Collens, for the past eight years, the territory’s customs collections amounted to $108 million dollars, of which CBP kept more than $99 million — 92 percent — for itself.

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Today’s difficulties have roots going at least as far back as 1994, when the territory signed an agreement with the federal government to let it collect customs duties and other port fees on its behalf. [1994 MOA] Under that 1994 agreement, Customs, the predecessor to CBP, claimed broad authority to take reimbursement for virtually any costs of its operations, especially the costs of air passenger pre-departure clearance, which it then estimated at around $5 million per year. In some years, the territory generated as much as $16 million in customs duty revenues, so for a long time it still benefitted, despite the costs of collections and pre-clearance taking up nearly a third of the revenue. But that changed after the 2003 creation of CBP.

Seeing its revenues dropping sharply after 2004, the V.I. government objected and tried to work with CBP for years to resolve the problem.

In late 2014, Gov. John deJongh Jr.’s administration negotiated a new agreement between the government and CBP, which explicitly laid out that CBP could only bill for the actual costs of collecting those V.I. customs duties and had to account, in detail, for what it collects and what it spends. [2014 MOA]

“After years of discussion and negotiations, the federal government has agreed to fund pre-clearance and other federal CBP activities through federal appropriations and user fees, allowing us to retain more of our own customs duties for our General Fund needs, as Congress intended," deJongh said when the agreement was finalized.

Now, in the first year of that agreement, CBP claims to be abiding by the terms of that agreement. But somehow CPB is still confiscating more than nine out of every $10 it collects, apparently claiming it costs that much to collect the money.

In October, Collens told a Senate committee that, while customs duty collections for FY 2015 are tracking the 2012-2014 range of $11.5 to $12 million annually, CBP has only remitted $1 million for FY 2015 and has said there will not be much more coming.

"Although U.S. Customs and Border Protection has not completed its financial reporting for the fourth quarter (it) indicated in a report received on September 28, 2015, that it expects U.S. Customs and Border Protection will just cover its expenses for the year," Collens said at an Oct. 21 Finance Committee hearing. (See Related Links below)

Although the new agreement calls for CBP to do so, CBP is not providing any accounting of those extremely exorbitant expenses to the public or to the V.I. government.

When V.I. government officials tried to meet with CBP officials, they were told CBP was too busy to meet, Collens told the V.I. Legislature in October.

"All we were told is they are working to prepare their budget and don’t have time to meet," Collens testified in October.  And his efforts to meet with officials or to get more detailed information required under the new agreement were rebuffed too, Collens told the Source recently.

Calls to several CBP officials requesting comment on the dispute and a breakdown of V.I. Customs revenues and CBP expenses produced vague, minimalistic responses that answer no questions and provide no financial details or explanation of expenses.

The calls were all referred to CBP Public Affairs Officer Jeffrey Quinones, who said he would try to track down the information. After several days, Quinones replied, saying that "after researching the matter we will make the following statement for the record: CBP continues to work in partnership with the USVI government to enhance border security and facilitate travel and trade, however, CBP cannot comment on ongoing litigation.”

There is no litigation ongoing concerning V.I. customs duties, although the V.I. Port Authority has an ongoing lawsuit over VIPA wharfage and tonnage duties withheld by CBP.  Asked for more information, in light of the lack of litigation, Quinones followed up with CBP officials, who offered a new statement, again with no revenue or cost breakdowns, simply asserting that it was abiding by the new 2014 agreement:

"CBP signed a new memorandum of agreement, including an annex, with the government of the United States Virgin Islands in December 2014 and has abided by the terms of that agreement," unnamed CBP officials said in a statement provided by Quinones.

"Federal statutes require CBP to collect customs duties on behalf of the USVI, and this is not subject to any other agreements, as well as the authority and broad discretion to administer the customs laws of the USVI.  The USVI Legislature has the power to establish customs duties applicable to merchandise imported," the unnamed officials continue.

The CBP officials concluded with a bland, detail-free pledge to work with the territory, saying it "has conveyed to the government of the Virgin Islands its commitment to address concerns and to work in partnership to enhance border security and facilitate travel and trade."

Collens told the V.I. Legislature in October that zeroing-out the customs duty may be the most effective solution. But he has also told the Legislature there "are many ways to deal with this," saying the territory could repudiate its recent memorandum of agreement, reduce or eliminate the customs duties, "or change the funding formula," possibly restricting how the funds are divided by law.

More recently, Collens told the Source he believes reducing the duty to zero is probably the most effective solution.

"We are not getting the money," he said. Not charging the duty would mean those goods would be less expensive to bring in, so "why not give an indirect boost to the economy?" he said.

Federal law allows the USVI to set its own customs duty, so long as it does not exceed 6 percent, so this would appear to be within the territory’s power to do.

But Collens said his support for eliminating V.I. customs duties was not set in stone, and he just wanted the amount charged to be reasonable.

"I’m flexible on this," he said. But "what is really reasonable is 20 percent, no more than that. … We appreciate pre-clearance and all the other CBP activities. But those are federal activities. You can’t double dip.”

Collens said the 2014 MOA authorizes reimbursement only of the costs of USVI customs duty collections and requires CBP to demonstrate what that costs, as opposed to CBP’s other, non-reimbursable federal activity costs.

"But CBP hasn’t done that and is instead claiming millions in lump sum charges," he said.

"CBP simply cannot rationally claim that it costs approximately $10 million to collect a little more than $10 million. With costs this high, something major is obviously wrong! … And, if CBP can’t collect duties for a reasonable cost … then the USVI should be allowed to collect its own duties without CBP," Collens said.

Gov. Kenneth Mapp’s administration has contacted Congress and Sen. Orrin Hatch (R-Utah) has provided assistance, so the administration is hopeful the problem can be resolved, Collens said.

V.I. Delegate to Congress Stacey Plaskett (D-V.I.) and several local V.I. legislators met with CBP officials in D.C. in October. Asked to weigh in on the controversy, Plaskett’s office said she was "concerned about the proper remittance of funds to the territory and CBP is aware that it is a concern of hers," but that the agreement is between the V.I. territorial government and CBP, and only the V.I. government has authority to enforce it. Plaskett has not been asked to engage in any renegotiation or enforcement of the existing agreement, but is willing to work with both parties toward resolution, her office said in a statement.

While zeroing-out the customs duty is one solution, there is a recent precedent for the territory taking over collecting its own duties without CBP.

Under the terms of that same 1994 agreement with the USVI, mentioned earlier, CBP collected tonnage and wharfage fees on behalf of the V.I. Port Authority, a semi-autonomous body that is separate from the V.I. government. For years, it charged a portion of the fees for the cost of collecting them but turned over most of the funds. But that changed in 2003, when CBP began taking nearly all those funds for itself too.

In 2007, the VIPA wrote CBP requesting to collect its own fees, and CBP denied the request. VIPA argued it was not a signatory to the 1994 agreement, and had the legal authority to charge its own fees. CBP argued in response that collecting tonnage and wharfage fees were included with its power to collect customs duties. In its letter refusing to stop collecting and keeping tonnage and wharfage for itself, CBP actually cited Danish colonial law, saying those fees "are imposed under the customs laws in the Virgin Islands" based on "controlling legal authority going back as far as 1914 to the Danish laws that still provide much of the underpinning of the customs laws in the VI." But, according to a complaint filed in federal court by the V.I. Port Authority, CBP has never actually cited any specific statute giving it the power to collect, much less pocket those fees.

In 2011, VIPA amended its port tariff to rescind the tonnage and wharfage user fees previously collected by CBP and instead set up a separate system of fees it collects itself.

VIPA officials would not comment on whether the V.I. government could do the same with customs duties. VIPA legal counsel Nycole Thompson said VIPA could not comment because it was a matter between the government of the Virgin Islands and CBP, and VIPA was a separate entity.

VIPA filed suit against CBP in 2012, seeking $9.6 million in fees CBP collected between 2008 and 2012.  In 2013, the case was transferred to the U.S. Court of Federal Claims, which hears financial claims against the federal government. The case is ongoing and is in the discovery phase.

Who is right is for the courts to decide. But CBP’s take-no-quarter, leave-no-dollar behind approach with the V.I. Port Authority in that ongoing dispute may give insight into CBP’s likely approach to the parallel struggle over V.I. customs duty revenues.

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