CBP Should Bolster Export Reporting Requirements for Duty-Free Cigarette Stores, GAO Says
A Nov. 13 Government Accountability Office report recommends that CBP work to strengthen compliance with export reporting requirements for duty-free cigarette sales along the Southwest border, such as issuing guidance to all duty-free store operators, after GAO found buying schemes to evade U.S. and Mexican taxes. The Department of Homeland Security agreed with the recommendation, and said CBP plans to address it. U.S. regulations require duty-free stores to have procedures to provide “reasonable assurance” of cigarette exports and the exporter to report export information on transactions with a value over $2,500.
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Some smuggling of duty-free cigarettes across the Southwest border has links to organized crime, supplies the illicit tobacco market in Mexico, and poses oversight and enforcement challenges, which are spurred primarily by the ability to buy unlimited quantities of duty-free cigarettes at the border, U.S. agency officials told the GAO. CBP has also had compliance concerns regarding filing requirements for duty-free stores on cigarette exports of more than $2,500, as GAO found that 99 percent of stores wrongly identify themselves, instead of the purchaser, as the exporter, the GAO said.
CBP and Census Bureau officials have met with representatives of one of the largest operators of Southwest border duty-free stores to clarify regulatory requirements, but the operator continues to make incorrect filings. Further, duty-free stores owned by one operator commonly used the operator’s post-departure filing privilege and reported cigarette transactions as routed exports, but the Foreign Trade Regulations prohibit post-departure filings for routed exports, the report says. CBP also reviewed AES filings for this operator and found they indicated the Port of Otay Mesa, California, as the port of exit, although CBP officials previously observed the sales leaving through the Port of San Ysidro, California.
CBP hasn’t issued guidance to all operators to clarify the correct procedure, and agencies may lack the information needed to enhance their enforcement and intelligence efforts without accurate export data, the report says. “CBP officials said that duty-free stores assert that they are working to be compliant, but it is challenging for them in part because the cigarette purchasers are often unaware of their role and do not have accounts established to file the electronic export data,” the report says. However, those stores are responsible for export filings, and are directed by CBP, generally, to identify the cigarette purchaser as the exporter, and afterward provide a unique numerical identifier for that individual such as a passport or border crossing card number.