[Federal Register Volume 65, Number 122 (Friday, June 23, 2000)]
[Rules and Regulations]
[Pages 39087-39098]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-15874]


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DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Part 171

[T.D. 00-41]
RIN 1515-AC08


Guidelines for the Imposition and Mitigation of Penalties for 
Violations of 19 U.S.C. 1592

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

ACTION: Final rule.

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SUMMARY: This document revises Appendix B to Part 171 of the Customs 
Regulations, which sets forth the guidelines for remitting and 
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 commerce of the United States by fraud, gross negligence, or 
negligence. Many of the changes to Appendix B reflect the Customs 
Modernization Act and its themes of ``informed compliance'' and 
``shared responsibility.''

EFFECTIVE DATE: July 24, 2000.

FOR FURTHER INFORMATION CONTACT: Charles D. Ressin, Penalties Branch 
(202) 927-2344.

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.
    In Appendix B to Part 171 of the Customs Regulations (19 CFR part 
171) Customs has guidelines for remitting and mitigating penalties 
relating to violations of section 592 of the Tariff Act of 1930, as 
amended (19 U.S.C. 1592) (hereinafter referred to as section 592). 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. In accordance with the 
``shared responsibility'' and ``informed compliance'' approach of the 
Mod Act, Customs proposed a revision of these guidelines in a notice of 
proposed rulemaking published in the Federal Register (63 FR 57628) on 
October 28, 1998. This proposed revision consisted of a reorganization 
of the content of the current guidelines into a new format intended to 
more clearly identify important provisions which are contained in the 
present text.

[[Page 39088]]

Below is a summary of the proposed revised guidelines.

Summary of Proposed Revised Guidelines

    After the introductory text, the proposed revised guidelines broke 
current section (A) into 2 paragraphs. Proposed section (A) discussed 
what constitutes section 592 violations and proposed section (B) 
discussed what is meant by materiality.
    Proposed section (A) clarified that placing merchandise in-bond is 
considered entering or introducing merchandise into the United States 
for purposes of section 592. The paragraph also made 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 proposed section (B), defining materiality under section 592, 
that definition was clarified 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 section (C) discussed the degrees of culpability under 
section 592. The degrees of culpability are currently discussed in 
section (B).
    A section (D) was proposed to be added to include terms used 
throughout the guidelines. Included in this section were 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.
    A section (E) was proposed to be added which tracked the 
administrative penalty process in chronological order. Proposed section 
(E) was a revision of current section (C). It began with the case 
initiation and proceeded 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 contained 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 addressed steps to be taken when Customs decides 
whether to close a case or issue a penalty notice. Most of this 
material is contained in paragraph (C)(2) of the current guidelines. 
However, the proposed guidelines provided 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.
    Section (F) of the proposed guidelines covered 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 
current guidelines discuss mitigating factors in section (F) and 
aggravating factors in section (G). Proposed section (F) was arranged 
so the various types and degrees of violations are explained and 
respective mitigation considerations are explained. The section also 
informed the reader who within Customs has the authority to cancel or 
remit penalty claims.
    Proposed paragraph (F)(2)(f) provided 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 section (E) of the current guidelines.
    Proposed section (G) of the guidelines discussed the factors that 
are considered by Customs in proposing a penalty or mitigating an 
assessed penalty claim. Among these factors are: 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; inexperience in importing; and the 
prior record of the violator in its dealings with Customs. This 
proposed section combined the factors located in sections (F) and (H) 
of the current guidelines. It was felt that a separate section 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 
were contained in the one section. The proposed section allowed that 
additional factors may be considered in appropriate circumstances.
    Proposed section (H) contained 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 found in 
section (G) of the current guidelines. While the list of factors was 
not intended to be all-inclusive, two new factors were proposed to be 
added. They were: 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.
    Section (I) of the proposed guidelines addressed offers in 
compromise (settlement offers). This was a new element not contained in 
the current guidelines. The proposed section instructed parties who 
wish to submit a civil offer in compromise pursuant to 19 U.S.C. 1617 
to follow procedures outlined in 161.5 of the Customs Regulations (19 
CFR 161.5). The section summarized what steps will be taken by both 
parties once such an offer has been made.
    Section (J) of the proposed guidelines contained instructions to be 
followed in instances where Customs makes a demand for payment of 
actual loss of duties pursuant to section 592(d). This is a subject not 
addressed in the current guidelines. The section provided that Customs 
will follow the procedures set forth in Sec. 162.79b of the Customs 
Regulations (19 CFR 162.79b) and stated that no such demand will be 
issued unless the record establishes the presence of a violation of 
section 592(a). The section stated that, absent statute of limitations 
problems, Customs will endeavor to issue section 592(d) demands to 
concerned sureties and non-violator importers only after default by 
principals.
    Section (K) of the proposed guidelines addressed violations of 
section 592 by brokers. The current guidelines discuss brokers in 
section (I). The section proposed to continue 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 proposed section removed the dollar limitations contained 
in the current guidelines and advised that Customs may charge the 
broker under 19 U.S.C. 1641.

[[Page 39089]]

    Section (L) of the proposed guidelines covered arriving travelers 
and consisted of a reordering of the provisions of section (J) of the 
current guidelines.
    Section (M) of the proposed guidelines referred 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 section (K) of the 
current guidelines.

Analysis of Comments

    The notice of proposed rulemaking invited public comments. The 
comment period closed on December 28, 1998. Seventeen comments were 
received. Many commenters applauded Customs efforts to re-organize and 
simplify the existing guidelines. Nine of the commenters set forth 
similar concerns and objections to Customs change in the guidelines 
relating to penalty assessment of customs brokers who violate section 
592. Also, eight of the commenters voiced concerns and recommendations 
regarding the proposed guidelines on a section by section basis. Three 
commenters also made general comments which were not directly related 
to a specific section of the proposal.
    The specific ``section by section'' recommendations and/or 
suggestions, general recommendations and/or suggestions, and the 
Customs responses to the comments, are set forth below.

Proposed Introductory Paragraph of the Guidelines

    Comment: Three commenters object to the language in the 
introductory paragraph that indicates that ``a 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 decision 
constitutes full accord and satisfaction.'' The commenters believe that 
if other statutory remedies are available to importers, the importers 
should have the right to pursue those remedies separately and 
distinctly from the settlement of any civil penalty for violation of 
section 592.
    Also, one commenter takes issue with Customs statement in the 
introduction that the guidelines ``may supplement, and are not intended 
to preclude application of, any other special guidelines promulgated by 
Customs.'' The commenter believes that the language is unclear and 
would permit Customs to issue, without prior notice, draconian special 
guidelines to fit the immediate needs of the agency.
    Customs Response: Customs does not agree that an alleged violator 
who seeks mitigation of a civil penalty initiated by Customs under 
section 592 is deprived of other statutory remedies or judicial 
recourse in the event that the party chooses not to comply with the 
agency decision. In other words, the party elects to pay the mitigated 
amount. The agency must, in turn, sue the party to collect an assessed 
penalty in the event that the violator decides not to comply with the 
agency decision. Consequently, given the elective nature of the 
mitigation proceedings and the availability of judicial recourse, we do 
not agree with the commenters' objections.
    Also, we do not share the commenter's concern regarding issuance of 
``special guidelines'' inasmuch as these guidelines merely reflect 
policies issued pursuant to the discretionary authority of the Customs 
Service pursuant to 19 U.S.C. 1618 to remit and mitigate penalties. As 
such, the Customs Service may depart from the guidelines as appropriate 
circumstances warrant, including the application of special guidelines.

Proposed Section (A) Violations of Section 592

    Comment: One commenter takes issue with Customs characterization of 
``in-bond'' movements as encompassed within the language ``entry, 
introduction, or attempted entry or introduction.'' The commenter 
believes that the in-bond language is an impermissible expansion of 
section 592. In the commenter's view, a mere transportation movement 
should not be considered an ``entry'' under section 592 because nothing 
has been presented to Customs for entry or introduction into the 
commerce of the United States.
    Two commenters express concern regarding Customs discussion of 
clerical error and pattern of negligent conduct. Specifically, one 
commenter believes that the section is contradictory because Customs 
initially states that ``an unintentional repetition by an electronic 
system of an initial clerical error, generally shall not constitute a 
pattern of negligent conduct'' unless Customs has brought the error to 
the party's attention. In the next sentence the commenter feels that 
Customs contradicts itself where it is stated that ``* * * 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.'' Both 
commenters believe that this language should be clarified.
    Customs Response: With respect to the objection regarding inclusion 
of ``in bond'' applications within the meaning of entry, introduction, 
or attempted entry or introduction, Customs does not believe that such 
inclusion contradicts either statute or regulation. For example, if 
merchandise entered under bond is subsequently diverted (i.e., 
``introduced'' into the commerce of the United States contrary to the 
terms of the bond, the penalty provisions of section 592 may apply.
    We also disagree with the two comments relating to Customs language 
concerning ``clerical error'' and ``pattern of negligent conduct.'' 
Clearly, in those cases where Customs calls the error to the attention 
of the party and the error is not corrected, the party may be subject 
to potential section 592 penalty. Similarly, in those cases where the 
repetition of a clerical mistake occurs over a significant period of 
time or involves many entries, a violation may occur if the facts and 
circumstances surrounding the transactions indicate a failure to 
exercise reasonable care. In the latter instance, the proposed language 
does not mandate assessment of a penalty, but rather, contemplates the 
possibility of a penalty depending on the facts and circumstances of 
the transactions at issue.

Proposed Section (B) Definition of Materiality Under Section 592

    Comment: Three commenters object to Customs definition of 
materiality as either ``too subjective'' or not within the scope of 
section 592. One of the commenters is of the opinion that the Court of 
Appeals' decision in Pentax Corp. v. Robinson, 125 F.3d 1457 (Fed. Cir. 
1997), amended, 135 F.3d 760 (1998), does not permit Customs to include 
an importer's liability for marking duties in the agency definition of 
materiality. Two commenters also expressed concern that the language 
``whether an unfair trade practice has been committed under the anti-
dumping or countervailing duty laws or a similar statute'' is too broad 
and may result in Customs adding its penalty on top of other agencies' 
statutory remedies. Similarly, one of these commenters also believes 
that the definition of materiality should not include a determination 
of whether an unfair act has been committed involving patent, trademark 
or copyright infringement, in view of other remedies available to 
Customs for such intellectual property rights infractions. Lastly, one 
of the commenters believes that the definition's inclusion of 
``collection and reporting of accurate trade statistics'' exceeds the 
statutory limits of section

[[Page 39090]]

592. This commenter is involved with oil and gas importations and is of 
the opinion that statistical discrepancies for the majority of these 
products bear no relevance to the entry of such products, and that 
therefore, Customs definition of materiality should not include 
statistical errors.
    Customs Response: Customs is of the opinion that the definition of 
materiality set forth in the proposed guidelines comports with law and 
judicial precedent. With respect to the inclusion of a marking duties 
assessment as an example of a ``Customs action'' that could be 
influenced by a false statement, omission, or act, in Customs view, the 
Pentax decision does not preclude liability for marking duties in 
connection with section 592 violations in all cases.
    We note that in cases involving either antidumping, other agency or 
intellectual property rights infractions, the law does not preclude the 
use of section 592 in appropriate cases, despite the availability of 
other government remedies. Further, with respect to that part of the 
definition of materiality involving collection and reporting of 
accurate trade statistics, we note that there is judicial precedent 
that supports this aspect of Customs definition.

Proposed Section (D) Discussion of Additional Terms

    Comment: Two commenters suggest that Customs include fees and taxes 
in the definition of loss of duty in the paragraph entitled ``(1) Duty 
Loss Violations'' so that there is consistency with the definition of 
loss of duty as set forth in the paragraphs entitled ``(3) Actual Loss 
of Duties,'' and ``(4) Potential Loss of Duties.'' Two other commenters 
object to including marking duties in the definition of ``duty loss'' 
based on the same objections expressed above regarding materiality and 
the Pentax decision.
    One commenter is of the opinion that the last sentence in section 
(D) paragraph (4) ``Potential Loss of Duties'', should be deleted. The 
commenter points out that if an entry summary is filed without 
inclusion of information regarding antidumping or countervailing duty 
investigations the regulations provide that the entry should be 
rejected. The commenter believes that such a case should not give rise 
to a potential loss of duties inasmuch as Customs is not discovering a 
violation but rather merely enforcing a regulation.
    The same commenter suggests that Customs revise section (D) 
paragraph (6) ``Reasonable Care'', to include language that failure to 
follow a binding Customs ruling pertaining to its merchandise evidences 
a failure to exercise reasonable care.
    Customs Response: Customs agrees that the definition of duty loss 
set forth in section (D) paragraph (1) ``Duty Loss Violations'', should 
be amended to conform to the definition of duty loss set forth in 
section (D) paragraph (3) ``Actual Loss of Duties'', and has made the 
necessary change.
    As indicated in our response to comments regarding materiality, 
section 592 liability may arise in certain cases where the government 
has been deprived of marking duties. Consequently, Customs believes 
that the inclusion of marking duties in the definition of duty loss is 
appropriate.
    With regard to the suggestion that Customs delete the last sentence 
of section (D) paragraph (4) ``Potential Loss of Duties'', we note that 
the failure to provide required information on the entry documents may 
give rise to section 592 liability and that Customs may ``discover'' 
such an omission after the filing of the documents. Therefore, it is 
accurate to state that a potential loss of duties equals the amount of 
the duties, taxes, and fees that would have occurred had Customs not 
discovered the violation prior to liquidation and taken steps to 
correct the entry.
    With regard to the commenter's suggestion involving ``Reasonable 
Care'', we believe that the suggested revision is unnecessary. Customs 
notes that the regulations already establish the requirement that an 
importer who receives a ruling from Customs regarding the tariff 
classification of merchandise shall set forth in connection with a 
subsequent entry of that merchandise the tariff classification set 
forth in the ruling.

Proposed Section (E) Penalty Assessment

    Comment: A commenter recommends that section (E) be revised to 
require the Customs field officer to include copies of the evidence 
relied upon for issuance of the prepenalty notice with appropriate 
deletions based on Freedom of Information Act exemptions. This 
commenter also believes that if Customs agrees to a waiver of the 
statute of limitations, the guidelines should reflect a requirement 
that the Customs officer signing the waiver has the contractual 
authority to sign the waiver. Also, the commenter is of the opinion 
that the guidelines should be amended to require that penalty notices 
provide explanations why a petitioner's prepenalty response arguments 
are defective or without merit. Lastly, the commenter believes that the 
guidelines should require that the Customs field officer promptly 
notify the alleged violator in cases where the officer has determined 
that the statute of limitations has expired.
    Another commenter questions Customs approach to the ``parking 
ticket'' penalties of up to $10,000, set forth in paragraph (E)(1)(c). 
The commenter believes that $10,000 is an excessive penalty for per 
entry infractions especially when the case involves a number of 
entries. The same commenter expresses concern regarding Customs 
approach to statute of limitations waivers. The commenter is of the 
opinion that the paragraphs in section (E) relating to statute of 
limitations waivers override the clear legislative intent underlying 
the statute of limitations applicable to section 592 violations--i.e., 
that the agency identify and resolve the violations within a specified 
period of time. For example, the commenter objects to Customs 
Headquarters recently requiring agents to obtain waivers of the statute 
of limitations immediately upon initiating a case.
    Another commenter objects to Customs lengthening the time during 
which Customs can lawfully indicate a degree of culpability and penalty 
amount higher than were set forth in the original prepenalty notice, 
without having to issue a new prepenalty notice (i.e., from the current 
3 months to the proposed 9 months before expiration of the statute of 
limitations). The commenter believes that the proposed revision 
needlessly extends the period of time within which Customs may claim 
higher levels of culpability without providing the alleged violator 
full due process. The commenter believes that this proposal provides a 
strong incentive for Customs to delay its section 592 investigation.
    Customs Response: Customs does not agree with the commenter's 
recommendation to include copies of evidence with the prepenalty 
notice. Neither the statute nor corresponding regulations authorize 
release of evidence at the time of issuance of the prepenalty notice, 
and to require its production would be tantamount to engaging in 
unauthorized pre-trial discovery. Also, Customs does not agree with 
this commenter's suggestions to establish a requirement that the 
Customs officer signing a waiver of the statute of limitations has the 
contractual authority to sign such a waiver. Such signing authority 
already has been established through the appropriate Customs delegation 
procedures. Moreover, waivers involve the unilateral action of the 
involved party and such

[[Page 39091]]

action has nothing to do with any contractual authority with Customs. 
Further, inasmuch as section 592 does not require the agency to furnish 
explanations why a prepenalty response is deficient or defective, 
Customs does not believe that such a requirement is necessary. In 
Customs view, the statute provides adequate safeguards for the alleged 
violator by requiring the agency ultimately to furnish the party with 
its findings of fact and conclusions of law in the agency decision. 
Lastly, because the statute of limitations is an affirmative defense 
available to an alleged violator, we do not agree with the commenter's 
recommendation that Customs should be required to notify the alleged 
violator in cases where the statute has expired.
    With respect to the commenter's concern regarding Customs approach 
to technical violations and ``parking ticket'' penalties of up to 
$10,000, Customs notes that this paragraph does not mandate a $10,000 
fixed sum penalty per entry violation, but rather provides for ranges 
of fixed sum penalties--generally $1,000 to $2,000 per infraction where 
there are no prior violations. The higher fixed sum amounts may be 
appropriate in cases of multiple or repeat violations, and Customs does 
not believe that these fixed sum amounts are excessive. In response to 
this commenter's concern regarding statute of limitations waivers, 
Customs notes that an alleged violator is not required to provide a 
waiver to Customs, and the guidelines merely serve to advise the 
alleged violator of the consequences of providing a waiver, as well as 
the consequences of choosing not to provide a waiver of the statute of 
limitations. Customs notes that the guidelines, for the most part, 
reiterate already established regulatory provisions.
    Customs also does not agree with the comment raising a due process 
objection to Customs lengthening the time in which Customs can lawfully 
indicate a higher degree of culpability and penalty amount than were 
set forth in the original prepenalty notice without having to issue a 
new prepenalty notice. Customs notes that the guidelines do not affect 
the alleged violator's due process rights, inasmuch as the party may 
file a petition to contest the allegations set forth in the penalty 
notice. Customs would also like to point out that this provision 
affects only those few cases where evidence is uncovered at a point in 
time where the statute of limitations poses a significant concern to 
the government's ability to timely process the penalty action.

Proposed Section (F) Administrative Penalty Disposition

    Comment: One commenter believes that the penalty dispositions for 
non-duty loss violations (based on a percentage of the dutiable value) 
are unfair to importers of duty-free articles. The commenter is of the 
opinion that the penalty disposition in non-duty loss cases should be 
under 10 percent of the dutiable value (plus interest), including cases 
of fraud.
    Customs Response: Customs disagrees. Some of the most egregious 
violations involve non-dutiable articles (e.g., quota evasion).

Proposed Section (G) Mitigating Factors

    Comment: Two commenters object to the proposed requirement that 
``Contributory Customs Error'' may only be claimed where the misleading 
or erroneous advice given by a Customs officer is given in writing. The 
commenters believe that the writing requirement will have the effect of 
eliminating the ability to claim this factor, and one of the commenters 
expresses the view that because the alleged violator has the burden of 
proof, a writing requirement is unnecessary.
    One commenter objects to Customs elimination of ``Inexperience in 
Importing'' as a mitigating factor, and believes that the Customs 
Modernization Act's concept of ``reasonable care'' suggests that the 
factor should be included in the guidelines. This commenter also 
believes that Customs should not require the cooperation with an 
investigation be ``extraordinary'' to be entitled to mitigation; that 
the ``inability to obtain jurisdiction'' factor should not be 
eliminated as a mitigating factor and that there should not be an 
increase in penalties in non-duty loss cases where Customs knew of the 
infraction but failed to take action.
    Finally, with respect to the mitigating factor of ``Customs 
Knowledge'' another commenter recommends deletion of the qualifying 
language ``without justification,'' that precedes the requirement that 
Customs ``failed to inform the violator so that it could have taken 
earlier corrective action.'' The commenter is of the opinion that the 
qualifying language makes the benefit of this factor unobtainable.
    Customs Response: Customs disagrees with the two commenters' 
objections to the ``Contributory Customs Error'' writing requirement. 
In view of the responsibility of the importer to act with reasonable 
care (as set forth in the Customs Modernization Act), Customs believes 
it is reasonable to require that the importer demonstrate 
``Contributory Customs Error'' by tangible written evidence.
    With regard to the commenter's concern involving the proposal to 
eliminate ``Inexperience in Importing,'' as a mitigating factor, 
Customs has reconsidered the proposal and decided to retain the factor. 
With respect to the commenter's concern regarding cooperation, Customs 
believes that it is appropriate that the cooperation be extraordinary, 
as it is expected that the party does more than merely cure the defect 
or problem that resulted in the violative conduct. Customs also 
believes that ``inability to obtain jurisdiction'' (i.e., personal 
jurisdiction) is a matter that is better addressed at the litigation 
stage of the proceedings in the event of non-compliance with the agency 
decision. As for the commenter's question regarding the rationale for 
increasing the ``Customs Knowledge'' non-duty loss penalties, we note 
that the change is being made so that the non-duty loss penalty amounts 
are consistent with the corresponding duty loss penalty amounts.
    Finally, Customs disagrees with the commenter's opinion regarding 
the suggested deletion of the ``without justification'' language set 
forth in the ``Customs Knowledge'' mitigating factor. Customs notes 
that there may be circumstances (such as an open investigation) that 
warrant delay in notifying the alleged violator of the purported 
infraction.

Proposed Section (H) Aggravating Factors

    Comment: One commenter believes that because the new proposed 
aggravating factors of ``evading a quota restriction'' and ``failure to 
comply with a lawful demand for records'' are themselves subject to 
penalty, these factors should not be considered to increase the penalty 
or proposed penalty of an alleged violator.
    Another commenter expresses reservations about the aggravating 
factor that involves ``textile imports that have been the subject of 
illegal transshipment, whether or not the merchandise bears false 
country of origin markings.'' The commenter asks how goods can be 
transshipped if they are properly marked--and implies that this factor 
should be deleted.
    Customs Response: With regard to the first commenter, it should be 
noted that the guidelines indicate that 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.''

[[Page 39092]]

Consequently, although we agree that the offenses may be subject to 
separate penalties, the inclusion of these two aggravating factors do 
not serve to potentially increase the section 592 penalties, but 
rather, may serve to offset the presence of mitigating factors in the 
action.
    With respect to the second commenter's question concerning the 
aggravating factor involving transshipped textile products, Customs 
notes that the factor's qualifying language indicates ``whether or not 
the merchandise bears false country of origin markings.'' Therefore, 
although the textile article may not bear a false country of origin 
marking, it does not necessarily follow that the article is properly 
marked. For example, an imported textile product may bear no country of 
origin marking at all, and therefore be improperly marked as well as 
possibly illegally transshipped.

Proposed Section (J) Section 592(d) Demands

    Comment: One commenter believes that Customs should make it very 
clear that where an entry has been finally liquidated, that absent 
proof of a violation of section 592, no further duties may be 
collected.
    Customs Response: Customs believes that no additional language to 
the proposed section is warranted inasmuch as the second sentence of 
the section makes clear that with respect to finally liquidated entries 
``information must be present establishing a violation of section 
592(a),'' before a section 592(d) demand may be issued.

Proposed Section (K) Customs Brokers

    Comment: Nine commenters object to the change of Customs position 
regarding the applicability of section 592 to Customs brokers in ``non-
fraud'' cases and in those cases where the broker does not share in the 
benefits of the violation to an extent over and above customary 
brokerage fees. In sum, in these cases, the commenters object to the 
proposed language requiring that Customs ``shall'' proceed against the 
Customs broker pursuant to the remedies provided under 19 U.S.C. 1641. 
The commenters believe that this language is a clear invitation for 
Customs field offices to make every suspected negligent violation of 
section 592 by a broker into a 19 U.S.C. 1641 broker penalty case. Most 
of the commenters believe that adoption of such a change would result 
in the maximum $30,000 broker penalty for such infractions. Two of the 
nine commenters believe that the current broker guidelines should be 
retained while one of the commenters is of the opinion that Customs 
should amend the proposed language to provide discretion to local field 
offices by substituting the words ``may'' for ``shall'' before the 
remaining language ``proceed against the Customs broker pursuant to the 
remedies provided under 19 U.S.C. 1641.
    Customs Response: In view of the comments received in connection 
with this proposed section, Customs has reconsidered its position and 
adopted the commenter's suggestion to substitute the word ``may'' for 
``shall'' in the language relating to broker penalty assessment 
pursuant to 19 U.S.C. 1641. The agency notes that the existing Customs 
Directive regarding 19 U.S.C. 1641 penalties already provides for 
incremental assessment of broker penalties in appropriate cases (e.g., 
initial warning letters). Therefore, Customs believes that 
apprehensions about immediate $30,000 penalty assessments in every 
broker negligence case are unwarranted.

Proposed Section (L) Arriving Travelers

    Comment: One commenter believes that this section should be 
clarified to indicate that alleged violators that are arriving 
travelers will be assessed only one penalty under either section 592, 
19 U.S.C. 1497 or 19 U.S.C. 1595(a) so that the traveler will know how 
to prepare his or her petition.
    Customs Response: Inasmuch as the law does not provide that section 
592 is the exclusive remedy available to the agency in cases involving 
violations by arriving travelers, the commenter's suggestion cannot be 
adopted. More than one statute can be violated by the arriving 
traveler. However, the seizure or penalty notice will indicate the 
statute underlying the alleged violation.

Proposed Section (M) Violations of Laws Administered by Other Federal 
Agencies

    Comment: One commenter recommends that this section be clarified so 
that Customs cannot impose a penalty for the release of seized 
merchandise for laws administered by other federal agencies.
    Customs Response: Customs notes that in cases where merchandise is 
legally seized for violations of laws administered by other federal 
agencies, Customs may, by law, require payment of a penalty in order to 
remit the forfeiture in appropriate cases. Therefore, we cannot adopt 
the commenter's suggestion.

General Comments

    Comment: One commenter recommends the proposed guidelines include a 
definition of the term ``domestic value,'' since that term is used 
frequently within the guidelines.
    Customs Response: Customs notes that the term ``domestic value'' 
already is defined in the Customs Regulations in 19 CFR 162.43(a) and 
clearly is applicable to penalty assessments. Therefore, we do not 
believe that adoption of the commenter's suggestion is warranted.
    Comment: One commenter believes that Customs should explicitly 
provide that the agency has the authority to mitigate section 592 
``interest'' penalties in non-fraudulent actual duty loss cases 
involving a valid prior disclosure. The commenter feels that the 
proposed guidelines' failure to expressly provide for such mitigation 
authority diminishes the agency's policy position of encouraging valid 
prior disclosures.
    Customs Response: Although the language in the proposed guidelines 
does not explicitly rule out the possibility of affording mitigation in 
extraordinary cases involving valid prior disclosures, the agency 
believes that the current language best reflects Congressional intent--
namely, that the monetary benefits of a valid prior disclosure are 
those reduced penalties provided for by law.
    Comment: A commenter suggests that the first sentence of proposed 
Appendix B providing for remission or mitigation of section 592 
penalties pursuant to section 1618 of the Tariff Act of 1930, be added 
to the Customs Regulations. The commenter believes that the subjects of 
remission and mitigation discussed in the guidelines are not found in 
the regulations, and that by including these subjects in the 
regulations, Customs would have greater discretion regarding the use 
and application of the guidelines.
    Customs Response: Customs notes that the regulations already 
discuss the mitigation and remission authority of the agency in 
connection with penalties and forfeitures in 19 CFR 162.31.
    Comment: A commenter expresses concern that the proposed guidelines 
do not explicitly address the situation where a party makes a false 
statement, or engages in an omission or act that results in the 
overpayment of duty and taxes. The commenter is unclear whether such a 
case could result in the imposition of penalties under section 592.
    Customs Response: Customs notes that liability under section 592 
may arise in cases involving an overpayment of duty and taxes (e.g., an 
overpayment to evade a tariff rate quota or an established government 
trigger-price mechanism). In Customs view, the

[[Page 39093]]

proposed guidelines adequately addressed these situations. For example, 
section (F) provides for penalty dispositions for such infractions as 
non-duty loss violations.
    Comment: One commenter expresses reservations about the Customs 
field officer's ability to take into account the presence of mitigating 
factors when considering the issuance of a section 592 prepenalty 
notice. The commenter believes that this may be an unproductive use of 
the field officer's time and appears to be premature since the 
necessary information from the alleged violator has not yet been 
received.
    The commenter also questions the need for sending ``information 
copies'' of section 592(d) demands to sureties in all cases except in 
those cases where less than a year remains under the statute of 
limitations. In the commenter's view, this can be a time-consuming task 
for Customs field officers where there are many entries and multiple 
sureties. The commenter also would like the ``shortened response 
times'' discussed in proposed section (E) made applicable to section 
592(d) demands.
    Finally, this commenter suggests that the ``arriving travelers'' 
section be re-lettered and moved closer in location to the section 
involving liability for penalties so that the Customs officer, in a 
rushed situation, will not miss the section on arriving travelers 
because the officer did not read far enough along in the guidelines.
    Customs Response: With respect to the first suggestion, Customs 
notes that the proposed guidelines set forth that the field officer 
consider whether mitigating factors are present at the pre-penalty 
stage regardless of the level of culpability. Customs is not 
instructing the field officer at the pre-penalty stage of the 
proceedings to manufacture mitigating factors or speculate regarding 
their existence, but rather is attempting to promote development of 
realistic initial penalty assessments commensurate with the level of 
available evidence.
    With respect to the commenter's concern involving the need for 
furnishing information copies of section 592(d) demands to sureties, 
Customs believes that in view of statute of limitations concerns 
associated with section 592(d) demands, and in order to assist sureties 
in tracking contingent liabilities, the benefits derived from such 
practice for both the government and the sureties outweighs any 
administrative burden imposed upon the Customs field office. Also, 
inasmuch as the Customs regulations do not provide for a shortened 
response time in connection with section 592(d) demands, the 
commenter's recommendation is rejected.
    Lastly, to reduce the likelihood of the problem discussed in the 
commenter's last recommendation, we have added a sentence to the end of 
proposed section (E)(1)(a) to direct parties to the special assessments 
and dispositions section in cases involving arriving travelers.

Conclusion

    Accordingly, based on the comments received and the analysis of 
those comments as set forth above, and after further review of this 
matter, Customs believes that the proposed revised guidelines should be 
adopted with the changes discussed above. Certain other clarifying 
changes are made as well.

Regulatory Flexibility Act

    Because this revision of the guidelines relates to rules of agency 
procedure and policy, and no notice of proposed rulemaking was required 
pursuant to 5 U.S.C. 553, 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 
revised guidelines do not meet the criteria for a ``significant 
regulatory action'' under E.O. 12866.

List of Subjects in 19 CFR Part 171

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

Amendment to the Regulations

    Part 171 of the Customs Regulations (19 CFR part 171) is amended 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. Appendix B to Part 171 is revised 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 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, tax or fee 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, electronic transmission of data or 
information, 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 will 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 has 
the natural tendency to

[[Page 39094]]

influence or is 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. The ``but for'' test of materiality is 
inapplicable under section 592.

(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 including 
any marking, anti-dumping, or countervailing duties, or any tax and 
fee (e.g., merchandise processing and/or harbor maintenance fees) 
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, for example, 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: All parties, including 
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; taking measures 
that will lead to and assure the preparation of accurate 
documentation, and determining whether any applicable requirements 
of law with respect to these issues are met. In addition, all 
parties, including the importer, must use reasonable care to provide 
accurate information or documentation to enable Customs to determine 
if the merchandise may be released. Customs may 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 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 Sec. 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 will 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 will 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 will 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 will use the amount of total loss of 
duty 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 
a 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 will 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 will 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

[[Page 39095]]

disclosing party's knowledge of the commencement of a formal 
investigation of a disclosed violation--will 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. Special guidelines relating to penalty 
assessment and dispositions involving ``Arriving Travelers,'' are 
set forth in section (L) below.
    (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 section 592 cases of this nature regardless of the dollar 
amount of the proposed claim, the Customs field officer will 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 will 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 
will 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 will calculate the statute of limitations 
attributable to an alleged violation. Inasmuch as section 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 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 (19 CFR 162.78), 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 
will 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 Sec. 162.79 of 
the Customs Regulations (19 CFR 162.79), the appropriate Customs 
field officer will 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 will 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 will 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 or any waiver 
thereof 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 will 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 part 171 of the Customs 
Regulations (19 CFR part 171), 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 will 
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. 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 as well as a release by the party 
that indicates that the mitigation decision constitutes full accord 
and satisfaction. Finally, section 592 penalty

[[Page 39096]]

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 will 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 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 in 19 CFR part 171, in those section 592 cases 
within the administrative jurisdiction of the concerned Customs 
field office, the appropriate Customs field officer will 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 in 19 CFR part 171, in those 
section 592 cases within Customs Headquarters jurisdiction, the 
appropriate Customs field officer will 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. No mitigation will be 
afforded.
    (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. No mitigation will be afforded.
    (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. Absent extraordinary circumstances, no mitigation will be 
afforded.
    (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 will be remitted in 
full.

(G) Mitigating Factors

    The following factors will 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, or established by a contemporaneously created 
written Customs record, 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 will 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) Inexperience in Importing. Inexperience is a factor only if 
it contributes to the violation and the violation is not due to 
fraud or gross negligence.
    (5) 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.
    (6) 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).
    (7) Customs Knowledge. Additional relief in non-fraud cases 
(which also are not the

[[Page 39097]]

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 will not be applicable 
when a substantial 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 will 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 (i.e., false country of origin declaration), 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 19 U.S.C. 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 Sec. 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, taxes and fees, Customs letter of acceptance may identify 
the portion representing any such duty, tax and fee. 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 will 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 commits a grossly negligent 
or negligent violation and shares in the benefits of the violation 
to an extent over and above customary brokerage fees, the customs 
broker will 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 may 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 under 
section 592 will be initiated against an arriving traveler 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, taxes 
and fees will be collected. Also, no penalty under section 592 will 
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, Office of Foreign Assets Control, Department of 
Agriculture, Fish and Wildlife Service) 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 recommendation would not result in a 
disposition inconsistent with these guidelines.

(N) Section 592 Violations by Small Entities

    In compliance with the mandate of the Small Business Regulatory 
Enforcement Fairness Act of 1996, under appropriate circumstances, 
the issuance of a penalty under section 592 may be waived for 
businesses qualifying as small business entities.
    Procedures established for small business entities regarding 
violations of 19 U.S.C. 1592 were published as Treasury Decision

[[Page 39098]]

97-46 in the Federal Register (62 FR 30378) on June 3, 1997.

Raymond W. Kelly,
Commissioner of Customs.
    Approved: June 19, 2000.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 00-15874 Filed 6-22-00; 8:45 am]
BILLING CODE 4820-02-P