Amendments to Customs Bond Cancellation Standards

Federal RegisterApr 14, 1994

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DEPARTMENT OF THE TREASURY

Customs Service

[T.D. 94-38]

Amendments to Customs Bond Cancellation Standards

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

ACTION: General notice.

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SUMMARY: Under the Omnibus Trade and Competitiveness Act of 1988, the

Secretary of the Treasury is required to publish guidelines for

cancellation of bond charges. The guidelines in effect at the time the

Act was promulgated were published by Treasury Decision 89-48, dated

April 14, 1989. This document amends certain portions of the guidelines

that have proven to be inequitable or outdated, provides for new

guidelines for cases in which petitions are filed untimely and for

certain violations of regulations that have recently been promulgated,

and republishes those guidelines which have worked successfully. The

authority to promulgate these guidelines was delegated to the

Commissioner of Customs by Paragraph 1 of Treasury Department Order No.

165, revised (T.D. 53654). A document published in the Federal Register

(59 FR 17144) on April 11, 1994 set forth the explanation of the

guidelines, but inadvertently omitted the actual guidelines. This

document republishes the explanation and sets forth the guidelines.

EFFECTIVE DATE: These guidelines will take effect upon April 14, 1994,

and shall be applicable to all cases which are currently open at the

petition or supplemental petition stage. No second supplemental

petitions shall be accepted solely to gain the benefit of a less harsh

guideline.

FOR FURTHER INFORMATION CONTACT: Jeremy Baskin, Penalties Branch, U.S.

Customs Service, Franklin Court, 1301 Constitution Avenue, NW.,

Washington, DC 20229, (202) 482-6950.

SUPPLEMENTARY INFORMATION:

Background

Section 1904 of the Omnibus Trade and Competitiveness Act of 1988

(Pub.L. 100-418) amended section 623 of the Tariff Act of 1930 (19

U.S.C. 1623) by adding the following sentence at the end of section

623(c) of the Tariff Act of 1930 (19 U.S.C. 1623(c)):

In order to assure uniform, reasonable and equitable decisions,

the Secretary of the Treasury shall publish guidelines establishing

standards for setting the terms and conditions for cancellation of

bonds or charges thereunder.

In T.D. 89-48, dated April 14, 1989, the text of guidelines for

cancellation of claims for liquidated damages in effect at the time of

enactment of the Omnibus Trade and Competitiveness Act was published.

Because of changing enforcement priorities and the need for more

efficient administrative processing, the guidelines require amendment.

Through this document, Customs is publishing those changes.

New Sections XI and XII Added To Guidelines

The most significant change involves the addition of a new Section

XII to the guidelines governing the cancellation of any claim for

liquidated damages in which the petition for relief is filed untimely.

Under the provisions of Sec. 172.12(b)(1) of the Customs Regulations

(19 CFR 172.12(b)(1)), a bond principal has 60 days from the date of

mailing of the notice of liability for liquidated damages to file a

petition for relief. If the principal does not pay the claim, arrange

to pay the claim or file a petition within the 60-day period, then the

surety is notified of the claim. Pursuant to the provisions of

Sec. 172.12(b)(2) of the Regulations (19 CFR 172.12(b)(2)), the surety

has 60 days after notification to file a petition for relief.

Under the provisions of Sec. 172.2(a) of the Regulations (19 CFR

172.2(a)), if any party liable for liquidated damages fails to pay,

make arrangements to pay or file a petition for relief, the district

director shall promptly refer the claim to the Department of Justice.

If no response is received from both the principal and surety, Customs

will issue bills to both parties, demanding payment of the unpaid

claims. Billing is required before referral of the matter to the

Department of Justice for commencement of judicial collection action in

the Court of International Trade.

Under the provisions of Sec. 172.23 of the Regulations (19 CFR

172.23), no petition may be entertained after a claim has been referred

to the Department of Justice. In the past, Customs has articulated

that, as a matter of policy, no late petitions would be entertained

even if the matter had not yet been referred to the Department of

Justice, but the petitioning period had expired. Under current

procedures, if a principal or surety wishes to respond to the claim

after billing has begun but referral has not yet occurred, it may only

do so through the submission of an offer in compromise pursuant to the

provisions of title 19, United States Code, section 1617, and section

161.5 of the Customs Regulations (19 CFR 161.5). Before acceptance of

any offer, Customs must seek approval of the Office of General Counsel

of the Treasury.

Through this document, Customs is changing its policy with regard

to acceptance of late petitions. Petitions which are not filed timely

will be honored, but mitigation will be less generous than that offered

in those situations where petitions are filed timely.

Under new guidelines for mitigation to be offered when a petition

is filed late, the district director will determine, based on the

record and information submitted in the untimely filed petition, as to

appropriate mitigation that would have been afforded had the petition

been filed timely. The district director will then calculate the number

of calendar days the petition is late. Weekends and holidays will not

be excluded from the calculation of number of days late. He will then

multiply the number of calendar days late by 0.1 percent. A calculation

similar to that used to determine mitigation in late filing of entry

summary cases will then be used, as the mitigation amount will be

multiplied by the number of days late times 0.1 percent. A minimum

additional payment of $100 on a late petition mitigation will be

required.

For example, on November 1, Customs issues a CF-5955A against a

bonded carrier, indicating that the carrier is liable for liquidated

damages of $100,000 for delivering merchandise directly to the

consignee in violation of the provisions of 19 CFR 18.8 and its

custodial bond. The petition for relief is due from the bond principal

by January 1. A petition is received on January 21, some 20 days late.

A review of the petition shows that entry was not made on the

merchandise nor were estimated duties paid by the consignee. Had an

entry been filed, duties of $9,900 would have been paid. The carrier

was shown to have had a good record of compliance, militating toward

mitigation in the low end of the $100-$1,000 range for that type of

violation. Accordingly, had the petition been filed timely, mitigation

to $10,000 ($9,900 in an amount equal to approximate lost revenue plus

$100) would have been afforded. Insofar as the petition was 20 days

late, the time of lateness (20 days) will be multiplied by 0.1 percent,

resulting in a multiplier of 2 percent. The $10,000 mitigation will be

multiplied by 2 percent, resulting in a calculation of $200. The $200

amount is compared to the minimum charge of $100 for a late petition.

Insofar as the computed amount is higher than the minimum amount, $200

would be added to the mitigation. Mitigation would then be afforded in

the amount of $10,200.

As noted, under current procedures no petitions are accepted after

billing of the principal and surety has commenced. While we are

rescinding that policy through this document, in no case will a

petition be accepted after the billing cycle has ended and the case has

been determined by Customs to be eligible to be included in any surety

sanctioning action pursuant to the provisions of Sec. 113.38 of the

Regulations (19 CFR 113.38).

Inasmuch as both the principal and surety have separate petitioning

times, a question arises as to whether the late charge will apply to a

bond principal who fails to file a petition in the time period afforded

to him by regulation, but then files a petition during the time period

afforded to surety. Because the principal failed to respond timely

during the time period permitted to him, Customs takes the view that

his petition will be considered to be late, even if filed during the

time period afforded to surety, and mitigation will reflect that late

filing.

A new Section XI is added to the guidelines to provide cancellation

standards involving claims for liquidated damages assessed against

Centralized Examination Station (CES) operators for violations of their

custodial bond. A Final Rule was published in the Federal Register on

January 22, 1993 (58 FR 5596) as Treasury Decision (T.D.) 93-6, whereby

Customs amended the Regulations to provide for a new part 118 (19 CFR

part 118) and other amendments delineating the duties and

responsibilities of CES operators. They are required, pursuant to new

section 19 CFR 118.4(g), to maintain a Customs custodial bond in an

amount set by the district director. The terms of the Customs custodial

bond are found in Sec. 113.63 of the Customs Regulations (19 CFR

113.63). Under the provisions of new section 19 CFR 151.15(b) (also

added by T.D. 93-6), CES operators assume liability for merchandise for

which they receipt or for which they transport to the CES under their

operator's bond. Many of these violations are similar to those arising

from breaches of Sec. 113.62(f) of the basic importation bond which

involve failure to deliver to or hold merchandise at the place of

examination (current Section X of the Guidelines). Accordingly, the

cancellation standards relating to failure to keep merchandise safe in

the CES or failure to deliver merchandise to the CES will be similar.

The explanation of changes to Section X will detail these standards.

The CES operator is also responsible, under the provisions of 19

CFR 118.4(h), for the maintenance and retention of records connected

with the operation of the CES. Failing to maintain those records would

involve a violation not involving merchandise and would result in

liquidated damages of $1,000 for each day the violation continues. The

bond cancellation standards for these cases will mirror the guidelines

used for cancellation of claims incurred by bonded warehouse operators

for violations not involving merchandise. The background information to

the changes to Section VII describes these guidelines.

Changes to Section I

Section I of the bond cancellation standards includes guidelines

for the cancellation of charges for late filing of entry summaries. The

Option 1 immediate payment of a preset mitigated amount in lieu of

filing a petition for relief is an extremely successful procedure and

is being retained in late filing of entry summary cases. For those

violators who do not wish to take advantage of the Option 1 mitigated

amount, petitioning rights will be protected; however, under new

guidelines, a party who chooses to petition for relief in a late filing

case will no longer necessarily be afforded the Option 1 mitigation

amount. If the petitioning party fails to show that the violation did

not occur or that it occurred as a result of Customs error, the

district director may cancel the claim upon payment of an amount no

less than $100 greater than the Option 1 amount.

Under the current guidelines, when a petition for relief is filed

in a late filing case, a distinction is made between when the entry

summary is late by less than 30 days and when it is late by more than

30 days. Different criteria apply to the review of those two types of

petitions. This distinction has proved to be meaningless. Petitions are

generally filed on the basis that the violation did not occur, or that

it occurred as a result of contributory Customs error. In general,

petitions are submitted without regard to whether the entry summary was

more or less than 30 days late. Additionally, the factors delineated in

the current guidelines to be considered when the entry summary is more

than 30 days late are not consistent with the Option 1 procedure which

does not turn on the intent of the violator, the circumstances causing

the lateness or the past record of the violator. Accordingly, Customs

is eliminating the distinction in the guidelines between cases that are

late by more or less than 30 days.

The current guidelines note that ordinarily, mitigation granted

under Option 2 shall not be in an amount less than that determined in

accordance with Option 1 unless extraordinary mitigating factors are

present. It has been Customs experience that those extraordinary

circumstances generally relate to contributory Customs error or

inaccurate detection of the violation. Accordingly, the guidelines are

being amended to reflect this fact.

The guidelines do not indicate whether applicable merchandise

processing fees, harbor maintenance fees and internal revenue taxes are

included in the term ``withheld duty'' for purposes of mitigation of

late filing cases. Questions have arisen as to the propriety of

inclusion of these fees and taxes in the withheld duties upon which

mitigation is based. In our view, the Government is deprived of not

only duties but also these fees when an entry summary is filed and

payment of duties and fees is tendered late. Accordingly, the

guidelines are amended to provide a definition of ``withheld duties''

to include any fees and charges that are due and owing at the time of

filing of the entry summary.

With the streamlining of the entry process and the onset of

automation, multiple entry summaries are often filed by Customs brokers

either in a combined single statement with a single duty check attached

or a single electronic fund transfer occurring to satisfy the

appropriate duties, fees and taxes. (This electronic fund transfer is

known as the Automated Clearing House, or ACH.) On occasion, an entry

statement check or an electronic fund transfer will be filed untimely.

Because each individual entry summary on the statement is covered by

its own importation bond, when an untimely filing occurs separate

claims for liquidated damages are generated for each entry summary.

Multiple assessments arise stemming from the same incident. Bond

cancellation standards call for mitigation of each claim separately.

This could involve mitigation of $100 or $200 per entry summary

(depending upon whether Customs must bill for duties or the duties are

paid voluntarily prior to billing) plus the concomitant interest

charges.

Multiple liquidated damages assessments arise against numerous

bonded parties because of a single error made with regard to the filing

of the statement. An electronic fund transfer that is deficient a small

amount of money on a large payment of duties will result in rejection

of an entire statement. In these instances, mitigation based on each

individual bond breach could provide an anomalous result and prove

counterproductive to Customs desire to encourage the filing of

statement entries. Accordingly, the bond cancellation guidelines are

being amended to permit the district director, in his or her

discretion, to grant extraordinary relief from multiple claims for

liquidated damages when a statement is filed untimely. If it appears

from the facts available at the time of the breach that a Customs

broker is responsible for the untimely filing of the statement, the

district director is afforded the discretion to mitigate all claims

arising from the breach in the same manner as an Option 1 calculation,

except that rather than take a $100 base charge for each entry in the

statement or batch (as the traditional guidelines dictate), one $500

base amount may be taken in settlement of all claims from the statement

or batch. The appropriate interest calculation shall be added to the

$500 base amount to arrive at the final Option 1 figure. If the

responsible broker fails to pay such Option 1 mitigation within the

time period prescribed or fails to petition for relief, the mitigation

will be withdrawn and liquidated damages will be issued against all

bond principals who have entries included in the statement. Those cases

will then be treated individually within appropriate guidelines.

District directors are encouraged to use the $500 guideline for first-

time violators. Use of these guidelines on subsequent violations is at

the district directors' discretion.

In Treasury Decision 93-37, published in the Federal Register on

May 28, 1993, (58 FR 30979), Customs amended the provisions of the

basic importation and entry bond to provide for liquidated damages when

estimated duties, fees and taxes are paid in an untimely manner, when

an estimated duty check is returned unpaid by a financial institution

or when an electronic fund transfer is made without sufficient funds in

the debited account. This claim for liquidated damages is assessed only

when the entry documents are filed or electronically submitted timely,

but the estimated duty payment is not timely. A claim for liquidated

damages of double the unpaid estimated duties, fees and taxes is

assessed. The new bond cancellation standards are amended to include

these violations in the Option 1 late filing of entry summary

guidelines.

Treasury Decision 93-37 also amended the provisions of the

international carrier bond to provide for liquidated damages against

international carriers who collect passenger processing fees as

required by law, but who fail to remit those fees to Customs in a

timely manner. Under the provisions of Sec. 24.22(g) of the Customs

Regulations (19 CFR 24.22(g)), carriers are required to pay passenger

processing fees over to Customs no later than 31 days after the close

of the calendar quarter in which they were collected. The failure to

remit the collected fees as required by regulation results in

assessment of liquidated damages equal to two times the collected but

unremitted fees. The guidelines for cancellation of claims for late

filing of estimated duty payments are amended to include guidelines for

those claims established for late remission of collected passenger

processing fees.

Changes to Section II

Section II includes the standards for cancellation of claims

resulting from breaches of Temporary Importation Bonds (TIBs).

Under current guidelines, if merchandise is exported or destroyed

but not within the bond period, or if it was exported but not under

Customs supervision (if required), or if it was timely exported or

destroyed but Customs was not notified (See C.S.D. 91-19 for timeliness

of notification requirements) so as to cancel the bond, the guidelines

call for cancelling the claim for liquidated damages upon payment of an

amount between 1 and 5 percent of the ``bond amount'' but not less than

$100. This language has caused some confusion, insofar as the bond

amount is often the full amount of a term bond. The bond amount can far

exceed and double the duty or 110 percent of the duty claim that might

arise because of a breach. Accordingly, Customs is amending this

guideline by replacing the phrase ``bond amount'' with the term ``the

claim.''

Customs has determined that less culpability exists in those cases

where the merchandise is exported or destroyed in a timely fashion and

the required proof is filed untimely as opposed to those instances

where the merchandise is exported or destroyed outside the bond period.

Therefore, the former claims will continue to be cancelled upon payment

of an amount between 1 and 5 percent of the claim for liquidated

damages (usually double or 110 percent of the duties), but in the

latter instances (exportation or destruction outside the bond period),

the claims will be cancelled upon payment of an amount between 5 and 10

percent of the claim, but not less than $200.

Under current guidelines, relief is granted to one times the duty

on merchandise which is sold but later exported. This does not take

into account whether merchandise is exported within or outside of the

bond period. Customs is amending the guidelines to grant relief to one

times the duty on merchandise which is sold but later exported within

the bond period. For merchandise which is sold but later exported

outside the bond period, the claim for liquidated damages will be

cancelled upon payment of an amount equal to one and one-half times the

duty. No relief shall be granted in these cases involving liquidated

damages of 110 percent of the duties.

Under current policy, when Customs wishes to supervise the

exportation or destruction of TIB merchandise, the entry is designated

at the time of presentation for Customs supervision of exportation or

destruction. If the importer fails to obtain Customs supervision of

exportation or destruction, despite the specific designation by

Customs, he receives the same mitigation as the importer who receives

the requisite supervision but does so outside the bond period. Customs

is of the view that, inasmuch as supervision of exportation or

destruction is required so infrequently, the TIB importer who fails to

obtain such supervision should receive less generous mitigation.

Accordingly, the guidelines are amended to take an amount between ten

and twenty-five percent of the claim amount, but not less than $500,

when supervision is required but not obtained.

TIBs are sometimes taken on goods that are otherwise duty-free.

Under the provisions of Sec. 10.31(f) of the Customs Regulations (19 CR

10.31(f)), the district director is empowered to require a bond amount

necessary to protect the revenue. In those instances where a breach

occurs regarding otherwise duty-free merchandise, Customs should follow

the appropriate guideline based on the circumstances surrounding the

breach, but in no case should Customs cancel the claim upon payment of

an amount less than two times the applicable merchandise processing fee

or $100, whichever is greater.

Changes to Section III

Section III includes bond cancellation standards for claims which

arise from violation of a custodial bond maintained by a bonded

carrier. With the proliferation of overnight courier services, the

volume of violations involving misdelivery of in-bond merchandise has

risen. These result in violations of 19 CFR 18.8 and the assessment of

claims for liquidated damages. In many instances, informal entries are

filed on the misdelivered merchandise. The claims for liquidated

damages are generally cancelled upon payment of $100, an amount that

often exceeds the value of the misdelivered merchandise. Accordingly,

Section III of the Customs Bond Cancellation Standards is amended to

provide for cancellation upon payment of an amount between $50 and

$1,000 of any claim for which entry is made and duties, fees and taxes

are paid via the informal entry process.

Additionally, many times in-bond violations are discovered when

carriers come forward and disclose the violations to Customs. In order

to encourage this behavior, new guidelines have been promulgated to

permit mitigation to as low as $25 per entry when the in-bond carrier

brings such violations to Customs attention.

Occasionally, the merchandise which is not properly delivered or is

delivered short is, in fact, restricted merchandise. In those

instances, mitigation guidelines based upon a loss of revenue do not

take into account the possible inadmissibility of the merchandise.

Accordingly, the guidelines are amended to specifically address these

situations. Where the principal or surety can show that entry was made,

duties were paid and the merchandise was found to be admissible, the

claim shall be cancelled upon payment of an amount between $100 and

$1,000, consistent with guidelines for admissible merchandise; however,

in those instances where the bond principal cannot show that entry was

made, duties were paid and the merchandise was found to be admissible,

the claim shall be cancelled upon payment of an amount equal to the

duties plus an amount between 25 and 50 percent of the value of the

merchandise, but not less than $250.

Finally, the in-bond guidelines are amended to permit use of the

Option 1 mitigation procedures when the violation involves the late

delivery of in-bond merchandise or the late delivery of in-bond

documents to Customs.

Changes to Section IV

Section IV of the bond cancellation standards includes guidelines

for cancellation of claims arising from failure to redeliver

merchandise to Customs custody. An anomalous situation results under

current guidelines for cancellation of claims for failing to mark

merchandise with the country of origin (as required by the provisions

of 19 U.S.C. 1304) when the merchandise is not marked and liquidation

of the entry has become final, which would preclude Customs from

assessing marking duties. Pursuant to current guidelines, if

liquidation is final, thereby barring the assessment of marking duties,

claims are cancelled upon payment of an amount equal to no less than 50

percent of the value. This places the bond principal whose entry has

been liquidated and such liquidation has become final at a mitigation

disadvantage compared to the bond principal whose entry has not been

liquidated.

The latter principal, if a first-time violator, would receive

mitigation to an amount between 10 and 25 percent of the value of the

merchandise, after marking duties have been deposited. This would leave

this principal with an ultimate liability, combining the payment of

marking duties and the bond charge cancellation amount, of between 20

and 35 percent of the value of the shipment. Rather than further

penalize the principal whose entry has been liquidated and such

liquidation has become final, Customs is amending the guidelines to

provide for mitigation to an amount between 20 and 35 percent of the

value of the merchandise for the first-time violator whose entry has

been liquidated and such liquidation has become final and to an amount

between 35 and 60 percent of the value of the merchandise to the

subsequent violator whose entry has been liquidated and such

liquidation has become final, thereby barring the assessment of marking

duties.

The guidelines are amended to add a section dealing with

cancellation of bond claims that arise from failing to redeliver

merchandise that is marked with a false designation of origin in

violation of the provisions of 15 U.S.C. 1124 and 1125. These

guidelines, designated as a new paragraph F provide for mitigation less

generous than that afforded violations involving failing to mark

merchandise with the country of origin.

The guidelines for cancellation of claims for violation of other

Customs statutes and regulations permit cancellation of claims incurred

by first-time violators upon payment of an amount between one and five

percent of the value of the merchandise. This guideline does not

provide Customs with sufficient mitigation flexibility. Accordingly,

Customs amends the guidelines to permit cancellation of claims incurred

by first-time violators upon payment of an amount between one and

fifteen percent of the value of the merchandise.

A new guideline has been formulated for cases that involve failure

to provide a sample to Customs. Under current guidelines, if an

importer fails to provide a sample and liquidated damages result, the

importer will receive mitigation in the one to five percent range

because this is considered to be a violation of other Customs statutes

or regulations. If an importer has a violative shipment, and a sample

will serve to provide evidence of the shipment's inadmissibility, the

importer could benefit in mitigation from failing to provide that

sample.

For example, if an import specialist requests a sample to determine

whether a shipment of merchandise bears a genuine or counterfeit

trademark and the importer provides the sample and a violation is

determined to exist, any resultant claim for liquidated damages would

be cancelled using the guidelines for trademark violative goods

(generally a 25-50 percent result). Under current guidelines, by

failing to provide a sample, the importer would be granted relief in

the one to five percent range. The guidelines are amended to provide

that a claim for liquidated damages for failure to provide a sample

will be cancelled consistent with guidelines in effect for any

violation that is suspected with regard to the sample.

Finally, a new guideline is promulgated which will provide that in

any case where redelivery or compliance with country of origin marking

occurs, but not in a timely manner (i.e., outside the 30-day redelivery

period or any other redelivery period which may be designated by the

district director), the claim shall be cancelled upon payment of $100

or one percent of the value of the shipment, whichever is higher, but

in no case shall the amount exceed $1,000. This guideline will only be

appropriate for compliance that occurs prior to the issuance of the

Notice of Claim for Liquidated Damages.

Change to Section VI

Section VI of the bond cancellation guidelines covers Guidelines

for Cancellation of Claims Arising From Failure to Timely File

Shipper's Export Declarations (SEDs). The guidelines provide for relief

for the first and second violations incurred by a carrier, but after

two violations, no relief is afforded from any claim. These guidelines

do not take into account the fact that most carriers file large numbers

of SEDs each year and that three violations may be a very small number

when considering the total number of SEDs filed. Accordingly, Customs

is amending the guidelines to remove the references to first or second

violations. All claims will be cancelled upon payment of an amount

between 25 and 50 percent of the claim but not less than $100, except

that no relief shall be granted from any claims written for $50 or

$100. If this mitigation does not have a deterrent effect upon a

chronic violator, then cancellation upon payment of an amount exceeding

50 percent (or denial of relief) may be warranted. In order to promote

administrative efficiency, the guidelines are also being amended to

permit Option 1-type mitigation in failure to file SED cases.

Change to Section VII

In Treasury Decision 92-81 (57 FR 37692), Customs published a Final

Rule amending the Customs Regulations to provide for regulations

specific to duty-free stores. The bond cancellation standards for

violations of warehouse bond regulations are amended to make clear that

they are also applicable to duty-free stores.

Under current policy, claims for liquidated damages for non-

merchandise violations relating to the maintenance of a bonded

warehouse are issued at $1,000 for each day that a violation continues.

For example, under the provisions of Sec. 19.12(a)(4) of the

Regulations (19 CFR 19.12(a)(4)), a bonded warehouseman is required to

update a permit file folder related to a bonded warehouse entry within

two business days after any transaction related to that entry

(generally a withdrawal for consumption) is accomplished. By failing to

update within two business days, he is in breach of his bond. If the

violation continues for 100 business days, he will be liable for

liquidated damages of $100,000. This has provided some overly harsh

claims for liquidated damages for relatively minor violations.

Through this document, Customs amends Section VII of the Customs

Bond Cancellation Standards to provide for a limit of $10,000 on any

continuing warehouse bond violation not involving merchandise. The

promulgation of this cap on assessment of the claims will not affect

guidelines for cancellation currently in effect, but will serve to

eliminate overly harsh assessments and concomitantly harsh cancellation

amounts. The guidelines are also amended to permit implementation of

Option 1 procedures in all warehouse bond cases that involve claims for

liquidated damages based upon defaults not involving merchandise.

The current guidelines for claims arising from defaults involving

merchandise do not accurately reflect commercial reality. The

guidelines include a category of defaults arising from clerical error

or mistake, that is a non-negligent, inadvertent error. Under Customs

Directives issued concerning assessment of these claims, district

directors are given broad discretion to issue claims for liquidated

damages when breaches are detected. Issuance of claims for liquidated

damages for violations arising from clerical error or mistake, as a

matter of policy, is unnecessary in order to encourage compliance.

Accordingly, if a claim for liquidated damages is established and the

warehouse proprietor can show that the claim arose from clerical error

or mistake and no loss of revenue occurred, then the claim will be

cancelled without payment. If a loss of revenue occurred, it shall be

prima facie evidence that something other than clerical error or

mistake occurred and other sections of the guidelines should be

followed.

The guidelines for cancellation of claims arising from defaults

involving merchandise which are based upon negligence do not

distinguish between those violations involving merchandise that do not

necessarily involve a threat to the revenue (i.e., manipulation of

merchandise without Customs permit or not in accordance with the

activity described in the permit) and those which do involve a threat

to the revenue (i.e., removal of merchandise from the warehouse without

permit, or failure to locate or account for merchandise in the

warehouse.) The guidelines are amended to provide for a revenue-based

distinction in violations involving merchandise. Violations involving

merchandise which result from negligence but involve no loss of revenue

shall be cancelled upon payment of an amount between one and fifteen

percent of the value of the merchandise but not less than $100 nor more

than $10,000. No distinction shall be made between violations involving

restricted merchandise and violations involving merchandise which is

not restricted; however, if the violation does involve restricted

merchandise, that shall be considered to be an aggravating factor which

will result in less generous mitigation. Violations involving

merchandise which result from negligence but involve a potential loss

of revenue shall be cancelled upon payment of an amount between one and

three times the loss of revenue on the merchandise which cannot be

accounted for, unless that merchandise is restricted, in which case 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. If the violation is found to be

intentional in nature, then no relief from the claim shall be granted.

Change to Section VIII

Under Section VIII of the guidelines, a reference is made to

cancellation of claims for liquidated damages arising from violation of

airport security regulations as published in Sec. 122.14 of the Customs

Regulations (19 CFR 122.14). In Treasury Decision 90-82, the provisions

of Sec. 122.14 were renumbered as 19 CFR 122.181 et. seq. The

guidelines are amended to reflect that change.

For violations involving unauthorized entry into a secured area,

failure to openly display or possess the identification card, strip or

seal, or failure to surrender identification upon demand by an

authorized Customs officer, under current guidelines a first violation

is cancelled upon payment of $200, a second violation is cancelled upon

payment of $500 and a third or subsequent violation results in no

mitigation. If a bond principal has three employees or contractors who

enter into a secured area without authorization, three violations

immediately occur and any benefit given for a first or second violation

dissipates. In order to provide a district director with more

administrative discretion, the first, second and third violation

distinctions are being eliminated. The district director will be able

to cancel any claim arising from the violative conduct described above

upon payment of an amount between $250 and $500. A district director

will always have the discretion to deny relief in these cases based

upon articulable aggravating factors. Inasmuch as the district director

will be afforded the noted discretion, old paragraph F of the

guidelines, which permits greater mitigation to a prior violator who

does not incur a violation for six months, is being eliminated.

The guidelines for airport security violations are also being

amended to permit the district director to apply Option 1 mitigation

procedures, if the facts of a particular case are undisputed and the

circumstances surrounding such case so warrant.

Change to Section IX

As with the guidelines relating to the cancellation of claims

arising from violation of the warehouse bond, the guidelines for

cancellation of claims arising from violation of the provisions of the

Foreign Trade Zone bond also do not reference any cap on the assessment

of claims for violations which do not involve merchandise. For purposes

of liquidated damages assessment (as opposed to penalties which are

assessed under the provisions of 19 U.S.C. 81s), as a matter of policy,

the guidelines are amended to provide that claims will not be issued

for any continuing violation in an amount that exceeds $10,000. The

promulgation of this cap on assessment of the claims will not affect

guidelines for cancellation currently in effect, but will serve to

eliminate overly harsh assessments and concomitantly harsh cancellation

amounts.

The guidelines are also amended to permit implementation of Option

1 procedures in all foreign trade zone claims for liquidated damages

based upon defaults not involving merchandise.

As with warehouse bond violations, the current guidelines for

claims arising from defaults involving merchandise do not accurately

reflect commercial reality. The guidelines include a category of

defaults arising from clerical error or mistake, that is a non-

negligent, inadvertent error. Under Customs Directives governing

Foreign Trade Zones issued concerning assessment of these claims,

district directors are given broad discretion to issue claims when

breaches of the bond are detected. Issuance of claims for liquidated

damages for violations arising from clerical error or mistake is not

always necessary, as a matter of policy, in order to encourage

compliance. Accordingly, if a claim for liquidated damages is

established and the Foreign Trade Zone proprietor can show that the

claim arose from clerical error or mistake and no loss of revenue

occurred, then the claim will be cancelled without payment. If a loss

of revenue occurred, that fact shall be prima facie evidence that

something other than clerical error or mistake occurred and other

sections of the guidelines should be followed.

The guidelines for cancellation of claims arising from defaults

involving merchandise which are based upon negligence do not

distinguish between those violations involving merchandise that do not

necessarily involve a threat to the revenue (i.e., manipulation of

merchandise in the zone without Customs permit or not in accordance

with the activity described in the permit) and those which do involve a

threat to the revenue (i.e., removal of merchandise from the zone

without permit, or failure to locate or account for merchandise in the

zone). The guidelines are amended to provide for a revenue-based

distinction in violations involving merchandise. Violations involving

merchandise which result from negligence but involve no loss of revenue

shall be cancelled upon payment of an amount between one and fifteen

percent of the value of the merchandise but not to exceed $10,000. No

distinction shall be made between violations involving restricted

merchandise and violations involving merchandise which is not

restricted; however, if the violation does involve restricted

merchandise, that shall be considered to be an aggravating factor which

will result in less generous mitigation. Violations involving

merchandise which result from negligence but involve a potential loss

of revenue shall be cancelled upon payment of an amount between one and

three times the loss of revenue on the merchandise which cannot be

accounted for, unless that merchandise is restricted, in which case 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. If the violation is found to be

intentional in nature, then no relief from the claim shall be granted.

Change to Section X

The current guidelines for cancellation of claims for liquidated

damages arising from the failure to hold merchandise at the place of

examination in violation of the provisions of Sec. 113.62(f) of the

Regulations (19 CFR 113.62(f)), are based on a standard that involves a

determination by the deciding officer of a level of culpability

(clerical error, negligence, intentional violation) of the bond

principal. This standard is not followed in the guidelines in use for

other similar misdelivery-type violations. Accordingly, through this

document, Customs is abandoning the standard of finding a level of

culpability.

In order to establish a violation under the provisions of 19 CFR

113.62(f), Customs must show that the bond principal obtained

permission from Customs to have his merchandise examined at a place

which is not in the charge of a Customs officer (e.g., his business

premises, a Centralized Examination Station) and that the bond

principal failed to: Hold the merchandise at such place until released

by Customs; transfer such merchandise to any place directed by Customs;

or keep all seals and cording intact.

Through this document, Customs amends the current guidelines so

that when a party fails to hold the merchandise for examination or

fails to transfer the merchandise to another place upon instruction

from Customs obtained before the merchandise was released, the claim

will be cancelled upon the following terms:

(1) If either the bond principal or surety files an entry summary

and pays estimated duties, taxes and fees, Customs will cancel the bond

claim upon payment of an amount between $100 and $1,000 if the

merchandise was not suspected by Customs to be restricted or

prohibited;

(2) If neither the bond principal nor surety files an entry summary

and pays estimated duties, taxes and fees, Customs will cancel the bond

claim upon payment of an amount equal to the estimated duties, taxes

and fees that would have been due plus an amount between $100 and

$1,000 if the merchandise was not suspected by Customs to be restricted

or prohibited;

(3) If the merchandise not held for examination was suspected of

being restricted or prohibited, and the bond principal files an entry

summary, pays estimated duties, taxes and fees and the merchandise was

deemed admissible with that entry summary, Customs will cancel the bond

claim upon payment of an amount between $100 and $1,000;

(4) If the merchandise not held for examination was suspected of

being restricted or prohibited, and the bond principal does not file an

entry summary or pay estimated duties or provide a showing that the

merchandise was deemed admissible, Customs will cancel the bond claim

upon payment of an amount equal to the estimated duties, taxes and fees

plus an amount between 25 and 50 percent of the value of the

merchandise, but not less than $250; and

(5) If the violation is determined to be intentional in nature, no

relief will be afforded.

For a violation which involves the failure to keep any Customs seal

or cording intact until the merchandise is examined, the claim shall be

cancelled upon payment of an amount between $100 and $500 if there is

no evidence to indicate the merchandise in the sealed or corded

shipment was the subject of tampering. If there is evidence of

tampering, the claim shall be cancelled upon payment of an amount equal

to the value of any missing merchandise.

Finally, an additional sentence shall be added to the guidelines to

indicate that when the term ``value'' is used in any provision of these

guidelines it means value as determined under 19 U.S.C. 1401a and not

domestic value.

The new Section XI of the bond cancellation standards relating to

CES operators will employ the same guidelines as those described in the

changes to Section X with regard to violations involving failure to

keep merchandise safe or deliver that merchandise to the CES.

The text of the guidelines, as modified, is set forth below.

Dated: April 12, 1994.

Samuel H. Banks,

Acting Commissioner of Customs.

Guidelines for Cancellation of Claims for Liquidated Damages

I. Guidelines for Cancellation of Claims for Liquidated Damages for

Late Filing of Entry Summary Claims (19 CFR 142.15 and 113.62(b)), Late

Payment of Estimated Duties Claims (19 CFR 113.62(a)(1)(i) and

113.62(k)(4)), and Late Remission of Collected Passenger Processing

Fees (19 CFR 113.64(a))

A. Failure to file entry summaries timely. Pursuant to section

172.22(d) of the Customs Regulations, claims for liquidated damages for

failure to file entry summaries timely shall be issued and mitigated as

follows:

1. Notification of liquidated damages incurred; modified CF-5955A.

Notices of liquidated damages incurred shall be issued on a modified

CF-5955A. The modified form shall specify two options from which the

petitioner may choose 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. Pursuant to the provisions of 19

CFR 172.11, 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 district director shall

grant full relief when the petitioner demonstrates that the violation

did not occur or that the violation occurred solely as a result of

Customs error. If the petitioner fails to demonstrate that the

violation did not occur or that the violation occurred solely as a

result of Customs error, the district director may cancel the claim

upon payment of an amount no less than $100 greater than the Option 1

amount.

2. Calculation of mitigated amount; entry summary filed late. The

amounts to be set forth under Option 1 on the CF 5955A shall be

calculated as follows:

a. Dutiable entry summary filed late.

The bond principal or surety shall be charged an administrative fee

of $100 plus interest on the withheld duty at the rate of 0.1 percent

(.001) per calendar day that the withheld duty was late. The interest

amount shall be rounded up to the next dollar. For purposes of this

calculation, the withheld duty amount shall be rounded down to the next

dollar. For purposes of these mitigation guidelines, the term

``withheld duty'' shall include unpaid duties, merchandise processing

fees, harbor maintenance fees and any other taxes or charges due and

owing at the time of filing of the entry summary.

b. Duty-free entry filed late.

The bond principal or surety shall be charged an administrative fee

of $100 plus interest on any withheld fees and taxes calculated at the

rate of 0.1 percent (.001) per calendar day that the entry summary was

late.

c. Dutiable entry rejected and refiled late with no withheld duty,

fees and taxes.

The bond principal or surety shall be charged $100.

d. Dutiable entry filed timely but rejected, refiled late with

additional duties, fees and taxes owed.

The bond principal or surety shall be charged an administrative fee

of $100 plus interest calculated on withheld duties, fees and taxes

only, calculated at the rate of 0.1 percent (.001) per calendar day

that the withheld duty was late.

3. Entry summary not filed.

a. If at the time the demand for liquidated damages is issued the

entry summary has not been filed, a claim for liquidated damages for

non-filing of the entry summary shall be issued. No mitigated amount

shall be offered under Option 1. As a prerequisite for mitigation, the

principal must file the entry summary and pay estimated duties, fees

and taxes or the surety must deposit estimated duties, fees and taxes.

b. Once the estimated duties, fees and taxes have been paid, a

notice of claim for liquidated damages shall be issued for late filing

of the entry summary, replacing the earlier notice of claim for non-

filing of the entry summary. The late filing claim issued as a result

of a non-filing situation shall be cancelled in accordance with the

following guidelines once the estimated duties, fees and taxes have

been deposited.

i. The bond principal shall be charged an administrative fee of

$200 plus interest on the withheld duty at the rate of 0.1 percent

(.001) per calendar day that the entry summary was late. The interest

amount shall be rounded up to the next dollar. For purposes of this

calculation, the duty amount shall be rounded down to the next dollar.

ii. When the surety deposits estimated duties, fees and taxes, the

surety shall be charged an administrative fee of $200 plus 0.1 percent

(.001) per calendar day between issuance of the demand on surety and

payment of the estimated duties, fees and taxes.

c. If no response from the principal or surety is received within

60 days from the date of issuance of the non-filing claim, a claim for

liquidated damages for late filing shall be issued to both the

principal and surety, but no Option 1 mitigation shall be offered.

4. Late filing of statement summaries.

a. If a Customs broker files an entry statement including multiple

entry summaries for processing in an untimely manner, the district

director may, in his or her discretion, cancel all claims for

liquidated damages arising because of the late filing in accordance

with the following standard:

The broker shall be charged, as an Option 1 amount, an

administrative fee of $500 plus interest on the withheld duty at the

rate of 0.1 percent (.001) per calendar day that the withheld duty was

late. The interest amount shall be rounded up to the next dollar. For

purposes of this calculation, the withheld duty amount shall be rounded

down to the next dollar. For purposes of these mitigation guidelines,

the term ``withheld duty'' shall include unpaid duties, merchandise

processing fees, harbor maintenance fees and any other taxes or charges

due and owing at the time of filing of the entry summary. This

mitigation shall be afforded with regard to any first violation by a

broker who is responsible for late submission of a statement summary.

This mitigation may be afforded with regard to a subsequent violation,

based upon the discretion of the district director.

b. Petition for relief.

i. If the broker files a petition for relief which demonstrates

that the violation did not occur or occurred as a result of Customs

error, all claims arising from the late filing should be cancelled

without payment.

ii. If the broker files a petition for relief which fails to

demonstrate that the violation did not occur or occurred as a result of

Customs error, the claim shall be cancelled upon payment of $700 plus

interest on any withheld fees and taxes calculated at the rate of 0.1

percent (.001) per calendar day that the entry statement was late.

c. Failure to pay Option 1 amount or petition for relief.

If a broker fails to pay the Option 1 amount or fails to petition

for relief, Customs shall issue appropriate claims for liquidated

damages against all bond principals and sureties and the mitigation

guidelines enumerated in paragraph B. above shall be followed. In no

case shall the $500 plus interest Option 1 amount afforded to brokers

in these cases be afforded to principals or sureties.

5. Suspension of immediate release privileges. If an importer fails

to meet his obligations with regard to claims for liquidated damages

for late filing of entry summaries, the district director is always

empowered to suspend immediate release privileges of the importer.

Alternatively, the district director may choose to assess liquidated

damages but not offer an Option 1 alternative.

B. Late payment of estimated duties. Claims for liquidated damages

for late payment of estimated duties shall be issued and mitigated as

follows:

1. Notification of liquidated damages incurred; estimated duties

not paid. If at the time the demand for liquidated damages is issued

the estimated duties, fees and taxes have not been paid, the claim

shall be issued on a CF-5955A citing 19 CFR 113.62(a)(1)(i) and 19 CFR

113.62(k)(4) as the bond conditions violated. No mitigated amount shall

be offered under Option 1. As a prerequisite for mitigation, the

principal must pay estimated duties, fees and taxes or the surety must

deposit estimated duties, fees and taxes.

2. Notification of liquidated damages incurred; estimated duties

paid late; modified CF 5955A. If at the time of issuance of the demand

for liquidated damages, estimated duties, fees and taxes have been

paid, the Notices of Claim for Liquidated Damages incurred shall be

issued on a modified CF-5955A. The modified form shall specify two

options from which the petitioner may choose 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. Pursuant to the provisions of 19

CFR 172.11, 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 district director shall

grant full relief when the petitioner demonstrates that the violation

did not occur or that the violation occurred solely as a result of

Customs or financial institution error. If the petitioner fails to

demonstrate that the violation did not occur or that the violation

occurred solely as a result of Customs or financial institution error,

the district director may cancel the claim upon payment of an amount no

less than $100 greater than the Option 1 amount.

3. Calculation of Option 1 amounts.

a. If estimated duties, taxes and charges are paid untimely, but

payment is made before Customs is required to issue a Notice of Claim

as described in Subparagraph B(1) above, the bond principal or surety

shall be charged an administrative fee of $100 plus interest on the

withheld duty at the rate of 0.1 percent (.001) per calendar day that

the withheld duty was late. The interest amount shall be rounded up to

the next dollar. For purposes of this calculation, the withheld duty

amount shall be rounded down to the next dollar. For purposes of these

mitigation guidelines, the term ``withheld duty'' shall include unpaid

duties, merchandise processing fees, harbor maintenance fees and any

other taxes or charges due and owing at the time of filing of the entry

summary.

b. If estimated duties, taxes, fees and charges are paid untimely

by the bond principal after Customs has issued a claim for liquidated

damages for non-payment of estimated duties in accordance with

Subparagraph B(1) above, the bond principal shall be charged an

administrative fee of $200 plus interest on the withheld duty at the

rate of 0.1 percent (.001) per calendar day that the payment was late.

The interest amount shall be rounded up to the next dollar. For

purposes of this calculation, the duty amount shall be rounded down to

the next dollar.

c. When the surety deposits estimated duties, fees and taxes, in

response to a demand made in accordance with Subparagraph B(1) above,

the surety shall be charged an administrative fee of $200 plus 0.1

percent (.001) per calendar day between issuance of the demand on

surety and payment of the estimated duties, fees and taxes.

C. Failure to remit collected passenger processing fees. Claims for

liquidated damages for untimely payment to Customs of collected

passenger processing fees shall be issued and mitigated as follows:

1. Notification of liquidated damages incurred; passenger

processing fees not remitted. If at the time the demand for liquidated

damages is issued the collected fees have not been remitted to Customs,

the claim shall be issued on a CF-5955A citing 19 CFR 113.64(a) and 19

CFR 24.22(g) as the bond condition and regulations violated. No

mitigated amount shall be offered under Option 1. As a prerequisite for

mitigation, the principal must remit the collected fees or the surety

must deposit an amount equal to those unremitted fees.

2. Notification of liquidated damages incurred; estimated duties

paid late; modified CF 5955A. If at the time of issuance of the demand

for liquidated damages, the collected fees have been remitted, the

Notices of Claim for Liquidated Damages incurred shall be issued on a

modified CF-5955A. The modified form shall specify two options from

which the petitioner may choose to resolve the demand.