# Prior Disclosure

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URL: https://www.frixlaw.com/law-library/documents/fr%3A96-24657

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** September 26, 1996
- **Citation:** 61 FR 50459

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A96-24657. Public record. Not legal advice.