[Federal Register Volume 59, Number 69 (Monday, April 11, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-8542]


[[Page Unknown]]

[Federal Register: April 11, 1994]


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DEPARTMENT OF THE TREASURY

Customs Service
[T.D. 94-38]

 

Amendments to Customs Bond Cancellation Standards

AGENCY: U.S. Customs Service, Department of the Treasury.

ACTION: General notice.

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SUMMARY: Under the Omnibus Trade and Competitiveness Act of 1988, the 
Secretary of the Treasury is required to publish guidelines for 
cancellation of bond charges. The guidelines in effect at the time the 
Act was promulgated were published by Treasury Decision 89-48, dated 
April 14, 1989. This document amends certain portions of the guidelines 
that have proven to be inequitable or outdated, provides for new 
guidelines for cases in which petitions are filed untimely and for 
certain violations of regulations that have recently been promulgated, 
and republishes those guidelines which have worked successfully. The 
authority to promulgate these guidelines was delegated to the 
Commissioner of Customs by Paragraph 1 of Treasury Department Order No. 
165, revised (T.D. 53654).

FOR FURTHER INFORMATION CONTACT: Jeremy Baskin, Penalties Branch, U.S. 
Customs Service, Franklin Court, 1301 Constitution Avenue, NW., 
Washington, D.C. 20229, (202) 482-6950.

EFFECTIVE DATE: These guidelines will take effect on April 11, 1994 and 
shall be applicable to all cases which are currently open at the 
petition or supplemental petition stage. No second supplemental 
petitions shall be accepted solely to gain the benefit of a less harsh 
guideline.

SUPPLEMENTARY INFORMATION:

Background

    Section 1904 of the Omnibus Trade and Competitiveness Act of 1988 
(Pub. L. 100-418) amended section 623 of the Tariff Act of 1930 (19 
U.S.C. 1623) by adding the following sentence at the end of section 
623(c) of the Tariff Act of 1930 (19 U.S.C. 1623(c)):

    In order to assure uniform, reasonable and equitable decisions, 
the Secretary of the Treasury shall publish guidelines establishing 
standards for setting the terms and conditions for cancellation of 
bonds or charges thereunder.


    In T.D. 89-48, dated April 14, 1989, the text of guidelines for 
cancellation of claims for liquidated damages in effect at the time of 
enactment of the Omnibus Trade and Competitiveness Act was published. 
Because of changing enforcement priorities and the need for more 
efficient administrative processing, the guidelines require amendment. 
Through this document, Customs is publishing those changes.

New Sections XI and XII Added to Guidelines

    The most significant change involves the addition of a new Section 
XII to the guidelines governing the cancellation of any claim for 
liquidated damages in which the petition for relief is filed untimely. 
Under the provisions of Sec. 172.12(b)(1) of the Customs Regulations 
(19 CFR 172.12(b)(1)), a bond principal has 60 days from the date of 
mailing of the notice of liability for liquidated damages to file a 
petition for relief. If the principal does not pay the claim, arrange 
to pay the claim or file a petition within the 60-day period, then the 
surety is notified of the claim. Pursuant to the provisions of 
Sec. 172.12(b)(2) of the Regulations (19 CFR 172.12(b)(2)), the surety 
has 60 days after notification to file a petition for relief.
    Under the provisions of Sec. 172.2(a) of the Regulations (19 CFR 
172.2(a)), if any party liable for liquidated damages fails to pay, 
make arrangements to pay or file a petition for relief, the district 
director shall promptly refer the claim to the Department of Justice. 
If no response is received from both the principal and surety, Customs 
will issue bills to both parties, demanding payment of the unpaid 
claims. Billing is required before referral of the matter to the 
Department of Justice for commencement of judicial collection action in 
the Court of International Trade.
    Under the provisions of Sec. 172.23 of the Regulations (19 CFR 
172.23), no petition may be entertained after a claim has been referred 
to the Department of Justice. In the past, Customs has articulated 
that, as a matter of policy, no late petitions would be entertained 
even if the matter had not yet been referred to the Department of 
Justice, but the petitioning period had expired. Under current 
procedures, if a principal or surety wishes to respond to the claim 
after billing has begun but referral has not yet occurred, it may only 
do so through the submission of an offer in compromise pursuant to the 
provisions of title 19, United States Code, section 1617, and section 
161.5 of the Customs Regulations (19 CFR 161.5). Before acceptance of 
any offer, Customs must seek approval of the Office of General Counsel 
of the Treasury.
    Through this document, Customs is changing its policy with regard 
to acceptance of late petitions. Petitions which are not filed timely 
will be honored, but mitigation will be less generous than that offered 
in those situations where petitions are filed timely.
    Under new guidelines for mitigation to be offered when a petition 
is filed late, the district director will determine, based on the 
record and information submitted in the untimely filed petition, as to 
appropriate mitigation that would have been afforded had the petition 
been filed timely. The district director will then calculate the number 
of calendar days the petition is late. Weekends and holidays will not 
be excluded from the calculation of number of days late. He will then 
multiply the number of calendar days late by 0.1 percent. A calculation 
similar to that used to determine mitigation in late filing of entry 
summary cases will then be used, as the mitigation amount will be 
multiplied by the number of days late times 0.1 percent. A minimum 
additional payment of $100 on a late petition mitigation will be 
required.
    For example, on November 1, Customs issues a CF-5955A against a 
bonded carrier, indicating that the carrier is liable for liquidated 
damages of $100,000 for delivering merchandise directly to the 
consignee in violation of the provisions of 19 CFR 18.8 and its 
custodial bond. The petition for relief is due from the bond principal 
by January 1. A petition is received on January 21, some 20 days late. 
A review of the petition shows that entry was not made on the 
merchandise nor were estimated duties paid by the consignee. Had an 
entry been filed, duties of $9,900 would have been paid. The carrier 
was shown to have had a good record of compliance, militating toward 
mitigation in the low end of the $100-$1,000 range for that type of 
violation. Accordingly, had the petition been filed timely, mitigation 
to $10,000 ($9,900 in an amount equal to approximate lost revenue plus 
$100) would have been afforded. Insofar as the petition was 20 days 
late, the time of lateness (20 days) will be multiplied by 0.1 percent, 
resulting in a multiplier of 2 percent. The $10,000 mitigation will be 
multiplied by 2 percent, resulting in a calculation of $200. The $200 
amount is compared to the minimum charge of $100 for a late petition. 
Insofar as the computed amount is higher than the minimum amount, $200 
would be added to the mitigation. Mitigation would then be afforded in 
the amount of $10,200.
    As noted, under current procedures no petitions are accepted after 
billing of the principal and surety has commenced. While we are 
rescinding that policy through this document, in no case will a 
petition be accepted after the billing cycle has ended and the case has 
been determined by Customs to be eligible to be included in any surety 
sanctioning action pursuant to the provisions of Sec. 113.38 of the 
Regulations (19 CFR 113.38).
    Inasmuch as both the principal and surety have separate petitioning 
times, a question arises as to whether the late charge will apply to a 
bond principal who fails to file a petition in the time period afforded 
to him by regulation, but then files a petition during the time period 
afforded to surety. Because the principal failed to respond timely 
during the time period permitted to him, Customs takes the view that 
his petition will be considered to be late, even if filed during the 
time period afforded to surety, and mitigation will reflect that late 
filing.
    A new section XI is added to the guidelines to provide cancellation 
standards involving claims for liquidated damages assessed against 
Centralized Examination Station (CES) operators for violations of their 
custodial bond. A Final Rule was published in the Federal Register on 
January 22, 1993 (58 FR 5596) as Treasury Decision (T.D.) 93-6, whereby 
Customs amended the Regulations to provide for a new Part 118 (19 CFR 
part 118) and other amendments delineating the duties and 
responsibilities of CES operators. They are required, pursuant to new 
section 19 CFR 118.4(g), to maintain a Customs custodial bond in an 
amount set by the district director. The terms of the Customs custodial 
bond are found in Sec. 113.63 of the Customs Regulations (19 CFR 
113.63). Under the provisions of new section 19 CFR 151.15(b) (also 
added by T.D. 93-6), CES operators assume liability for merchandise for 
which they receive or for which they transport to the CES under their 
operator's bond. Many of these violations are similar to those arising 
from breaches of Sec. 113.62(f) of the basic importation bond which 
involve failure to deliver to or hold merchandise at the place of 
examination (current Section X of the Guidelines). Accordingly, the 
cancellation standards relating to failure to keep merchandise safe in 
the CES or failure to deliver merchandise to the CES will be similar. 
The explanation of changes to Section X will detail these standards.
    The CES operator is also responsible, under the provisions of 19 
CFR 118.4(h), for the maintenance and retention of records connected 
with the operation of the CES. Failing to maintain those records would 
involve a violation not involving merchandise and would result in 
liquidated damages of $1,000 for each day the violation continues. The 
bond cancellation standards for these cases will mirror the guidelines 
used for cancellation of claims incurred by bonded warehouse operators 
for violations not involving merchandise. The background information to 
the changes to Section VII describes these guidelines.

Changes to Section I

    Section I of the bond cancellation standards includes guidelines 
for the cancellation of charges for late filing of entry summaries. The 
Option 1 immediate payment of a preset mitigated amount in lieu of 
filing a petition for relief is an extremely successful procedure and 
is being retained in late filing of entry summary cases. For those 
violators who do not wish to take advantage of the Option 1 mitigated 
amount, petitioning rights will be protected; however, under new 
guidelines, a party who chooses to petition for relief in a late filing 
case will no longer necessarily be afforded the Option 1 mitigation 
amount. If the petitioning party fails to show that the violation did 
not occur or that it occurred as a result of Customs error, the 
district director may cancel the claim upon payment of an amount no 
less than $100 greater than the Option 1 amount.
    Under the current guidelines, when a petition for relief is filed 
in a late filing case, a distinction is made between when the entry 
summary is late by less than 30 days and when it is late by more than 
30 days. Different criteria apply to the review of those two types of 
petitions. This distinction has proved to be meaningless. Petitions are 
generally filed on the basis that the violation did not occur, or that 
it occurred as a result of contributory Customs error. In general, 
petitions are submitted without regard to whether the entry summary was 
more or less than 30 days late. Additionally, the factors delineated in 
the current guidelines to be considered when the entry summary is more 
than 30 days late are not consistent with the Option 1 procedure which 
does not turn on the intent of the violator, the circumstances causing 
the lateness or the past record of the violator. Accordingly, Customs 
is eliminating the distinction in the guidelines between cases that are 
late by more or less than 30 days.
    The current guidelines note that ordinarily, mitigation granted 
under Option 2 shall not be in an amount less than that determined in 
accordance with Option 1 unless extraordinary mitigating factors are 
present. It has been Customs experience that those extraordinary 
circumstances generally relate to contributory Customs error or 
inaccurate detection of the violation. Accordingly, the guidelines are 
being amended to reflect this fact.
    The guidelines do not indicate whether applicable merchandise 
processing fees, harbor maintenance fees and internal revenue taxes are 
included in the term ``withheld duty'' for purposes of mitigation of 
late filing cases. Questions have arisen as to the propriety of 
inclusion of these fees and taxes in the withheld duties upon which 
mitigation is based. In our view, the Government is deprived of not 
only duties but also these fees when an entry summary is filed and 
payment of duties and fees is tendered late. Accordingly, the 
guidelines are amended to provide a definition of ``withheld duties'' 
to include any fees and charges that are due and owing at the time of 
filing of the entry summary.
    With the streamlining of the entry process and the onset of 
automation, multiple entry summaries are often filed by Customs brokers 
either in a combined single statement with a single duty check attached 
or a single electronic fund transfer occurring to satisfy the 
appropriate duties, fees and taxes. (This electronic fund transfer is 
known as the Automated Clearing House, or ACH.) On occasion, an entry 
statement check or an electronic fund transfer will be filed untimely. 
Because each individual entry summary on the statement is covered by 
its own importation bond, when an untimely filing occurs separate 
claims for liquidated damages are generated for each entry summary. 
Multiple assessments arise stemming from the same incident. Bond 
cancellation standards call for mitigation of each claim separately. 
This could involve mitigation of $100 or $200 per entry summary 
(depending upon whether Customs must bill for duties or the duties are 
paid voluntarily prior to billing) plus the concomitant interest 
charges.
    Multiple liquidated damages assessments arise against numerous 
bonded parties because of a single error made with regard to the filing 
of the statement. An electronic fund transfer that is deficient a small 
amount of money on a large payment of duties will result in rejection 
of an entire statement. In these instances, mitigation based on each 
individual bond breach could provide an anomalous result and prove 
counterproductive to Customs desire to encourage the filing of 
statement entries. Accordingly, the bond cancellation guidelines are 
being amended to permit the district director, in his or her 
discretion, to grant extraordinary relief from multiple claims for 
liquidated damages when a statement is filed untimely. If it appears 
from the facts available at the time of the breach that a Customs 
broker is responsible for the untimely filing of the statement, the 
district director is afforded the discretion to mitigate all claims 
arising from the breach in the same manner as an Option 1 calculation, 
except that rather than take a $100 base charge for each entry in the 
statement or batch (as the traditional guidelines dictate), one $500 
base amount may be taken in settlement of all claims from the statement 
or batch. The appropriate interest calculation shall be added to the 
$500 base amount to arrive at the final Option 1 figure. If the 
responsible broker fails to pay such Option 1 mitigation within the 
time period prescribed or fails to petition for relief, the mitigation 
will be withdrawn and liquidated damages will be issued against all 
bond principals who have entries included in the statement. Those cases 
will then be treated individually within appropriate guidelines. 
District directors are encouraged to use the $500 guideline for first-
time violators. Use of these guidelines on subsequent violations is at 
the district directors' discretion.
    In Treasury Decision 93-37, published in the Federal Register on 
May 28, 1993, (58 FR 30979), Customs amended the provisions of the 
basic importation and entry bond to provide for liquidated damages when 
estimated duties, fees and taxes are paid in an untimely manner, when 
an estimated duty check is returned unpaid by a financial institution 
or when an electronic fund transfer is made without sufficient funds in 
the debited account. This claim for liquidated damages is assessed only 
when the entry documents are filed or electronically submitted timely, 
but the estimated duty payment is not timely. A claim for liquidated 
damages of double the unpaid estimated duties, fees and taxes is 
assessed. The new bond cancellation standards are amended to include 
these violations in the Option 1 late filing of entry summary 
guidelines.
    Treasury Decision 93-37 also amended the provisions of the 
international carrier bond to provide for liquidated damages against 
international carriers who collect passenger processing fees as 
required by law, but who fail to remit those fees to Customs in a 
timely manner. Under the provisions of Sec. 24.22(g) of the Customs 
Regulations (19 CFR 24.22(g)), carriers are required to pay passenger 
processing fees over to Customs no later than 31 days after the close 
of the calendar quarter in which they were collected. The failure to 
remit the collected fees as required by regulation results in 
assessment of liquidated damages equal to two times the collected but 
unremitted fees. The guidelines for cancellation of claims for late 
filing of estimated duty payments are amended to include guidelines for 
those claims established for late remission of collected passenger 
processing fees.

Changes to Section II

    Section II includes the standards for cancellation of claims 
resulting from breaches of Temporary Importation Bonds (TIBs).
    Under current guidelines, if merchandise is exported or destroyed 
but not within the bond period, or if it was exported but not under 
Customs supervision (if required), or if it was timely exported or 
destroyed but Customs was not notified (See C.S.D. 91-19 for timeliness 
of notification requirements) so as to cancel the bond, the guidelines 
call for cancelling the claim for liquidated damages upon payment of an 
amount between 1 and 5 percent of the ``bond amount'' but not less than 
$100. This language has caused some confusion, insofar as the bond 
amount is often the full amount of a term bond. The bond amount can far 
exceed any double the duty or 110 percent of the duty claim that might 
arise because of a breach. Accordingly, Customs is amending this 
guideline by replacing the phrase ``bond amount'' with the term ``the 
claim.''
    Customs has determined that less culpability exists in those cases 
where the merchandise is exported or destroyed in a timely fashion and 
the required proof is filed untimely as opposed to those instances 
where the merchandise is exported or destroyed outside the bond period. 
Therefore, the former claims will continue to be cancelled upon payment 
of an amount between 1 and 5 percent of the claim for liquidated 
damages (usually double or 110 percent of the duties), but in the 
latter instances (exportation or destruction outside the bond period), 
the claims will be cancelled upon payment of an amount between 5 and 10 
percent of the claim, but not less than $200.
    Under current guidelines, relief is granted to one times the duty 
on merchandise which is sold but later exported. This does not take 
into account whether merchandise is exported within or outside of the 
bond period. Customs is amending the guidelines to grant relief to one 
times the duty on merchandise which is sold but later exported within 
the bond period. For merchandise which is sold but later exported 
outside the bond period, the claim for liquidated damages will be 
cancelled upon payment of an amount equal to one and one-half times the 
duty. No relief shall be granted in these cases involving liquidated 
damages of 110 percent of the duties.
    Under current policy, when Customs wishes to supervise the 
exportation or destruction of TIB merchandise, the entry is designated 
at the time of presentation for Customs supervision of exportation or 
destruction. If the importer fails to obtain Customs supervision of 
exportation or destruction, despite the specific designation by 
Customs, he receives the same mitigation as the importer who receives 
the requisite supervision but does so outside the bond period. Customs 
is of the view that, inasmuch as supervision of exportation or 
destruction is required so infrequently, the TIB importer who fails to 
obtain such supervision should receive less generous mitigation. 
Accordingly, the guidelines are amended to take an amount between ten 
and twenty-five percent of the claim amount, but not less than $500, 
when supervision is required but not obtained.
    TIBs are sometimes taken on goods that are otherwise duty-free. 
Under the provisions of Sec. 10.31(f) of the Customs Regulations (19 CR 
10.31(f)), the district director is empowered to require a bond amount 
necessary to protect the revenue. In those instances where a breach 
occurs regarding otherwise duty-free merchandise, Customs should follow 
the appropriate guideline based on the circumstances surrounding the 
breach, but in no case should Customs cancel the claim upon payment of 
an amount less than two times the applicable merchandise processing fee 
or $100, whichever is greater.

Changes to Section III

    Section III includes bond cancellation standards for claims which 
arise from violation of a custodial bond maintained by a bonded 
carrier. With the proliferation of overnight courier services, the 
volume of violations involving misdelivery of in-bond merchandise has 
risen. These result in violations of 19 CFR 18.8 and the assessment of 
claims for liquidated damages. In many instances, informal entries are 
filed on the misdelivered merchandise. The claims for liquidated 
damages are generally cancelled upon payment of $100, an amount that 
often exceeds the value of the misdelivered merchandise. Accordingly, 
Section III of the Customs Bond Cancellation Standards is amended to 
provide for cancellation upon payment of an amount between $50 and 
$1,000 of any claim for which entry is made and duties, fees and taxes 
are paid via the informal entry process.
    Additionally, many times in-bond violations are discovered when 
carriers come forward and disclose the violations to Customs. In order 
to encourage this behavior, new guidelines have been promulgated to 
permit mitigation to as low as $25 per entry when the in-bond carrier 
brings such violations to Customs attention.
    Occasionally, the merchandise which is not properly delivered or is 
delivered short is, in fact, restricted merchandise. In those 
instances, mitigation guidelines based upon a loss of revenue do not 
take into account the possible inadmissibility of the merchandise. 
Accordingly, the guidelines are amended to specifically address these 
situations. Where the principal or surety can show that entry was made, 
duties were paid and the merchandise was found to be admissible, the 
claim shall be cancelled upon payment of an amount between $100 and 
$1,000, consistent with guidelines for admissible merchandise; however, 
in those instances where the bond principal cannot show that entry was 
made, duties were paid and the merchandise was found to be admissible, 
the claim shall be cancelled upon payment of an amount equal to the 
duties plus an amount between 25 and 50 percent of the value of the 
merchandise, but not less than $250.
    Finally, the in-bond guidelines are amended to permit use of the 
Option 1 mitigation procedures when the violation involves the late 
delivery of in-bond merchandise or the late delivery of in-bond 
documents to Customs.

Changes to Section IV

    Section IV of the bond cancellation standards includes guidelines 
for cancellation of claims arising from failure to redeliver 
merchandise to Customs custody. An anomalous situation results under 
current guidelines for cancellation of claims for failing to mark 
merchandise with the country of origin (as required by the provisions 
of 19 U.S.C. 1304) when the merchandise is not marked and liquidation 
of the entry has become final, which would preclude Customs from 
assessing marking duties. Pursuant to current guidelines, if 
liquidation is final, thereby barring the assessment of marking duties, 
claims are cancelled upon payment of an amount equal to no less than 50 
percent of the value. This places the bond principal whose entry has 
been liquidated and such liquidation has become final at a mitigation 
disadvantage compared to the bond principal whose entry has not been 
liquidated.
    The latter principal, if a first-time violator, would receive 
mitigation to an amount between 10 and 25 percent of the value of the 
merchandise, after marking duties have been deposited. This would leave 
this principal with an ultimate liability, combining the payment of 
marking duties and the bond charge cancellation amount, of between 20 
and 35 percent of the value of the shipment. Rather than further 
penalize the principal whose entry has been liquidated and such 
liquidation has become final, Customs is amending the guidelines to 
provide for mitigation to an amount between 20 and 35 percent of the 
value of the merchandise for the first-time violator whose entry has 
been liquidated and such liquidation has become final and to an amount 
between 35 and 60 percent of the value of the merchandise to the 
subsequent violator whose entry has been liquidated and such 
liquidation has become final, thereby barring the assessment of marking 
duties.
    The guidelines are amended to add a section dealing with 
cancellation of bond claims that arise from failing to redeliver 
merchandise that is marked with a false designation of origin in 
violation of the provisions of 15 U.S.C. 1124 and 1125. These 
guidelines, designated as a new paragraph F provide for mitigation less 
generous than that afforded violations involving failing to mark 
merchandise with the country of origin.
    The guidelines for cancellation of claims for violation of other 
Customs statutes and regulations permit cancellation of claims incurred 
by first-time violators upon payment of an amount between one and five 
percent of the value of the merchandise. This guideline does not 
provide Customs with sufficient mitigation flexibility. Accordingly, 
Customs amends the guidelines to permit cancellation of claims incurred 
by first-time violators upon payment of an amount between one and 
fifteen percent of the value of the merchandise.
    A new guideline has been formulated for cases that involve failure 
to provide a sample to Customs. Under current guidelines, if an 
importer fails to provide a sample and liquidated damages result, the 
importer will receive mitigation in the one to five percent range 
because this is considered to be a violation of other Customs statutes 
or regulations. If an importer has a violative shipment, and a sample 
will serve to provide evidence of the shipment's inadmissibility, the 
importer could benefit in mitigation from failing to provide that 
sample.
    For example, if an import specialist requests a sample to determine 
whether a shipment of merchandise bears a genuine or counterfeit 
trademark and the importer provides the sample and a violation is 
determined to exist, any resultant claim for liquidated damages would 
be cancelled using the guidelines for trademark violative goods 
(generally a 25-50 percent result). Under current guidelines, by 
failing to provide a sample, the importer would be granted relief in 
the one to five percent range. The guidelines are amended to provide 
that a claim for liquidated damages for failure to provide a sample 
will be cancelled consistent with guidelines in effect for any 
violation that is suspected with regard to the sample.
    Finally, a new guideline is promulgated which will provide that in 
any case where redelivery or compliance with country of origin marking 
occurs, but not in a timely manner (i.e., outside the 30-day redelivery 
period or any other redelivery period which may be designated by the 
district director), the claim shall be cancelled upon payment of $100 
or one percent of the value of the shipment, whichever is higher, but 
in no case shall the amount exceed $1,000. This guideline will only be 
appropriate for compliance that occurs prior to the issuance of the 
Notice of Claim for Liquidated Damages.

Change to Section VI

    Section VI of the bond cancellation guidelines covers Guidelines 
for Cancellation of Claims Arising From Failure to Timely File 
Shipper's Export Declarations (SEDs). The guidelines provide for relief 
for the first and second violations incurred by a carrier, but after 
two violations, no relief is afforded from any claim. These guidelines 
do not take into account the fact that most carriers file large numbers 
of SEDs each year and that three violations may be a very small number 
when considering the total number of SEDs filed. Accordingly, Customs 
is amending the guidelines to remove the references to first or second 
violations. All claims will be cancelled upon payment of an amount 
between 25 and 50 percent of the claim but not less than $100, except 
that no relief shall be granted from any claims written for $50 or 
$100. If this mitigation does not have a deterrent effect upon a 
chronic violator, then cancellation upon payment of an amount exceeding 
50 percent (or denial of relief) may be warranted. In order to promote 
administrative efficiency, the guidelines are also being amended to 
permit Option 1-type mitigation in failure to file SED cases.

Change to Section VII

    In Treasury Decision 92-81 (57 FR 37692), Customs published a Final 
Rule amending the Customs Regulations to provide for regulations 
specific to duty-free stores. The bond cancellation standards for 
violations of warehouse bond regulations are amended to make clear that 
they are also applicable to duty-free stores.
    Under current policy, claims for liquidated damages for non-
merchandise violations relating to the maintenance of a bonded 
warehouse are issued at $1,000 for each day that a violation continues. 
For example, under the provisions of Sec. 19.12(a)(4) of the 
Regulations (19 CFR 19.12(a)(4)), a bonded warehouseman is required to 
update a permit file folder related to a bonded warehouse entry within 
two business days after any transaction related to that entry 
(generally a withdrawal for consumption) is accomplished. By failing to 
update within two business days, he is in breach of his bond. If the 
violation continues for 100 business days, he will be liable for 
liquidated damages of $100,000. This has provided some overly harsh 
claims for liquidated damages for relatively minor violations.
    Through this document, Customs amends Section VII of the Customs 
Bond Cancellation Standards to provide for a limit of $10,000 on any 
continuing warehouse bond violation not involving merchandise. The 
promulgation of this cap on assessment of the claims will not affect 
guidelines for cancellation currently in effect, but will serve to 
eliminate overly harsh assessments and concomitantly harsh cancellation 
amounts. The guidelines are also amended to permit implementation of 
Option 1 procedures in all warehouse bond cases that involve claims for 
liquidated damages based upon defaults not involving merchandise.
    The current guidelines for claims arising from defaults involving 
merchandise do not accurately reflect commercial reality. The 
guidelines include a category of defaults arising from clerical error 
or mistake, that is a non-negligent, inadvertent error. Under Customs 
Directives issued concerning assessment of these claims, district 
directors are given broad discretion to issue claims for liquidated 
damages when breaches are detected. Issuance of claims for liquidated 
damages for violations arising from clerical error or mistake, as a 
matter of policy, is unnecessary in order to encourage compliance. 
Accordingly, if a claim for liquidated damages is established and the 
warehouse proprietor can show that the claim arose from clerical error 
or mistake and no loss of revenue occurred, then the claim will be 
cancelled without payment. If a loss of revenue occurred, it shall be 
prima facie evidence that something other than clerical error or 
mistake occurred and other sections of the guidelines should be 
followed.
    The guidelines for cancellation of claims arising from defaults 
involving merchandise which are based upon negligence do not 
distinguish between those violations involving merchandise that do not 
necessarily involve a threat to the revenue (i.e., manipulation of 
merchandise without Customs permit or not in accordance with the 
activity described in the permit) and those which do involve a threat 
to the revenue (i.e., removal of merchandise from the warehouse without 
permit, or failure to locate or account for merchandise in the 
warehouse). The guidelines are amended to provide for a revenue-based 
distinction in violations involving merchandise. Violations involving 
merchandise which result from negligence but involve no loss of revenue 
shall be cancelled upon payment of an amount between one and fifteen 
percent of the value of the merchandise but not less than $100 nor more 
than $10,000. No distinction shall be made between violations involving 
restricted merchandise and violations involving merchandise which is 
not restricted; however, if the violation does involve restricted 
merchandise, that shall be considered to be an aggravating factor which 
will result in less generous mitigation. Violations involving 
merchandise which result from negligence but involve a potential loss 
of revenue shall be cancelled upon payment of an amount between one and 
three times the loss of revenue on the merchandise which cannot be 
accounted for, unless that merchandise is restricted, in which case the 
claim shall be cancelled upon payment of an amount between three and 
five times the loss of revenue but in no case less than 10 percent of 
the value of such merchandise. If the violation is found to be 
intentional in nature, then no relief from the claim shall be granted.

Change to Section VIII

    Under Section VIII of the guidelines, a reference is made to 
cancellation of claims for liquidated damages arising from violation of 
airport security regulations as published in Sec. 122.14 of the Customs 
Regulations (19 CFR 122.14). In Treasury Decision 90-82, the provisions 
of Sec. 122.14 were renumbered as 19 CFR 122.181 et seq. The guidelines 
are amended to reflect that change.
    For violations involving unauthorized entry into a secured area, 
failure to openly display or possess the identification card, strip or 
seal, or failure to surrender identification upon demand by an 
authorized Customs officer, under current guidelines a first violation 
is cancelled upon payment of $200, a second violation is cancelled upon 
payment of $500 and a third or subsequent violation results in no 
mitigation. If a bond principal has three employees or contractors who 
enter into a secured area without authorization, three violations 
immediately occur and any benefit given for a first or second violation 
dissipates. In order to provide a district director with more 
administrative discretion, the first, second and third violation 
distinctions are being eliminated. The district director will be able 
to cancel any claim arising from the violative conduct described above 
upon payment of an amount between $250 and $500. A district director 
will always have the discretion to deny relief in these cases based 
upon articulable aggravating factors. Inasmuch as the district director 
will be afforded the noted discretion, old paragraph F of the 
guidelines, which permits greater mitigation to a prior violator who 
does not incur a violation for six months, is being eliminated.
    The guidelines for airport security violations are also being 
amended to permit the district director to apply Option 1 mitigation 
procedures, if the facts of a particular case are undisputed and the 
circumstances surrounding such case so warrant.

Change to Section IX

    As with the guidelines relating to the cancellation of claims 
arising from violation of the warehouse bond, the guidelines for 
cancellation of claims arising from violation of the provisions of the 
Foreign Trade Zone bond also do not reference any cap on the assessment 
of claims for violations which do not involve merchandise. For purposes 
of liquidated damages assessment (as opposed to penalties which are 
assessed under the provisions of 19 U.S.C. 81s), as a matter of policy, 
the guidelines are amended to provide that claims will not be issued 
for any continuing violation in an amount that exceeds $10,000. The 
promulgation of this cap on assessment of the claims will not affect 
guidelines for cancellation currently in effect, but will serve to 
eliminate overly harsh assessments and concomitantly harsh cancellation 
amounts.
    The guidelines are also amended to permit implementation of Option 
1 procedures in all foreign trade zone claims for liquidated damages 
based upon defaults not involving merchandise.
    As with warehouse bond violations, the current guidelines for 
claims arising from defaults involving merchandise do not accurately 
reflect commercial reality. The guidelines include a category of 
defaults arising from clerical error or mistake, that is a non-
negligent, inadvertent error. Under Customs Directives governing 
Foreign Trade Zones issued concerning assessment of these claims, 
district directors are given broad discretion to issue claims when 
breaches of the bond are detected. Issuance of claims for liquidated 
damages for violations arising from clerical error or mistake is not 
always necessary, as a matter of policy, in order to encourage 
compliance. Accordingly, if a claim for liquidated damages is 
established and the Foreign Trade Zone proprietor can show that the 
claim arose from clerical error or mistake and no loss of revenue 
occurred, then the claim will be cancelled without payment. If a loss 
of revenue occurred, that fact shall be prima facie evidence that 
something other than clerical error or mistake occurred and other 
sections of the guidelines should be followed.
    The guidelines for cancellation of claims arising from defaults 
involving merchandise which are based upon negligence do not 
distinguish between those violations involving merchandise that do not 
necessarily involve a threat to the revenue (i.e., manipulation of 
merchandise in the zone without Customs permit or not in accordance 
with the activity described in the permit) and those which do involve a 
threat to the revenue (i.e., removal of merchandise from the zone 
without permit, or failure to locate or account for merchandise in the 
zone). The guidelines are amended to provide for a revenue-based 
distinction in violations involving merchandise. Violations involving 
merchandise which result from negligence but involve no loss of revenue 
shall be cancelled upon payment of an amount between one and fifteen 
percent of the value of the merchandise but not to exceed $10,000. No 
distinction shall be made between violations involving restricted 
merchandise and violations involving merchandise which is not 
restricted; however, if the violation does involve restricted 
merchandise, that shall be considered to be an aggravating factor which 
will result in less generous mitigation. Violations involving 
merchandise which result from negligence but involve a potential loss 
of revenue shall be cancelled upon payment of an amount between one and 
three times the loss of revenue on the merchandise which cannot be 
accounted for, unless that merchandise is restricted, in which case the 
claim shall be cancelled upon payment of an amount between three and 
five times the loss of revenue, but in no case less than 10 percent of 
the value of such merchandise. If the violation is found to be 
intentional in nature, then no relief from the claim shall be granted.

Change to Section X

    The current guidelines for cancellation of claims for liquidated 
damages arising from the failure to hold merchandise at the place of 
examination in violation of the provisions of Sec. 113.62(f) of the 
Regulations (19 CFR 113.62(f)), are based on a standard that involves a 
determination by the deciding officer of a level of culpability 
(clerical error, negligence, intentional violation) of the bond 
principal. This standard is not followed in the guidelines in use for 
other similar misdelivery-type violations. Accordingly, through this 
document, Customs is abandoning the standard of finding a level of 
culpability.
    In order to establish a violation under the provisions of 19 CFR 
113.62(f), Customs must show that the bond principal obtained 
permission from Customs to have his merchandise examined at a place 
which is not in the charge of a Customs officer (e.g., his business 
premises, a Centralized Examination Station) and that the bond 
principal failed to: hold the merchandise at such place until released 
by Customs; transfer such merchandise to any place directed by Customs; 
or keep all seals and cording intact.
    Through this document, Customs amends the current guidelines so 
that when a party fails to hold the merchandise for examination or 
fails to transfer the merchandise to another place upon instruction 
from Customs obtained before the merchandise was released, the claim 
will be cancelled upon the following terms: (1) If either the bond 
principal or surety files an entry summary and pays estimated duties, 
taxes and fees, Customs will cancel the bond claim upon payment of an 
amount between $100 and $1,000 if the merchandise was not suspected by 
Customs to be restricted or prohibited; (2) if neither the bond 
principal nor surety files an entry summary and pays estimated duties, 
taxes and fees, Customs will cancel the bond claim upon payment of an 
amount equal to the estimated duties, taxes and fees that would have 
been due plus an amount between $100 and $1,000 if the merchandise was 
not suspected by Customs to be restricted or prohibited; (3) if the 
merchandise not held for examination was suspected of being restricted 
or prohibited, and the bond principal files an entry summary, pays 
estimated duties, taxes and fees and the merchandise was deemed 
admissible with that entry summary, Customs will cancel the bond claim 
upon payment of an amount between $100 and $1,000; (4) if the 
merchandise not held for examination was suspected of being restricted 
or prohibited, and the bond principal does not file an entry summary or 
pay estimated duties or provide a showing that the merchandise was 
deemed admissible, Customs will cancel the bond claim upon payment of 
an amount equal to the estimated duties, taxes and fees plus an amount 
between 25 and 50 percent of the value of the merchandise, but not less 
than $250; and (5) if the violation is determined to be intentional in 
nature, no relief will be afforded.
    For a violation which involves the failure to keep any Customs seal 
or cording intact until the merchandise is examined, the claim shall be 
cancelled upon payment of an amount between $100 and $500 if there is 
no evidence to indicate the merchandise in the sealed or corded 
shipment was the subject of tampering. If there is evidence of 
tampering, the claim shall be cancelled upon payment of an amount equal 
to the value of any missing merchandise.
    Finally, an additional sentence shall be added to the guidelines to 
indicate that when the term ``value'' is used in any provision of these 
guidelines it means value as determined under 19 U.S.C. 1401a and not 
domestic value.
    The new Section XI of the bond cancellation standards relating to 
CES operators will employ the same guidelines as those described in the 
changes to Section X with regard to violations involving failure to 
keep merchandise safe or deliver that merchandise to the CES.
    The text of the guidelines, as modified, is set forth below.

    Dated: March 30, 1994.
Samuel H. Banks,
Acting Commissioner of Customs.
[FR Doc. 94-8542 Filed 4-8-94; 8:45 am]
BILLING CODE 4820-02-P