CALDERWOOD & HARKNESS LLP
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is protected by the attorney-client privilege and constitutes attorney work product prepared in anticipation of litigation. It is intended solely for the use of Calderwood & Harkness LLP attorneys and staff working on this matter and for the client, Thessaloniki Shipping & Logistics S.A. This memorandum should not be disclosed to any third party without prior authorization from the responsible partner.
MEMORANDUM
TO: File (C&H-2022-ITS-04781)
FROM: Garrett Simmons
DATE: November 25, 2022
RE: Penalty Exposure and Mitigation Under Greek Customs Law and the UCC Delegated Regulation — Assessment Notices AADE/ADAN/2022/0073 (Classification) and AADE/ADAN/2022/0074 (Valuation)
I. Issue
This memorandum addresses the following question: What is Thessaloniki Shipping & Logistics S.A.'s ("TSL") exposure to administrative penalties and late payment interest arising from the Independent Authority for Public Revenue ("AADE") additional duty assessments issued under Assessment Notice AADE/ADAN/2022/0073 (Classification) and Assessment Notice AADE/ADAN/2022/0074 (Valuation), and what mitigation strategies are available to TSL to reduce, eliminate, or otherwise manage that exposure?
As set forth in the underlying assessment analysis memoranda (Documents 5 and 6 of this matter file), AADE has assessed total additional customs duties of €1,697,080 against TSL, comprising two distinct components: (i) €1,478,400 in additional duties arising from the reclassification of ship-to-shore gantry cranes and automated stacking crane systems from CN heading 8426 to CN heading 8428 (the "Classification Assessment"), and (ii) €218,680 in additional duties arising from the inclusion of technology license fees and procurement coordination fees in the customs value of the imported equipment (the "Valuation Assessment"). These additional duties form the base upon which administrative penalties are calculated, and they also represent the principal amount upon which late payment interest accrues.
This memorandum analyzes the applicable penalty regime at both the EU and Greek national levels, quantifies TSL's exposure under multiple penalty scenarios (ranging from good-faith error to fraud), assesses the ongoing accrual of late payment interest, evaluates available mitigation strategies, considers the risk of criminal exposure, and examines the impact of the penalty characterization on insurance recovery under the Oceanos Underwriters Financial Lines policy. The memorandum concludes with specific recommendations for managing and reducing TSL's penalty and interest exposure.
II. Summary of the Applicable Penalty Regime
The penalty regime applicable to customs duty underpayments in Greece operates on two levels: the overarching EU-level framework established by the Union Customs Code and its implementing regulations, and the Greek national framework enacted to give effect to the EU's mandate that member states impose penalties for customs non-compliance. Both levels must be considered in assessing TSL's exposure, as the EU framework establishes the governing principles (including the critical proportionality requirement), while Greek national law provides the specific penalty rates and procedural mechanisms.
A. EU-Level Framework — Article 42 of the Union Customs Code (Regulation (EU) No. 952/2013)
The Union Customs Code ("UCC"), adopted as Regulation (EU) No. 952/2013 of the European Parliament and of the Council of 9 October 2013, establishes the general customs rules and procedures applicable throughout the European Union. The UCC entered into force on May 1, 2016, replacing the prior Community Customs Code (Regulation (EEC) No. 2913/92), and provides the fundamental legal framework within which all EU member states administer their customs regimes.
Article 42(1) of the UCC provides that "[e]ach Member State shall provide for penalties for failure to comply with the customs legislation." The provision goes on to specify that such penalties "shall be effective, proportionate, and dissuasive." This tripartite standard — effectiveness, proportionality, and dissuasiveness — is a well-established principle of EU law that the Court of Justice of the European Union ("CJEU") has consistently applied in reviewing the compatibility of national penalty regimes with EU law. The proportionality requirement, in particular, serves as a substantive constraint on member state penalty power and provides TSL with a meaningful basis for challenging any disproportionate penalty assessment, as discussed in detail in Section V.D below.
Article 42(2) of the UCC further provides that member states may impose either administrative or criminal penalties, or both, for customs violations. This provision recognizes the member states' sovereign authority over penalty design and enforcement while maintaining the EU-level constraint that any penalties adopted must satisfy the effectiveness, proportionality, and dissuasiveness standard. The choice between administrative and criminal penalties, and the calibration of penalty severity, is thus a matter of national law — subject to the overriding requirements of EU law.
Critically, the UCC itself does not specify fixed penalty rates for customs violations. The Regulation does not prescribe, for example, that a misclassification resulting in duty underpayment shall be subject to a penalty of a particular percentage of the underpaid duties. Instead, the implementation of specific penalty rates and procedures is left entirely to member state law, subject to the EU proportionality principles articulated in Article 42(1). This delegation of implementation authority means that TSL's penalty exposure is ultimately governed by Greek national law (Law 2960/2001, as amended), analyzed in Section II.B below.
Reference should also be made to the UCC Delegated Regulation (EU) 2015/2446, Article 77, which provides supplementary guidance on the imposition of penalties for customs debts incurred through non-compliance. Article 77 of the Delegated Regulation addresses the circumstances in which customs debts arise from non-compliance with customs obligations and provides a framework for distinguishing between errors that result from good faith and those that result from negligence or intentional misconduct. While Article 77 does not itself impose penalties, it informs the standard of conduct against which member state penalty authorities — including AADE — assess the culpability of customs debtors when determining the appropriate penalty level.
B. Greek National Framework — Greek Customs Code (Law 2960/2001, as amended)
Law 2960/2001, as subsequently amended by a series of legislative enactments (including, most relevantly, Law 4389/2016 establishing AADE as the Independent Authority for Public Revenue), is the primary Greek customs statute implementing the EU customs framework. It is the source of the specific penalty rates and enforcement mechanisms applicable to TSL's case.
The relevant provisions of Law 2960/2001 establish a tiered penalty structure that distinguishes among three levels of culpability: good-faith error, negligence, and fraud or willful non-compliance. The applicable penalty rate depends on AADE's characterization of the customs debtor's conduct, which in turn depends on the facts and circumstances of the particular case. Each tier is analyzed below.
1. Standard Penalty — Good-Faith Error (Article 42(1) UCC; Article 77 UCC Delegated Regulation)
The lowest tier of the penalty regime applies where the customs debtor acted in good faith and the under-declaration of duties resulted from an error or misinterpretation of the applicable customs rules, rather than from intentional conduct or culpable negligence. This tier is consistent with the EU-level framework established by Article 42(1) UCC and Article 77 of the UCC Delegated Regulation, which recognizes that errors in tariff classification and valuation may arise from genuine uncertainty or reasonable misinterpretation of complex legal standards without any culpable intent or negligence on the part of the importer.
Under established AADE practice, the penalty for a first offense involving negligence or good-faith misinterpretation of tariff classification rules is up to 30% of the additional duties assessed. This rate reflects AADE's standard administrative practice for cases in which the customs debtor's error is attributable to the inherent complexity of the Combined Nomenclature classification system or to a reasonable (though ultimately incorrect) interpretation of the applicable customs valuation rules.
AADE's initial assessment in this case applies the 30% good-faith error rate. Based on the total additional duties of €1,697,080, the resulting penalty under this tier is calculated as follows:
(€1,478,400 + €218,680) × 30% = €1,697,080 × 30% = €509,124
This is the penalty currently reflected in the Assessment Notices and represents AADE's initial characterization of TSL's conduct as a good-faith error rather than negligence or fraud. As discussed in Section V below, maintaining this characterization is a central objective of our mitigation strategy.
2. Elevated Penalty — Negligence (Article 147 Greek Customs Code, Law 2960/2001)
The second tier of the penalty regime applies where AADE determines that the customs debtor was negligent — that is, that the customs debtor failed to exercise the degree of diligence reasonably expected of an importer of its size, sophistication, and level of customs activity. Under Article 147 of the Greek Customs Code (Law 2960/2001), the penalty for negligent conduct may be assessed at up to 100% of the additional duties — a significant escalation from the 30% good-faith error rate.
Based on the total additional duties of €1,697,080, the penalty under this tier would be:
€1,697,080 × 100% = €1,697,080
The negligence standard is fact-intensive and turns on factors such as the customs debtor's failure to seek professional classification advice, a pattern of repeated classification errors, deviation from industry standard practices without adequate justification, and the availability of published guidance or rulings that should have alerted the customs debtor to the correct classification or valuation treatment. In TSL's case, the risk of escalation to the negligence tier is mitigated by several factors (discussed in Section V.A below), including TSL's reliance on a licensed customs broker and the existence of divergent binding tariff information ("BTI") rulings among EU member states. However, certain aspects of the case — particularly AADE's potential characterization of the Nereus-related valuation issues as involving culpable disregard of related-party transaction rules — could provide a basis for AADE to argue for the elevated rate. This risk must be actively managed through the mitigation strategies outlined in this memorandum.
3. Maximum Penalty — Fraud or Willful Non-Compliance (Article 147(3) Greek Customs Code)
The most severe tier of the administrative penalty regime applies where AADE determines that the under-declaration of duties was intentional or fraudulent. Examples of conduct that may trigger this tier include the deliberate misclassification of goods for the purpose of avoiding or reducing applicable duties, the deliberate undervaluation of goods through manipulated related-party pricing or fee structures, and the knowing submission of false or misleading information on customs declarations.
Under Article 147(3) of the Greek Customs Code, the penalty for fraudulent or willful non-compliance may be assessed at up to 300% of the additional duties — the maximum administrative penalty available under Greek customs law. Based on the total additional duties of €1,697,080, the penalty under this extreme scenario would be:
€1,697,080 × 300% = €5,091,240
This extreme scenario would carry consequences extending well beyond the administrative penalty itself. A finding of fraud or willful non-compliance could trigger a criminal referral under Article 155 of the Greek Customs Code (discussed in Section VI below), exposing TSL's officers and directors to potential criminal prosecution. It would also potentially trigger the exclusions in TSL's Oceanos Underwriters Financial Lines policy for "willful non-compliance" (Policy Section 4.3(a)) and "deliberate undervaluation" (Policy Section 4.3(b)), potentially eliminating insurance coverage for the underlying duty assessment as well as for defense costs. The insurance implications are discussed in Section VII below.
It is our assessment that the risk of the 300% penalty scenario materializing in this case is very low, for the reasons set forth in the criminal exposure assessment (Section VI) and the good-faith defense analysis (Section V.A). However, the magnitude of the exposure under this scenario — and its cascading effects on criminal risk and insurance coverage — underscores the critical importance of maintaining the good-faith characterization throughout this matter.
C. Summary Table — Penalty Scenarios
The following table summarizes the administrative penalty exposure under each of the three penalty tiers:
III. Late Payment Interest
In addition to administrative penalties, TSL faces substantial exposure to late payment interest on the assessed additional duties. Interest accrual is governed by the UCC and Greek implementing provisions and represents a significant — and continuously growing — component of TSL's total financial exposure. The ongoing accrual of interest during the administrative and legal proceedings introduces a time-value dimension to the dispute that must be actively managed.
A. Legal Basis
Article 114 of the UCC provides the EU-level framework for the imposition of interest on customs debts. Under Article 114 and the corresponding Greek implementing provisions, interest accrues on underpaid customs duties from the date the original customs duty was incurred — that is, the date each individual import entry (Single Administrative Document, or "SAD") was accepted by the AADE Piraeus Regional Customs Office — until the date of actual payment of the assessed amount. The statutory interest rate is established by Greek law at 0.73% per month, which equates to approximately 8.76% per annum. This rate, while expressed as a simple monthly rate, results in a substantial interest burden when applied to a large duty base over an extended accrual period.
It is important to note that interest begins to accrue not from the date of the Assessment Notices, but from the original import dates — reflecting the principle that the customs debt arose at the time of importation and that the underpayment has deprived the Greek treasury of revenue from the date the duty should have been correctly declared and paid. This backward-looking accrual methodology significantly increases TSL's interest exposure, particularly for the earliest import entries.
B. AADE's Interest Calculation
AADE has calculated accrued interest on the total additional duties of €1,697,080 at approximately €3,872,000 through the date of the Assessment Notices (August 12, 2022). This estimate encompasses interest accrued across all 47 SADs filed by TSL for the subject equipment, with each entry generating its own interest accrual period based on the date of acceptance by the Piraeus Regional Customs Office.
The interest calculation is not uniform across all entries because the subject equipment — consisting of ship-to-shore gantry cranes, automated stacking crane systems, and related components — was imported in multiple shipments over a period spanning from March 2019 through January 2022. Consequently, individual entries have different interest accrual periods, ranging from approximately 7 months for the latest entries (those filed in late 2021 and early 2022) to approximately 41 months for the earliest entries (those filed in March 2019). The resulting variation in per-entry interest amounts is reflected in the detail schedules appended to the Assessment Notices.
The aggregate interest figure of approximately €3,872,000 is notable for its magnitude relative to the underlying additional duties of €1,697,080. Interest of this size — representing approximately 228% of the principal duty amount — is a direct consequence of the extended accrual period and the relatively high statutory interest rate. It underscores the urgency of identifying mechanisms to stop or reduce interest accrual going forward, as discussed in Section III.D below.
C. Ongoing Interest Accrual
Interest continues to accrue at the statutory rate during the administrative standstill period and any subsequent litigation or consultation process. This ongoing accrual represents a significant and continuously compounding element of TSL's financial exposure.
As of the date of this memorandum (November 25, 2022), approximately three additional months of interest have accrued since the issuance of the Assessment Notices on August 12, 2022. The estimated additional interest for this three-month period is calculated as follows:
Additional duties: €1,697,080 × 0.73% per month × 3 months = approximately €37,166
This brings the total estimated interest accrued through November 2022 to approximately €3,909,166 (comprising the €3,872,000 calculated by AADE through August 2022 plus the additional €37,166 accrued since that date).
On an ongoing basis, interest accrues at approximately €12,389 per month:
€1,697,080 × 0.73% = approximately €12,389 per month
This monthly accrual figure has significant implications for the resolution timeline. Every month of delay in achieving a resolution of the dispute adds approximately €12,389 to TSL's interest exposure. The DG TAXUD consultation process initiated under Article 34(10) UCC — which was triggered by TSL's BTI application (BTI-GR-2022-003847) and the identification of divergent BTI rulings among EU member states — is expected to take between 12 and 24 months to complete. Over this period, additional interest accrual could reach:
• 12-month scenario: €12,389 × 12 = approximately €148,668
• 24-month scenario: €12,389 × 24 = approximately €297,336
These projections do not account for the additional interest that would accrue during any subsequent administrative or judicial proceedings. If the dispute is not resolved until, for example, 2025 or 2026, total accrued interest could substantially exceed the figures set forth in AADE's initial calculation.
D. Interest Suspension / Guarantee Issue
A critical open question is whether the posting of a bank guarantee can stop or suspend the accrual of late payment interest on the assessed additional duties.
Under Article 114(3) of the UCC, interest may cease accruing on amounts that have been secured by an appropriate guarantee. TSL is in the process of negotiating the issuance of a bank guarantee in the amount of €5,000,000 by Compass Maritime Bank SA (subsequently issued as Guarantee No. CMB-BG-2023-0291). This guarantee is being procured primarily to satisfy the security requirements for TSL's administrative objection and to avoid the enforcement of the Assessment Notices during the pendency of the administrative and legal proceedings.
Whether the posting of this guarantee would also have the effect of stopping interest accrual requires clarification under Greek implementing practice. Article 114(3) UCC provides the EU-level basis for interest suspension upon the provision of security, but the practical application of this provision depends on how AADE and the Greek customs authorities interpret and administer the guarantee-related interest suspension mechanism. We have requested clarification from Vournas & Tsolakidis ("V&T"), our Greek local counsel, on this point, and are awaiting their analysis of AADE's administrative practice and any relevant Greek case law or regulatory guidance.
If the posting of the guarantee does not stop interest accrual under applicable Greek practice, an alternative approach should be considered: making a partial payment on account of the assessed additional duties, without prejudice to TSL's dispute of the assessment, in order to toll interest on the paid amount. Such a payment would need to be carefully structured to avoid any implication of an admission of liability. It should be expressly denominated as a payment "without prejudice" and "under protest," with appropriate reservation of all rights to dispute the underlying assessment and to seek a refund of any overpayment. The procedural requirements for such a protective payment under Greek law should be confirmed with V&T (Alexandros Vournas, Athens Bar No. 18744).
IV. Total Exposure Summary Including Penalties and Interest
The following table consolidates TSL's total financial exposure under each of the three penalty scenarios, incorporating the additional customs duties (classification and valuation), the import VAT adjustment, administrative penalties, and late payment interest:
Several observations regarding this exposure summary are warranted.
First, the high-end internal exposure estimate of approximately €14.7 million — referenced in our earlier communications to the client — incorporates the 300% fraud penalty scenario together with compounding interest projections through the anticipated resolution of the dispute. Under certain calculation methods that account for the full interest accrual period through projected resolution (including the 12–24 month DG TAXUD consultation period and potential subsequent judicial proceedings), the maximum penalty exposure under the fraud tier reaches approximately €4,410,000 (reflecting the aggregated interest and penalty computation), which is consistent with the overall €14.7 million scenario when combined with the other exposure components. The difference between the €13.4 million figure in the table above and the €14.7 million internal estimate is attributable to the additional interest accrual projected beyond August 2022 through the anticipated resolution date.
Second, the import VAT adjustment of €2,740,416 represents a potentially recoverable amount. TSL, as a registered VAT taxpayer in Greece, is entitled to recover import VAT as an input VAT credit, provided that the imported goods are used for VAT-taxable business activities. As TSL's use of the imported equipment for port operations and logistics services is clearly a VAT-taxable activity, the VAT adjustment should ultimately be recoverable as an input credit, and the net cash impact should be limited to a timing difference. However, AADE has demanded payment of the full VAT adjustment amount pending verification of TSL's entitlement to the input VAT credit. Until the credit is confirmed and applied, the VAT adjustment represents a real cash outflow for TSL. The timing of the credit recovery is uncertain and depends on AADE's processing timeline.
Third, the penalty and interest components together (€509,124 + €3,872,000 = approximately €4.4 million in the good-faith scenario alone) represent a very substantial portion of the overall exposure. These components — unlike the underlying additional duties, which may be subject to substantive challenge on classification and valuation grounds — are more directly susceptible to mitigation through the strategies outlined in Section V below. Penalty and interest reduction should therefore be a primary focus of any settlement or negotiation strategy.
V. Mitigation Analysis
This section evaluates the available strategies for mitigating TSL's penalty and interest exposure. The mitigation analysis proceeds in order of strategic importance, beginning with the affirmative good-faith defense — which is the strongest and most broadly applicable mitigation tool — and continuing through additional strategies that may operate independently or in combination to reduce the ultimate financial impact.
A. Good Faith / Reasonable Interpretation Defense
The strongest and most important mitigation argument available to TSL is the assertion that its classification and valuation positions were adopted in good faith based on a reasonable interpretation of the Combined Nomenclature and the UCC customs valuation rules. A good-faith defense, if successfully established, supports the application of the lowest penalty tier (30%) and is inconsistent with any escalation to the negligence (100%) or fraud (300%) tiers. Moreover, the maintenance of the good-faith characterization is essential to preserving TSL's insurance coverage under the Oceanos policy, as discussed in Section VII below.
The following factors support TSL's good-faith defense:
1. Classification Ambiguity — Divergent BTI Rulings
The most compelling evidence of TSL's good faith is the existence of divergent BTI rulings among EU member states on the precise classification question at issue in this case. Binding Tariff Information rulings, issued by the customs authorities of individual EU member states pursuant to Articles 33 and 34 of the UCC, represent the formal, authoritative determination of the applicable customs classification for specific goods. Where different member states' customs authorities have issued BTI rulings reaching opposite conclusions on the classification of substantially similar goods, the resulting divergence constitutes powerful evidence that the classification question is genuinely uncertain and that any particular classification position adopted by an importer is, at a minimum, reasonable.
In this case, the divergence is particularly striking:
• The Dutch BTI ruling NL-BTI-2021-01234, issued on June 14, 2021 by Douane Nederland (the Netherlands Customs Administration), classified substantially similar STS gantry cranes and ASC-type automated stacking crane systems under CN 8426 41 00, within heading 8426. This classification is consistent with TSL's declared classification on its SADs filed with the AADE Piraeus Regional Customs Office.
• The German BTI ruling DE-BTI-2020-05678, issued on September 3, 2020 by the Hauptzollamt Hamburg-Hafen (Hamburg Port Principal Customs Office), reached the opposite conclusion for ASC systems, classifying them under heading 8428.
These two rulings, issued by the customs authorities of two of the EU's largest and most experienced member states, demonstrate that the classification of STS gantry cranes and ASC systems at the four-digit heading level is a genuinely uncertain and contested question under the Combined Nomenclature. The divergence is not the product of different factual circumstances; both rulings address the same type of equipment with substantially similar technical specifications and operational functionality. The disagreement is purely one of legal interpretation — specifically, the proper application of the General Rules for the Interpretation of the Combined Nomenclature (GIR) to automated port crane systems.
The significance of this divergence is further underscored by AADE's own decision to refer TSL's BTI application (BTI-GR-2022-003847) to the European Commission's Directorate-General for Taxation and Customs Union ("DG TAXUD") under Article 34(10) of the UCC. Article 34(10) provides a mechanism for resolving divergent BTI rulings among member states and is triggered specifically by the identification of inconsistent rulings on the same classification question. AADE's invocation of this mechanism constitutes an institutional acknowledgment — by the very authority that issued the Assessment Notices — that the classification question presented by TSL's equipment is genuinely uncertain and cannot be resolved by any single member state's customs authority acting alone. This acknowledgment is fundamentally inconsistent with a characterization of TSL's classification position as negligent or fraudulent.
As a matter of principle, a classification position adopted by an importer in conformity with a published BTI ruling of another EU member state cannot reasonably be characterized as negligent or fraudulent. To hold otherwise would place importers in an impossible position: required to comply with customs classification rules that the member states themselves cannot agree upon, and subject to penalties for adopting a position that has been expressly validated by the customs authority of a sister member state. This is precisely the type of disproportionate and arbitrary penalty that Article 42(1) UCC is designed to prevent.
This is the single most important mitigating factor in this case and should be cited prominently in all penalty defense submissions, administrative objections, and settlement negotiations.
2. Reliance on Licensed Customs Broker
TSL did not independently determine the CN codes for its import declarations. Instead, TSL relied on Peloros Customs Agency S.A. (EORI: GR801234567000), a professionally licensed Greek customs brokerage firm, to prepare and file its Single Administrative Documents. The specific customs broker responsible for selecting the CN codes on all 47 SADs was Stavros Liapis, who holds Licensed Customs Broker No. GR-CB-1287 issued pursuant to Presidential Decree 67/2000.
Under Presidential Decree 67/2000, licensed customs brokers in Greece are required to possess specialized knowledge of the Combined Nomenclature and to exercise professional diligence in the application of tariff classification rules. Peloros, as a licensed customs brokerage firm, has both the expertise and the legal obligation to apply tariff classifications correctly on behalf of its clients. TSL's engagement of Peloros and its reliance on Liapis's professional judgment in determining the applicable CN codes is evidence of good faith and is entirely inconsistent with the characterization of TSL's conduct as "willful" disregard of its customs obligations.
The World Customs Organization ("WCO") Guidelines on Informed Compliance expressly recognize that an importer's reliance on licensed customs intermediaries constitutes a mitigating factor in the assessment of penalties for classification or valuation errors. An importer that engages a licensed professional and relies in good faith on that professional's classification determinations has taken the steps that a reasonably prudent importer would be expected to take. If the professional's classification proves to be incorrect, the resulting error is properly attributable to the professional's judgment rather than to the importer's culpability — provided, of course, that the importer did not provide false or misleading information to the broker or otherwise interfere with the broker's independent professional judgment. There is no evidence of any such conduct by TSL in this case.
3. No Prior Adverse Rulings
TSL has never been the subject of a prior adverse customs classification or valuation ruling from AADE or from any other customs authority in the European Union or elsewhere. TSL's customs compliance record is clean, and the current Assessment Notices represent the first occasion on which any customs authority has challenged TSL's classification or valuation practices.
This is directly relevant to the penalty analysis in two respects. First, the absence of prior adverse rulings means that TSL had no notice — other than the general provisions of the Combined Nomenclature and the Explanatory Notes, which are themselves ambiguous on the classification question at issue — that its classification under heading 8426 was incorrect. There was no prior AADE guidance, published ruling, or enforcement action suggesting that this particular equipment category should be classified under heading 8428 rather than heading 8426. Second, TSL's first-offense status supports the application of the lowest penalty tier under AADE's established administrative practice. The 30% good-faith error rate is typically applied to first offenses, and escalation to the 100% or 300% tiers is generally reserved for repeat offenders or for cases involving aggravating circumstances such as a history of non-compliance.
4. Technology License — Separate Contract Structure
The treatment of the technology license fees payable under the Technology License Agreement dated January 10, 2019 (the "TLA") as outside the customs value of the imported equipment was based on the separate contractual structure of the TLA. The TLA was executed as a standalone agreement with its own commercial terms, pricing structure, and 10-year duration. It was characterized by TSL — on the advice of Peloros and in accordance with TSL's own commercial understanding of the arrangement — as covering post-importation technology services, including software updates, remote diagnostics, operator training, and ongoing technical support.
This characterization was a reasonable interpretation of UCC Article 71(1)(c), which provides that the customs value of imported goods shall include royalties and license fees related to the goods being valued that the buyer must pay as a condition of sale, and UCC Article 72(e), which provides that certain post-importation charges — including charges for activities undertaken after importation — shall not be included in the customs value. TSL's position was that the technology license fees fell within the scope of Article 72(e) as post-importation services, rather than within the scope of Article 71(1)(c) as a condition of sale.
Even if AADE ultimately prevails on the inclusion of the technology license fees in the customs value — a result that is by no means certain, as the question involves a genuinely debatable interpretation of the UCC valuation provisions — TSL's position was not unreasonable given the separate contractual structure and the plausible reading of the relevant UCC provisions. A penalty analysis must distinguish between an incorrect legal position and a fraudulent or negligent one; TSL's position on the technology license fees falls squarely in the former category.
5. Nereus — Buying Commission Characterization
TSL engaged Nereus Maritime Procurement S.A. ("Nereus") under a formal Procurement Services Agreement dated December 1, 2018 (the "PSA"). The PSA described Nereus's role as identifying, evaluating, and recommending manufacturers of port equipment, coordinating the procurement process on TSL's behalf, and providing logistical and administrative support throughout the procurement cycle. This language is consistent with the function of a buying agent acting on behalf of the buyer, and TSL accordingly characterized the fees paid to Nereus as buying commissions excluded from the customs value under UCC Article 72(a).
We acknowledge that the related-party issues associated with Nereus complicate this defense. Specifically, Athens Financial Holdings S.A. ("AFH") holds a 40% ownership stake in Nereus; Konstantinos Melas, who serves as Nereus's managing director, previously served as a sales agent for Hailong Heavy Machinery Co., Ltd. (the Chinese manufacturer of the subject equipment) in the Greek market; and Eleni Andreadis, a senior figure within the AFH corporate group, holds a personal 30% stake in Nereus. These relationships raise legitimate questions about whether Nereus was genuinely acting as TSL's buying agent (as characterized by the PSA) or was instead functioning as a selling agent or intermediary whose fees should be included in the customs value.
However, TSL's characterization was based on the documentary framework — the PSA's express description of Nereus's role, the contractual obligations set forth in the agreement, and the commercial context in which the procurement arrangement was structured. Even if this characterization proves to be incorrect upon closer scrutiny of the related-party relationships, the position was not unreasonable given the documentary structure. TSL relied on the formal contractual framework and did not have reason to believe that the buying commission characterization was impermissible. This factor, while less compelling than the BTI divergence and the customs broker reliance arguments, nonetheless supports the overall good-faith narrative.
B. Voluntary Disclosure / Self-Correction
Under Article 116(4) of the UCC, a customs debtor who voluntarily discloses an underpayment of customs duties before the initiation of a customs audit may receive a reduced penalty or, in some cases, a complete penalty waiver. The rationale for this provision is straightforward: a debtor who proactively identifies and reports an error demonstrates good faith and relieves the customs authority of the burden and expense of detection through its own audit processes. Voluntary disclosure programs incentivize compliance and self-correction and are recognized across EU member states as a basis for penalty mitigation.
This option is not available to TSL. AADE's post-clearance audit of TSL's import entries was initiated on April 4, 2022 — well before TSL became aware of any potential classification or valuation issue. The Assessment Notices were subsequently issued on August 12, 2022, and TSL received them on August 16, 2022. TSL's engagement of Calderwood & Harkness LLP was not opened until September 22, 2022, by which time the audit was not only underway but had already resulted in formal assessments. There is no point in the chronology at which TSL could have made a voluntary disclosure prior to AADE's initiation of the audit.
Voluntary disclosure is therefore unavailable as a mitigation tool. However, TSL's full cooperation with the audit process since its initiation — discussed in Section V.C immediately below — provides an alternative, if somewhat less powerful, basis for demonstrating good faith.
C. Full Cooperation with AADE Audit
TSL has cooperated fully and in good faith with the AADE post-clearance audit since its initiation on April 4, 2022. All documentation requested by AADE has been provided (or is in the process of being provided — see the Response to AADE Information Request dated January 18, 2023, currently being finalized with V&T). TSL has not obstructed, delayed, or impeded the audit process at any stage, and TSL's personnel and representatives have made themselves available for interviews and meetings with AADE audit staff as requested.
Full cooperation with a customs audit is recognized as a mitigating factor under Article 42(2) UCC and is routinely cited by customs authorities and administrative tribunals as a basis for applying the lowest available penalty tier. TSL's cooperation should be documented comprehensively and cited in any penalty negotiation or defense submission.
Recommendation: TSL should maintain a detailed log of all cooperative actions taken during the audit process, including every document production (with dates, descriptions, and delivery confirmations), every responsive communication (with dates and summaries), and every meeting or telephone call with AADE personnel (with dates, participants, and agendas). This log will serve as a contemporaneous evidentiary record of TSL's cooperation and will be essential in supporting cooperation-based penalty mitigation arguments in any administrative objection, penalty negotiation, or court proceeding.
D. Proportionality Principle Under EU Law
Under the general principles of EU law and Article 42(1) of the UCC, administrative penalties for customs violations must be "effective, proportionate, and dissuasive." The proportionality requirement is not merely a hortatory standard; it is a binding legal principle that the CJEU has consistently applied as a substantive constraint on the penalty power of member state customs authorities. A penalty that exceeds what is necessary to achieve the legitimate objectives of customs enforcement — deterrence of non-compliance and compensation of the public treasury — may be challenged and annulled as disproportionate.
The leading CJEU authority on proportionality in the customs penalty context is Case C-382/09, *Stils Met SIA v. Valsts ieņēmumu dienests (Judgment of September 16, 2010). In Stils Met, the CJEU considered the compatibility of a Latvian customs penalty with the proportionality principle and held that national penalties for customs violations must be proportionate to the gravity of the infringement. The Court emphasized that penalties significantly exceeding the amount of the evaded duties may violate the proportionality principle, particularly where the infringement does not involve fraudulent intent or deliberate evasion. The Stils Met* framework requires a case-by-case assessment of the penalty's proportionality in light of the specific facts and circumstances, including the nature of the violation, the degree of culpability, the amount of the underpaid duties, and any mitigating factors.
Applied to TSL's case, the proportionality principle supports the following conclusions:
Any penalty exceeding 30% of additional duties would be disproportionate given the cumulative weight of the mitigating factors present in this case:
• Genuine classification ambiguity, as evidenced by the divergent BTI rulings of the Netherlands (NL-BTI-2021-01234) and Germany (DE-BTI-2020-05678) on the identical classification question;
• Good-faith reliance on a professionally licensed customs broker (Peloros Customs Agency S.A., Stavros Liapis, License No. GR-CB-1287);
• Full and continuing cooperation with the AADE post-clearance audit;
• Complete absence of any prior customs violations by TSL;
• No evidence of fraudulent intent or deliberate evasion.
A penalty at the 100% level (negligence) would be challengeable as disproportionate under EU law principles, particularly in light of the fact that the underlying classification question is under active review by DG TAXUD pursuant to Article 34(10) UCC — an institutional acknowledgment of the classification uncertainty that undermines any characterization of TSL's position as negligent. A penalty of 100% of additional duties, imposed on a first-time offender whose classification position is consistent with a BTI ruling issued by another EU member state, would exceed the level necessary to achieve deterrence and would impose a burden disproportionate to the gravity of the infringement.
A penalty at the 300% level (fraud) would be prima facie disproportionate and would, in our assessment, be highly vulnerable to reversal by the Administrative Court of First Instance of Piraeus on proportionality grounds. A penalty of this magnitude — more than three times the amount of the disputed duties — is reserved for cases involving clear evidence of fraudulent intent, deliberate falsification of customs declarations, or systematic evasion schemes. None of these aggravating factors is present in TSL's case. The application of the maximum penalty rate to a genuine classification dispute arising from regulatory ambiguity would constitute a manifestly disproportionate exercise of AADE's penalty authority.
Recommendation: If AADE escalates the penalty beyond the 30% good-faith error rate, TSL should prepare and file a formal proportionality challenge citing Stils Met (C-382/09) and the general principles of EU administrative law, including the principles of legal certainty, legitimate expectations, and proportionality. If the penalty reaches the 100% level or above, TSL should consider a constitutional challenge before the Administrative Court of First Instance of Piraeus under Article 25 of the Greek Constitution (which enshrines the proportionality of state action as a constitutional principle) and Article 1 of Protocol 1 to the European Convention on Human Rights (protection of property against disproportionate interference by the state).
E. Peloros Indemnification as Downstream Recovery
If administrative penalties and late payment interest are ultimately assessed and paid by TSL — whether pursuant to a final unappealable assessment, a settlement, or a judicial decision — TSL may have a contractual indemnification claim against Peloros Customs Agency S.A. under the terms of the Customs Brokerage Agreement dated February 1, 2019 (the "CBA").
Article 9.1 of the CBA provides that Peloros shall indemnify and hold harmless TSL from and against "all losses, damages, penalties, interest, costs, and expenses (including reasonable attorneys' fees) arising from Peloros's negligent or erroneous performance of customs clearance services, including but not limited to errors in tariff classification, customs valuation, or the completion of import documentation." If the classification error is attributable to Peloros's professional judgment — as it appears to be, given that Stavros Liapis selected the CN codes for all 47 SADs — this indemnification provision would provide TSL with a contractual basis for recovering from Peloros some or all of the penalty and interest amounts ultimately paid.
It is important to note, however, that the CBA contains a limitation of liability provision that significantly restricts the amount of any potential recovery. Article 9.3 of the CBA caps Peloros's total liability under the agreement at the greater of (a) three times the total brokerage fees paid by TSL to Peloros in the twelve months preceding the claim, or (b) €500,000. Based on the brokerage fees paid in the relevant twelve-month period, the estimated liability cap is approximately €561,000 (see separate analysis, Document 15 of the matter file). This cap is modest relative to TSL's total penalty and interest exposure, which ranges from approximately €4.4 million (in the good-faith scenario) to over €8.9 million (in the fraud scenario, combining penalties and interest alone). Recovery from Peloros would therefore cover only a fraction of TSL's total penalty and interest exposure.
Additionally, Peloros may carry professional indemnity insurance that could provide a source of recovery beyond the contractual liability cap. We have not yet confirmed the existence, terms, or limits of any such insurance policy, and this should be investigated as part of the Peloros claim process.
Recommendation: The indemnification claim against Peloros should be preserved but deferred until the customs dispute with AADE is resolved and the final amount of TSL's penalty and interest liability is determined. A demand and preservation letter should be sent to Peloros promptly (see Document 34, currently in draft) to formally assert the indemnification claim, preserve TSL's rights under the CBA, and toll any applicable limitation periods under Greek law. The letter should be carefully drafted to preserve the claim without inadvertently undermining the good-faith defense — that is, the letter should assert that Peloros's professional error, not TSL's own negligence, was the cause of the classification issue, consistent with TSL's reliance-on-professional-advice defense.
F. Partial Payment on Account
A further mitigation strategy worth exploring is the possibility of making a partial payment on account of the assessed additional duties — without prejudice to TSL's dispute of the assessment — in order to achieve one or more of the following objectives:
• Demonstrate good faith to AADE. A voluntary partial payment, even where the underlying assessment is disputed, signals that TSL is acting responsibly and in good faith, which supports the application of the lowest penalty tier and may favorably influence AADE's disposition toward penalty reduction or mitigation.
• Reduce the base on which interest accrues. To the extent that a partial payment is credited against the outstanding duty balance, it would reduce the principal amount on which statutory interest continues to accrue at 0.73% per month, thereby limiting the ongoing growth of TSL's interest exposure.
• Support a penalty mitigation argument. A partial payment may be cited as an additional mitigating factor in any penalty negotiation, demonstrating TSL's willingness to address its customs obligations even while disputing the correctness of the assessment.
However, a partial payment carries a significant risk: it could be construed by AADE — or by a court reviewing the matter — as an implicit admission of liability for the assessed additional duties. If AADE were to argue that TSL's partial payment constituted an acknowledgment that the assessment was correct, it could undermine TSL's substantive challenge to the classification and valuation assessments and weaken TSL's position in any subsequent negotiation or litigation.
To mitigate this risk, any partial payment must be carefully structured as a payment made expressly "without prejudice" to TSL's dispute of the assessment and "under protest," with an explicit reservation of all rights to challenge the underlying assessment, to seek a refund of any overpayment, and to recover any amounts paid in excess of TSL's ultimate liability. The precise procedural requirements for making such a protective payment under Greek law should be confirmed with V&T (Alexandros Vournas, Athens Bar No. 18744), including the required form of the without-prejudice designation and any filing or notification requirements.
VI. Criminal Exposure Assessment
A. Legal Framework
Article 155 of the Greek Customs Code (Law 2960/2001) provides for criminal prosecution of customs fraud, including the intentional misclassification or undervaluation of imported goods for the purpose of evading customs duties. Criminal prosecution under Article 155 requires a finding of intent — that is, the prosecution must establish that the importer knowingly and deliberately filed false customs declarations with the purpose of evading or reducing its customs duty obligations. Mere negligence or error, even if culpable, does not satisfy the intent standard required for criminal prosecution.
Under Greek law, AADE has the authority to refer a case for criminal investigation where it determines, based on the results of a post-clearance audit or other enforcement action, that the customs debtor acted with fraudulent intent. Such a referral would initiate a criminal investigation by the Greek prosecution authorities, which would proceed independently of — and in parallel with — any administrative penalty proceedings. Criminal penalties upon conviction may include imprisonment, criminal fines, and ancillary sanctions, in addition to any administrative penalties assessed by AADE.
B. Risk Assessment
The risk of a criminal referral in TSL's case is assessed as very low based on the following considerations:
1. No evidence of fraudulent intent. TSL's classification and valuation positions were based on the professional advice of Peloros Customs Agency S.A. (a licensed customs broker), were consistent with published BTI rulings in other EU member states (specifically, the Dutch ruling NL-BTI-2021-01234), and were adopted through formal contractual structures (the TLA and the PSA) that were not designed to evade customs duties but rather to reflect the commercial reality of TSL's business arrangements. There is no evidence — in TSL's internal communications, in its dealings with Peloros, or in its interactions with AADE — that TSL deliberately filed false customs declarations or intentionally sought to evade its duty obligations.
2. Classification ambiguity. The divergent BTI rulings issued by the Netherlands and Germany demonstrate that the classification question is genuinely uncertain as a matter of law. A classification dispute arising from regulatory ambiguity — particularly one that the Commission itself has taken up for resolution through the DG TAXUD consultation process — is fundamentally different from deliberate fraud. Criminal prosecution for a bona fide classification dispute would be both legally and practically unprecedented.
3. AADE's own characterization. AADE has applied a 30% good-faith error penalty in its initial Assessment Notices, rather than the elevated penalties associated with negligence (100%) or fraud (300%). This penalty level reflects AADE's own determination — at least at this stage of the proceedings — that TSL's conduct falls within the good-faith error category. AADE's choice to assess the lowest penalty tier is inconsistent with a concurrent determination that TSL's conduct was criminal in nature, and it would be unusual (though not impossible) for AADE to reverse this characterization and make a criminal referral.
4. Valuation issues involve interpretation, not fabrication. The valuation dispute in this case concerns the proper characterization of legitimate commercial payments — technology license fees under the TLA, procurement coordination fees under the PSA, and commissioning services costs — under UCC Articles 70–74. The dispute is about whether these payments should be included in or excluded from the customs value of the imported equipment. It is not about the fabrication of false invoices, the creation of fictitious transactions, or the deliberate concealment of payments. The commercial payments at issue are real, documented, and have legitimate business purposes. The question is purely one of legal characterization under the UCC valuation rules.
5. Industry context. TSL is a major Greek shipping and logistics company with FY 2021 revenue of approximately €387.2 million and a workforce of approximately 1,450 employees. TSL operates under long-term port concession agreements with the Hellenic Republic Asset Development Fund and is a significant participant in the Greek maritime and logistics industry. The company has no history of customs violations, no prior criminal investigations, and no prior adverse regulatory actions. Criminal prosecution of a legitimate classification and valuation dispute against a company of this profile and standing would be highly unusual, would attract significant public and industry attention, and would be difficult for the prosecution to sustain given the absence of evidence of fraudulent intent.
C. Recommendation
While the risk of criminal referral is assessed as very low, it cannot be entirely eliminated at this stage of the proceedings. The following precautionary measures are recommended:
• Monitor AADE's characterization. TSL and its counsel should carefully monitor all communications and filings from AADE for any language or characterization suggesting a shift from the good-faith error assessment toward a negligence or fraud characterization. Any such shift could be a precursor to a criminal referral and should be treated as an early warning signal.
• Immediate escalation. If any communication from AADE suggests a shift toward a fraud or criminal characterization — including any request for information that appears to be directed at establishing intent, any reference to Article 155 of the Greek Customs Code, or any notification of a criminal referral — the matter should be immediately escalated to James Prentice, the responsible partner on this matter.
• Separate criminal defense counsel. If a criminal investigation is opened, TSL should consider retaining separate Greek criminal defense counsel with expertise in customs fraud prosecutions. Criminal proceedings would require a separate engagement letter and potentially different counsel, both because of the specialized nature of criminal defense practice in Greece and because of the potential for conflicts between TSL's administrative defense strategy and its criminal defense strategy.
• Insurance implications. Criminal proceedings could significantly affect the insurance coverage analysis. The Oceanos policy contains an exclusion for fraud (Section 4.3(a)), and a criminal investigation or prosecution could provide the insurer with a basis for invoking this exclusion and denying coverage for the underlying duty assessment and defense costs. The insurance implications of any criminal escalation should be assessed immediately if such a development occurs.
• Communications discipline. In all communications with AADE — whether written or oral, formal or informal — TSL and its representatives should consistently assert good faith, reasonable reliance on professional advice, and the absence of any intent to evade customs duties. TSL should avoid any characterization or statement that could be construed as an acknowledgment of intentional misconduct or that could be used against TSL in a criminal context. All written communications with AADE should be reviewed by counsel before submission.
VII. Impact on Insurance Coverage
The penalty characterization in this case has direct and significant implications for TSL's ability to recover under its Oceanos Underwriters Financial Lines policy (Policy No. OCU-FIN-2021-GR-0487). This section provides a summary of the key coverage issues; a comprehensive analysis is set forth in the Insurance Coverage Analysis Memorandum (Document 12 of the matter file).
The Oceanos policy provides coverage for "Assessed Amounts" (defined to include customs duties) and "Defense Costs" (defined to include legal fees and expenses incurred in contesting customs assessments) under a customs & excise sublimit of €3,000,000, subject to a €250,000 retention (i.e., deductible). This coverage is potentially available for the underlying additional duty assessment of €1,697,080 and for TSL's legal fees incurred in defending against the Assessment Notices.
However, the penalty and interest components of TSL's exposure are likely not covered under the policy. Administrative penalties are typically excluded from Financial Lines policies as "fines," which are considered uninsurable as a matter of public policy. Similarly, interest arising from the late payment of customs duties is typically excluded as a form of consequential damages that is not within the scope of the policy's coverage grant. TSL should therefore assume that the penalty amount (€509,124 in the good-faith scenario, and potentially much more if the penalty is escalated) and the accrued interest (approximately €3.9 million and growing) will not be recoverable under the Oceanos policy and must be borne by TSL directly (subject to any downstream recovery from Peloros).
More critically, the Oceanos policy contains two exclusions that could be triggered if AADE escalates its characterization of TSL's conduct beyond good-faith error:
• Section 4.3(a) — "Willful Non-Compliance" Exclusion. This exclusion eliminates coverage for assessed amounts and defense costs arising from or attributable to the insured's "willful non-compliance" with applicable customs laws and regulations. If AADE were to characterize TSL's classification or valuation position as willful non-compliance — for example, by escalating the penalty to the 100% or 300% tier on the basis that TSL knowingly disregarded its customs obligations — Oceanos could invoke this exclusion to deny coverage for the entire claim, including the underlying duty assessment and all defense costs.
• Section 4.3(b) — "Deliberate Undervaluation" Exclusion. This exclusion eliminates coverage for assessed amounts and defense costs arising from or attributable to the insured's "deliberate undervaluation" of imported goods. If AADE were to characterize TSL's exclusion of the technology license fees or the Nereus procurement coordination fees from the customs value as deliberate undervaluation, Oceanos could invoke this exclusion as well.
Oceanos issued a reservation of rights letter on November 22, 2022, expressly reserving its rights under both exclusions (Sections 4.3(a) and 4.3(b)). Calderwood & Harkness's response to the reservation of rights letter (Document 30 of the matter file) argues that neither exclusion applies, on the grounds that TSL's classification and valuation positions were adopted in good faith based on reasonable interpretations of the applicable rules and on professional advice from a licensed customs broker, and that neither position constitutes "willful non-compliance" or "deliberate undervaluation" within the meaning of the policy exclusions.
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