[Federal Register Volume 63, Number 208 (Wednesday, October 28, 1998)]
[Proposed Rules]
[Pages 57628-57636]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28786]
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DEPARTMENT OF THE TREASURY
Customs Service
Guidelines for the Imposition and Mitigation of Penalties for
Violations of 19 U.S.C. 1592
19 CFR Part 171
RIN 1515-AC08
AGENCY: U. S. Customs Service, Department of the Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document proposes to revise Appendix B to Part 171 of the
Customs Regulations, which sets forth the guidelines for remitting and
[[Page 57629]]
mitigating penalties relating to violations of section 592 of the
Tariff Act of 1930, as amended. A violation of section 592 involves the
entry or introduction or attempted entry or introduction of merchandise
into the United States by fraud, gross negligence, or negligence. Many
of the proposed changes to Appendix B reflect the Customs Modernization
Act and its themes of ``informed compliance'' and ``shared
responsibility.''
DATES: Comments must be received on or before December 28, 1998.
ADDRESSES: Comments (preferably in triplicate) may be submitted to and
inspected at the Regulations Branch, Office of Regulations and Rulings,
U.S. Customs Service, 1300 Pennsylvania Avenue, N.W., 3rd Floor,
Washington, D.C. 20229.
FOR FURTHER INFORMATION CONTACT: Robert Pisani, Penalties Branch, (202)
927-1203.
SUPPLEMENTARY INFORMATION:
Background
On December 8, 1993, the President signed the North American Free
Trade Agreement Implementation Act (Public Law 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. The Mod Act emphasizes the themes of shared responsibility
and informed compliance for Customs and the public.
Consistent with the Mod Act, Customs has initiated a thorough
examination and review of its procedures and processes relating to
importer compliance with Customs laws, regulations, and policies. In
this review, the agency has considered a number of innovative
approaches to improving the service it provides the importing public as
well as new approaches to encourage compliance and address incidents of
non-compliance.
With regard to compliance, Customs is dedicated to educating its
personnel to improve agency selection of appropriate remedies to
address incidents of non-compliance. In keeping with the Mod Act theme
of informed compliance, Customs is also attempting to educate the
importing public about its requirements, particularly in areas
involving complex import transactions. A more informed public promotes
an overall greater level of compliance than the threat of an occasional
and often ineffective penalty. A significant aspect of this ``shared
responsibility'' and ``informed compliance'' approach is reflected in
the proposed revision of the guidelines for remitting and mitigating
penalties relating to violations of Sec. 592 of the Tariff Act of 1930,
as amended (19 U.S.C. 1592) (hereinafter referred to as Sec. 592). A
violation of Sec. 592 involves the entry or introduction or attempted
entry or introduction of merchandise into the United States by fraud,
gross negligence, or negligence. The guidelines for remitting and
mitigating penalties relating to violations of Sec. 592 appear as
Appendix B to Part 171 of the Customs Regulations.
The full text of the proposed revised guidelines appears at the end
of this document. It is preceded by a summary of the more significant
proposed revisions to the guidelines. Much of the proposed revision of
the penalty guidelines consists of a reorganization of the content of
the current guidelines into a new format that is intended to more
clearly identify important provisions which are contained in the
present text.
Summary of Proposed Guidelines
After the introductory text, the proposed revised guidelines break
current paragraph (A) into 2 paragraphs. Proposed paragraph (A) now
discusses what constitutes Sec. 592 violations and proposed paragraph
(B) discusses what is meant by materiality.
Paragraph (A) now clarifies that placing merchandise in-bond is
considered entering or introducing merchandise into the United States
for purposes of Sec. 592. The paragraph also makes it clear that if one
unintentionally transmits a clerical error to Customs electronically,
and that clerical error is transmitted repetitively by the electronic
system, Customs will not consider repetitions of the non-intentional
electronic transmission of the initial clerical error as constituting a
pattern, unless Customs has drawn the error to the party's attention.
In the proposed new paragraph (B), defining materiality under
Sec. 592, that definition is expanded by providing that a document,
statement, act, or omission is material if it significantly impairs
Customs ability to collect and report accurate trade statistics,
deceives the public as to the source, origin or quality of the
merchandise, or constitutes an unfair trade practice in violation of
federal law.
Proposed paragraph (C) now discusses the degrees of culpability
under Sec. 592. The degrees of culpability are currently discussed in
paragraph (B).
A new paragraph (D) is proposed to be added to include terms used
throughout the guidelines. Included in this paragraph are discussions
of the terms: duty loss violations; non-duty loss violations; actual
loss of duty; potential loss of duty; reasonable care; clerical error;
and mistake of fact.
The proposed guidelines contain a new paragraph (E) that is
intended to track the administrative penalty process in chronological
order. It is a revision of current paragraph (C). It begins with the
case initiation and proceeds to describe the considerations pertinent
to the decision to issue a pre-penalty notice and how the different
types of violations can produce different proposed claim amounts
depending upon the level of culpability and the presence of mitigating
and/or aggravating factors. The proposed guidelines now contain express
guidance regarding statute of limitations considerations and Customs
policy regarding waivers when the issuance of pre-penalty and penalty
notices are involved.
Continuing in their chronological progression, the proposed
guidelines next address steps to be taken when Customs decides whether
to close a case or issue a penalty notice. Most of this material is
presently contained in paragraph (C)(2) of the current guidelines.
However, the proposed guidelines provide that penalty notices can
indicate higher degrees of culpability and proposed penalty amounts
than were contained in the original pre-penalty notice if less than 9
months remain before the expiration of the statute of limitations, and
a waiver of the statute has not been received. The current guidelines
provide that such increased penalty notices would only be issued if
less than 3 months remained.
Paragraph (F) of the proposed guidelines covers the procedures that
are to be followed and elements that Customs will consider as part of
the case record for any mitigating and/or aggravating factors. The
existing guidelines discuss mitigating factors in paragraph (F) and
aggravating factors in paragraph (G). The new paragraph is arranged so
the various types and degrees of violations are explained and
respective mitigation considerations are explained. The paragraph also
informs the reader who within Customs has the authority to cancel or
remit penalty claims.
Paragraph (F)(2)(f) provides a discussion of prior disclosure and
the reduced penalties based upon the different levels of culpability
for a valid prior disclosure. Prior disclosure is discussed in
paragraph (E) of the existing guidelines.
Paragraph (G) of the proposed guidelines discusses the factors that
are considered by Customs in proposing a penalty or mitigating an
assessed penalty claim. Among these factors are:
[[Page 57630]]
an error by Customs that contributed to the violation; the extent of
cooperation by the violator with the investigation by Customs into the
alleged violation; whether or not the violator takes immediate steps to
remedy the situation that caused the violation; and the prior record of
the violator in its dealings with Customs. This paragraph combines the
factors currently located in paragraphs (F) and (H) of the existing
guidelines. It was felt that a separate paragraph was no longer
necessary for ``extraordinary'' factors such as the ability of Customs
to obtain personal jurisdiction over the violator, the violator's
financial status, and whether Customs had actual knowledge of repeated
violations but failed to inform the violator thus depriving him of the
opportunity to take corrective action. All these factors are now
contained in the one paragraph, but additional factors may be
considered in appropriate circumstances.
Paragraph (H) contains the factors that Customs believes are to be
treated as aggravating factors when considering mitigation of proposed
or assessed penalties. Most of these factors are currently contained in
paragraph (G) of the existing guidelines. While the list of factors is
not intended to be all-inclusive, two new factors have been added. They
are: the discovery of evidence of a motive to evade a prohibition or
restriction on the admissibility of merchandise, and failure to comply
with a lawful demand for records or a Customs summons.
Paragraph (I) of the proposed guidelines addresses offers in
compromise (settlement offers). This is a new element not contained in
the existing guidelines. The paragraph instructs parties who wish to
submit a civil offer in compromise pursuant to 19 U.S.C. 1617 to follow
procedures outlined in Sec. 161.5 of the Customs Regulations (19 CFR
161.5). The paragraph summarizes what steps will be taken by both
parties once such an offer has been made.
Paragraph (J) of the proposed guidelines contains instructions to
be followed in instances where Customs makes a demand for payment of
actual loss of duties pursuant to Sec. 592(d). This is a subject not
addressed in the existing guidelines. The paragraph provides that
Customs will follow the procedures set forth in Sec. 162.79b of the
Customs Regulations (19 CFR 162.79b) and states that no such demand
will be issued unless the record establishes the presence of a
violation of Sec. 592(a). The paragraph states that, absent statute of
limitations problems, Customs will endeavor to issue Sec. 592(d)
demands to concerned sureties and non-violator importers only after
default by principals.
Paragraph (K) of the proposed guidelines addresses violations of
Sec. 592 by brokers. The existing guidelines discuss brokers in
paragraph (I). The paragraph continues the present practice of applying
the overall mitigation guidelines in instances of fraud or where the
broker shares in the financial benefits of a violation. However, where
there has been no fraud or sharing of the financial benefits, the
proposal removes the dollar limitations contained in the present
guidelines and instructs Customs to proceed against the broker under 19
U.S.C. 1641.
Paragraph (L) of the proposed guidelines covers arriving travelers
and consists of a reordering of the current provisions of paragraph (J)
of the present guidelines.
Paragraph (M) of the proposed guidelines refers Customs officers to
other Federal agencies for recommendations in instances where
violations of laws administered by other agencies are discovered. These
provisions are the same as those contained in paragraph (K) of the
existing guidelines.
Comments
Before adopting this proposal, consideration will be given to any
written comments (preferably in triplicate) that are timely submitted
to Customs. All such comments received from the public pursuant to this
notice of proposed rulemaking will be available for public inspection
in accordance with the Freedom of Information Act (5 U.S.C. 552),
Sec. 1.4, Treasury Department 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, 1300 Pennsylvania Avenue, NW, 3rd Floor,
Washington, D.C.
Regulatory Flexibility Act
Although comments have been solicited on this proposal, because the
proposed amendment relates to rules of agency procedure and policy no
notice of proposed rulemaking is required pursuant to 5 U.S.C. 553. For
this reason the document is not subject to the provisions of the
Regulatory Flexibility Act (5 U.S.C. 601 et seq.).
Executive Order 12866
Because the document is not regulatory in nature, but merely serves
to inform the public about certain agency procedures and practices, the
proposed amendment does not meet the criteria for a ``significant
regulatory action'' under 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.
List of Subjects in 19 CFR Part 171
Customs duties and inspection, Law enforcement, Penalties, Seizures
and forfeitures.
Proposed Amendment to the Regulations
It is proposed to amend Part 171 of the Customs Regulations (19 CFR
part 171) as set forth below:
PART 171--FINES, PENALTIES, AND FORFEITURES
1. The general authority citation for Part 171 continues to read as
follows:
Authority: 19 U.S.C. 66, 1592, 1618, 1624. The provisions of
subpart C also issued under 22 U.S.C. 401; 46 U.S.C. App. 320 unless
otherwise noted.
2. It is proposed to revise Appendix B to Part 171 to read as
follows:
Appendix B to Part 171--Customs Regulations, Guidelines for the
Imposition and Mitigation of Penalties for Violations of 19 U.S.C.
1592
A monetary penalty incurred under section 592 of the Tariff Act of
1930, as amended (19 U.S.C. 1592; hereinafter referred to as section
592) may be remitted or mitigated under section 618 of the Tariff Act
of 1930, as amended (19 U.S.C. 1618), if it is determined that there
are mitigating circumstances to justify remission or mitigation. The
guidelines below will be used by the Customs Service in arriving at a
just and reasonable assessment and disposition of liabilities arising
under section 592 within the stated limitations. It is intended that
these guidelines shall be applied by Customs officers in pre-penalty
proceedings and in determining the monetary penalty assessed in any
penalty notice. The assessed penalty or 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 section 592(e).
It should be understood that any mitigated penalty is conditioned upon
payment of any actual loss of duty as well as a release by the party
that indicates that the mitigation
[[Page 57631]]
decision constitutes full accord and satisfaction. Further, mitigation
decisions are not rulings within the meaning of part 177 of the Customs
Regulations (19 CFR part 177). Lastly, these guidelines may supplement,
and are not intended to preclude application of, any other special
guidelines promulgated by Customs.
(A) Violations of Section 592
Without regard to whether the United States is or may be deprived
of all or a portion of any lawful duty thereby, a violation of section
592 occurs when a person, through fraud, gross negligence, or
negligence, enters, introduces, or attempts to enter or introduce any
merchandise into the commerce of the United States by means of any
document, written or oral statement, or act that is material and false,
or any omission that is material; or when a person aids or abets any
other person in the entry, introduction, or attempted entry or
introduction of merchandise by such means. It should be noted that the
language ``entry, introduction, or attempted entry or introduction''
encompasses placing merchandise in-bond (e.g., filing an immediate
transportation application). There is no violation if the falsity or
omission 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
unintentional repetition by an electronic system of an initial clerical
error generally shall not constitute a pattern of negligent conduct.
Nevertheless, if Customs has drawn the party's attention to the
unintentional repetition by an electronic system of an initial clerical
error, subsequent failure to correct the error could constitute a
violation of section 592. Also, the unintentional repetition of a
clerical mistake over a significant period of time or involving many
entries could indicate a pattern of negligent conduct and a failure to
exercise reasonable care.
(B) Definition of Materiality Under Section 592.
A document, statement, act, or omission is material if it had the
potential to influence or was capable of influencing agency action
including, but not limited to a Customs action regarding: (1)
determination of the classification, appraisement, or admissibility of
merchandise (e.g., whether merchandise is prohibited or restricted);
(2) determination of an importer's liability for duty (including
marking, antidumping, and/or countervailing duty); (3) collection and
reporting of accurate trade statistics; (4) determination as to the
source, origin, or quality of merchandise; (5) determination of whether
an unfair trade practice has been committed under the anti-dumping or
countervailing duty laws or a similar statute; (6) determination of
whether an unfair act has been committed involving patent, trademark,
or copyright infringement; or (7) the determination of whether any
other unfair trade practice has been committed in violation of federal
law.
(C) Degrees of Culpability Under Section 592
The three degrees of culpability under section 592 for the purposes
of administrative proceedings are:
(1) Negligence. A violation is determined to be negligent if it
results from an act or acts (of commission or omission) done through
either the failure to exercise the degree of reasonable care and
competence expected from a person in the same circumstances either: (a)
in ascertaining the facts or in drawing inferences therefrom, in
ascertaining the offender's obligations under the statute; or (b) in
communicating information in a manner so that it may be understood by
the recipient. As a general rule, a violation is negligent if it
results from failure to exercise reasonable care and competence: (a) to
ensure that statements made and information provided in connection with
the importation of merchandise are complete and accurate; or (b) to
perform any material act required by statute or regulation.
(2) Gross Negligence. A violation is deemed to be grossly 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.
(3) Fraud. A violation is determined to be fraudulent if a 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.
(D) Discussion of Additional Terms
(1) Duty Loss Violations. A section 592 duty loss violation
involves those cases where there has been a loss of duty attributable
to an alleged violation.
(2) Non-duty Loss Violations. A section 592 non-duty loss violation
involves cases where the record indicates that an alleged violation is
principally attributable to evasion of a prohibition, restriction, or
other non-duty related consideration involving the importation of the
merchandise.
(3) Actual Loss of Duties. An actual loss of duty occurs where
there is a loss of duty including any marking, anti-dumping, or
countervailing duties, or any tax and fee (e.g., merchandise processing
and/or harbor maintenance fees) attributable to a liquidated Customs
entry, and the merchandise covered by the entry has been entered or
introduced (or attempted to be entered or introduced) in violation of
section 592.
(4) Potential Loss of Duties. A potential loss of duty occurs where
an entry remains unliquidated and there is a loss of duty, including
any marking, anti-dumping or countervailing duties or any tax and fee
(e.g., merchandise processing and/or harbor maintenance fees)
attributable to a violation of section 592, but the violation was
discovered prior to liquidation. In addition, a potential loss of duty
exists where Customs discovers the violation and corrects the entry to
reflect liquidation at the proper classification and value. In other
words, the potential loss in such cases equals the amount of duty, tax
and fee that would have occurred had Customs not discovered the
violation prior to liquidation and taken steps to correct the entry.
(5) Total Loss of Duty. The total loss of duty is the sum of any
actual and potential loss of duty attributable to alleged violations of
section 592 in a particular case. Payment of any actual and/or
potential loss of duty shall not affect or reduce the total loss of
duty used for assessing penalties as set forth in these guidelines. The
``multiples'' set forth below in paragraph (F)(2) involving assessment
and disposition of cases shall utilize the ``total loss of duty''
amount in arriving at the appropriate assessment or disposition.
(6) Reasonable Care. General Standard: Importers of record or their
agents are required to exercise reasonable care in fulfilling their
responsibilities involving entry of merchandise. These responsibilities
include, but are not limited to: providing a classification and value
for the merchandise; furnishing information sufficient to permit
Customs to determine the final classification and valuation of
merchandise; and taking measures that will lead to and assure the
preparation of accurate documentation. Customs will consider an
importer's failure to follow a binding Customs ruling a lack of
reasonable care. In addition, unreasonable classification will be
considered a lack of reasonable care (e.g., imported snow skis are
classified as water skis). Failure
[[Page 57632]]
to exercise reasonable care in connection with the importation of
merchandise may result in imposition of a section 592 penalty for
fraud, gross negligence or negligence.
(7) Clerical Error. A clerical error is an error in the
preparation, assembly or submission of import documentation or
information provided to Customs that results from a mistake in
arithmetic or transcription that is not part of a pattern of
negligence. The mere non-intentional repetition by an electronic system
of an initial clerical error does not constitute a pattern of
negligence. Nevertheless, as stated earlier, if Customs has drawn a
party's attention to the non-intentional repetition by an electronic
system of an initial clerical error, subsequent failure to correct the
error could constitute a violation of section 592. Also, the
unintentional repetition of a clerical mistake over a significant
period of time or involving many entries could indicate a pattern of
negligent conduct and a failure to exercise reasonable care.
(8) Mistake of Fact. A mistake of fact is a false statement or
omission that is based on a bona fide erroneous belief as to the facts,
so long as the belief itself did not result from negligence in
ascertaining the accuracy of the facts.
(E) Penalty Assessment
(1) Case Initiation--Pre-penalty Notice.
(a) Generally. As provided in section 162.77, Customs Regulations
(19 CFR 162.77), if the appropriate Customs field officer has
reasonable cause to believe that a violation of section 592 has
occurred and determines that further proceedings are warranted, the
Customs field officer shall issue to each person concerned a notice of
intent to issue a claim for a monetary penalty (i.e., the ``pre-penalty
notice''). In issuing such a pre-penalty notice, the Customs field
officer shall make a tentative determination of the degree of
culpability and the amount of the proposed claim. Payment of any actual
and/or potential loss of duty shall not affect or reduce the total loss
of duty used for assessing penalties as set forth in these guidelines.
The ``multiples'' set forth in paragraphs (F)(2)(a)(i), (b)(i) and
(c)(i) involving assessment and disposition of duty loss violation
cases shall use the ``total loss of duty'' amount in arriving at the
appropriate assessment or disposition. Further, where separate duty
loss and non-duty loss violations occur on the same entry, it is within
the Customs field officer's discretion to assess both duty loss and
non-duty loss penalties, or only one of them. Where only one of the
penalties is assessed, the Customs field officer has the discretion to
select which penalty (duty loss or non-duty loss) shall be assessed.
Also, where there is only one violation accompanied by an incidental or
nominal loss of duties, the Customs field officer may assess a non-duty
loss penalty where the incidental or nominal duty loss resulted from a
separate non-duty loss violation. The Customs field officer shall
propose a level of culpability in the pre-penalty notice that conforms
to the level of culpability suggested by the evidence at the time of
issuance. Moreover, the pre-penalty notice shall include a statement
that it is Customs practice to base its actions on the earliest point
in time that the statute of limitations may be asserted (i.e., the date
of occurrence of the alleged violation) inasmuch as the final
resolution of a case in court may be less than a finding of fraud. A
pre-penalty notice that is issued to a party in a case where Customs
determines a claimed prior disclosure is not valid--owing to the
disclosing party's knowledge of the commencement of a formal
investigation of a disclosed violation--shall include a copy of a
written document that evidences the commencement of a formal
investigation. In addition, a pre-penalty notice is not required if a
violation involves a non-commercial importation or if the proposed
claim does not exceed $1,000.
(b) Pre-penalty Notice--Proposed Claim amount.
(i) Fraud. In general, if a violation is determined to be the
result of fraud, the proposed claim ordinarily will be assessed in an
amount equal to the domestic value of the merchandise. Exceptions to
assessing the penalty at the domestic value may be warranted in unusual
circumstances such as a case where the domestic value of the
merchandise is disproportionately high in comparison to the loss of
duty attributable to an alleged violation (e.g., a total loss of duty
of $10,000 involving 10 entries with a total domestic value of
$2,000,000). Also, it is incumbent upon the appropriate Customs field
officer to consider whether mitigating factors are present warranting a
reduction in the customary domestic value assessment. In all 592 cases
of this nature regardless of the dollar amount of the proposed claim,
the Customs field officer shall obtain the approval of the Penalties
Branch at Headquarters prior to issuance of a pre-penalty notice at an
amount less than domestic value.
(ii) Gross Negligence and Negligence. In determining the amount of
the proposed claim in cases involving gross negligence and negligence,
the appropriate Customs field officer shall take into account the
gravity of the offense, the amount of loss of duty, the extent of
wrongdoing, mitigating or aggravating factors, and other factors
bearing upon the seriousness of a violation, but in no case shall the
assessed penalty exceed the statutory ceilings prescribed in section
592. In cases involving gross negligence and negligence, penalties
equivalent to the ceilings stated in paragraphs (F)(2)(b) and (c)
regarding disposition of cases may be appropriate in cases involving
serious violations, e.g., violations involving a high loss of duty or
significant evasion of import prohibitions or restrictions. A
``serious'' violation need not result in a loss of duty. The violation
may be serious because it affects the admissibility of merchandise or
the enforcement of other laws, as in the case of quota evasions, false
statements made to conceal the dumping of merchandise, or violations of
exclusionary orders of the International Trade Commission.
(c) Technical Violations. Violations where the loss of duty is
nonexistent or minimal and/or that have an insignificant impact on
enforcement of the laws of the United States may justify a proposed
penalty in a fixed amount not related to the value of merchandise, but
an amount believed sufficient to have a deterrent effect: e.g.,
violations involving the subsequent sale of merchandise or vehicles
entered for personal use; violations involving failure to comply with
declaration or entry requirements that do not change the admissibility
or entry status of merchandise or its appraised value or
classification; violations involving the illegal diversion to domestic
use of instruments of international traffic; and local point-to-point
traffic violations. Generally, a penalty in a fixed amount ranging from
$1,000 to $2,000 is appropriate in cases where there are no prior
violations of the same kind. However, fixed sums ranging from $2,000 to
$10,000 may be appropriate in the case of multiple or repeated
violations. Fixed sum penalty amounts are not subject to further
mitigation and may not exceed the maximum amounts stated in section 592
and in these guidelines.
(d) Statute of Limitations Considerations--Waivers. Prior to
issuance of any section 592 pre-penalty notice, the appropriate Customs
field officer shall calculate the statute of limitations attributable
to an alleged violation. Inasmuch as 592 cases are reviewed de novo by
the Court of International Trade, the statute of limitations
calculation in cases alleging fraud should assume a level of
[[Page 57633]]
culpability of gross negligence or negligence, i.e., ordinarily
applying a shorter period of time for statute of limitations purposes.
In accordance with section 162.78 of the Customs Regulations, if less
than 1 year remains before the statute of limitations may be raised as
a defense, a shortened response time may be specified in the notice--
but in no case, less than 7 business days from the date of mailing. In
cases of shortened response times, the Customs field officer should
notify alleged violators by telephone and use all reasonable means
(e.g., facsimile transmission of a copy of the notice) to expedite
receipt of the notice by the alleged violators. Also in such cases, the
appropriate Customs field officer should advise the alleged violator
that additional time to respond to the pre-penalty notice will be
granted only if an acceptable waiver of the statute of limitations is
submitted to Customs. With regard to waivers of the statute of
limitations, it is Customs practice to request waivers concurrently
both from all potential alleged violators and their sureties.
(2) Closure of Case or Issuance of Penalty Notice.
(a) Case Closure. The appropriate Customs field officer may find,
after consideration of the record in the case, including any pre-
penalty response/oral presentation, that issuance of a penalty notice
is not warranted. In such cases, the Customs field officer shall
provide written notification to the alleged violator who received the
subject pre-penalty notice that the case is closed.
(b) Issuance of Penalty Notice. In the event that circumstances
warrant issuance of a notice of penalty pursuant to section 162.79 of
the Customs Regulations, the appropriate Customs field officer shall
give consideration to all available evidence with respect to the
existence of material false statements or omissions (including evidence
presented by an alleged violator), the degree of culpability, the
existence of a prior disclosure, the seriousness of the violation, and
the existence of mitigating or aggravating factors. In cases involving
fraud, the penalty notice shall be in the amount of the domestic value
of the merchandise unless a lesser amount is warranted as described in
paragraph (E)(1)(b)(i). In general, the degree of culpability or
proposed penalty amount stated in a pre-penalty notice shall not be
increased in the penalty notice. If, subsequent to the issuance of a
pre-penalty notice and upon further review of the record, the
appropriate Customs field officer determines that a higher degree of
culpability exists, the original pre-penalty notice should be rescinded
and a new pre-penalty notice issued that indicates the higher degree of
culpability and increased proposed penalty amount. However, if less
than 9 months remain before expiration of the statute of limitations,
and a waiver of the statute of limitations has not been provided to
Customs by the party named in the pre-penalty notice, the higher degree
of culpability and higher penalty amount may be indicated in the notice
of penalty without rescinding the earlier pre-penalty notice. In such
cases, the Customs field officer shall consider whether a lower degree
of culpability is appropriate or whether to change the information
contained in the pre-penalty notice.
(c) Statute of Limitations Considerations. Prior to issuance of any
section 592 penalty notice, the appropriate Customs field officer again
shall calculate the statute of limitations attributable to the alleged
violation and request a waiver(s) of the statute, if necessary. In
accordance with section 171.12 of the Customs Regulations, if less than
180 days remain before the statute of limitations may be raised as a
defense, a shortened response time may be specified in the notice--but
in no case less than 7 business days from the date of mailing. In such
cases, the Customs field officer should notify an alleged violator by
telephone and use all reasonable means (e.g., facsimile transmission of
a copy) to expedite receipt of the penalty notice by the alleged
violator. Also, in such cases, the Customs field officer should advise
an alleged violator that, if an acceptable waiver of the statute of
limitations is provided, additional time to respond to the penalty
notice may be granted.
(F) Administrative Penalty Disposition
(1) Generally. It is the policy of the Department of the Treasury
and the Customs Service to grant mitigation in appropriate
circumstances. In certain cases, based upon criteria to be developed by
Customs, mitigation may take an alternative form, whereby a violator
may eliminate or reduce his or her section 592 penalty liability by
taking action(s) to correct problems that caused the violation. In any
case, in determining the administrative section 592 penalty
disposition, the appropriate Customs field officer shall consider the
entire case record--taking into account the presence of any mitigating
or aggravating factors. All such factors should be set forth in the
written administrative section 592 penalty decision. An administrative
disposition is considered ``mitigated'' if the remission amount in the
Customs decision is less than the amount stated as a penalty in the
penalty notice. Once again, Customs emphasizes that any penalty
liability which is mitigated is conditioned upon payment of any actual
loss of duty in addition to that penalty. Finally, section 592 penalty
dispositions in duty-loss and non-duty-loss cases will proceed in the
manner set forth below.
(2) Dispositions.
(a) Fraudulent Violation. Penalty dispositions for a fraudulent
violation shall be calculated as follows:
(i) Duty Loss Violation. An amount ranging from a minimum of 5
times the total loss of duty to a maximum of 8 times the total loss of
duty--but in any such case the amount may not exceed the domestic value
of the merchandise. A penalty disposition greater than 8 times the
total loss of duty may be imposed in a case involving an egregious
violation, or a public health and safety violation, or due to the
presence of aggravating factors, but again, the amount may not exceed
the domestic value of the merchandise.
(ii) Non-Duty Loss Violation. An amount ranging from a minimum of
50 percent of the dutiable value to a maximum of 80 percent of the
dutiable value of the merchandise. A penalty disposition greater than
80 percent of the dutiable value may be imposed in a case involving an
egregious violation, or a public health and safety violation, or due to
the presence of aggravating factors, but the amount may not exceed the
domestic value of the merchandise.
(b) Grossly Negligent Violation. Penalty dispositions for a grossly
negligent violation shall be calculated as follows:
(i) Duty Loss Violation. An amount ranging from a minimum of 2.5
times the total loss of duty to a maximum of 4 times the total loss of
duty--but in any such case, the amount may not exceed the domestic
value of the merchandise.
(ii) Non-Duty Loss Violation. An amount ranging from a minimum of
25 percent of the dutiable value to a maximum of 40 percent of the
dutiable value of the merchandise--but in any such case, the amount may
not exceed the domestic value of the merchandise.
(c) Negligent Violation. Penalty dispositions for a negligent
violation shall be calculated as follows:
(i) Duty Loss Violation. An amount ranging from a minimum of 0.5
times the total loss of duty to a maximum of 2 times the total loss of
duty, but, in any such case, the amount may not exceed the domestic
value of the merchandise.
(ii) Non-Duty Loss Violation. An amount ranging from a minimum of 5
percent of the dutiable value to a
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maximum of 20 percent of the dutiable value of the merchandise, but, in
any such case, the amount may not exceed the domestic value of the
merchandise.
(d) Authority to Cancel Claim. Upon issuance of a penalty notice,
Customs has set forth its formal monetary penalty claim. Except as
provided under 19 CFR 171.31, in those section 592 cases within the
administrative jurisdiction of the concerned Customs field office, the
appropriate Customs field officer shall cancel any such formal claim
whenever it is determined that an essential element of the alleged
violation is not established by the agency record, including pre-
penalty and penalty responses provided by the alleged violator. Except
as provided under 19 CFR 171.31, in those section 592 cases within
Customs Headquarters jurisdiction, the appropriate Customs field
officer shall cancel any such formal claim whenever it is determined
that an essential element of the alleged violation is not established
by the agency record, and such cancellation action precedes the date of
the Customs field officer's receipt of the alleged violator's petition
responding to the penalty notice. On and after the date of Customs
receipt of the petition responding to the penalty notice, jurisdiction
over the action rests with Customs Headquarters including the authority
to cancel the claim.
(e) Remission of Claim. If the Customs field officer believes that
a claim for monetary penalty should be remitted for a reason not set
forth in these guidelines, the Customs field officer should first seek
approval from the Chief, Penalties Branch, Customs Service
Headquarters.
(f) Prior Disclosure Dispositions. It is the policy of the
Department of the Treasury and the Customs Service to encourage the
submission of valid prior disclosures that comport with the laws,
regulations, and policies governing this provision of section 592.
Customs will determine the validity of the prior disclosure including
whether or not the prior disclosure sets forth all the required
elements of a violation of section 592. A valid prior disclosure
warrants the imposition of the reduced Customs civil penalties set
forth below:
(1) Fraudulent Violation.
(a) Duty Loss Violation. The claim for monetary penalty shall be
equal to 100 percent of the total loss of duty (i.e., actual +
potential) resulting from the violation.
(b) Non-Duty Loss Violation. The claim for monetary penalty shall
be equal to 10 percent of the dutiable value of the merchandise in
question.
(2) Gross Negligence and Negligence Violation.
(a) Duty Loss Violation. The claim for monetary penalty shall be
equal to the interest on the actual loss of duty computed from the date
of liquidation to the date of the party's tender of the actual loss of
duty resulting from the violation. Customs notes that there is no
monetary penalty in these cases if the duty loss is potential in
nature.
(b) Non-Duty Loss Violation. There is no monetary penalty in such
cases and any claim for monetary penalty which had been issued prior to
the decision granting prior disclosure shall be remitted in full.
(G) Mitigating Factors
The following factors shall be considered in mitigation of the
proposed or assessed penalty claim or the amount of the administrative
penalty decision, provided that the case record sufficiently
establishes their existence. The list is not all-inclusive.
(1) Contributory Customs Error. This factor includes misleading or
erroneous advice given by a Customs official in writing to the alleged
violator only if it appears that the alleged violator reasonably relied
upon the 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 it is determined that the Customs error was the sole
cause of the violation, the proposed or assessed penalty claim shall be
canceled. If the Customs error contributed to the violation, but the
violator also is culpable, the Customs error shall be considered as a
mitigating factor.
(2) Cooperation with the Investigation. To obtain the benefits of
this factor, the violator must exhibit extraordinary cooperation beyond
that expected from a person under investigation for a Customs
violation. Some examples of the cooperation contemplated include
assisting Customs officers to an unusual degree in auditing the books
and records of the 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
violator should 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.
(3) Immediate Remedial Action. This factor includes the payment of
the actual loss of duty prior to the issuance of a penalty notice and
within 30 days after Customs notifies the alleged violator of the
actual loss of duties attributable to the alleged violation. In
appropriate cases, where the 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.
(4) Prior Good Record. Prior good record is a factor only if the
alleged violator is able to demonstrate a consistent pattern of
importations without violation of section 592, or any other statute
prohibiting false or fraudulent importation practices. This factor will
not be considered in alleged fraudulent violations of section 592.
(5) 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).
(6) Customs Knowledge. Additional relief in non-fraud cases (which
also are not the subject of a criminal investigation) will be granted
if it is determined that Customs had actual knowledge of a violation
and, without justification, failed to inform the violator so that it
could have taken earlier corrective action. In such cases, if a penalty
is to be assessed involving repeated violations of the same kind, the
maximum penalty amount for violations occurring after the date on which
actual knowledge was obtained by Customs will be limited to two times
the loss of duty in duty-loss cases or twenty percent of the dutiable
value in non-duty-loss cases if the continuing violations were the
result of gross negligence, or the lesser of one time the loss of duty
in duty-loss cases or ten percent of dutiable value in non-duty-loss
cases if the violations were the result of negligence. This factor
shall not be applicable when a substantial
[[Page 57635]]
delay in the investigation is attributable to the alleged violator.
(H) 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 administrative penalty decision. 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 utilized
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.
(1) Obstructing an investigation or audit,
(2) Withholding evidence,
(3) Providing misleading information concerning the violation,
(4) Prior substantive violations of section 592 for which a final
administrative finding of culpability has been made,
(5) Textile imports that have been the subject of illegal
transshipment, whether or not the merchandise bears false country of
origin markings,
(6) Evidence of a motive to evade a prohibition or restriction on
the admissibility of the merchandise (e.g., evading a quota
restriction),
(7) Failure to comply with a lawful demand for records or a Customs
summons.
(I) Offers in Compromise (``Settlement Offers'')
Parties who wish to submit a civil offer in compromise pursuant to
title 19, United States Code, section 1617 (also known as a
``settlement offer'' ) in connection with any section 592 claim or
potential section 592 claim should follow the procedures outlined in
section 161.5 of the Customs Regulations (19 CFR 161.5). Settlement
offers do not involve ``mitigation'' of a claim or potential claim, but
rather ``compromise'' an action or potential action where Customs
evaluation of potential litigation risks, or the alleged violator's
financial position, justifies such a disposition. In any case where a
portion of the offered amount represents a tender of unpaid duties, the
offeror may designate the amount attributable to such duties in the
written offer; otherwise the Customs letter of acceptance will so
designate any such duty amount. The offered amount should be deposited
at the Customs field office responsible for handling the section 592
claim or potential section 592 claim. The offered amount will be held
in a suspense account pending acceptance or rejection of the offer in
compromise. In the event the offer is rejected, the concerned Customs
field office shall promptly initiate a refund of the money deposited in
the suspense account to the offeror.
(J) Section 592(d) Demands
Section 592(d) demands for actual losses of duty ordinarily are
issued in connection with a penalty action, or as a separate demand
without an associated penalty action. In either case, information must
be present establishing a violation of section 592(a). In those cases
where the appropriate Customs field officer determines that issuance of
a penalty under section 592 is not warranted (notwithstanding the
presence of information establishing a violation of section 592(a)),
but that circumstances do warrant issuance of a demand for payment of
an actual loss of duty pursuant to section 592(d), the Customs field
officer shall follow the procedures set forth in section 162.79b of the
Customs Regulations (19 CFR 162.79b). Except in cases where less than
one year remains before the statute of limitations may be raised as a
defense, information copies of all section 592(d) demands should be
sent to all concerned sureties and the importer of record if such party
is not an alleged violator. Also, except in cases where less than one
year remains before the statute of limitations may be raised as a
defense, Customs will endeavor to issue all section 592(d) demands to
concerned sureties and non-violator importers of record only after
default by principals.
(K) Customs Brokers
If a customs broker commits a section 592 violation and the
violation involves fraud, or the broker committed a grossly negligent
or negligent violation and shared in the benefits of the violation to
an extent over and above customary brokerage fees, the customs broker
shall be subject to these guidelines. However, if the customs broker
commits either a grossly negligent or negligent violation of section
592 (without sharing in the benefits of the violation as described
above), the concerned Customs field officer shall proceed against the
customs broker pursuant to the remedies provided under 19 U.S.C. 1641.
(L) Arriving Travelers
(1) Liability. Except as set forth below, proposed and assessed
penalties for violations by an arriving traveler must be determined in
accordance with these guidelines.
(2) Limitations on Liability on Non-commercial Violations. In the
absence of a referral for criminal prosecution, monetary penalties
assessed in the case of an alleged first-offense, non-commercial,
fraudulent violation by an arriving traveler will generally be limited
as follows:
(a) Fraud--Duty-loss Violation. An amount ranging from a minimum of
three times the loss of duty to a maximum of five times the loss of
duty, provided the loss of duty is also paid;
(b) Fraud--Non-duty Loss Violation. An amount ranging from a
minimum of 30 percent of the dutiable value of the merchandise to a
maximum of 50 percent of its dutiable value;
(c) Gross Negligence--Duty Loss Violation. An amount ranging from a
minimum of 1.5 times the loss of duty to a maximum of 2.5 times the
loss of duty provided the loss of duty is also paid;
(d) Gross Negligence--Non-duty Loss Violation. An amount ranging
from a minimum of 15 percent of the dutiable value of the merchandise
to a maximum of 25 percent of its dutiable value;
(e) Negligence--Duty Loss Violation. An amount ranging from a
minimum of .25 times the loss of duty to a maximum of 1.25 times the
loss of duty provided that the loss of duty is also paid;
(f) Negligence--Non-duty Loss Violation. An amount ranging from a
minimum of 2.5 percent of the dutiable value of the merchandise to a
maximum of 12.5 percent of its dutiable value;
(g) Special Assessments/Dispositions. No penalty action shall be
initiated against an arriving traveller if the violation is not
fraudulent or commercial, the loss of duty is $100.00 or less, and
there are no other concurrent or prior violations of section 592 or
other statutes prohibiting false or fraudulent importation practices.
However, all lawful duties shall be collected. Also, no penalty cases
shall be initiated against an arriving traveler if the violation is not
fraudulent or commercial, there are no other concurrent or prior
violations of section 592, and a penalty is not believed necessary to
deter future violations or to serve a law enforcement purpose.
(M) Violations of Laws Administered by Other Federal Agencies
Violations of laws administered by other federal agencies (such as
the Food and Drug Administration, Consumer Product Safety Commission,
Foreign Assets Control, Agriculture, Fish and Wildlife) should be
referred to the appropriate agency for its recommendation. Such
recommendation, if promptly tendered, will be given due consideration,
and may be followed provided the
[[Page 57636]]
recommendation would not result in a disposition inconsistent with
these guidelines.
Samuel H. Banks,
Acting Commissioner of Customs.
Approved: August 3, 1998.
Dennis M. O'Connell.
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 98-28786 Filed 10-27-98; 8:45 am]
BILLING CODE 4820-02-P