CALDERWOOD & HARKNESS LLP
CONFIDENTIAL — INTERNAL
MEMORANDUM
TO: Matter Administration Department
FROM: James Prentice, Sandra Tung
DATE: September 22, 2022
RE: New Matter Opening — Thalassa Shipping & Logistics SA — Customs Classification and Valuation Dispute
1. Matter Identification
The following table sets forth the key identifying information for this new matter. All records, billing entries, time entries, and internal communications should reference the matter number designated below.
2. Matter Description
2.1 Background on the Client
Thalassa Shipping & Logistics Société Anonyme ("TSL" or "Thalassa") is a privately held Greek shipping and logistics company incorporated under the laws of the Hellenic Republic. TSL was founded in 2009 and has since grown into a significant participant in the Eastern Mediterranean maritime logistics sector. As of the most recent fiscal year (FY 2021), the company employed approximately 1,450 individuals across its operations and reported consolidated annual revenue of approximately €387.2 million.
TSL operates a fleet of 28 container vessels and manages terminal operations at three major Greek ports: the Port of Piraeus, the Port of Thessaloniki, and the Port of Volos. TSL's terminal operations require specialized marine cargo-handling equipment, including ship-to-shore gantry cranes, rubber-tired gantry cranes, and automated stacking crane systems, all of which are central to the present dispute.
The company is majority owned by Andreadis Family Holdings LLC, a Delaware limited liability company, which holds a 62% equity interest. The balance of ownership is held by a combination of minority institutional and private investors. Nikolaos Andreadis serves as Chairman and Chief Executive Officer and is the controlling principal of Andreadis Family Holdings LLC.
2.2 The Imported Equipment
Between March 2019 and January 2022, TSL imported a total of 47 units of specialized marine cargo-handling equipment from Hailong Heavy Industries Co., Ltd. ("Hailong"), a manufacturer and exporter based in Ningbo, Zhejiang Province, People's Republic of China (Unified Social Credit Code: 91330211MA2GR8KT5X). The imported equipment comprised the following categories:
• Twelve (12) ship-to-shore ("STS") gantry cranes;
• Eighteen (18) rubber-tired gantry ("RTG") cranes;
• Eight (8) automated stacking crane ("ASC") systems; and
• Associated spare parts, software, and commissioning services.
The total declared CIF (Cost, Insurance, and Freight) customs value for the 47 units, inclusive of spare parts, software, and commissioning services, was €98,000,000. This value was declared across multiple Single Administrative Documents ("SADs") filed during the relevant import period.
2.3 Import Procedures
All equipment was imported through the Port of Piraeus and cleared through the Piraeus Regional Customs Office. TSL engaged Peloros Customs Agency S.A. ("Peloros"), a licensed customs brokerage firm (EORI: GR801234567000), to prepare and file all customs declarations. Peloros is headed by Stavros Liapis, Licensed Customs Broker No. GR-CB-1287, and filed all 47 SADs on behalf of TSL pursuant to a customs brokerage agreement dated February 1, 2019.
TSL classified all 47 units of imported equipment under Combined Nomenclature ("CN") code 8426 41 00, which covers "other machinery, self-propelled, on tyres" and similar lifting, handling, and loading equipment. The applicable Most Favoured Nation ("MFN") duty rate for CN 8426 41 00 is 0%, meaning that no customs duties were assessed or paid upon importation.
2.4 Post-Clearance Audit
On April 4, 2022, the Independent Authority for Public Revenue ("AADE"), acting through its Directorate of Customs Compliance and Audit, initiated a post-clearance audit of TSL's importations (AADE audit file reference: AADE/DTE/2022/PIR-04518). The audit examined the tariff classification and customs valuation of the 47 units of cargo-handling equipment imported during the March 2019 through January 2022 period. The audit was completed on August 1, 2022.
2.5 AADE Additional Duty Assessment Notices
On August 12, 2022, following the completion of the post-clearance audit, AADE issued two Additional Duty Assessment Notices ("ADANs") to TSL, as described below:
2.5.1 Classification Assessment — AADE/ADAN/2022/0073
The first assessment notice (AADE/ADAN/2022/0073) reclassifies 20 of the 47 imported units as follows:
• Twelve (12) STS gantry cranes, with a combined declared customs value of €38,400,000; and
• Eight (8) ASC systems, with a combined declared customs value of €28,800,000;
resulting in a total reclassified value base of €67,200,000. AADE's position is that these 20 units should have been classified under CN 8428 90 90 (covering "other lifting, handling, loading or unloading machinery" — a residual heading) rather than CN 8426 41 00. The applicable MFN duty rate for CN 8428 90 90 is 2.2%.
The resulting additional customs duty on the classification adjustment is calculated as follows: €67,200,000 × 2.2% = €1,478,400.
It is noted that the eighteen (18) RTG cranes remain undisputed under CN 8426 41 00 and are not subject to reclassification under AADE's assessment.
2.5.2 Valuation Assessment — AADE/ADAN/2022/0074
The second assessment notice (AADE/ADAN/2022/0074) adjusts the customs value of the imported equipment upward by a total of €9,940,000, comprising three components:
(a) Technology License Fees — €4,900,000. AADE contends that a technology license fee equal to 5% of the total CIF customs value (5% × €98,000,000 = €4,900,000), payable to Hailong under a Technology License Agreement dated January 10, 2019, constitutes a condition of sale and must be included in the customs value of the imported equipment pursuant to Article 71(1)(c) of the Union Customs Code ("UCC").
(b) Procurement Coordination Fee — €2,940,000. AADE contends that a procurement coordination fee equal to 3% of the total CIF customs value (3% × €98,000,000 = €2,940,000), paid to Nereus Maritime Advisory Limited ("Nereus"), a Cyprus-registered company, constitutes a selling commission (or, alternatively, an amount that inures to the benefit of the seller) and must be included in the customs value. TSL's position is that the Nereus fee represents a buying commission and is therefore properly excluded from customs value.
(c) Commissioning Services — €2,100,000. AADE contends that commissioning services performed by Hailong under Contract HHI-TSL-2021-004, invoiced separately from the equipment sale price, form part of the transaction value of the imported goods because they are a condition of the sale and essential to rendering the equipment operational.
The resulting additional customs duty on the valuation adjustment, applying the reclassified 2.2% rate, is calculated as follows: €9,940,000 × 2.2% = €218,680.
2.5.3 Total Financial Exposure
The total additional customs duties across both assessment notices (classification and valuation) amount to €1,697,080.
However, the total financial exposure to TSL is substantially greater when all consequential charges are taken into account. AADE's mid-case assessment, inclusive of all known and estimated charges, is as follows:
• Additional customs duties (classification + valuation): €1,697,080
• VAT adjustments (24% Greek standard rate on adjusted customs values): €2,740,416
• Administrative penalties (30% of additional duties under Article 147(1) of the Greek Customs Code, Law 2960/2001): €509,124
• Estimated late payment interest (accruing from original import dates): €3,872,000
The mid-case total AADE assessment is therefore approximately €8,818,620.
At the high end of the exposure range — assuming AADE escalates its characterization of TSL's conduct and imposes enhanced penalties under the fraud or willful non-compliance provisions of the Greek Customs Code (penalties of up to 300% of additional duties under Article 147(3) of Law 2960/2001), together with compounding interest and potential additional VAT surcharges — the maximum financial exposure could reach approximately €14.7 million. Specifically, maximum penalty exposure at 3× the additional duties would be approximately €4,410,000 (compared with the €509,124 baseline penalty). The escalated penalty scenario is discussed further in Section 11 below.
3. Adverse Party and Opposing Counsel
3.1 Adverse Party
The adverse party in this proceeding is the Independent Authority for Public Revenue (Greek: Ανεξάρτητη Αρχή Δημοσίων Εσόδων, or "AADE") of the Hellenic Republic. AADE is the central tax and customs authority of Greece, responsible for the administration and enforcement of customs, tax, and revenue laws. The specific division handling this matter is the Directorate of Customs Compliance and Audit (Greek: Διεύθυνση Τελωνειακής Συμμόρφωσης και Ελέγχου), operating through the Piraeus Regional Customs Office, located at 2 Karaoli & Dimitriou Street, 185 31 Piraeus, Greece.
The key government official assigned to this matter is Ms. Aikaterini Vlachopoulou, Chief Customs Auditor, who led the post-clearance audit and is the signatory on both Additional Duty Assessment Notices.
The relevant assessment references are as follows:
• AADE/ADAN/2022/0073 (classification);
• AADE/ADAN/2022/0074 (valuation); and
• Audit file AADE/DTE/2022/PIR-04518.
3.2 Opposing Counsel
AADE has retained external legal counsel for this matter. The engaged firm is Meridian & Drakos Dikigiriko Grafeio (Greek: Μεριδιάν & Δράκος Δικηγορικό Γραφείο), a Greek law partnership located at 15 Stadiou Street, 105 62 Athens, Greece. Meridian & Drakos serves as AADE's external legal advisors in connection with the classification and valuation dispute.
The key attorneys identified on the opposing side are:
• Panagiotis Drakos, Senior Partner (Athens Bar Association Registration No. 29481). Mr. Drakos is a recognized specialist in customs and EU trade law and has represented AADE in several prior customs classification disputes, including matters referred to the European Commission's Directorate-General for Taxation and Customs Union ("DG TAXUD").
• Irini Konstantinou, Associate, who is expected to handle day-to-day proceedings and filings on behalf of AADE.
4. Staffing — Calderwood & Harkness LLP Engagement Team
The following Calderwood & Harkness LLP attorneys have been assigned to this matter:
The specific responsibilities of each team member are as follows:
• James Prentice will serve as the Responsible Partner on this engagement, providing overall supervision, strategic direction, and management of the client relationship with TSL's senior leadership. Mr. Prentice maintains the primary client contact with Nikolaos Andreadis and will oversee all significant strategic decisions, including settlement authority parameters and escalation to judicial proceedings if necessary.
• Sandra Tung will serve as the Billing Partner, overseeing engagement economics, fee management, and billing oversight. Ms. Tung is responsible for ensuring compliance with the billing arrangement set forth in Section 8 below, monitoring budget adherence, and reviewing all invoices prior to issuance to the client.
• Christy Bauer will serve as the Lead Associate on the matter, with primary responsibility for tariff classification research, preparation of the Binding Tariff Information ("BTI") application to be filed with AADE under Article 33 of the Union Customs Code, and technical trade-law analysis. Ms. Bauer will coordinate directly with the classification expert (Dr. Lukas Brenner of Argonaut Trade Consulting GmbH) and will lead any submissions to DG TAXUD in the event that the BTI application is referred to the European Commission.
• Garrett Simmons will serve as the Working Associate, with primary responsibility for customs valuation analysis, transfer pricing considerations, duty calculations, and financial impact analysis. Mr. Simmons will work closely with the valuation advisory firm (Kestrel & Palladian LLP) and will prepare the legal arguments supporting TSL's declared transaction values, including the characterization of the Nereus procurement coordination fee as a buying commission and the exclusion of the technology license fees and commissioning services from customs value.
Other attorneys and professional staff — including paralegals, research librarians, and translation coordinators — may be assigned to assist with discrete aspects of this engagement as workload requirements dictate. Any material staffing changes, including the addition or substitution of partners or senior associates, will be communicated to the client in advance.
5. Local Counsel
Calderwood & Harkness LLP has retained local Greek counsel to handle in-country filings, appearances, and procedural matters. The local counsel engagement is described below.
Firm: Vournas & Theodorakis Dikigiriko Grafeio ("V&T")
Entity Type: Greek law partnership (Δικηγορικό Γραφείο) organized under the laws of the Hellenic Republic
Address: 22 Academias Street, 106 71 Athens, Greece
Key Attorney: Alexandros Vournas, Managing Partner (Athens Bar Association Registration No. 18744). Mr. Vournas is a recognized specialist in Greek administrative and customs law with over 25 years of experience representing importers and logistics companies before AADE and the Greek administrative courts.
Associate: Maria-Christina Georgiou (Athens Bar Association Registration No. 42917). Ms. Georgiou will serve as the day-to-day associate handling procedural filings and coordination with Greek authorities.
Role and Scope: V&T has been retained by Calderwood & Harkness to handle all filings before AADE, the Directorate of Resolution of Disputes ("DED," Greek: Διεύθυνση Επίλυσης Διαφορών), and the Administrative Court of First Instance of Piraeus. V&T will also coordinate service of process, manage Greek-language correspondence with AADE, and advise on procedural aspects of Greek administrative law. All filings and substantive legal positions taken by V&T on behalf of TSL are subject to Calderwood & Harkness's prior review and approval. V&T will not take any substantive position or make any binding representation to AADE or any Greek court without written authorization from the C&H engagement team.
Retention Status: A retention letter was sent to V&T on September 28, 2022 and is currently pending countersignature. We expect the countersigned letter to be returned by approximately October 5, 2022. Upon execution, a copy of the countersigned retention letter will be placed in the matter file.
6. Experts
Calderwood & Harkness LLP proposes to retain two independent expert advisors in connection with this matter: a customs classification expert and a customs valuation advisory firm. The details of each proposed retention are set forth below.
6.1 Classification Expert
Firm: Argonaut Trade Consulting GmbH
Entity Type: Gesellschaft mit beschränkter Haftung (German GmbH) organized under the laws of the Federal Republic of Germany
Address: Friedrichstraße 191, 10117 Berlin, Germany
Key Contact: Dr. Lukas Brenner, Managing Director. Dr. Brenner formerly served as a member of the World Customs Organization ("WCO") Harmonized System Committee from 2008 to 2016 and brings extensive experience in the classification of industrial and marine equipment under the Harmonized System and the EU Combined Nomenclature. He has provided expert classification opinions in numerous proceedings before EU Member State customs authorities and the European Commission.
Role: Dr. Brenner and his team at Argonaut will provide an independent customs classification analysis and expert opinion on the correct CN classification of TSL's STS gantry cranes and ASC systems — the two categories of equipment subject to reclassification under AADE's assessment notice AADE/ADAN/2022/0073. The expert opinion will include a detailed examination of the equipment's technical specifications, functional characteristics, and intended use, as well as an analysis of the applicable General Rules for the Interpretation of the Combined Nomenclature, relevant Harmonized System Explanatory Notes, and prior BTI rulings across EU Member States. The analysis will specifically address the divergent BTI rulings from the Netherlands and Germany noted in Section 11 below.
Retention Status: A retention letter is scheduled to be sent on October 5, 2022. The engagement terms and fee structure are under negotiation and will be documented in a separate engagement letter between Argonaut and TSL, with Calderwood & Harkness named as coordinating counsel.
6.2 Valuation Advisory
Firm: Kestrel & Palladian LLP ("K&P")
Entity Type: Limited Liability Partnership organized under the laws of England and Wales, with a branch office in Athens, Greece
Athens Office Address: 8 Voukourestiou Street, 106 71 Athens, Greece
Key Contact: Spyros Makris, Partner — Indirect Tax & Customs Valuation Practice. Mr. Makris is a specialist in customs valuation methodology under the WTO Customs Valuation Agreement and the Union Customs Code, with particular expertise in related-party transaction analysis and the characterization of commissions, royalties, and license fees for customs valuation purposes.
Role: K&P will prepare a comprehensive customs valuation report and economic analysis supporting TSL's declared transaction values. The report will address the following specific issues:
(a) A Functions, Assets, and Risks ("FAR") analysis of the Nereus Maritime Advisory Limited procurement coordination fee, supporting its characterization as a buying commission properly excluded from customs value under Article 72(a) of the Union Customs Code;
(b) An analysis of the technology license fees payable to Hailong under the Technology License Agreement dated January 10, 2019, and whether such fees constitute a condition of sale that must be included in the customs value under Article 71(1)(c) of the UCC; and
(c) An analysis of the commissioning services charges under Contract HHI-TSL-2021-004, including whether such charges should be treated as post-importation activities properly excluded from transaction value.
Independence Note: K&P also serves as TSL's statutory auditor for its annual financial statements. Calderwood & Harkness has discussed this dual role with both TSL and K&P, and all parties have agreed that appropriate independence safeguards must be maintained throughout the engagement. These safeguards will include the assignment of separate engagement teams within K&P (with no overlap in personnel between the statutory audit engagement and the customs valuation advisory engagement), separate engagement letters, and appropriate information barriers. The maintenance and documentation of these safeguards is discussed further in Section 11 below.
Retention Status: A retention letter is scheduled to be sent on October 5, 2022. As with Argonaut, the engagement terms will be documented in a separate engagement letter between K&P and TSL.
7. Other Key Parties and Entities
The following table identifies additional parties and entities that are relevant to this matter, together with a description of each entity's role in the dispute. These parties are not adverse to TSL in the administrative proceeding but are significant to the factual, legal, or financial aspects of the matter.
8. Billing Arrangement
8.1 Fee Structure
Calderwood & Harkness LLP will bill TSL on an hourly basis at the firm's standard rates. The applicable hourly rates for each assigned timekeeper, effective as of January 1, 2022, are as follows:
Standard hourly rates are subject to annual adjustment, typically effective January 1 of each calendar year. TSL will be notified in advance of any rate adjustments in accordance with the engagement letter.
8.2 Invoicing and Payment
Calderwood & Harkness will issue monthly invoices in United States dollars. All invoices are due and payable within thirty (30) days of the invoice date.
Wire payments should be directed to the following account:
Bank: Excalibur National Bank, N.A. Account Name: Calderwood & Harkness LLP — Client Trust Account Account No.: 4871-2209-0063 ABA Routing No.: 021-000-487 SWIFT Code: EXNBUS33
8.3 Fee Estimate
Based on currently available information and reasonable assumptions about the scope of work required through the BTI ruling phase and the administrative objection phase (i.e., through the filing and resolution of objections before AADE's Directorate of Resolution of Disputes), Calderwood & Harkness estimates its professional fees for this engagement will range from $550,000 to $850,000. This estimate covers C&H professional fees only and excludes local counsel fees, expert fees, and out-of-pocket expenses, which are estimated separately at approximately €200,000 to €350,000 in the aggregate. The fee estimate is subject to revision based on developments in the matter, including but not limited to the outcome of the BTI application process, whether the matter is referred to DG TAXUD, and whether the dispute proceeds to judicial review before the Administrative Court of First Instance of Piraeus.
8.4 Local Counsel Fees
Vournas & Theodorakis (V&T) fees will be billed directly to TSL, with copies of all V&T invoices provided simultaneously to Calderwood & Harkness for review and oversight purposes. V&T will bill at its standard hourly rates, which are as follows:
• Alexandros Vournas (Managing Partner): €380/hr
• Maria-Christina Georgiou (Associate): €220/hr
• Paralegals: €120/hr
8.5 Expert Fees
Argonaut Trade Consulting GmbH and Kestrel & Palladian LLP fees will be invoiced directly to TSL unless otherwise agreed among the parties. Calderwood & Harkness will coordinate the scope and timing of expert work to manage costs and avoid duplication of effort.
8.6 Expense Reimbursement
TSL will reimburse Calderwood & Harkness for reasonable out-of-pocket expenses incurred in connection with this engagement, at cost, without markup. Reimbursable expenses include, but are not limited to, travel expenses (airfare, lodging, ground transportation, and per diem), courier and shipping costs, certified translation services, filing fees, court costs, document production and copying costs, and telecommunications charges. Expenses will be itemized on monthly invoices.
8.7 Matter Codes
This matter has been assigned to the "ITS" (International Trade & Sanctions) practice group code. Sub-codes will be established to track time and expenses by work stream, including the following anticipated sub-codes:
• Classification (tariff classification analysis, BTI application, classification objection)
• Valuation (customs valuation analysis, Nereus fee analysis, royalty/license fee analysis, commissioning services analysis)
• BTI (Binding Tariff Information application process and DG TAXUD referral, if applicable)
• Insurance (claim filing, correspondence with Oceanos and Aether, reservation of rights response)
• Lender (Compass Maritime Bank notification and covenant analysis)
• Peloros Indemnification (review of customs brokerage agreement, potential indemnification claim)
All timekeepers are instructed to enter time using the appropriate sub-codes to facilitate accurate tracking and reporting.
9. Conflict Check
9.1 Conflict Check Process
A conflict check was initiated on September 18, 2022, in accordance with Calderwood & Harkness LLP's standard conflict clearance procedures. The conflict check was run against all parties, entities, and individuals identified in connection with this matter, including TSL, Nikolaos Andreadis, Elena Papadimitriou, Dimitrios Sarantopoulos, Andreadis Family Holdings LLC, Nereus Maritime Advisory Limited, Konstantinos Melas, Eleni Andreadis, Georgios Andreadis, Hailong Heavy Industries Co., Ltd., Peloros Customs Agency S.A., Compass Maritime Bank SA, Oceanos Underwriters SA, Aether Insurance Brokers Limited, Vournas & Theodorakis, Argonaut Trade Consulting GmbH, Kestrel & Palladian LLP, AADE, and Meridian & Drakos Dikigiriko Grafeio.
Conflict check results were returned on September 19, 2022.
9.2 Clearance
The conflict check was reviewed and cleared by Rachel M. Fleischer, Deputy General Counsel — Conflicts Department, on September 20, 2022.
Result: No active conflicts identified. No restrictions on the engagement. No conflict waivers required.
9.3 Informational Hits
The conflict check returned two informational hits involving closed matters. Neither constitutes an active conflict, and both have been cleared:
(a) Compass Maritime Bank SA: Calderwood & Harkness's London office previously represented Compass Maritime Bank in a syndicated lending matter (C&H matter number C&H-2019-BF-02114). That matter was closed in 2020. There is no current engagement between C&H and Compass Maritime Bank. The proposed representation of TSL in this customs dispute is not adverse to Compass Maritime Bank — CMB is TSL's lender, not an opposing party — and no conflict exists. Cleared.
(b) Hailong Heavy Industries Co., Ltd.: Calderwood & Harkness's New York office was approached by Hailong regarding a preliminary CFIUS (Committee on Foreign Investment in the United States) assessment in connection with a potential U.S. acquisition (C&H matter number C&H-2021-RA-03502). The matter was declined at the preliminary assessment stage. No formal engagement was opened, no engagement letter was executed, and no confidential information was received from Hailong. The proposed TSL representation does not create any conflict with Hailong. Cleared.
9.4 Lateral Hire Screens
The conflict check also reviewed potential lateral hire conflicts for team members who joined Calderwood & Harkness from other law firms:
(a) Christy Bauer joined Calderwood & Harkness from Whitfield & Garza LLP in July 2021. A review of Ms. Bauer's prior firm matters confirmed that she had no involvement with any of the listed parties at Whitfield & Garza, and no ethical screen is required.
(b) Garrett Simmons joined Calderwood & Harkness directly from law school in September 2020. He has no prior firm affiliations, and no screen is required.
10. Key Deadlines and Critical Dates
The following table sets forth the key deadlines and critical action dates for this matter. Dates marked as "target" represent internal Calderwood & Harkness planning targets and are subject to adjustment as the matter develops. Statutory and contractual deadlines are identified as such.
All team members should diarize the above dates and report any developments that may affect the timeline to the Responsible Partner (James Prentice) and Lead Associate (Christy Bauer) immediately.
11. Special Notes and Considerations
The following special notes and considerations are flagged for the attention of the Matter Administration Department and all members of the engagement team.
11.1 Related-Party Sensitivity
Nereus Maritime Advisory Limited is a related party to TSL through Andreadis Family Holdings LLC (40% owner of Nereus) and through the personal ownership interests of Eleni Andreadis (30% owner of Nereus), who is the daughter of TSL's Chairman and CEO, Nikolaos Andreadis. In addition, Konstantinos Melas, who owns the remaining 30% of Nereus and serves as its Managing Director, is a former sales agent of Hailong Heavy Industries, the manufacturer and exporter of the imported equipment.
The characterization of the €2,940,000 procurement coordination fee paid to Nereus is a central and highly sensitive issue in the valuation dispute. TSL's position is that Nereus acted as TSL's buying agent, performing procurement advisory, vendor evaluation, and supply chain coordination functions on behalf of TSL, and that the fee therefore constitutes a buying commission that is properly excluded from customs value under Article 72(a) of the Union Customs Code. AADE's position, as set forth in AADE/ADAN/2022/0074, is that Nereus functioned as a selling agent or intermediary that facilitated the sale on behalf of Hailong (or, alternatively, that the fee inured directly or indirectly to the benefit of the seller), and that the fee must therefore be included in the customs value.
The related-party ownership structure and Mr. Melas's prior relationship with Hailong will be scrutinized by AADE and may be raised by opposing counsel. All communications regarding Nereus — both internal and external — should be handled with particular care and sensitivity. No document production or disclosure relating to Nereus should be made without the express authorization of the Responsible Partner.
11.2 Dual Role of Kestrel & Palladian LLP
As noted in Section 6.2 above, Kestrel & Palladian LLP serves as both TSL's statutory auditor (for annual financial statement audit purposes) and the engaged customs valuation advisor for this dispute. This dual role raises independence considerations under both professional auditing standards and applicable regulations.
To safeguard K&P's independence and to mitigate any potential challenge to the credibility of K&P's customs valuation report, the following safeguards must be maintained and documented:
(a) K&P will assign separate engagement teams to the statutory audit engagement and the customs valuation advisory engagement, with no overlap in personnel;
(b) Separate engagement letters will govern each engagement;
(c) Appropriate information barriers will be maintained within K&P to prevent the flow of confidential information between the two engagement teams; and
(d) Calderwood & Harkness will obtain written confirmation from K&P of these safeguards prior to the commencement of the customs valuation advisory engagement.
The engagement team should be aware that AADE or opposing counsel may challenge K&P's independence or seek to discredit K&P's valuation report on the basis of the dual role. The engagement team should consider whether an alternative, fully independent valuation advisor should be retained as a fallback.
11.3 Greek-Language Documents
A significant portion of the documentary record in this matter — including the AADE assessment notices, audit file materials, all 47 SADs, and administrative proceeding filings — is in the Greek language. Certified translation services will be required for Calderwood & Harkness's review of key documents and for any filings that may be submitted before DG TAXUD or the European Commission, where working languages are English, French, and German. Translation costs should be budgeted as part of the estimated out-of-pocket expenses. V&T will coordinate translation services and identify a certified translation provider acceptable to all parties.
11.4 Multi-Office Coordination
This matter involves active participation from three Calderwood & Harkness offices:
• Brussels (Christy Bauer, Lead Associate): Lead on tariff classification analysis and BTI application. If the BTI application is referred to DG TAXUD, the Brussels office will lead all submissions to the European Commission.
• London (James Prentice, Responsible Partner; Garrett Simmons, Working Associate): Primary coordination point for the overall engagement, strategic direction, valuation analysis, and financial impact assessment.
• New York (Sandra Tung, Billing Partner): Billing oversight and engagement economics.
All team members must ensure consistency in billing, time entry, and matter code usage across all three offices. Monthly team calls should be scheduled to maintain coordination and ensure that all team members are aligned on strategy, work product, and deadlines.
11.5 Potential for Dormancy
If the BTI application filed with AADE results in a classification ruling that diverges from existing BTI rulings issued by other EU Member States — a scenario that is highly plausible given the existing divergent rulings discussed in Section 11.7 below — the matter may be referred to DG TAXUD under Article 34(10) of the Union Customs Code for a consultation process aimed at achieving uniform classification across the EU. The DG TAXUD consultation process typically takes 12 to 24 months to conclude.
During any such consultation period, the matter may enter a dormant phase in which active work is minimal. Calderwood & Harkness's standard dormancy protocols should be established at that time, including periodic status reviews (at least quarterly), maintenance of all deadlines and diarized dates, and prompt reactivation upon notice of a DG TAXUD decision or any other material development.
11.6 Document Preservation
A document preservation notice should be issued to TSL promptly upon opening of this matter. The preservation notice should cover all documents, communications, records, and electronic data relating to:
• The procurement, importation, classification, and customs valuation of the 47 units of cargo-handling equipment;
• All agreements with Hailong, including the Technology License Agreement dated January 10, 2019, Contract HHI-TSL-2021-004 (commissioning services), and all purchase orders, invoices, and shipping documents;
• All agreements with and payments to Nereus Maritime Advisory Limited, including the procurement coordination agreement and all related correspondence;
• All SADs and supporting customs documentation filed by Peloros Customs Agency S.A.; and
• All correspondence with AADE, including the audit file, assessment notices, and any prior communications.
In addition, a separate document preservation demand letter should be sent to Peloros Customs Agency S.A. by registered mail, requiring Peloros to preserve all records related to the 47 SADs filed on behalf of TSL and any supporting documentation in Peloros's possession, custody, or control.
11.7 Divergent BTI Rulings
The classification dispute involves divergent BTI rulings issued by different EU Member States for comparable equipment:
• NL-BTI-2021-01234 (Netherlands): A BTI issued by the Dutch customs authority classifying comparable ship-to-shore and automated stacking crane equipment under CN 8426, supporting TSL's declared classification.
• DE-BTI-2020-05678 (Germany): A BTI issued by the German customs authority classifying automated stacking crane systems under CN 8428, supporting AADE's reclassification of the ASC systems.
This divergence in BTI rulings across EU Member States is a key element of the classification analysis. It provides both an opportunity and a risk: the Dutch BTI supports TSL's position, but the German BTI supports AADE's reclassification of the ASC systems. The divergence may also trigger a referral to DG TAXUD under Article 34(10) of the UCC, which could result in a binding uniform classification decision applicable across all EU Member States.
Christy Bauer and Dr. Brenner of Argonaut will conduct a detailed comparative analysis of both BTI rulings, including the technical descriptions and reasoning underlying each, as part of the BTI application and classification objection strategy.
11.8 Criminal Exposure
The risk of criminal exposure in this matter is assessed as very low based on currently available information. However, the engagement team should be aware that if AADE escalates its characterization of TSL's conduct from negligent or inadvertent misclassification to fraud or willful non-compliance, the consequences could be severe. Under Article 147(3) of the Greek Customs Code (Law 2960/2001), administrative penalties for fraudulent or willfully non-compliant declarations can be imposed at rates of up to 300% of the additional duties assessed — which, applied to the €1,470,360 in additional duties on the classification assessment alone, could result in penalties of up to approximately €4,410,000.
Moreover, if AADE makes a formal finding of fraud, Article 155 of Law 2960/2001 provides for potential criminal referral, which could expose individual TSL officers and responsible employees to criminal prosecution. In the event that AADE escalates its characterization or initiates criminal referral proceedings, this engagement would need to be reconsidered, as criminal defense representation would likely require separate counsel with relevant Greek criminal law expertise and might give rise to conflicts of interest among the various individuals potentially subject to criminal liability.
At present, no facts have been identified that would support a fraud or willful non-compliance finding. TSL relied in good faith on the classification advice of its licensed customs broker (Peloros) and on the product descriptions provided by the manufacturer (Hailong). The engagement team will monitor AADE's posture closely and will immediately inform the Responsible Partner of any indication that AADE is considering escalation beyond standard administrative penalties.
11.9 Insurance Reservation of Rights
Upon filing the insurance claim with Oceanos Underwriters SA under Financial Lines Policy No. OCU-FIN-2021-GR-0487, it is anticipated that Oceanos may issue a reservation of rights letter. The policy is expected to contain exclusions for claims arising from willful non-compliance, deliberate undervaluation, and fraudulent misrepresentation. While there is no current basis to believe that any such exclusion applies to TSL's conduct, AADE's valuation assessment — particularly the characterization of the Nereus fee and the assertion that the technology license fees were deliberately excluded from customs value — may prompt Oceanos to reserve its rights pending the outcome of the dispute.
The engagement team should prepare a response strategy for a potential reservation of rights, including a factual submission demonstrating TSL's good faith reliance on professional customs broker advice and the reasonable basis for TSL's classification and valuation positions. Coordination with Aether Insurance Brokers (Fiona Hartwell) will be essential in managing the insurance claim and any coverage disputes.
This memorandum is submitted for the purpose of opening matter number C&H-2022-ITS-04781 in accordance with Calderwood & Harkness LLP's internal matter administration procedures. All information contained herein is confidential and subject to the attorney-client privilege and the work product doctrine. This memorandum should not be distributed outside the firm without the express authorization of the undersigned partners.
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James Prentice Partner Calderwood & Harkness LLP
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Sandra Tung Partner Calderwood & Harkness LLP
Date: September 22, 2022