Prior Disclosure

SUMMARY: This document proposes amendments to the Customs Regulations

governing ``prior disclosure'' as well as implementing a provision of

the Customs Modernization portion of the North American Free Trade

Implementation Act (Mod Act) concerning prior disclosure by a person of

a violation of law committed by that person involving the entry or

introduction or attempted entry or introduction of merchandise into the

United States by fraud, gross negligence or negligence. Pursuant to

``prior disclosure'' under 19 U.S.C. 1592(c)(4), as amended by the Mod

Act, if a person who commits such a violation discloses the

circumstances of the violation before, or without knowledge of, the

commencement of a formal investigation of such violation, merchandise

shall not be seized and any monetary penalty to be assessed under 19

U.S.C. 1592 shall be limited. The amendment to the Customs Regulations

proposed in this document would spell out when there is ``commencement

of a formal investigation'' for purposes of 19 U.S.C. 1592. The

document also amends the regulations to give Fines, Penalties and

Forfeitures Officers discretion to defer referral for full

investigation of a disclosure of an unintentional violation of law

until the disclosing party has an opportunity to explain all the

circumstances underlying the disclosed violation.

DATE: Comments must be received on or before November 25, 1996.

ADDRESSES: Comments (preferably in triplicate) may be submitted to the

Regulations Branch, Office of Regulations and Rulings, U.S. Customs

Service, Franklin Court, 1301 Constitution Avenue, NW, Washington, DC

20229, and may be inspected at Franklin Court, 1099 14th Street, NW.,

Washington, DC.

FOR FURTHER INFORMATION CONTACT: Robert Pisani, Penalties Branch (202)

482-6946.

SUPPLEMENTARY INFORMATION:

Background

On December 8, 1993, the President signed the North American Free

Trade Agreement Implementation Act (Pub. L. 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. Section 621 of Title VI amended section 592 of the Tariff

Act of 1930 (19 U.S.C. 1592) (hereinafter referred to as section 592).

This document involves the amendments to section 592(c)(4) effected by

section 621(4) of Title VI.

Section 592 provides that no person, by fraud, gross negligence, or

negligence may enter, introduce or attempt to enter or introduce any

merchandise into the commerce of the United States by means of any

document or electronically transmitted data or information, written or

oral statement, or act which is material and false, or any omission

which is material. Further, no person may aid or abet any other person

in violating the above-stated prohibition. The statute provides maximum

penalties for violations of its provisions.

Section 592(c)(4), the prior disclosure provision, affords a party

who discloses a violation of section 592 with benefits of significantly

reduced penalties (or in certain cases, no penalties) where the party

fully discloses the circumstances of the violation, and does so before,

or without knowledge of, ``the commencement of a formal investigation''

of the disclosed violation.

The Mod Act amendments to section 592(c)(4) involved the adoption

of a statutory definition of the term ``commencement of a formal

investigation.'' Section 592(c)(4) now provides that a formal

investigation is deemed commenced on the date recorded in writing by

Customs as the date on which facts and circumstances were discovered or

information was received which caused Customs to believe that the

possibility of a section 592 violation existed.

Presently, Sec. 162.74 (d) and (e) of the Customs Regulations (19

CFR 162.74 (d) and (e)) set forth the agency definition of

``commencement of a formal investigation'' and this definition does not

require, in all cases, that the ``commencement'' be evidenced by a

writing or electronic transmission.

This document proposes to amend the Customs Regulations to set

forth in Sec. 162.74(g) a definition of ``commencement of a formal

investigation'' consistent with the definition set forth in section

592. The language in Sec. 162.74 (d) and (e), Customs Regulations that

is inconsistent with the statutory definition is removed.

The document also attempts to simplify the regulations by bringing

all material relating to the prior disclosure of section 592 violations

into one section. Accordingly, the definition of the phrase ``discloses

the circumstances of the violation'', which applies only to prior

disclosure provisions, is proposed to be moved from Sec. 162.71,

Customs Regulations to paragraph (b) of Sec. 162.74.

This document also proposes to amend the regulations to provide for

the possibility of a delay of the verification of the violation by the

Office of Investigations. Section 162.74(c), Customs Regulations,

currently contains a requirement that all claimed prior disclosures

immediately be referred for investigation. In the past, such referrals

often have led to a rapid Customs deployment of investigative resources

to the disclosing party's premises, or the rapid issuance of subpoenas

or civil summonses for records--even in instances where the disclosing

party is in the process of collecting the necessary information to

``perfect'' the claimed prior disclosure. In such cases, not only does

strict adherence to the current immediate referral requirement

sometimes result in delaying disposition of the disclosed violation,

but also may serve to deter parties from making prior disclosures at

all. Customs now proposes a new paragraph (f) which provides that the

disclosing party may request the additional time to gather information

in order to fully disclose the circumstances of the violation as

defined in paragraph (b) of the proposed amendment. Customs believes

that the disclosing party should be able to ask Customs to defer the

Office of

[[Page 50460]]

Investigations verification proceedings until the party has completed

its disclosure of the circumstances within the time permitted under the

proposed paragraph (b).

Comments

Before adopting the proposed amendment, consideration will be given

to any written comments timely submitted to Customs. Comments submitted

will be available for public inspection in accordance with the Freedom

of Information Act (5 U.S.C. 552), Sec. 1.4, Treasury Regulations (31

CFR 1.4), and Sec. 103.11(b), Customs Regulations (19 CFR 103.11(b)),

on regular business days between the hours of 9:00 a.m. and 4:30 p.m.

at the Regulations Branch, 1099 14th Street, NW., Suite 4000,

Washington, D.C.

Regulatory Flexibility Act

Insofar as the proposed regulations closely follow legislative

direction, pursuant to the provisions of the Regulatory Flexibility Act

(5 U.S.C. 601, et seq.), it is certified that the amendment, if

adopted, will not have a significant economic impact on a substantial

number of small entities. Accordingly, it is not subject to the

regulatory analysis or other requirements of 5 U.S.C. 603 and 604.

Executive Order 12866

This amendment does not meet the criteria for a ``significant

regulatory action'' as specified in E.O. 12866.

Drafting Information

The principal author of this document was Peter T. Lynch,

Regulations Branch, Office of Regulations and Rulings, U.S. Customs

Service. However, personnel from other offices participated in its

development.

Paperwork Reduction Act

The collection of information contained in this rulemaking has been

submitted to the Office of Management and Budget (OMB) in accordance

with the Paperwork Reduction Act of 1995. (44 U.S.C. 3507).

An agency may not conduct or sponsor, and a person is not required

to respond to a collection of information unless the collection of

information displays a valid control number.

The collection of information in this regulation is in Sec. 162.

This information is to enable the Customs Service able to effectively

administer the laws it is charged with enforcing while, at the same

time, imposing a minimum burden on the public it is serving.

Respondents are those parties who wish to voluntarily disclose the

circumstances of a violation of 19 U.S.C. 1592 in order to obtain

reduced penalty benefits which are available pursuant to 19 U.S.C.

1592(c)(4). The likely respondents are business organizations including

importers, exporters and manufacturers.

Estimated total annual reporting burden: 3,500 hours.

Estimated average annual burden per respondent: 1 hour for each

Customs entry involved in the prior disclosure.

Estimated number of respondents: 3,500.

Estimated annual frequency of responses: Because a prior disclosure

of a Customs law violation is made voluntarily, it is impossible to

predict with any accuracy the frequency at which such disclosures may

be made.

Comments concerning the collections of information should be sent

to the Office of Management and Budget, Attention: Desk Officer of the

Department of the Treasury, Office of Information and Regulatory

Affairs, Washington, DC. 20503. A copy should also be sent to the

Regulations Branch, Office of Regulations and Rulings, U.S. Customs

Service, 1301 Constitution Avenue, NW., Washington, DC. 20229. Comments

should be submitted within the time frame that comments are due

regarding the substance of the proposal.

Comments are invited on: (a) Whether the collection of information

is necessary for the proper performance of the functions of the agency,

including whether the information shall have practical utility; (b) the

accuracy of the agency's estimate of the burden of the collection of

information; (c) ways to enhance the quality, utility, and clarity of

the information to be collected; and (d) ways to minimize the burden of

the collection of information on respondents, including through the use

of automated collection techniques or other forms of information

technology.

List of Subjects in 19 CFR Part 162

Customs duties and inspection, Law enforcement, Seizures and

forfeitures.

Proposed Amendment

It is proposed to amend Part 162, Customs Regulations (19 CFR Part

162) as set forth below:

PART 162--RECORDKEEPING, INSPECTION, SEARCH, AND SEIZURE

1. The authority citation for Part 162 will continue to read as

follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1624.

* * * * *

Sec. 162.71 [Amended]

2. Section 162.71 is amended by removing paragraph (e).

3. Section 162.74 is revised to read as follows:

Sec. 162.74 Prior disclosure.

(a) In General. (1) A prior disclosure of a violation is made if

the person concerned discloses the circumstances of a violation (as

defined in paragraph (b) of this section) of 19 U.S.C. 1592 or 19

U.S.C. 1593a, either orally or in writing to a Customs Officer before,

or without knowledge of, the commencement of a formal investigation of

that violation, and makes a tender of any actual loss of duties in

accordance with paragraph (c) of this section. A Customs officer who

receives such a tender in connection with a prior disclosure shall

ensure that the tender is deposited with the concerned local Customs

entry officer.

(2) A person shall be accorded the full benefits of prior

disclosure treatment if that person provides information orally or in

writing to Customs with respect to a violation of 19 U.S.C. 1592 or 19

U.S.C. 1593a if the concerned Fines, Penalties & Forfeitures Officer is

satisfied that the information was provided before, or without

knowledge of, the commencement of a formal investigation, and that the

information provided includes substantially the information specified

in paragraph (b) of this section.

(b) Disclosure of the Circumstances of a Violation. The term

``discloses the circumstances of a violation'' means the act of

providing to Customs a statement orally or in writing which:

(1) Identifies the class or kind of merchandise involved in the

violation;

(2) Identifies the importation or drawback claim included in the

disclosure by entry number, drawback claim number, or by indicating

each concerned Customs port of entry and the approximate dates of entry

or dates of drawback claims;

(3) Specifies the material false statements, omissions or acts; and

(4) Sets forth to the best of the violator's knowledge, the true

and accurate information or data which should have been provided in the

entry or drawback claim documents, and states that the person will

provide any information or data which is unknown at the time of

disclosure within 30 days of the initial disclosure date. Extensions of

the 30 day period may be requested by the disclosing party from the

concerned Fines, Penalties & Forfeitures Officer to enable the party to

obtain the information or data.

[[Page 50461]]

(c) Tender of Actual Loss of Revenue. A person who discloses the

circumstances of the violation shall tender any actual loss of revenue

either at the time of disclosure or within 30 days after a Customs

officer notifies the person in writing of the calculation of the actual

loss of revenue. The Fines, Penalties & Forfeitures Officer may extend

the 30 day period if it is determined there is good cause to do so.

Failure to tender the actual loss of revenue finally calculated by

Customs shall result in denial of the prior disclosure benefits.

(d) Effective Time and Date of Prior Disclosure.

(1) If the documents which provide the disclosing information are

sent by registered or certified mail, return-receipt requested, and are

ultimately received by Customs, the disclosure shall be deemed to have

been made at the time of mailing.

(2) If the documents are sent by other methods, including in-person

delivery, the disclosure shall be deemed to have been made at the time

of receipt by Customs. If the documents are delivered in person, the

person delivering the documents is to request a receipt from Customs

which will indicate the time and date of receipt.

(3) The provision of information which is not in writing but which

qualifies for prior disclosure treatment pursuant to paragraph (a)(2)

of this section shall be deemed to have occurred at the time when

Customs was provided with information which substantially complies with

the requirements set forth in paragraph (b) of this section.

(e) Addressing and Filing Prior Disclosure.

(1) A written prior disclosure should be addressed to the

Commissioner of Customs and presented to a Customs officer at the

Customs port of entry of the disclosed violation.

(2) In the case of a prior disclosure involving violations at

multiple ports of entry, the disclosing party shall orally disclose or

provide copies of the disclosure to all concerned Fines, Penalties &

Forfeitures Officers. In accordance with internal Customs procedures,

the officers will then seek consolidation of the disposition and

handling of the disclosure.

(f) Verification of Disclosure. Upon receipt of a prior disclosure,

the concerned Customs officer shall notify the Customs Office of

Investigations of the disclosure. The violator may request, in the oral

or written prior disclosure, that the Office of Investigations withhold

the initiation of disclosure verification proceedings until after the

party has provided the information or data within the time limits

specified in paragraph (b)(4) of this section. It is within the

concerned Fines, Penalties & Forfeitures Officer's discretion to grant

or deny such a request.

(g) Commencement of a Formal Investigation. A formal investigation

of a violation is considered to be commenced on the date recorded in

writing by the Customs Service as the date on which facts and

circumstances were discovered or information was received which caused

the Customs Service to believe that a possibility of a violation

existed. In the event that a party is denied prior disclosure treatment

on the basis that Customs had commenced a formal investigation of the

disclosed violation, and Customs initiates a penalty action against the

disclosing party involving the disclosed violation, a copy of a writing

evidencing the commencement of a formal investigation of the disclosed

violation shall be attached to any required notice issued to the

disclosing party pursuant to 19 U.S.C. 1592 or 19 U.S.C. 1593a.

(h) Scope of the Disclosure and Expansion of a Formal

Investigation. A formal investigation is deemed to have commenced

regarding additional violations not included or specified by the

disclosing party in the party's original prior disclosure on the date

recorded in writing by the Customs Service as the date on which facts

and circumstances were discovered or information was received which

caused the Customs Service to believe that a possibility of such

additional violations existed. Additional violations not disclosed or

covered within the scope of the party's prior disclosure which are

discovered by Customs as a result of an investigation and/or

verification of the prior disclosure shall not be entitled to treatment

under the prior disclosure provisions.

(i) Knowledge of the Commencement of a Formal Investigation. (1) A

disclosing party who claims lack of knowledge of the commencement of a

formal investigation has the burden to prove that lack of knowledge. A

person shall be presumed to have had knowledge of the commencement of a

formal investigation of a violation if before the claimed prior

disclosure of the violation a formal investigation has been commenced

and:

(i) A Customs officer, having reasonable cause to believe that

there has been a violation of 19 U.S.C. 1592 or 19 U.S.C. 1593a, so

informed the person concerning the type of or circumstances of the

disclosed violation; or

(ii) A Customs Special Agent, having properly identified himself or

herself and the nature of his or her inquiry, had, either in person or

in writing, made an inquiry of the person concerning the type of or

circumstances of the disclosed violation; or

(iii) A Customs Special Agent having properly identified himself or

herself and the nature of his or her inquiry, requested specific books

and/or records of the person relating to the disclosed violation; or

(iv) The disclosing party receives a prepenalty or penalty notice

issued pursuant to 19 U.S.C. 1592 or 19 U.S.C. 1593a relating to the

type of or circumstances of the disclosed violation; or

(v) The merchandise which is the subject of the disclosure was

seized by Customs because of the type of or circumstances of the

disclosed violation; or

(vi) In the case of violations involving merchandise accompanying

persons entering the United States or commercial merchandise inspected

in connection with entry, the person has received oral notification of

the Customs officer's finding of a violation.

(2) The presumption of knowledge may be rebutted by evidence that,

notwithstanding the foregoing notice, inquiry or request, the person

did not have knowledge that an investigation had commenced with respect

to the disclosed information.

Dated: August 27, 1996.

William F. Riley,

Acting Commissioner of Customs.

Approved: August 27, 1996

Dennis M. O'Connell,

Acting Deputy Assistant Secretary of the Treasury.

[FR Doc. 96-24657 Filed 9-25-96; 8:45 am]

BILLING CODE 4820-02-P