Customs Legislation Amendment and Repeal (International Trade Modernisation) Bill 2001

Explanatory Memorandum

(Circulated by authority of the Minister for Justice and Customs, Senator the Hon Christopher Martin Ellison)
This memorandum takes account of amendments made by the House of Representatives to the bill as introduced.

Chapter 5 - New Penalty System

Outline of Chapter

Schedule 2 of the Bill amends the Customs Act to:

Modernise the current penalty provisions of the Customs Act to provide for common and consistent sanctions across the entire range of Customs cargo reporting and commercial activities; and
Introduce a 3-level sanction regime for particular new offences.

Detailed explanation of new law

Background to the penalty regime

An integral part of Customs approach to cargo management is reliance on a self assessment system whereby industry is required to accurately report cargo in a timely manner and pay the correct amount of duty owing. An appropriate penalty regime is an important part of this self-assessment system as it supports compliance by the use of pecuniary penalties, to ensure the provision of accurate information and the calculation and payment of the correct amount of duty.

In order that Customs can meet its responsibilities to prevent the movement into Australia of illicit drugs and other prohibited imports it is imperative that it is able to identify high risk cargo ahead of arrival. This approach has been endorsed by the Governments National Illicit Drugs Strategy. At present there are no provisions where a penalty can be applied for the reporting of cargo out of time or where reports are incomplete, other than the use of section 74 of the Customs Act to prevent the unloading of cargo which is not properly reported. However, commercial realities dictate that this approach is not feasible as it can also delay cargo which has been properly reported on that vessel/aircraft, thus leading to delays and costs to industry.

In relation to exports, the penalties reflect current government policy requirements for a tougher stance on the control of prohibited and restricted goods, diversion of underbond goods into the domestic market, and for accurate data on goods exported. This is particularly important with the introduction of the New Tax System providing GST-free status to supplies of goods for export.

The current administrative penalty provisions in sections 243T and 243U of the Customs Act do not reflect best practice in relation to penalties issued for errors made under self-assessment regimes. The current administrative penalties are not available for errors on export entries or drawback applications, nor for late or inaccurate cargo reports or unauthorised movement of goods. The new penalty regime will address those issues.

The structure of the new penalty regime

There will be a three tier approach under which sanctions will be applied for a range of breaches of the Customs Act. The first tier is the mens rea offence - Customs may elect to prosecute under section 234 of the Customs Act. The highest level of penalty will apply to this tier of offence. The second tier is where Customs may prosecute for a strict liability offence where it is considered that an infringement notice is not appropriate or where the person elects not to pay an infringement notice where one is issued. The third tier is where an infringement notice has been issued in lieu of prosecution for a strict liability offence. This will attract the lowest level of penalty, one fifth (1/5) of the maximum that a court can impose if the matter were prosecuted. Those offences that attract the third tier, namely the infringement notice, are listed in new subsection 243X(1) at item 6 of Schedule 2 to the Bill.

The new penalty regime will only apply to transactions/reports occurring on or after the commencement of the new legislation. Where the new penalty regime replaces the existing section 243T (Customs Act) penalties, the new regime will be applied from the date of Proclamation.

Where infringement notices are to be applied for late cargo reports, there will be a six month moratorium on the imposition of penalties in instances where the offence is committed because the report is made late to give industry sufficient time to adjust to the new requirements from the commencement of the legislation ( new subsections 64AB(12) and (13) ).

Issuing an infringement notice

New subsection s243X(1) lists those strict liability offences for which an infringement notice may be issued, as an alternative to prosecuting the offence.

Generally, infringement notices for the offences proposed in Schedule 2 may be issued up to twelve months from the date of the offence, with the exception of breaches involving false or misleading statements that become apparent during the exercising of monitoring powers. Where the breach is for a false or misleading statement, an infringement notice may be issued within 12 months of the detection of the alleged offence, up to a maximum of 4 years after the statement was made. This acknowledges that in a self-assessment compliance regime that such breaches may only be detected during the course of a post transaction audit. Furthermore it is not possible to audit the huge numbers of importers and exporters within 12 months, and therefore the time period for issuing an infringement notice for false or misleading statements needs to reflect that fact ( new section 243Y ).

Prosecution of the strict liability offences must commence within five (5) years from the time the offence is committed, as is currently the case for prosecuting all Customs offences (current section 249 of the Customs Act).

Under new section 243Z certain particulars must be specified in the infringement notice. This includes specifying the penalty amount for the alleged offence under the infringement notice and the amount that a court may impose ( new subsections 243Z(4) and (1) respectively). Where the infringement notice is issued for an offence under s243T, and there is unpaid duty or unrepaid refund or drawback of duty, the obligation to pay the duty, or repay the refund or drawback, continues despite the service of the infringement notice ( new paragraph 243Z(1)(d) ).

It is proposed that once an infringement notice is issued, a period of 28 days be allowed in which to pay ( new subsection 243Z(1)(f) ). The CEO may extend this period ( new section 243ZE ).

Where a person who has been served a notice in respect of an offence under new subsection 243T(1) and that person applied under section s273GA for a review of the amount of duty payable on the goods, then the time period of that dispute is not taken into account in working out the period of 28 days for payment of the penalty amount specified in the notice ( new subsection 243Z(2) ). This only applies to the person or entity that is a direct party to the dispute. It does not apply to persons or entities that merely have an interest in the outcome.

The person who receives the infringement notice may write to the CEO seeking the withdrawal of the notice ( new susbsection 243ZA(1) ). The CEO may have regard to a number of matters ( new subsection 243ZA(3) ) when determining whether to withdraw the notice whether written representations have been made or not ( new subsection 243ZA(2) ). Where the CEO decides to withdraw the notice and the penalty has already been paid within the time period for payment of the penalty, then the CEO must refund the amount paid ( new subsection 243ZA(4) ).

Should the infringement notice remain unpaid after the 28 days (or other period in which to pay as extended by the CEO - new section 243ZE ), Customs may elect to prosecute for the offence with possible higher penalties being imposed by a court. In the case of shortpayment of duty Customs will also take action to recover the correct amount of duty payable, irrespective of whether or not an infringement notice has been issued ( new paragraph 243Z(1)(d) ).

In both the above situations it should be noted that where the amount in the infringement notice is paid within the time frame specified, Customs will not have the right to pursue the original offence through prosecution ( new section 243ZB ). Where the amount in the infringement notice is not paid, Customs may prosecute the strict liability offence.

There will be no remission of the amounts set out in infringement notices issued under the new penalty regime.

There will be no formal avenue to the Administrative Appeals Tribunal (AAT) to seek review of the decision to apply a penalty. If the recipient of an infringement notice wishes to dispute the decision to issue that notice, then they may refuse to pay the amount owing and defend a prosecution in court for the strict liability offence for which the infringement notice was issued.

Penalties in section 234 Customs Act

Item 1A of Schedule 2 repeals paragraph 234(1)(g) of the Customs Act. Paragraph 234(1)(g) provides that a person shall not refuse or fail to answer questions or produce documents. The penalty for an offence against that paragraph is an amount not exceeding $1,000.

Item 5 of Schedule 2 inserts into the Customs Act two new strict liability offences for failing to answer questions or produce documents. The penalties for those offences are 30 penalty units, ie $3,300.

Since the new strict liability offences will have greater penalties than the offence contained in paragraph 234(1)(g) it is proposed to repeal paragraph 234(1)(g).

Item 1B of Schedule 2 changes the penalty for making a false or misleading statement from $5,000 to 100 penalty units. Again this is because the Bill proposes to insert into the Customs Act similar strict liability offences that have penalties greater than the current offence.

Item 1C of Schedule 2 replaces paragraph 234(1)(d) of the Customs Act. Paragraph 234(1)(d) currently provides that in the case of an offence against paragraph 234(1)(g) or (h) the penalty is an amount not exceeding $1,000. New paragraph 234(1)(d) removes the reference to the offence in paragraph 234(1)(g) as it is being repealed and converts the monetary penalty into penalty units.

Savings provisions for current sections 243T, 243U and 243V

Item 5A of Schedule 2 makes it clear that current sections 243T, 243U and 243V of the Act continue to apply to statements made before those sections are repealed. The Bill contains a new regime under which infringement notices may be issued in respect of false or misleading statements. This new regime will only apply to statements made after the commencement of the relevant provisions.

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