[Federal Register Volume 63, Number 188 (Tuesday, September 29, 1998)]
[Proposed Rules]
[Pages 51868-51874]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-25895]
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DEPARTMENT OF THE TREASURY
Customs Service
19 CFR Parts 162, 171 and 191
RIN 1515-AC21
Penalties for False Drawback Claims
AGENCY: Customs Service, Department of the Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document proposes to amend the Customs Regulations to set
forth the procedures to be followed when false drawback claims are
filed and penalties are thereby incurred. The proposed regulatory
changes would implement section 622 of the Customs modernization
provisions of the North American Free Trade Agreement Implementation
Act. These new provisions track, to the greatest extent possible, the
procedures that have been set forth for section 592 of the Tariff Act
of 1930, as amended (19 U.S.C. 1592). This document also sets forth
proposed mitigation guidelines that Customs would follow in arriving at
a just and reasonable assessment and disposition of liabilities when
false drawback claims are filed and penalties are incurred. Finally,
the document proposes to amend the Customs Regulations in order to
provide more specificity regarding the grounds and procedures for
removal of a participant from the drawback compliance program.
DATES: Comments must be received on or before November 30, 1998.
ADDRESSES: Written comments (preferably in triplicate) may be addressed
to the Regulations Branch, Office of Regulations and Rulings, U.S.
Customs Service, 1300 Pennsylvania Avenue, NW, Washington, DC 20229.
Comments submitted may be inspected at the Regulations Branch, Office
of Regulations and Rulings, U.S. Customs Service, 1300 Pennsylvania
Avenue, NW, 3rd Floor, Washington, DC.
FOR FURTHER INFORMATION CONTACT: Charles Ressin, Penalties Branch,
Office of Regulations and Rulings, 202-927-2264.
SUPPLEMENTARY INFORMATION:
Background
This document proposes to amend the Customs Regulations to
implement section 622 of Title VI of the North American Free Trade
Agreement Implementation Act (Pub. L. 103-182). Title VI of the North
American Free Trade Agreement Implementation Act is popularly known as
the Customs Modernization Act. Paragraph (a) of section 622 amended the
Tariff Act of 1930, as amended, by adding section 593A, which prohibits
the filing of false (fraudulent or negligent) drawback claims and
prescribes the actions that Customs may take, including the assessment
of monetary penalties, if such claims are filed (gross negligence is
not separately set forth as a level of culpability in the new statutory
provision). New section 593A was codified as section 1593a of Title 19
of the United States Code (19 U.S.C. 1593a, hereinafter ``the
statute'').
As in the case of penalties under section 592 of the Tariff Act of
1930, as amended (19 U.S.C. 1592), specific procedures and other
requirements are set forth in the statute for prepenalty notices and
penalty claims, the former not being required by the statute if the
penalty is $1,000 or less. The statute provides that approval of
Customs Headquarters is required if a prepenalty notice alleging fraud
is contemplated. The statute also further provides for the
applicability of section 618 of the Tariff Act of 1930, as amended (19
U.S.C. 1618), which authorizes the administrative remission or
mitigation of penalties. Written decisions, setting forth a final
determination and findings of fact and conclusions of law upon which
that determination was based, are also mandated by the statute.
Rather than setting forth specific penalty amounts, the statute
provides for the assessment of monetary penalties in amounts not to
exceed a specific percentage of the actual or potential loss of
revenue, with the applicable percentage depending on the level of
culpability, whether there have been prior violations involving the
same issue, and whether the violator is a participant in the Customs
drawback compliance program (the statute provides for the establishment
of a drawback compliance program, and regulatory provisions relating to
the operation of that program were adopted as part of the amendments to
the Customs Regulations regarding drawback published in the Federal
Register as T.D. 98-16 on March 5, 1998, 63 FR 10970). For purposes of
applying the monetary penalties prescribed in the statute, Customs
proposes in this document to define loss of revenue with reference to
the amount of drawback that is claimed and to which the claimant is not
entitled.
The statute further provides for limited penalty assessment for
filing a false drawback claim if there is a prior disclosure of the
violation. As in cases brought under section 592, the limited penalty
assessment would be applicable only in those instances in which the
circumstances of the violation are disclosed before, or without
knowledge of the commencement of, a formal investigation. In this
context, this document should be read in conjunction with the notice of
proposed rulemaking regarding prior disclosure that was published in
the Federal Register on September 26, 1996 (61 FR 50459).
The statute provides for penalties, or notices of violation in lieu
of penalties, as set forth below in cases involving negligent
violations (under the statute, a repetitive violation is one which
involves the same issue as a prior violation): 1. If the violator is
not a participant in the drawback compliance program, Customs shall
assess monetary penalties in amounts not to exceed the following:
a. 20 percent of the loss of revenue for the first violation;
b. 50 percent of the loss of revenue for the first repetitive
violation; and
c. The loss of revenue in the case of a second and each subsequent
repetitive violation.
[[Page 51869]]
2. If the violator is a participant in the drawback compliance
program and is generally in compliance with the provisions thereof, the
following actions shall be taken by Customs:
a. For a first violation and for any other violation that is not
repetitive or that involves the same issue as a prior violation but
does not occur within three years from the date of that prior
violation, a notice of violation (warning letter) shall be issued;
b. For the first violation that is repetitive and that occurs
within three years from the date of the violation of which it is
repetitive, a monetary penalty of up to 20 percent of the loss of
revenue shall be assessed;
c. For the second violation that is repetitive and that occurs
within three years from the date of the first of two violations of
which it is repetitive, a monetary penalty of up to 50 percent of the
loss of revenue shall be assessed; and
d. For a third and each subsequent violation that is repetitive and
that occurs within three years from the date of the first of three or
more violations of which it is repetitive, a monetary penalty not to
exceed the loss of revenue shall be assessed.
In the case of a fraudulent violation, the statute makes no
distinction between drawback compliance program participants and those
who do not participate in the program: a fraudulent violation gives
rise to a monetary penalty in an amount not exceeding three times the
loss of revenue or, if there has been a prior disclosure regarding the
fraudulent violation, in an amount not exceeding the loss of revenue.
If there has been a valid prior disclosure regarding a negligent
violation, drawback compliance program participants and those who do
not participate in that program are also treated the same: the violator
is subject to a monetary penalty that may not exceed an amount equal to
the interest computed on the basis of the prevailing rate of interest
applied under 26 U.S.C. 6621 on the amount of actual revenue of which
the United States is or may be deprived during the period from the date
of overpayment of the claim to the date of tender of the overpaid
amount.
In order to obtain the benefits of prior disclosure in both fraud
and negligence cases, tender of the amount of the overpayment is
required either at the time of disclosure or within 30 days (or such
longer period as Customs may provide) after Customs gives notice of its
calculation of the amount of the overpayment.
Paragraph (b) of section 622 of the Customs Modernization Act
provides that the provisions of the statute shall apply only to
drawback claims filed on and after Customs implements nationwide an
automated drawback selectivity program, and mandates the publication in
the Customs Bulletin of the effective date of the selectivity program.
The proposed amendments set forth in this document to implement the
statute involve changes to the penalty procedure provisions within
parts 162 and 171 of the regulations and the addition of a new appendix
D to part 171 to set forth guidelines for the imposition and mitigation
of monetary penalties incurred under the statute. To the greatest
extent possible, and except where the statute expressly mandates a
different approach, the regulatory amendments set forth in this
document are modeled on the section 592 regulatory provisions and thus,
among other things, reflect the definitions of ``fraud'' and
``negligence'' (which includes gross negligence) that are intended to
be applied in cases brought under section 592 (see Senate Report 103-
189 at pages 73-74). As noted above, these proposed regulations, if
adopted as a final rule, will not be effective until Customs implements
an automated drawback selectivity program.
Finally, with regard to the final amendments to the Customs
Regulations regarding drawback published as T.D. 98-16 as mentioned
above, Customs notes that the provisions regarding the operation of the
drawback compliance program (set forth as subpart S within part 191)
include, in Sec. 191.194 (e) and (f), procedures regarding the
revocation of certification for participation in the program. However,
contrary to the approach taken elsewhere in the Customs Regulations in
the context of a revocation or removal of a privilege, those drawback
compliance program provisions do not include specific grounds for such
action. Moreover, those paragraph (e) and (f) texts only refer to
proposed revocation actions (with a delayed effective date following
notice of the proposed revocation). Thus, no provision exists in those
regulatory texts for a revocation with immediate effect when the basis
for the revocation involves willfulness on the part of the program
participant or when public health, interest, or safety requires
immediate revocation, notwithstanding the fact that such immediate
action may be necessary and would be consistent with the license
revocation principles enshrined in the Administrative Procedure Act
(see 5 U.S.C. 558(c)). This document proposes to revise Sec. 191.194
(e) and (f) in order to address the above points and in order to
otherwise improve the organization of, and procedures reflected in,
those texts. In addition, the proposed text revisions refer to
``removal'' (rather than ``revocation'') of certification in order to
reflect statutory terminology (see 19 U.S.C. 1593a(f)(1)).
Comments
Before adopting these proposed amendments, 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 a.m.
and 4:30 p.m. at the Regulations Branch, Office of Regulations and
Rulings, U.S. Customs Service, 1300 Pennsylvania Avenue, NW., 3rd
Floor, Washington, DC.
Regulatory Flexibility Act and Executive Order 12866
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 proposed amendments,
if adopted, will not have a significant economic impact on a
substantial number of small entities. Accordingly, the amendments are
not subject to the regulatory analysis requirements of 5 U.S.C. 603 and
604. This document does not meet the criteria for a ``significant
regulatory action'' as specified in E.O. 12866.
List of Subjects
19 CFR Part 162
Customs duties and inspection; Law enforcement; Penalties; Seizures
and forfeitures.
19 CFR Part 171
Administrative practice and procedure; Customs duties and
inspection; Law enforcement; Penalties; Seizures and forfeitures.
19 CFR Part 191
Administrative practice and procedure; Customs duties and
inspection; Drawback.
Proposed Amendments to The Regulations
For the reasons set forth above, it is proposed to amend parts 162,
171 and 191 of the Customs Regulations (19 CFR parts 162, 171 and 191)
as follows:
[[Page 51870]]
PART 162--RECORDKEEPING, INSPECTION, SEARCH, AND SEIZURE
1. The general authority citation for part 162 is revised to read
as follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1592, 1593a, 1624.
* * * * *
2. In Sec. 162.71, paragraphs (b) through (e) are redesignated as
paragraphs (d) through (g) and the heading for paragraph (a) is
revised, and new paragraphs (b) and (c) are added, to read as follows:
Sec. 162.71 Definitions.
* * * * *
(a) Loss of duties under section 592. * * *
(b) Loss of revenue under section 593A. When used in Sec. 162.73a,
the term loss of revenue means the amount of drawback that is claimed
and to which the claimant is not entitled and includes both actual and
potential loss of revenue.
(1) Actual loss of revenue. When used in Secs. 162.73a, 162.74(h),
162.77a and 162.79b, the term actual loss of revenue means the amount
of drawback that is claimed and has been paid to the claimant and to
which the claimant is not entitled.
(2) Potential loss of revenue. When used in Sec. 162.77a, the term
potential loss of revenue means the amount of drawback that is claimed
and has not been paid to the claimant and to which the claimant is not
entitled.
(c) Repetitive violation. When used in Sec. 162.73a to describe a
violation, repetitive has reference to a violation by a person that
involves the same issue as a prior violation by that person.
* * * * *
3. A new Sec. 162.73a is added to read as follows:
Sec. 162.73a Penalties under section 593A, Tariff Act of 1930, as
amended.
(a) Maximum penalty without prior disclosure for a drawback
compliance program nonparticipant. If the person concerned has not made
a prior disclosure as provided in Sec. 162.74 and has not been
certified as a participant in the drawback compliance program under
part 191 of this chapter, the monetary penalty under section 593A,
Tariff Act of 1930, as amended (19 U.S.C. 1593a), shall not exceed:
(1) For fraudulent violations, three times the loss of revenue; and
(2) For negligent violations, (i) 20 percent of the loss of revenue
for the first violation,
(ii) 50 percent of the loss of revenue for the first repetitive
violation, or
(iii) One times the loss of revenue for the second and each
subsequent repetitive violation.
(b) Maximum penalty without prior disclosure for a drawback
compliance program participant--(1) General. If the person concerned
has not made a prior disclosure as provided in Sec. 162.74 and has been
certified as a participant in, and is generally in compliance with the
procedures and requirements of, the drawback compliance program
provided for in part 191 of this chapter, the monetary penalty or other
sanction under section 593A, Tariff Act of 1930, as amended (19 U.S.C.
1593a), shall not exceed:
(i) For fraudulent violations, three times the loss of revenue; and
(ii) For negligent violations,
(A) Issuance of a written notice of a violation (warning letter)
for the first violation and for any other violation that is not
repetitive or that is repetitive but does not occur within three years
from the date of the violation of which it is repetitive,
(B) 20 percent of the loss of revenue for the first repetitive
violation that occurs within three years from the date of the violation
of which it is repetitive,
(C) 50 percent of the loss of revenue for the second repetitive
violation that occurs within three years from the date of the first of
two violations of which it is repetitive, or
(D) One times the loss of revenue for the third and each subsequent
repetitive violation that occurs within three years from the date of
the first of three or more violations of which it is repetitive.
(2) Notice of violation and response thereto. (i) The notice issued
by Customs under paragraph (b)(1)(ii)(A) of this section shall:
(A) State that the person concerned has violated section 593A;
(B) Explain the nature of the violation; and
(C) Warn the person concerned that future violations of section
593A may result in the imposition of monetary penalties. The notice
shall also warn the person concerned that repetitive violations may
result in removal of certification under the drawback compliance
program provided for in part 191 of this chapter until the person takes
corrective action that is satisfactory to Customs.
(ii) Within 30 days from the date of mailing of the notice issued
under paragraph (b)(1)(ii)(A) of this section, the person concerned
shall notify Customs in writing of the steps that have been taken to
prevent a recurrence of the violation.
(c) Maximum penalty with prior disclosure. If the person concerned
has made a prior disclosure as provided in Sec. 162.74, whether or not
such person has been certified as a participant in the drawback
compliance program under part 191 of this chapter, the monetary penalty
under section 593A, Tariff Act of 1930, as amended (19 U.S.C. 1593a),
shall not exceed:
(1) For fraudulent violations, one times the loss of revenue; and
(2) For negligent violations, an amount equal to the interest
accruing on the actual loss of revenue during the period from the date
of overpayment of the claim to the date on which the person concerned
tenders the amount of the overpayment based on the prevailing rate of
interest under 26 U.S.C. 6621.
4. A new Sec. 162.77a is added to read as follows:
Sec. 162.77a Prepenalty notice for violation of section 593A, Tariff
Act of 1930, as amended.
(a) When required. If the appropriate Customs field officer has
reasonable cause to believe that a violation of section 593A, Tariff
Act of 1930, as amended (19 U.S.C. 1593a) has occurred, and determines
that further proceedings are warranted, the officer shall issue to the
person concerned a notice of intent to issue a claim for a monetary
penalty.
(b) Contents--(1) Facts of violation. The prepenalty notice shall:
(i) Identify the drawback claim;
(ii) Set forth the details relating to the seeking, inducing, or
affecting, or the attempted seeking, inducing, or affecting, or the
aiding or procuring of, the drawback claim;
(iii) Specify all laws and regulations allegedly violated;
(iv) Disclose all the material facts which establish the alleged
violation;
(v) State whether the alleged violation occurred as a result of
fraud or negligence; and
(vi) State the estimated actual or potential loss of revenue due to
the drawback claim and, taking into account all circumstances, the
amount of the proposed monetary penalty.
(2) Right to make presentations. The prepenalty notice also shall
inform the person of his right to make an oral and a written
presentation within 30 days of mailing of the notice (or such shorter
period as may be prescribed under Sec. 162.78) as to why a claim for a
monetary penalty should not be issued or, if issued, why it should be
in a lesser amount than proposed.
(c) Exceptions. A prepenalty notice shall not be issued for a
violation of 19 U.S.C. 1593a if the amount of the proposed monetary
penalty is $1,000 or less.
[[Page 51871]]
(d) Prior approval. If an alleged violation of 19 U.S.C. 1593a
occurred as a result of fraud, a prepenalty notice shall not be issued
without prior approval by Customs Headquarters.
Sec. 162.79a [Amended]
5. Section 162.79a is amended by removing the references
``Sec. 162.76(b)(1) or Sec. 162.77(b)(1)'' and adding, in their place,
``Sec. 162.76(b)(1), Sec. 162.77(b)(1) or Sec. 162.77a(b)(1) and
(b)(2)''.
6. Section 162.79b is revised to read as follows:
Sec. 162.79b Recovery of actual loss of duties or revenue.
Whether or not a monetary penalty is assessed under this subpart,
the appropriate Customs field officer shall require the deposit of any
actual loss of duties resulting from a violation of section 592, Tariff
Act of 1930, as amended (19 U.S.C. 1592) or any actual loss of revenue
resulting from a violation of section 593A, Tariff Act of 1930, as
amended (19 U.S.C. 1593a), notwithstanding that the liquidation of the
entry to which the loss is attributable has become final. If a person
is liable for the payment of actual loss of duties or actual loss of
revenue in any case in which a monetary penalty is not assessed or a
written notification of claim of monetary penalty is not issued, the
port director shall issue a written notice to the person of the
liability for the actual loss of duties or actual loss of revenue. The
notice shall identify the merchandise and entries involved, state the
loss of duties or revenue and how it was calculated, and require the
person to deposit or arrange for payment of the duties or revenue
within 30 days from the date of the notice. Any determination of actual
loss of duties or actual loss of revenue under this section is subject
to review upon written application to the Commissioner of Customs.
PART 171--FINES, PENALTIES, AND FORFEITURES
1. The authority citation for part 171 is revised to read in part
as follows:
Authority: 19 U.S.C. 66, 1592, 1593a, 1618, 1624. * * *
2. Section 171.21 is revised to read as follows:
Sec. 171.21 Written decisions.
If a petition for relief relates to a violation of section 592,
593A or 641, Tariff Act of 1930, as amended (19 U.S.C. 1592, 19 U.S.C.
1593a or 19 U.S.C. 1641), the petitioner shall be provided with a
written statement setting forth the decision on the matter and the
findings of fact and conclusions of law upon which the decision is
based.
3. Part 171 is amended by adding a new Appendix D to read as
follows:
Appendix D To Part 171--Guidelines for the Imposition and
Mitigation of Penalties for Violations of 19 U.S.C. 1593A
A monetary penalty incurred under section 593A, Tariff Act of
1930, as amended (19 U.S.C. 1593a; hereinafter referred to as
section 593A), may be remitted or mitigated under section 618,
Tariff Act of 1930, as amended (19 U.S.C. 1618; hereinafter referred
to as section 618), if it is determined that there exist such
mitigating circumstances as to justify remission or mitigation. The
guidelines below will be used by Customs in arriving at a just and
reasonable assessment and disposition of liabilities arising under
section 593A within the stated limitations. It is intended that
these guidelines shall be applied by Customs officers in prepenalty
proceedings, in determining the monetary penalty assessed in the
penalty notice, and in arriving at a final penalty disposition. The
assessed or mitigated penalty amount set forth in Customs
administrative disposition determined in accordance with these
guidelines does not limit the penalty amount which the Government
may seek in bringing a civil enforcement action pursuant to 19
U.S.C. 1593a(i).
(A) Violations of Section 593A
A violation of section 593A occurs when a person, through fraud
or negligence, seeks, induces, or affects, or attempts to seek,
induce, or affect, the payment or credit to that person or others of
any drawback claim by means of any document, written or oral
statement, or electronically transmitted data or information, or act
which is material and false, or any omission which is material, or
aids or abets any other person in the foregoing violation. There is
no violation if the falsity is due solely to clerical error or
mistake of fact unless the error or mistake is part of a pattern of
negligent conduct. Also, the mere nonintentional repetition by an
electronic system of an initial clerical error shall not constitute
a pattern of negligent conduct. Nevertheless, if Customs has drawn
the person's attention to the nonintentional repetition by an
electronic system of an initial clerical error, subsequent failure
to correct the error could constitute a violation of section 593A.
(B) Degrees of Culpability
There are two degrees of culpability under section 593A:
negligence and fraud.
(1) Negligence. A violation is determined to be negligent if it
results from an act or acts (of commission or omission) done with
actual knowledge of, or wanton disregard for, the relevant facts and
with indifference to, or disregard for, the offender's obligations
under the statute or done through the failure to exercise the degree
of reasonable care and competence expected from a person in the same
circumstances in ascertaining the facts or in drawing inferences
therefrom, in ascertaining the offender's obligations under the
statute, or in communicating information so that it may be
understood by the recipient. As a general rule, a violation is
determined to be negligent if it results from the offender's failure
to exercise reasonable care and competence to ensure that a
statement made is correct.
(2) Fraud. A violation is determined to be fraudulent if the
material false statement, omission or act in connection with the
transaction was committed (or omitted) knowingly, i.e., was done
voluntarily and intentionally, as established by clear and
convincing evidence.
(C) Assessment of Penalties
(1) Issuance of Prepenalty Notice. As provided in Sec. 162.77a
of the Customs Regulations (19 CFR 162.77a), if Customs has
reasonable cause to believe that a violation of section 593A has
occurred and determines that further proceedings are warranted, a
notice of intent to issue a claim for a monetary penalty shall be
issued to the person concerned. In issuing such prepenalty notice,
the appropriate Customs field officer shall make a tentative
determination of the degree of culpability and the amount of the
proposed claim. A prepenalty notice shall not be issued if the claim
does not exceed $1,000.
(2) Issuance of Penalty Notice. After considering
representations, if any, made by the person concerned pursuant to
the notice issued under paragraph (C)(1), the appropriate Customs
field officer shall determine whether any violation described in
section (A) has occurred. If a notice was issued under paragraph
(C)(1) and the appropriate Customs field officer determines that
there was no violation, Customs shall promptly issue a written
statement of the determination to the person to whom the notice was
sent. If the appropriate Customs field officer determines that there
was a violation, Customs shall issue a written penalty claim to the
person concerned. The written penalty claim shall specify all
changes in the information provided in the prepenalty notice issued
under paragraph (C)(1). The person to whom the penalty notice is
issued shall have a reasonable opportunity under section 618 to make
representations, both oral and written, seeking remission or
mitigation of the monetary penalty. At the conclusion of any
proceeding under section 618, Customs shall provide to the person
concerned a written statement which sets forth the final
determination and the findings of fact and conclusions of law on
which such determination is based.
(D) Maximum Penalties
(1) Fraud. In the case of a fraudulent violation of section
593A, the monetary penalty shall be in an amount not to exceed 3
times the actual or potential loss of revenue.
(2) Negligence.
(a) In General. In the case of a negligent violation of section
593A, the monetary penalty shall be in an amount not to exceed 20
percent of the actual or potential loss of revenue for the first
violation.
[[Page 51872]]
(b) Repetitive Violations. For the first negligent violation
that is repetitive (i.e., involves the same issue and the same
violator), the penalty shall be in an amount not to exceed 50
percent of the actual or potential loss of revenue. The penalty for
a second and each subsequent repetitive negligent violation shall be
in an amount not to exceed the actual or potential loss of revenue.
(3) Prior Disclosure.
(a) In General. Subject to paragraph (D)(3)(b), if the person
concerned discloses the circumstances of a violation of section 593A
before, or without knowledge of the commencement of, a formal
investigation of such violation, the monetary penalty assessed under
this Appendix may not exceed:
(i) In the case of fraud, an amount equal to the actual or
potential revenue of which the United States is or may be deprived
as a result of overpayment of the claim; or
(ii) If the violation resulted from negligence, an amount equal
to the interest computed on the basis of the prevailing rate of
interest applied under 26 U.S.C. 6621 on the amount of actual
revenue of which the United States is or may be deprived during the
period that begins on the date of overpayment of the claim and ends
on the date on which the person concerned tenders the amount of the
overpayment.
(b) Condition Affecting Penalty Limitations. The limitations in
paragraph (D)(3)(a) on the amount of the monetary penalty to be
assessed apply only if the person concerned tenders the amount of
the overpayment made on the claim either at the time of the
disclosure or within 30 days (or such longer period as Customs may
provide) from the date of notice by Customs of its calculation of
the amount of overpayment.
(c) Burden of Proof. The person asserting lack of knowledge of
the commencement of a formal investigation has the burden of proof
in establishing such lack of knowledge.
(d) Commencement of Investigation. For purposes of this
Appendix, a formal investigation of a violation is considered to be
commenced with regard to the disclosing party, and with regard to
the disclosed information, on the date recorded in writing by
Customs as the date on which facts and circumstances were discovered
which caused Customs to believe that a possibility of a violation of
section 593A existed.
(e) Exclusivity. Penalty claims under section D shall be the
exclusive civil remedy for any drawback-related violation of section
593A.
(E) Deprivation of Lawful Revenue
Notwithstanding section 514, Tariff Act of 1930, as amended (19
U.S.C. 1514), if the United States has been deprived of lawful
duties and taxes resulting from a violation of section 593A, Customs
shall require that such duties and taxes be restored whether or not
a monetary penalty is assessed.
(F) Final Disposition of Penalty Cases When the Drawback Claimant
Is Not a Certified Participant in the Drawback Compliance Program
(1) In General. Customs shall consider all information in the
petition and all available evidence, taking into account any
mitigating, aggravating, and extraordinary factors, in determining
the final assessed penalty. All factors considered should be stated
in the decision.
(2) Penalty Disposition When There Has Been No Prior Disclosure.
(a) Nonrepetitive Negligent Violation. The final penalty
disposition shall be in an amount ranging from a minimum of 10
percent of the actual or potential loss of revenue to a maximum of
20 percent of the actual or potential loss of revenue.
(b) Repetitive Negligent Violation.
(i) First Repetitive Negligent Violation. The final penalty
disposition shall be in an amount ranging from a minimum of 25
percent of the actual or potential loss of revenue to a maximum of
50 percent of the actual or potential loss of revenue.
(ii) Second and Each Subsequent Repetitive Negligent Violation.
The final penalty disposition shall be in an amount ranging from a
minimum of 50 percent of the actual or potential loss of revenue to
a maximum of 100 percent of the actual or potential loss of revenue.
(c) Fraudulent Violation. The final penalty disposition shall be
in an amount ranging from a minimum of 1.5 times the actual or
potential loss of revenue to a maximum of 3 times the actual or
potential loss of revenue.
(3) Penalty Disposition When There Has Been a Prior Disclosure.
(a) Negligent Violation. The final penalty disposition shall be
in an amount equal to the interest determined in accordance with
paragraph (D)(3)(a)(ii).
(b) Fraudulent Violation. The final penalty disposition shall be
in an amount equal to 100 percent of the actual or potential loss of
revenue.
(4) Mitigating Factors. The following factors shall be
considered in mitigation of the proposed or assessed penalty claim
or final penalty amount, provided that the case record sufficiently
establishes their existence. The list is not exclusive.
(a) Contributory Customs Error. This factor includes misleading
or erroneous advice given by a Customs official in writing to the
alleged violator, but this factor may be applied in such a case only
if it appears that the alleged violator reasonably relied upon the
written information and the alleged violator fully and accurately
informed Customs of all relevant facts. The concept of comparative
negligence may be utilized in determining the weight to be assigned
to this factor. If the Customs error contributed to the violation,
but the alleged violator is also culpable, the Customs error is to
be considered as a mitigating factor. If it is determined that the
Customs error was the sole cause of the violation, the proposed or
assessed penalty is to be cancelled.
(b) Cooperation with the Investigation. To obtain the benefits
of this factor, the alleged violator must exhibit cooperation beyond
that expected from a person under investigation for a Customs
violation. An example of the cooperation contemplated includes
assisting Customs officers to an unusual degree in auditing the
books and records of the alleged violator (e.g., incurring
extraordinary expenses in providing computer runs solely for
submission to Customs to assist the agency in cases involving an
unusually large number of entries and/or complex issues). Another
example consists of assisting Customs in obtaining additional
information relating to the subject violation or other violations.
Merely providing the books and records of the alleged violator may
not be considered cooperation justifying mitigation inasmuch as
Customs has the right to examine an importer's books and records
pursuant to 19 U.S.C. 1508-1509.
(c) Immediate Remedial Action. This factor includes the payment
of the actual loss of revenue prior to the issuance of a penalty
notice and within 30 days after Customs notifies the alleged
violator of the actual loss of revenue attributable to the
violation. In appropriate cases, where the alleged violator provides
evidence that, immediately after learning of the violation,
substantial remedial action was taken to correct organizational or
procedural defects, immediate remedial action may be granted as a
mitigating factor. Customs encourages immediate remedial action to
ensure against future incidents of non-compliance.
(d) Prior Good Record. Prior good record is a factor only if the
alleged violator is able to demonstrate a consistent pattern of
filing drawback claims without violation of section 593A, or any
other statute prohibiting the making or filing of a false statement
or document in connection with a drawback claim. This factor will
not be considered in alleged fraudulent violations of section 593A.
(e) Inability to Pay the Customs Penalty. The party claiming the
existence of this factor must present documentary evidence in
support thereof, including copies of income tax returns for the
previous 3 years and an audited financial statement for the most
recent fiscal quarter. In certain cases, Customs may waive the
production of an audited financial statement or may request
alternative or additional financial data in order to facilitate an
analysis of a claim of inability to pay (e.g., examination of the
financial records of a foreign entity related to the U.S. company
claiming inability to pay). In addition, the alleged violator must
present information reflecting ownership and related domestic and
foreign parties and must provide information reflecting its current
financial condition, including books and records of account, bank
statements, other tax records (for example, sales tax returns) and a
list of assets with current values; if the alleged violator is a
closely held corporation, similar current financial information must
be provided on the shareholders, wherever they are located.
(f) Customs Knowledge. This factor may be used in non-fraud
cases if it is determined that Customs had actual knowledge of a
violation and failed, without justification, to inform the violator
so that it could have taken earlier remedial action. This factor
shall not be applicable when a substantial delay in the
investigation is attributable to the alleged violator.
(5) Aggravating Factors. Certain factors may be determined to be
aggravating factors in calculating the amount of the proposed or
assessed penalty claim or the amount of the
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final administrative penalty. The presence of one or more
aggravating factors may not be used to raise the level of
culpability attributable to the alleged violations, but may be used
to offset the presence of mitigating factors. The following factors
shall be considered ``aggravating factors'', provided that the case
record sufficiently establishes their existence. The list is not
exclusive.
(a) Obstructing an investigation or audit.
(b) Withholding evidence.
(c) Providing misleading information concerning the violation.
(d) Prior substantive violations of section 593A for which a
final administrative finding of culpability has been made.
(e) Failure to comply with a Customs summons or lawful demand
for records.
(G) Drawback Compliance Program Participants
(1) In General. Special alternative procedures and penalty
assessment standards apply in the case of negligent violations of
section 593A committed by persons who are certified as participants
in the Customs drawback compliance program and who are generally in
compliance with the procedures and requirements of that program.
Provisions regarding the operation of the drawback compliance
program are set forth in part 191 of the Customs Regulations (19 CFR
part 191).
(2) Alternatives to Penalties. When a participant described in
paragraph (G)(1) commits a violation of section 593A, in the absence
of fraud or repeated violations and in lieu of a monetary penalty,
Customs shall issue a written notice of the violation (warning
letter).
(a) Contents of Notice. The notice shall:
(i) State that the person has violated section 593A;
(ii) Explain the nature of the violation; and
(iii) Warn the person that future violations of section 593A may
result in the imposition of monetary penalties and that repetitive
violations may result in removal of certification under the drawback
compliance program until the person takes corrective action that is
satisfactory to Customs.
(b) Response to Notice. Within 30 days from the date of mailing
of the written notice, the person shall notify Customs in writing of
the steps that have been taken to prevent a recurrence of the
violation. If the person fails to provide such notification in a
timely manner, any penalty assessed for a repetitive violation under
paragraph (G)(3) shall not be subject to mitigation under this
Appendix.
(3) Repetitive Violations.
(a) In General. A person who has been issued a written notice
under paragraph (G)(2) and who subsequently commits a negligent
violation that is repetitive (i.e., involves the same issue), and
any other person who is a participant described in paragraph (G)(1)
and who commits a repetitive negligent violation, is subject to one
of the following monetary penalties:
(i) An amount not to exceed 20 percent of the loss of revenue
for the first repetitive violation that occurs within three years
from the date of the violation of which it is repetitive;
(ii) An amount not to exceed 50 percent of the loss of revenue
for the second repetitive violation that occurs within three years
from the date of the first of two violations of which it is
repetitive; and
(iii) An amount not to exceed 100 percent of the loss of revenue
for the third and each subsequent repetitive violation that occurs
within three years from the date of the first of three or more
violations of which it is repetitive.
(b) Repetitive Violations Outside 3-year Period. If a
participant described in paragraph (G)(1) commits a negligent
violation that is repetitive but that did not occur within 3 years
of the violation of which it is repetitive, the new violation shall
be treated as a first violation for which a written notice shall be
issued in accordance with paragraph (G)(2), and each repetitive
violation subsequent thereto that occurs within any 3-year period
described in paragraph (G)(3)(a) shall result in the assessment of
the applicable monetary penalty prescribed in that paragraph.
(4) Final Penalty Disposition When There Has Been No Prior
Disclosure.
(a) In General. Customs shall consider all information in the
petition and all available evidence, taking into account any
mitigating factors (see paragraph (F)(4)), aggravating factors (see
paragraph (F)(5)), and extraordinary factors in determining the
final assessed penalty. All factors considered should be stated in
the decision.
(b) First Repetitive Negligent Violation Within 3 Years of
Violation Handled Under Paragraph (G)(2). The final penalty
disposition shall be in an amount ranging from a minimum of 10
percent of the loss of revenue to a maximum of 20 percent of the
loss of revenue.
(c) Second Repetitive Negligent Violation Within 3 Years of
Violation Handled Under Paragraph (G)(2) or (G)(3). The final
penalty disposition shall be in an amount ranging from a minimum of
25 percent of the loss of revenue to a maximum of 50 percent of the
loss of revenue.
(d) Third and Each Subsequent Repetitive Negligent Violation
Within 3 Years of Violation Handled Under Paragraph (G)(2) or
(G)(3). The final penalty disposition shall be in an amount ranging
from a minimum of 50 percent of the loss of revenue to a maximum of
100 percent of the loss of revenue.
(e) Fraudulent Violations. The final penalty disposition shall
be the same as in the case of fraudulent violations committed by
persons who are not participants in the drawback compliance program
(see paragraph (F)(2)(c)).
(5) Final Penalty Disposition When There Has Been A Prior
Disclosure. The final penalty disposition shall be the same as in
the case of persons who are not participants in the drawback
compliance program (see paragraph (F)(3)).
PART 191--DRAWBACK
1. The authority citation for part 191 continues to read in part as
follows:
Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20,
Harmonized Tariff Schedule of the United States), 1313, 1624.
* * * * *
Secs. 191.191-191.195 also issued under 19 U.S.C. 1593a.
2. In Sec. 191.194, paragraphs (e) and (f) are revised to read as
follows:
Sec. 191.194 Action on application to participate in compliance
program.
* * * * *
(e) Certification removal--(1) Grounds for removal. The
certification for participation in the drawback compliance program by a
party may be removed when any of the following conditions are
discovered:
(i) The certification privilege was obtained through fraud or
mistake of fact;
(ii) The program participant is no longer in compliance with the
Customs laws and regulations, including the requirements set forth in
Sec. 191.192;
(iii) The program participant repeatedly files false drawback
claims or false or misleading documentation or other information
relating to such claims; or
(iv) The program participant is convicted of any felony or has
committed acts which would constitute a misdemeanor or felony involving
theft, smuggling, or any theft-connected crime.
(2) Removal procedure. If Customs determines that the certification
of a program participant should be removed, the applicable drawback
office shall serve the program participant with written notice of the
removal. Such notice shall inform the program participant of the
grounds for the removal and shall advise the program participant of its
right to file an appeal of the removal in accordance with paragraph (f)
of this section.
(3) Effect of removal. The removal of certification shall be
effective immediately in cases of willfulness on the part of the
program participant or when required by public health, interest, or
safety. In all other cases, the removal of certification shall be
effective when the program participant has received notice under
paragraph (e)(2) of this section and either no appeal has been filed
within the time limit prescribed in paragraph (f)(2) of this section or
all appeal procedures thereunder have been concluded by a decision that
upholds the removal action. Removal of certification may subject the
affected person to penalties.
(f) Appeal of certification denial or removal--(1) Appeal of
certification denial. A party may challenge a denial of an application
for certification as a participant in the drawback compliance program
by filing a written appeal, within 30 days of issuance of the notice of
denial, with the applicable drawback
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office. A denial of an appeal may itself be appealed to Customs
Headquarters, Office of Field Operations, Office of Trade Operations,
within 30 days after issuance of the applicable drawback office's
appeal decision. Customs Headquarters will review the appeal and will
respond with a written decision within 30 days after receipt of the
appeal unless circumstances require a delay in issuance of the
decision. If the decision cannot be issued within the 30-day period,
Customs Headquarters will advise the appellant of the reasons for the
delay and of any further actions which will be carried out to complete
the appeal review and of the anticipated date for issuance of the
appeal decision.
(2) Appeal of certification removal. A party who has received a
Customs notice of removal of certification for participation in the
drawback compliance program may challenge the removal by filing a
written appeal, within 30 days after issuance of the notice of removal,
with the applicable drawback office. A denial of an appeal may itself
be appealed to Customs Headquarters, Office of Field Operations, Office
of Trade Operations, within 30 days after issuance of the applicable
drawback office's appeal decision. Customs Headquarters shall consider
the allegations upon which the removal was based and the responses made
thereto by the appellant and shall render a written decision on the
appeal within 30 days after receipt of the appeal.
Approved: August 3, 1998.
Robert S. Trotter,
Acting Commissioner of Customs.
Dennis M. O'Connell,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 98-25895 Filed 9-28-98; 8:45 am]
BILLING CODE 4820-02-P