[Federal Register Volume 66, Number 98 (Monday, May 21, 2001)]
[Notices]
[Pages 28029-28031]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-12662]


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DEPARTMENT OF THE TREASURY

Customs Service

[T.D. 01-41]


Amendments to U.S. Customs Mitigation Guidelines Pertaining to 
Claims Arising From Foreign Trade Zone Violations

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

ACTION: General notice.

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SUMMARY: This document revises the ``Guidelines for Cancellation for 
Liquidated Damages'' which were published in the Federal Register as 
Treasury Decision 94-38 on April 14, 1994. This document revises the 
Section IX portion of those Guidelines which concerns claims arising 
from violations of foreign trade zone regulations. New provisions are 
added to that section of the Guidelines allowing for cancellation of 
claims arising from violations of foreign trade zone regulations, under 
certain conditions and limitations, in instances in which the violator 
voluntarily informs Customs of a violation prior to Customs discovery 
of the existence of that violation.

EFFECTIVE DATE: These guidelines will take effect upon May 21, 2001, 
and shall be applicable to all cases which are currently open at the 
petition or supplemental petition stage.

FOR FURTHER INFORMATION CONTACT: Steven Bratcher, Penalties Branch, 
Office of Regulations and Rulings, 202-927-2328.

SUPPLEMENTARY INFORMATION:

Background

    ``Guidelines for Cancellation of Claims for Liquidated Damages'' 
were published in the Federal Register (59 FR 17830) on April 14, 1994, 
as Treasury Decision 94-38. Section IX of these guidelines is entitled 
``Guidelines

[[Page 28030]]

for Cancellation of Claims Arising from Violations of Foreign Trade 
Zone Regulations (19 CFR part 146, 19 CFR 113.73).'' In this document 
Customs is revising the Section IX portion of the ``Guidelines for 
Cancellation of Claims for Liquidated Damages.'' The revision involves 
the addition of provisions which allow for the cancellation of claims 
arising from the violation of foreign trade zone regulations, under 
certain conditions and limitations, in instances in which the violator 
voluntarily informs Customs of a violation prior to Customs discovery 
of the existence of that same violation. Foreign trade zone regulations 
are found in part 146, Customs Regulations (19 CFR 146) and in 19 CFR 
113.73.
    This change to the Customs guidelines with respect to violation of 
foreign trade zones regulations has been requested by members of the 
trade on the basis that these provisions will encourage self-policing 
of zone operations. Members of the trade have brought to Customs 
attention that Treasury Decision 99-29 (published in the Federal 
Register on March 26, 1999), which sets forth guidelines for the 
cancellation of claims for liquidated damages and mitigation of 
penalties for various violations that are non-foreign trade zone 
related, includes language which allows for cancellation of claims in 
instances in which the violator voluntarily informs Customs of a 
violation prior to Customs discovery of the violation.
    As Customs has adopted a clear policy of encouraging self-policing 
by importers and promoting importers' voluntary compliance with Customs 
rules and regulations, Customs believes, in the interest of fairness, 
companies operating in foreign trade zones should obtain the same 
benefit for voluntary compliance as do non-foreign trade zone entities. 
Therefore, the guidelines for cancellation of claims arising from 
foreign trade zone regulations is revised to allow for cancellation of 
claims when the violator voluntarily informs Customs of a violation 
prior to Customs discovery of the violation. Two new provisions are 
added to the end of section C of the Guidelines and one new provision 
is added to the end of section D of the Guidelines.
    The text of Section IX of the ``Guidelines for Cancellation of 
Claims for Liquidated Damages,'' which was published in the Federal 
Register (59 FR 17830) on April 14, 1994, is revised as republished 
below.

    Dated: May 15, 2001.
Charles W. Winwood,
Acting Commissioner of Customs.

IX. Guidelines for Cancellation of Claims Arising From Violations 
of Foreign Trade Zone Regulations (19 CFR Part 146, 19 CFR 113.73)

    A. Defaults involving merchandise. Defaults involving merchandise 
include those violations relating to merchandise which:
    1. Cannot be located or accounted for in the activated area of a 
foreign trade zone.
    2. Has been removed from the activated area of the zone without a 
proper Customs permit; or
    3. Has been admitted, manipulated, manufactured, exhibited or 
destroyed in the activated area of a zone:
    a. Without a proper Customs permit; or
    b. Not in accordance with the description of the activity in the 
Customs permit.
    B. Defaults not involving merchandise. Defaults not involving 
merchandise means any instance of failure, other than one involving 
merchandise or late payment of the annual fee, to comply with the laws 
or regulations governing foreign trade zones. A default involving one 
zone lot or unique identifier may not be combined with a default under 
another lot or unique identifier.
    C. Defaults involving merchandise; petitions. Claims arising from 
defaults involving merchandise should be processed in accordance with 
the following:
    1. If the breach resulted from clerical error or mistake (a non-
negligent inadvertent error), the claim should be cancelled without 
payment.
    2. If the breach resulted from negligence, but no threat to the 
revenue occurred (e.g., the merchandise was not manipulated in 
accordance with the permit to manipulate) the claim should be cancelled 
upon payment of an amount between one and 15 percent of the value of 
the merchandise involved in the breach, but not less than $100 nor more 
than $10,000. If the merchandise involved in the breach is restricted 
merchandise, that shall be considered an aggravating factor which shall 
result in mitigation on the higher end of the range. If the merchandise 
involved in the breach is domestic status merchandise, that shall be 
considered a mitigating factor which shall result in mitigation on the 
lower end of the range.
    3. If the breach resulted from negligence and a potential loss of 
revenue resulted (e.g., merchandise cannot be located in the zone, 
merchandise is removed from the zone without a permit), the claim shall 
be cancelled upon payment of an amount between one and three times the 
loss of revenue (loss of revenue to include duties, fees and taxes). If 
the merchandise involved in the breach is restricted merchandise, the 
claim shall be cancelled upon payment of an amount between three and 
five times the loss of revenue but in no case less than 10 percent of 
the value of such merchandise.
    4. If the breach is intentional (e.g., the foreign trade zone 
operator conspired to remove merchandise from the warehouse zone 
without proper entry being made), there will be no relief granted from 
liquidated damages.
    5. Aggravating factors.
    a. Principal's failure or refusal to cooperate with Customs.
    b. Large number of violations compared to number of transactions 
handled.
    c. Experience of principal.
    d. Principal's carelessness or willful disregard toward its 
responsibilities.
    6. Mitigating factors.
    a. Contributory error by Customs.
    b. Small number of violations compared to number of transactions 
handled.
    c. Remedial action taken by principal.
    d. Cooperation with Customs.
    e. Lack of experience of principal.
    f. Merchandise which cannot be located or which has been removed 
without permit is returned to Custom custody.
    g. The merchandise involved in the breach is domestic status 
merchandise.
    7. If the violator comes forward and informs Customs of a 
violation, prior to Customs discovery of the violation, the claim for 
liquidated damages may be cancelled, at the discretion of the 
appropriate Customs officer, upon payment of an amount equal to the 
duties, fees, taxes and charges that would have been due on the 
merchandise had entry been properly made, plus $50.
    8. If the violator comes forward and informs Customs of a 
violation, prior to Customs discovery of the violation, and the 
violation involves restricted merchandise, then the claim for 
liquidated damages may be cancelled, at the discretion of the 
appropriate Customs officer, upon payment of an amount equal to the 
duties, fees, taxes and charges that would have been due on the 
merchandise had entry been properly made, plus 5 percent of the value 
of the merchandise, but not less than $500. The kind and character of 
the restriction will be considered before relief under this provision 
is allowed.

[[Page 28031]]

    D. Defaults not involving merchandise; modified CF 5955A. Defaults 
not involving merchandise shall be processed in accordance with the 
following guidelines.
    1. Modified CF 5955A. Notices of liquidated damages incurred may be 
issued on a modified CF 5955A. The modified form shall specify two 
options from which the petitioner may chose to resolve the demand.
    a. Option 1. He may pay a specified sum within 60 days, and the 
case will be closed. By electing this option in lieu of petitioning, he 
waives his right to file a petition. He may, however, file a 
supplemental petition, if he does so in accordance with the Customs 
Regulations and has some new fact or information which merits 
consideration in accordance with these guidelines.
    b. Option 2. Petition for relief. The bond principal or surety may 
file a petition for relief. By filing a petition for relief, the 
petitioner will no longer be afforded the Option 1 mitigation amount. 
The port director shall grant full relief when the petitioner 
demonstrates that the violation did not occur. If the petitioner fails 
to demonstrate that the violation did not occur, the port director may 
cancel the claim upon payment of an amount no less than $100 greater 
than the Option 1 amount.
    2. Maximum assessments. In cases involving violations which do not 
involve merchandise which are assessed at $1,000 for each business day 
that the violation continues, a maximum of $10,000 shall be assessed 
for any one such continuing violation unless the port director can 
articulate a legitimate enforcement purpose for exceeding said limit. 
These claims shall be cancelled in conformance with the terms of these 
guidelines.
    3. Clerical error. If the breach resulted from clerical error, the 
claim may be cancelled without payment.
    4. Negligence. If the breach resulted from negligence, the claim 
may be cancelled upon payment of an amount between $100 and $250 per 
default actually assessed, depending on the presence of aggravating or 
mitigating factors. For example, if a document is filed 100 days late, 
Customs, by policy, will generally limit the assessment to $10,000. 
Mitigation will be based on the $10,000 actual assessment and not 
relate to the $100,000 potential assessment.
    5. Intentional breach. If the breach was intentional, no relief 
shall be granted.
    6. Violator disclosing violation before Customs discovery. If the 
violator comes forward and discloses the violation to Customs prior to 
Customs discovery of the violation, whether or not the violation is a 
continuing one, the claim for liquidated damages may be cancelled, at 
the discretion of the appropriate Customs officer, upon payment of the 
amount of $50.
    E. Cancellation of claims for late payment of the annual fee.
    1. If the late payment resulted from clerical error or mistake, the 
claim may be cancelled upon payment of the amount due but not paid.
    2. If the late payment resulted from negligence, cancel the claim 
upon payment of the amount due but not paid plus the following percent 
of that amount for each day payment is in arrears:
    a. First seven calendar days--not less than one-third of one 
percent nor more than three-fourths of one percent per day.
    b. Second seven calendar days--not less than one and one-third 
percent nor more than one and three-fourths percent per day.
    c. After the fourteenth calendar day--not less than two and one-
third percent nor more than two and three-fourths percent per day.
    3. If the late payment was intentional, no relief shall be granted.

[FR Doc. 01-12662 Filed 5-18-01; 8:45 am]
BILLING CODE 4820-02-P