On June 3, 2026, the President issued an Executive Order (“EO”) entitled “Strengthening Customs Enforcement,” which is likely to have far-reaching consequences for companies that act as importers in the United States. The EO is expected to have a disproportionate impact on importers that are based outside the United States or have a minimal U.S. presence. It will also have an across-the-board impact on CBP enforcement, penalties, and penalty mitigation options for importers who are subjected to liquidated damages and other penalty claims.
While the EO includes provisions applicable to all Importers of Record (“IOR”), many of its most significant provisions are expressly directed at foreign importers. Importantly, the EO defines a “foreign IOR” as an IOR that, in the case of a company or other entity, “is not organized under the laws of the United States, not located in the United States, does not have at all times controlling beneficial owner(s) who are United States citizens or lawful permanent residents, or does not own a significant amount of real property in the United States.” Non-U.S. companies that presently serve as IOR without a U.S. tax presence or that have U.S. subsidiaries operating as IORs should pay close attention to how U.S. Customs and Border Protection (“CBP”) implements these new requirements, which may force changes in how their goods may be brought to market in the United States.
Stating that “[c]ustoms enforcement is essential to the national security, foreign policy, and economy of the United States,” the EO asserts that “Customs reform is long overdue” and directs the Secretary of Homeland Security to issue regulations or take other appropriate action within 90 or 180 days (or sometimes “promptly”) that will impose sweeping new requirements on IORs, and especially foreign IORs. Among other actions, the EO calls for the Secretary to:
- Require that an Importer of Record (IOR) maintain a “minimum level of tangible domestic assets, bonding, or both” determined by CBP to ensure compliance with U.S. customs and trade laws, and increase the minimum required bond coverage for an IOR.
- Modify the informal entry process for entries valued at under $2,500 to require a designated IOR and importer bond and to entirely prohibit informal entries by any foreign IOR.
- Preclude any foreign IOR from relying on a continuous bond unless CBP determines that the revenue would be fully protected and compliance with customs laws and regulations assured, and require that any foreign IOR be validated in CBP’s Customs Trade Partnership Against Terrorism (“CTPAT”) or use a CTPAT-validated and licensed customs broker to file entries.
- Require all IORs to maintain “good standing” with CBP, as determined by the IOR and its affiliates’ history of compliance with U.S. customs and trade laws and payment of required customs liabilities. IORs not in good standing with CBP will not be allowed to import into the United States.
- Purge CBP’s IOR registry of inactive IORs; confirm active IORs are compliant; organize IORs into risk-based tiers based on compliance history, enforcement actions, and audit results; and establish enhanced vetting procedures for all persons and entities seeking to conduct activities related to importation of goods, including IORs, customs brokers, custodians of bonded merchandise, and freight forwarders.
- Establish heightened import certification requirements, including certifying compliance with the Countering America’s Adversaries through Sanctions Act and other laws imposing critical supply chain requirements to be identified by CBP.
- Require importers to disclose additional information that is currently not required about the supply chain and production methods of imported goods and to submit to CBP any documentation or information that the foreign exporter was required to submit to the foreign customs administration prior to exporting to the United States.
Beyond the various new IOR requirements, additional provisions on penalties and enforcement are directed to all importers, not merely those defined as foreign IORs. These provisions are significant, and include the following actions:
- Bolster enforcement by enforcing liquidated damages claims against bonds, restricting in-bond utilization, increasing audits, and imposing maximum penalties for brokers who fail to conduct due diligence, repeatedly represent noncompliant clients, or fail to cooperate with information requests from CBP.
- Prioritize enforcement of federal law relating to importations involving products produced by forced labor and importations involving misclassification, undervaluation, and illegal transshipment, including investigations under the Enforce and Protect Act (for evasion of AD/CVD).
- Revise all penalty mitigation standards to establish a penalty floor of not less than 50 percent of the assessed penalty, absent exceptional circumstances that materially impact national security, and eliminate mitigation altogether for repeat offenders.
- Expedite and enhance the seizure and disposal of non-compliant imports.
- Require periodic review and expiration of confidentiality requests to CBP and publication of annual enforcement transparency reviews.
While the EO suggests that most if not all of these changes can be implemented through regulations issued pursuant to CBP’s existing legal authorities, the Secretary is also directed, within 45 days, to submit to the President recommendations for legislation to strengthen customs enforcement. Moreover, the Secretary is directed to report to the President in one year on the effectiveness of actions taken pursuant to the EO.
The EO fully acknowledges and offers a justification for adopting policies that treat foreign importers less favorably than U.S. importers. In particular, the EO points to the long-known problem of foreign companies that fail to pay substantial tariffs or penalties but cannot be reached by U.S. legal process and nonetheless are able to continue importing by creating a new foreign company with a minimal customs bond. It remains to be seen how many compliant foreign IORs, as defined in the EO, will face new restrictions nominally directed at a subgroup of bad actors.
For now, all U.S. importers should carefully monitor CBP’s efforts to roll out new regulations and guidance and look for opportunities to comment on or influence the implementation process. Each importer, whether foreign or domestic, should also review the adequacy of its import compliance program to ensure that adequate internal controls are in place and that past violations have been addressed before CBP further ratchets up its enforcement activities. To the extent an importer has in the past been tolerant of “minor” violations resulting in liquidated penalty amounts that were previously easy to mitigate, it may be newly important to eliminate the underlying compliance failures that allowed those violations to occur, as mitigation options will be curtailed in the future.
Covington’s customs and tariff experts can assist importers in monitoring the development of new regulations, making necessary changes to current import processes, conducting import compliance evaluations, and developing compliance improvement plans to address known vulnerabilities.
If you have any questions concerning the material discussed in this client alert, please contact the members of our Trade Policy practice.
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