This article delves into the risks of non-compliance for fashion brands operating within the EU, UK & US jurisdictions, highlighting the potential violations and their implications.
The previous articles in this series explored regulatory compliance and sustainability in the European Union, United Kingdom and United States relative to the fashion industry, and specifically within the areas of import and export. This article delves into the risks of non-compliance for fashion brands operating within these jurisdictions, highlighting the potential violations and their implications. It focuses on the risks of seizure, forfeiture, fines and other financial penalties, audits and increased inspections on future imports, as well as reputational risk.
Risks of Non-Compliance with Customs Laws
European Union
The EU's Union Customs Code (UCC) sets stringent standards for customs, CITES and sustainability compliance. Non-compliance can lead to:
- Seizure and Forfeiture: Goods that do not meet customs declaration requirements can be seized and forfeited, causing substantial financial losses. For example, incorrect tariff classifications or undervaluation of goods can result in the seizure of shipments.
- Fines and Penalties: Administrative penalties under the UCC can reach up to €50,000 per infringement. These fines are intended to deter non-compliance and ensure companies adhere to customs regulations.
- Audits and Inspections: Customs authorities regularly audit companies to ensure compliance. Non-compliant companies face increased future scrutiny, leading to additional compliance costs as well as operational and supply chain disruptions.
- Reputational Risk: Non-compliance violations, or even suspicion, can result in negative press and other reputational damage to a brand.
Some recent examples of these risks are below:
In this instance, a criminal gang was found to have imported goods from non-EU countries and under-declared them, depriving the EU of significant duty and VAT revenue. While there is a difference between criminal intentions and unintentional mistakes by brands, this still highlights customs authorities’ vigilance into the under-declaration of goods.
In this instance, a major European fast fashion brand was sued over claims that environmental sustainability statements, both about the brand and individual items, were false.
In this instance, a complaint was filed in Paris against a number of fashion brands headquartered in the US, EU and Japan, alleging profiteering, if unknowingly, from forced labor in China’s Xinjiang region.
United Kingdom
Post-Brexit, the UK has its own customs framework, largely mirroring that of the EU, posing similar risks:
- Seizure and Forfeiture: Non-compliant goods can be seized and forfeited by customs authorities, resulting in significant financial losses and potential impacts on the availability of goods in the market.
- Fines and Penalties: The UK imposes substantial fines for customs violations, often reaching thousands of pounds per violation.
- Audits and Inspections: Companies face regular audits to ensure compliance with customs regulations. Non-compliance can lead to increased frequency and intensity of audits, causing higher costs, operational and supply chain disruptions.
- Reputational Risk: As in the EU, non-compliance violations, or even suspicion, can result in negative press and other reputational damage to a brand.
Recent examples of the above risks are below:
In this instance, a UK based environmental organization accused two large fashion companies of allowing cotton in their supply chains that was obtained through environmentally and socially degrading conditions.
In this instance, a month-long operation by the UK Border Force, 145 seizures containing thousands of CITES violating products were made, including a significant number of fashion items.
United States
The US Customs and Border Protection (CBP) enforces strict customs laws with severe consequences for non-compliance:
- Seizure and Forfeiture: Non-compliant goods can be detained or seized by the CBP, leading to financial losses and operational disruptions. Seizure is a key enforcement mechanism to ensure compliance with customs regulations.
- Fines and Penalties: The CBP imposes significant fines for violations, with penalties reaching up to 200% of the goods' value. These fines serve as a deterrent to non-compliance and promote adherence to customs laws.
- Audits and Future Inspections: Companies are subject to audits to verify compliance with customs regulations. Non-compliance can lead to more frequent and intensive audits, disrupting supply chains and normal business operations.
- Reputational Risk: Non-compliance can severely damage a company's reputation, affecting market position and customer trust, mainly but not exclusively through negative press.
There have been several notable cases of non-compliance, resulting in civil and criminal cases in recent years:
In this instance, a fashion company willfully undervalued imported garments for sale, as well as committed tax violations. While willful violations are more likely to be discovered, with more severe penalties, than innocent mistakes, CBP is vigilant for cases of misdeclaration or under declaration.
In this instance, the founder and an associate of a luxury handbag company were sentenced to 18 months in prison for importing handbags made from protected species, a violation of CITES, to which the US is a signatory.
Conclusion
Adhering to customs laws and other regulatory requirements for fashion imports is complicated and requires exacting attention to ever changing standards and restrictions. Risks are large for violations or even perceived violations, and reputational risk in particular cannot be undone. A brand’s shipping partner can and should be an extra layer of trust through their knowledge and experience, helping to preclude problems for shipments entering new jurisdictions.
Want to learn more about Worldnet’s expertise regarding logistics compliance? Check out our compliance series here.