[Federal Register Volume 61, Number 188 (Thursday, September 26, 1996)]
[Proposed Rules]
[Pages 50459-50461]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-24657]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
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  Federal Register / Vol. 61, No. 188 / Thursday, September 26, 1996 / 
Proposed Rules  

[[Page 50459]]



DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 162

RIN 1515-AB98


Prior Disclosure

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes amendments to the Customs Regulations 
governing ``prior disclosure'' as well as implementing a provision of 
the Customs Modernization portion of the North American Free Trade 
Implementation Act (Mod Act) concerning prior disclosure by a person of 
a violation of law committed by that person involving the entry or 
introduction or attempted entry or introduction of merchandise into the 
United States by fraud, gross negligence or negligence. Pursuant to 
``prior disclosure'' under 19 U.S.C. 1592(c)(4), as amended by the Mod 
Act, if a person who commits such a violation discloses the 
circumstances of the violation before, or without knowledge of, the 
commencement of a formal investigation of such violation, merchandise 
shall not be seized and any monetary penalty to be assessed under 19 
U.S.C. 1592 shall be limited. The amendment to the Customs Regulations 
proposed in this document would spell out when there is ``commencement 
of a formal investigation'' for purposes of 19 U.S.C. 1592. The 
document also amends the regulations to give Fines, Penalties and 
Forfeitures Officers discretion to defer referral for full 
investigation of a disclosure of an unintentional violation of law 
until the disclosing party has an opportunity to explain all the 
circumstances underlying the disclosed violation.

DATE: Comments must be received on or before November 25, 1996.

ADDRESSES: Comments (preferably in triplicate) may be submitted to the 
Regulations Branch, Office of Regulations and Rulings, U.S. Customs 
Service, Franklin Court, 1301 Constitution Avenue, NW, Washington, DC 
20229, and may be inspected at Franklin Court, 1099 14th Street, NW., 
Washington, DC.

FOR FURTHER INFORMATION CONTACT: Robert Pisani, Penalties Branch (202) 
482-6946.

SUPPLEMENTARY INFORMATION:

Background

    On December 8, 1993, the President signed the North American Free 
Trade Agreement Implementation Act (Pub. L. 103-182). The Customs 
Modernization portion of this Act (Title VI), popularly known as the 
Customs Modernization Act, or ``the Mod Act'' became effective when it 
was signed. Section 621 of Title VI amended section 592 of the Tariff 
Act of 1930 (19 U.S.C. 1592) (hereinafter referred to as section 592). 
This document involves the amendments to section 592(c)(4) effected by 
section 621(4) of Title VI.
    Section 592 provides that no person, by fraud, gross negligence, or 
negligence may enter, introduce or attempt to enter or introduce any 
merchandise into the commerce of the United States by means of any 
document or electronically transmitted data or information, written or 
oral statement, or act which is material and false, or any omission 
which is material. Further, no person may aid or abet any other person 
in violating the above-stated prohibition. The statute provides maximum 
penalties for violations of its provisions.
    Section 592(c)(4), the prior disclosure provision, affords a party 
who discloses a violation of section 592 with benefits of significantly 
reduced penalties (or in certain cases, no penalties) where the party 
fully discloses the circumstances of the violation, and does so before, 
or without knowledge of, ``the commencement of a formal investigation'' 
of the disclosed violation.
    The Mod Act amendments to section 592(c)(4) involved the adoption 
of a statutory definition of the term ``commencement of a formal 
investigation.'' Section 592(c)(4) now provides that a formal 
investigation is deemed commenced on the date recorded in writing by 
Customs as the date on which facts and circumstances were discovered or 
information was received which caused Customs to believe that the 
possibility of a section 592 violation existed.
    Presently, Sec. 162.74 (d) and (e) of the Customs Regulations (19 
CFR 162.74 (d) and (e)) set forth the agency definition of 
``commencement of a formal investigation'' and this definition does not 
require, in all cases, that the ``commencement'' be evidenced by a 
writing or electronic transmission.
    This document proposes to amend the Customs Regulations to set 
forth in Sec. 162.74(g) a definition of ``commencement of a formal 
investigation'' consistent with the definition set forth in section 
592. The language in Sec. 162.74 (d) and (e), Customs Regulations that 
is inconsistent with the statutory definition is removed.
    The document also attempts to simplify the regulations by bringing 
all material relating to the prior disclosure of section 592 violations 
into one section. Accordingly, the definition of the phrase ``discloses 
the circumstances of the violation'', which applies only to prior 
disclosure provisions, is proposed to be moved from Sec. 162.71, 
Customs Regulations to paragraph (b) of Sec. 162.74.
    This document also proposes to amend the regulations to provide for 
the possibility of a delay of the verification of the violation by the 
Office of Investigations. Section 162.74(c), Customs Regulations, 
currently contains a requirement that all claimed prior disclosures 
immediately be referred for investigation. In the past, such referrals 
often have led to a rapid Customs deployment of investigative resources 
to the disclosing party's premises, or the rapid issuance of subpoenas 
or civil summonses for records--even in instances where the disclosing 
party is in the process of collecting the necessary information to 
``perfect'' the claimed prior disclosure. In such cases, not only does 
strict adherence to the current immediate referral requirement 
sometimes result in delaying disposition of the disclosed violation, 
but also may serve to deter parties from making prior disclosures at 
all. Customs now proposes a new paragraph (f) which provides that the 
disclosing party may request the additional time to gather information 
in order to fully disclose the circumstances of the violation as 
defined in paragraph (b) of the proposed amendment. Customs believes 
that the disclosing party should be able to ask Customs to defer the 
Office of

[[Page 50460]]

Investigations verification proceedings until the party has completed 
its disclosure of the circumstances within the time permitted under the 
proposed paragraph (b).

Comments

    Before adopting the proposed amendment, consideration will be given 
to any written comments timely submitted to Customs. Comments submitted 
will be available for public inspection in accordance with the Freedom 
of Information Act (5 U.S.C. 552), Sec. 1.4, Treasury Regulations (31 
CFR 1.4), and Sec. 103.11(b), Customs Regulations (19 CFR 103.11(b)), 
on regular business days between the hours of 9:00 a.m. and 4:30 p.m. 
at the Regulations Branch, 1099 14th Street, NW., Suite 4000, 
Washington, D.C.

Regulatory Flexibility Act

    Insofar as the proposed regulations closely follow legislative 
direction, pursuant to the provisions of the Regulatory Flexibility Act 
(5 U.S.C. 601, et seq.), it is certified that the amendment, if 
adopted, will not have a significant economic impact on a substantial 
number of small entities. Accordingly, it is not subject to the 
regulatory analysis or other requirements of 5 U.S.C. 603 and 604.

Executive Order 12866

    This amendment does not meet the criteria for a ``significant 
regulatory action'' as specified in E.O. 12866.

Drafting Information

    The principal author of this document was Peter T. Lynch, 
Regulations Branch, Office of Regulations and Rulings, U.S. Customs 
Service. However, personnel from other offices participated in its 
development.

Paperwork Reduction Act

    The collection of information contained in this rulemaking has been 
submitted to the Office of Management and Budget (OMB) in accordance 
with the Paperwork Reduction Act of 1995. (44 U.S.C. 3507).
    An agency may not conduct or sponsor, and a person is not required 
to respond to a collection of information unless the collection of 
information displays a valid control number.
    The collection of information in this regulation is in Sec. 162. 
This information is to enable the Customs Service able to effectively 
administer the laws it is charged with enforcing while, at the same 
time, imposing a minimum burden on the public it is serving. 
Respondents are those parties who wish to voluntarily disclose the 
circumstances of a violation of 19 U.S.C. 1592 in order to obtain 
reduced penalty benefits which are available pursuant to 19 U.S.C. 
1592(c)(4). The likely respondents are business organizations including 
importers, exporters and manufacturers.
    Estimated total annual reporting burden: 3,500 hours.
    Estimated average annual burden per respondent: 1 hour for each 
Customs entry involved in the prior disclosure.
    Estimated number of respondents: 3,500.
    Estimated annual frequency of responses: Because a prior disclosure 
of a Customs law violation is made voluntarily, it is impossible to 
predict with any accuracy the frequency at which such disclosures may 
be made.
    Comments concerning the collections of information should be sent 
to the Office of Management and Budget, Attention: Desk Officer of the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC. 20503. A copy should also be sent to the 
Regulations Branch, Office of Regulations and Rulings, U.S. Customs 
Service, 1301 Constitution Avenue, NW., Washington, DC. 20229. Comments 
should be submitted within the time frame that comments are due 
regarding the substance of the proposal.
    Comments are invited on: (a) Whether the collection of information 
is necessary for the proper performance of the functions of the agency, 
including whether the information shall have practical utility; (b) the 
accuracy of the agency's estimate of the burden of the collection of 
information; (c) ways to enhance the quality, utility, and clarity of 
the information to be collected; and (d) ways to minimize the burden of 
the collection of information on respondents, including through the use 
of automated collection techniques or other forms of information 
technology.

List of Subjects in 19 CFR Part 162

    Customs duties and inspection, Law enforcement, Seizures and 
forfeitures.

Proposed Amendment

    It is proposed to amend Part 162, Customs Regulations (19 CFR Part 
162) as set forth below:

PART 162--RECORDKEEPING, INSPECTION, SEARCH, AND SEIZURE

    1. The authority citation for Part 162 will continue to read as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1624.
* * * * *


Sec. 162.71  [Amended]

    2. Section 162.71 is amended by removing paragraph (e).
    3. Section 162.74 is revised to read as follows:


Sec. 162.74  Prior disclosure.

    (a) In General. (1) A prior disclosure of a violation is made if 
the person concerned discloses the circumstances of a violation (as 
defined in paragraph (b) of this section) of 19 U.S.C. 1592 or 19 
U.S.C. 1593a, either orally or in writing to a Customs Officer before, 
or without knowledge of, the commencement of a formal investigation of 
that violation, and makes a tender of any actual loss of duties in 
accordance with paragraph (c) of this section. A Customs officer who 
receives such a tender in connection with a prior disclosure shall 
ensure that the tender is deposited with the concerned local Customs 
entry officer.
    (2) A person shall be accorded the full benefits of prior 
disclosure treatment if that person provides information orally or in 
writing to Customs with respect to a violation of 19 U.S.C. 1592 or 19 
U.S.C. 1593a if the concerned Fines, Penalties & Forfeitures Officer is 
satisfied that the information was provided before, or without 
knowledge of, the commencement of a formal investigation, and that the 
information provided includes substantially the information specified 
in paragraph (b) of this section.
    (b) Disclosure of the Circumstances of a Violation. The term 
``discloses the circumstances of a violation'' means the act of 
providing to Customs a statement orally or in writing which:
    (1) Identifies the class or kind of merchandise involved in the 
violation;
    (2) Identifies the importation or drawback claim included in the 
disclosure by entry number, drawback claim number, or by indicating 
each concerned Customs port of entry and the approximate dates of entry 
or dates of drawback claims;
    (3) Specifies the material false statements, omissions or acts; and
    (4) Sets forth to the best of the violator's knowledge, the true 
and accurate information or data which should have been provided in the 
entry or drawback claim documents, and states that the person will 
provide any information or data which is unknown at the time of 
disclosure within 30 days of the initial disclosure date. Extensions of 
the 30 day period may be requested by the disclosing party from the 
concerned Fines, Penalties & Forfeitures Officer to enable the party to 
obtain the information or data.

[[Page 50461]]

    (c) Tender of Actual Loss of Revenue. A person who discloses the 
circumstances of the violation shall tender any actual loss of revenue 
either at the time of disclosure or within 30 days after a Customs 
officer notifies the person in writing of the calculation of the actual 
loss of revenue. The Fines, Penalties & Forfeitures Officer may extend 
the 30 day period if it is determined there is good cause to do so. 
Failure to tender the actual loss of revenue finally calculated by 
Customs shall result in denial of the prior disclosure benefits.
    (d) Effective Time and Date of Prior Disclosure.
    (1) If the documents which provide the disclosing information are 
sent by registered or certified mail, return-receipt requested, and are 
ultimately received by Customs, the disclosure shall be deemed to have 
been made at the time of mailing.
    (2) If the documents are sent by other methods, including in-person 
delivery, the disclosure shall be deemed to have been made at the time 
of receipt by Customs. If the documents are delivered in person, the 
person delivering the documents is to request a receipt from Customs 
which will indicate the time and date of receipt.
    (3) The provision of information which is not in writing but which 
qualifies for prior disclosure treatment pursuant to paragraph (a)(2) 
of this section shall be deemed to have occurred at the time when 
Customs was provided with information which substantially complies with 
the requirements set forth in paragraph (b) of this section.
    (e) Addressing and Filing Prior Disclosure.
    (1) A written prior disclosure should be addressed to the 
Commissioner of Customs and presented to a Customs officer at the 
Customs port of entry of the disclosed violation.
    (2) In the case of a prior disclosure involving violations at 
multiple ports of entry, the disclosing party shall orally disclose or 
provide copies of the disclosure to all concerned Fines, Penalties & 
Forfeitures Officers. In accordance with internal Customs procedures, 
the officers will then seek consolidation of the disposition and 
handling of the disclosure.
    (f) Verification of Disclosure. Upon receipt of a prior disclosure, 
the concerned Customs officer shall notify the Customs Office of 
Investigations of the disclosure. The violator may request, in the oral 
or written prior disclosure, that the Office of Investigations withhold 
the initiation of disclosure verification proceedings until after the 
party has provided the information or data within the time limits 
specified in paragraph (b)(4) of this section. It is within the 
concerned Fines, Penalties & Forfeitures Officer's discretion to grant 
or deny such a request.
    (g) Commencement of a Formal Investigation. A formal investigation 
of a violation is considered to be commenced on the date recorded in 
writing by the Customs Service as the date on which facts and 
circumstances were discovered or information was received which caused 
the Customs Service to believe that a possibility of a violation 
existed. In the event that a party is denied prior disclosure treatment 
on the basis that Customs had commenced a formal investigation of the 
disclosed violation, and Customs initiates a penalty action against the 
disclosing party involving the disclosed violation, a copy of a writing 
evidencing the commencement of a formal investigation of the disclosed 
violation shall be attached to any required notice issued to the 
disclosing party pursuant to 19 U.S.C. 1592 or 19 U.S.C. 1593a.
    (h) Scope of the Disclosure and Expansion of a Formal 
Investigation. A formal investigation is deemed to have commenced 
regarding additional violations not included or specified by the 
disclosing party in the party's original prior disclosure on the date 
recorded in writing by the Customs Service as the date on which facts 
and circumstances were discovered or information was received which 
caused the Customs Service to believe that a possibility of such 
additional violations existed. Additional violations not disclosed or 
covered within the scope of the party's prior disclosure which are 
discovered by Customs as a result of an investigation and/or 
verification of the prior disclosure shall not be entitled to treatment 
under the prior disclosure provisions.
    (i) Knowledge of the Commencement of a Formal Investigation. (1) A 
disclosing party who claims lack of knowledge of the commencement of a 
formal investigation has the burden to prove that lack of knowledge. A 
person shall be presumed to have had knowledge of the commencement of a 
formal investigation of a violation if before the claimed prior 
disclosure of the violation a formal investigation has been commenced 
and:
    (i) A Customs officer, having reasonable cause to believe that 
there has been a violation of 19 U.S.C. 1592 or 19 U.S.C. 1593a, so 
informed the person concerning the type of or circumstances of the 
disclosed violation; or
    (ii) A Customs Special Agent, having properly identified himself or 
herself and the nature of his or her inquiry, had, either in person or 
in writing, made an inquiry of the person concerning the type of or 
circumstances of the disclosed violation; or
    (iii) A Customs Special Agent having properly identified himself or 
herself and the nature of his or her inquiry, requested specific books 
and/or records of the person relating to the disclosed violation; or
    (iv) The disclosing party receives a prepenalty or penalty notice 
issued pursuant to 19 U.S.C. 1592 or 19 U.S.C. 1593a relating to the 
type of or circumstances of the disclosed violation; or
    (v) The merchandise which is the subject of the disclosure was 
seized by Customs because of the type of or circumstances of the 
disclosed violation; or
    (vi) In the case of violations involving merchandise accompanying 
persons entering the United States or commercial merchandise inspected 
in connection with entry, the person has received oral notification of 
the Customs officer's finding of a violation.
    (2) The presumption of knowledge may be rebutted by evidence that, 
notwithstanding the foregoing notice, inquiry or request, the person 
did not have knowledge that an investigation had commenced with respect 
to the disclosed information.

    Dated: August 27, 1996.
William F. Riley,
Acting Commissioner of Customs.
    Approved: August 27, 1996
Dennis M. O'Connell,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 96-24657 Filed 9-25-96; 8:45 am]
BILLING CODE 4820-02-P