# Recordkeeping Requirements

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URL: https://www.frixlaw.com/law-library/documents/fr%3A98-15771

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** June 16, 1998
- **Citation:** 63 FR 32916

## Text

SUMMARY: This document adopts as a final rule, with some changes,
proposed amendments to the Customs Regulations to reflect changes to
the Customs laws regarding recordkeeping requirements, examination of
records and witnesses, regulatory audit procedures, and judicial
enforcement contained in the Customs Modernization provisions of the
North American Free Trade Agreement Implementation Act. The final
regulatory texts include detailed provisions regarding what records
must be maintained, who must maintain them, and how they must be
maintained and made available for examination by Customs. The final
regulations also provide for electronic or other alternate methods for
storage of records, set forth penalties for failure to maintain or
produce certain records, and establish a voluntary recordkeeping
compliance program as an alternative to penalties.

EFFECTIVE DATE: July 16, 1998.

FOR FURTHER INFORMATION CONTACT: For questions relating to
recordkeeping in general and the voluntary Recordkeeping Compliance
Program, call Stan Hodziewich, Regulatory Audit Division, Washington,
D.C. (202-927-0999), or Howard Spencer, Regulatory Audit Division,
Atlanta Branch (770-994-2273, Ext.158).
For questions relating to the Appendix ((a)(1)(A) list) and its
underlying documents and other entry records, call Jerry Laderberg,
Office of Regulations and Rulings (202-927-2269).

SUPPLEMENTARY INFORMATION:

Background

On December 8, 1993, the President signed into law the North
American Free Trade Agreement Implementation Act (the ``NAFTA
Implementation Act''), Public Law 103-182, 107 Stat. 2057. Title VI
thereof contained provisions pertaining to Customs Modernization and
thus is commonly referred to as the Customs Modernization Act or ``Mod
Act''. Sections 614, 615 and 616 within the Mod Act amended sections
508, 509 and 510 of the Tariff Act of 1930, as amended (19 U.S.C. 1508,
1509 and 1510) which pertain to recordkeeping requirements applicable
to importers and others. In addition, within Title II of the NAFTA
Implementation Act, entitled ``Customs Provisions'', section 205
amended sections 508 and 509 of the Tariff Act of 1930 to include
recordkeeping requirements for exportations to Canada and Mexico for
purposes of the United States-Canada Free Trade Agreement and the
NAFTA.
Before its amendment by the Mod Act, section 508 of the Tariff Act
of 1930 limited recordkeeping requirements to any owner, importer,
consignee, or agent thereof who imported, or knowingly caused to be
imported any merchandise into the Customs territory of the United
States. Section 614 of the Mod Act amended these requirements and
expanded the parties subject to Customs recordkeeping requirements to
include parties who file an entry or declaration, transport or store
merchandise carried or held under bond, file drawback claims, or cause
an importation, or transportation or storage of merchandise carried or
held under bond. Section 614 of the Mod Act further amended section 508
of the Tariff Act of 1930 to clarify that all parties who must keep
records for Customs purposes are subject to recordkeeping requirements.
In addition, in order to reflect the current electronic environment in
which both Customs and the importing and exporting community operate,
section 614 of the Mod Act expanded the concept of ``records'' set
forth in section 508 of the Tariff Act of 1930 to include information
and data maintained in the form of electronically generated or machine
readable data.
The Mod Act amended various provisions of the Customs laws to grant
to Customs authority not to require the presentation of certain
documentation or information at time of entry; these amendments were
intended to permit a reduction of the documentation and information
requirements at time of entry, thereby facilitating the entry process.
However, in exchange for not requiring presentation of documents at the
time of entry, and in order to not jeopardize the ability of Customs to
obtain those records at a later date, section 615 of the Mod Act
amended section 509 of the Tariff Act of 1930: (1) to authorize Customs
to examine, or to require the production of, inter alia, any records
which are required by law for the entry of merchandise, whether or not
Customs required their presentation at the time of entry; (2) to
provide for the imposition of substantial administrative penalties for
a failure to comply, within a reasonable time, with a demand for
production of such entry records; and (3) to require Customs to
identify and make available to the importing community, by publication,
a list of all such entry records or information (referred to as the
``(a)(1)(A) list'' based on the paragraph within 19 U.S.C. 1509 which
specifically concerns such records). Thus, the Mod Act amendments
resulted in a statutory distinction between those business, financial
or other records that pertain to activities listed in section 508 of
the Tariff Act of 1930 and are maintained in the normal course of
business and those that are required for the entry of merchandise and
are required to be identified in the ``(a)(1)(A) list'' and as to which
penalties may apply for a failure to produce if demanded by Customs. In
addition, section 615 of the Mod Act amended section 509 of the Tariff
Act of 1930: (1) to set forth procedures applicable to regulatory
audits conducted by Customs; and (2) to provide for a voluntary
recordkeeping compliance program under which program participants might
be eligible for alternatives to penalties for a failure to produce
demanded entry records and information.
Section 205 of the Mod Act amended section 508 of the Tariff Act of
1930, inter alia, to provide (1) that any person who completes and
signs a NAFTA Certificate of Origin for a good for which preferential
treatment is claimed under the NAFTA shall make, keep, and render for
examination and inspection all records relating to the origin of the
good (including the Certificate or copies thereof) and the associated
records and (2) that such records shall be retained for at least 5
years from the date of signature of the NAFTA Certificate of Origin.
Section 205 of the Mod Act also made a conforming amendment to section
509 of the Tariff Act of 1930 regarding persons to whom a summons may
be issued, involving the addition of a reference to persons who
exported merchandise, or knowingly caused merchandise to be exported,
to a NAFTA country or to Canada during such time as the United States-
Canada Free Trade Agreement is in force. Section 616 of the Mod Act
amended section 510 of the Tariff Act of 1930 by adding the assessment
of a monetary penalty as a sanction that may be applied by a U.S.
district court if a person does not comply with a summons issued by
Customs under section 509 of the Tariff Act of 1930.
On April 23, 1997, Customs published in the Federal Register (62 FR
19704) a notice setting forth proposed

[[Page 32917]]

amendments to the Customs Regulations to implement the changes to the
statutory recordkeeping provisions effected by the NAFTA Implementation
Act as summarized above. Customs stated in that notice of proposed
rulemaking that a new, separate part within the Customs Regulations,
dealing solely with recordkeeping and related requirements, would be
the appropriate approach. Accordingly, the notice proposed to add a new
Part 163 (19 CFR Part 163) entitled ``Recordkeeping'' which would
contain the recordkeeping and related provisions previously set forth
in Part 162 of the Customs Regulations (19 CFR Part 162) and would also
reflect the amendments to sections 508, 509 and 510 of the Tariff Act
of 1930 effected by sections 205, 614, 615 and 616 of the NAFTA
Implementation Act. In addition, that notice: (1) set forth, as an
appendix to proposed new Part 163, the (a)(1)(A) list that had been
previously published in the Customs Bulletin on January 3, 1996, as
T.D. 96-1 and in the Federal Register on July 15, 1996, at 61 FR 36956;
and (2) included proposed conforming or collateral amendments to
various provisions within Parts 24, 111, 143 and 162 of the Customs
Regulations (19 CFR Parts 24, 111, 143 and 162). The notice of proposed
rulemaking made provision for the submission of public comments on the
proposed regulatory changes for consideration before adoption of those
changes as a final rule, and the prescribed public comment period
closed on June 23, 1997. A correction document pertaining to the April
23, 1997, notice of proposed rulemaking was published in the Federal
Register on May 5, 1997 (62 FR 24374).

Discussion of Comments

Twenty-three commenters responded to the solicitation of comments
in the April 23, 1997, notice of proposed rulemaking referred to above.
The comments submitted are summarized and responded to below.

Treatment of Express Consignment Carriers

Comment: Two commenters complained that the proposed regulations do
not adequately reflect, nor address, the unique role that express
consignment carriers play in the import process. These commenters noted
that express consignment carriers, as nominal consignees, have the
right under 19 U.S.C. 1484 to designate a customs broker to make entry
of merchandise and that, in order to deliver an integrated service,
they frequently designate their own brokerages which make entry in
their own names; thus, express consignment carriers play multiple roles
with regard to customs processing as a carrier, broker, and importer of
record, and they also operate as transporters and storers of
merchandise carried or held under bond. The proposed regulations, on
the other hand, simply list together all of the different parties
required to make, keep, and produce records without making any clear
distinction between those parties with reference to the roles they play
in the import process (for example, the distinction between an express
consignment carrier and the actual importer or consignee). Thus, under
the proposed regulations an express consignment carrier would be
required to make, keep, and produce records for each of its import-
related activities, including, as nominal consignee, every document
that accompanies a shipment and is identified in the (a)(1)(A) list as
being necessary for the entry of merchandise. The commenters further
asserted that the burden imposed by the regulatory proposals is
accentuated in the case of express consignment carriers by virtue of
the very large volume of shipments that they handle.
In addition to the above general comments regarding the unique
nature of the express consignment industry, these two commenters made
the following specific recommendations or observations:
1. In order to avoid redundancy and unnecessary burdens in the
recordkeeping requirements, separate and distinct recordkeeping
requirements should be established for express consignment carriers and
that those requirements should appear in Part 128 of the Customs
Regulations (19 CFR Part 128) which sets forth requirements and
procedures for the clearance of imported merchandise carried by express
consignment operators and carriers. These commenters suggested that
there is precedent for this approach in that separate sections dealing
with recordkeeping responsibilities appear in the Part 111 regulations
governing customs brokers.
2. In order to avoid rendering meaningless the benefits provided
under current Part 128 and also to reflect what records are in fact
kept in the ordinary course of business, express consignment carriers
should only be required to keep and produce, as (a)(1)(A) records,
those records presently prescribed for entry purposes in Part 128: for
letter and document shipments (express consignment carrier acts as
carrier), the summary manifest or manifest; for shipments that may be
entered free of duty under 19 U.S.C. 1321 and 19 CFR 10.151 (express
consignment carrier acts as carrier/broker), the manifest; for
shipments covered by an informal entry (express consignment carrier
acts as broker), the manifest or Customs Form 3461 and the invoice and
Customs Form 7501 or, if a consolidated informal entry, the manifest
and consolidated Customs Form 7501; and for shipments covered by a
formal entry (express consignment carrier acts as broker), the manifest
or Customs Form 3461 and the invoice and Customs Form 7501, together
with a power of attorney if entry is made in the name of the express
consignment carrier's customer and certain records required for the
entry of specific categories of merchandise. All other records
pertaining to a particular import (for example, air waybills,
commercial invoices) should be kept and produced by the recipient of
the shipment, that is, the actual importer.
3. Requiring the retention of more than the records mentioned at
point 2 above in the case of express consignment carriers neither makes
economic sense nor provides an enforcement benefit to Customs because
(1) while the value of an express consignment shipment is not typically
very high, the retention of additional records would be extremely
costly to the express consignment carrier given the volume of shipments
involved and (2) compliance assessment (including document review) for
express consignment shipments is performed either at the time of entry
by on-site Customs inspectors at express carrier facilities or,
particularly in the case of informal entries where enforcement risks
are minimal, not at all.
4. While express consignment carriers generally maintain the
consolidated Customs Form 7501 for informal entries, Customs might
consider eliminating this requirement since the document contains very
little information other than totals on duties and number of entries.
5. It should be clarified up front that the monetary penalties
provided for in 19 U.S.C. 1509(g) and in proposed Sec. 163.6(b) are
inapplicable to express consignment carriers because the documentation
or information that the express consignment industry should be required
to maintain will be presented at the time of entry. In support of this
position, it was pointed out that, in House Report No. 361, 103d
Congress, 1st Session (1993), it was noted that those penalties should
not be imposed where the ``information demanded has been presented to
and retained by the Customs Service at the time of entry.''

[[Page 32918]]

Moreover, with reference to the role that express consignment carriers
often play as customs brokers, it was pointed out that the same House
Report recognized that while customs brokers may be recordkeepers under
section 1509 and may act as importers of record in certain cases,
``their status as 'brokers'' does not change because of this and
failure to maintain the records as specified in section 615 should not
automatically subject them to penalties set forth in subsection (g)'';
rather, the House Report indicated that Customs should proceed against
customs brokers for recordkeeping violations under 19 U.S.C. 1641 and
only under section 1509(g) in exceptional circumstances such as where
there is ``an egregious, flagrant or willful violation of the
requirements of section 1509, or when there is a pattern or practice of
abuse occurring over a sustained period of time, also in willful
disregard of those recordkeeping requirements.''
Customs response: Customs disagrees with the implication of the
above general comments, that is, that express couriers should be
excepted from these recordkeeping regulatory requirements. While it is
true that express couriers not only act as carriers but also at times
as brokers and consignees, the fact remains that these separate
functions constitute activities that trigger recordkeeping
responsibilities under section 508(a). Customs does not believe that,
merely because express couriers act in these varied roles, they are so
unique that special recordkeeping requirements should apply to them.
Moreover, Customs notes that express couriers do not always exercise
unique control because some express companies have multiple brokers.
1. For the reasons stated above in response to the general
comments, Customs disagrees that separate recordkeeping requirements
should be created for express couriers.
2. Customs disagrees with the suggestion that the Part 163 texts
would have the effect of rendering meaningless the benefits provided by
Part 128. The scope and benefits of Part 128 go far beyond
recordkeeping requirements. Moreover, the Part 163 texts of necessity
reflect recordkeeping requirements that apply to express couriers for
all roles that couriers play in international transactions. The parties
listed in proposed Sec. 163.2(a) as being required to maintain records
are specifically required by Sec. 163.3 to maintain ``(a)(1)(A)''
records, that is, those records required for entry. Since each import
transaction/entry is unique and may require different (a)(1)(A)
documents depending upon a number of factors, it would be impossible to
limit the (a)(1)(A) records for each party listed in Sec. 163.2(a).
This is especially true for express couriers whose role may change from
transaction to transaction.
However, in the light of the points made by these commenters,
Customs has reconsidered this matter and now believes that, for
purposes of prescribing a minimum period during which records must be
retained, there is a valid basis for making an exception to the normal
rule in the following cases: (1) Where an informal entry is filed by a
customs broker appointed by a consignee who is not the owner or
purchaser of the imported merchandise; and (2) where the records either
relate to bona fide gifts and other articles admitted free of duty and
tax under 19 U.S.C. 1321(a)(2) and Secs. 10.151-10.153 of the Customs
Regulations or consist of carriers' records pertaining to manifested
cargo that is exempt from entry under the Customs Regulations (for
example, records, diagrams and data covered by General Note 16(c) of
the Harmonized Tariff Schedule of the United States (HTSUS), and
undeliverable articles described in General Note 16(e), HTSUS, which
are exempt from entry under Sec. 141.4(b)(1) of the Customs
Regulations). In such cases, Customs believes that a 2-year record
retention period (rather than the normal 5-year period) is appropriate
because compliance measurement most often takes place at the time of
importation or entry (and rarely, if ever, more than two years
thereafter) and because, in the case of informal entries filed by
customs brokers at the behest of consignees, the most important records
(that is, the entry records) would still have to be maintained and made
available to Customs by the broker for the normal 5-year period.
Accordingly, Sec. 163.4(b), which lists exceptions to the 5-year record
retention rule, has been modified as set forth below by the addition of
two new subparagraphs (3) and (4) to reflect these considerations.
3. Customs disagrees with this statement. Given the concerns of
Customs regarding misdeliveries within the express courier industry,
Customs deems the information on even informal entries crucial for
post-audit and compliance measurement purposes at least during the 2-
year period that might apply to an express courier under the modified
Sec. 163.4(b) text as discussed above in the point 2 comment response.
The modified Sec. 163.4(b) text, together with the provision for
alternative storage of records in Sec. 163.5, serve in part to address
the issue of the burden of maintaining a large volume of documents.
4. Customs disagrees for the reasons stated in the point 3 response
above.
5. Customs agrees, and proposed Sec. 163.6(b)(4)(iii) made clear,
that where (a)(1)(A) documents are presented to and retained by
Customs, no recordkeeping penalties will be issued. The position of
Customs is that recordkeeping violations by customs brokers will be
handled either under 19 U.S.C. 1641 and Part 111 of the Customs
Regulations or under 19 U.S.C. 1509(g) and Part 163 of the Customs
Regulations, depending on the nature and circumstances of the
violation.

Section 111.21(b)--Applicability of Part 163 to Customs Brokers

Comment: One commenter took issue with proposed new paragraph (b)
of Sec. 111.21 which provides that a customs broker shall comply with
the provisions of Part 163 when maintaining records that reflect on his
transactions as a broker. This commenter stated that the regulatory
text is too broad, and could give rise to uncertainty on the part of
Customs and a broker when an audit is being performed, because it does
not differentiate between the different functions and responsibilities
of brokers. While conceding that a broker acting as importer of record
would assume the recordkeeping responsibilities of Part 163, this
commenter argued that Sec. 111.21(b) should be limited to brokers
acting in that capacity and should not apply to other broker functions
authorized under 19 U.S.C. 1641.
Customs response: Customs disagrees. The requirements and
procedures governing the retention and subsequent production of records
under sections 508 and 509 are contained in Part 163, and proposed new
Sec. 111.21(b) was included to reflect this fact. Thus, the
``provisions'' referred to in Sec. 111.21(b) clearly would apply to
customs brokers whether they act solely as an agent on behalf of the
importer of record or list themselves as the importer of record or file
a drawback claim on behalf of the importer or transport goods on behalf
of the importer or carry on any activity of a broker authorized under
19 U.S.C. 1641 and which is also described in section 508(a) and in
Sec. 163.1(a).
Customs notes that present Sec. 111.21 (the text of which was
redesignated as paragraph (a) in the proposed regulatory amendments)
requires a broker to keep ``records of account reflecting all his
financial transactions as a broker''; this provision has always been
intended to include, among other things, financial records pertaining
to client accounts (billing records, payment of Customs duty refunds to
clients where the broker

[[Page 32919]]

was importer of record, etc.) which, even if they are not records
required to be maintained under section 508, are nevertheless records
that pertain to the conduct of ``customs business'' as that term is
defined in section 1641. For purposes of consistency and in order to
clarify the broad scope of amended Sec. 111.21 as regards the
maintenance of records, the following changes have been included in the
final regulatory amendments set forth below: (1) The proposed amendment
to the definition of ``records'' in Sec. 111.1 (which involved a simple
cross-reference change) has been replaced by an amendment setting forth
a new definition text which refers to ``documents, data and information
referred to in, and required to be made or maintained under, this part
and any other records, as defined in Sec. 163.1(a) of this chapter,
that are required to be maintained by a broker under part 163 of this
chapter''; and (2) the text of new Sec. 111.21(b) has been modified to
refer to the provisions of ``this part and part 163 of this chapter''.
Again with reference to newly designated Sec. 111.21(a), Customs
further notes that the second sentence thereof requires a broker to
maintain, among other things, ``a copy of each entry made by him with
all supporting records, except those documents he is required to file
with Customs''; this simply reflects a requirement imposed on a broker
by sections 508 and 509, whether the broker is acting as importer of
record or as an agent for the importer of record. In view of the
addition of paragraph (b) of Sec. 111.21 which refers to Part 163, and
consistent with the specific coverage of sections 508 and 509 with
regard to records pertaining to the entry process, Customs believes
that the regulatory provisions of Part 163 should control in this
context. Accordingly, the amendments to Sec. 111.21 have been modified
as set forth below to include the removal of these words from the
second sentence of newly designated paragraph (a).

Section 111.21(c)--Designation of Recordkeeping Officer and Backup

Comment: Six comments were received on proposed new paragraph (c)
of Sec. 111.21 which requires a customs broker to designate a
knowledgeable company employee to be the broker's recordkeeping officer
as well as a back-up recordkeeping officer. The points made by these
commenters were as follows:
1. One commenter supported the proposed regulatory provision as
being in accord with the Customs principle of ``People, Processes and
Partnership'' by creating a primary point of contact. This commenter,
however, suggested that the word ``manager'' be used in place of
``officer'' in the regulatory text so that a broker could designate a
non-corporate officer to handle these responsibilities.
2. Four commenters argued that the provision should be eliminated
entirely on the grounds that it is unnecessary and overly intrusive.
These commenters pointed out that, contrary to the case of a regular
importer, a customs broker is already required under Part 111 of the
regulations to have on record with Customs an individually licensed
broker who is responsible for the supervision and control of the
broker's customs business (including recordkeeping requirements). In
addition, brokers are different from importers in that a broker can be
penalized (by monetary fines or by suspension or revocation of its
license) under the broker statute and regulations for a failure to meet
its recordkeeping responsibilities, whereas after certification an
importer would merely have its privilege suspended or terminated.
Moreover, brokers are licensed and thus should be aware of their
obligations regarding recordkeeping, and the appointment of
recordkeeping officers would not in itself ensure greater compliance.
It should be sufficient for a broker, if necessary, to simply provide a
contact name to Customs when needed, without prescribing in the
regulations how a broker should organize its business.
3. One commenter suggested that, rather than requiring an express
designation of a recordkeeping officer, the licensed qualifying officer
of the broker should automatically serve as the recordkeeping officer
unless the broker makes an alternative designation. This commenter also
recommended that the requirement of a back-up recordkeeping officer be
eliminated for small brokers having less than 25 employees.
Customs response: While Customs does not agree that the regulatory
provision at issue should be eliminated entirely, Customs is in
substantial agreement with the above comments regarding the sufficiency
of a mere recordkeeping contact (and without a required back-up) within
the brokerage, because Customs requires only the existence of a
designated individual responsible for recordkeeping compliance in the
case of the Recordkeeping Compliance Program. Section 111.21(c) as set
forth below has been modified accordingly. In addition, in the revised
text the word ``entry'', which was used in the proposed text, has been
replaced by ``customs business'' to reflect the broad scope of
Sec. 111.21 as discussed above in the comment response regarding
Sec. 111.21(b).

Section 111.22--Additional Record of Transactions

Comment: A commenter supported the proposed amendment to
Sec. 111.22 which would transfer, from the port director to the Field
Director of Regulatory Audit responsible for the geographical area in
which the broker's designated recordkeeping officer is located, the
authority to exempt a broker from the recordkeeping requirement set
forth in that section. This commenter opined that this proposed change
recognizes changing industry trends and should shorten approval times
and improve lines of communication between brokers and Customs.
Customs response: While the changes to Sec. 111.21(c) discussed in
the comment response immediately above would appear to affect the
wording of the proposed changes to Sec. 111.22, Customs has
reconsidered the need for Sec. 111.22 as a whole. In light of the fact
that numerous requests for exemptions from the requirements of this
section are granted yearly by Customs, and since approval authority has
been granted to Regulatory Audit which utilizes a new audit approach,
Customs believes that Sec. 111.22, and the recordkeeping burden imposed
thereby, are no longer necessary. Accordingly, the final regulatory
amendments set forth below include the removal of Sec. 111.22 in its
entirety.

Section 111.23(a)(1)--Consolidation of Records

Comment: Four comments were received on the proposed revision of
Sec. 111.23(a)(1) which would permit the consolidation of records with
the approval of the Field Director of Regulatory Audit responsible for
the geographical area in which the broker's designated recordkeeping
officer is located. Two of the commenters stated their agreement with
the general principle of allowing the consolidation of records.
However, all four commenters made the following complaints or
suggestions with regard to the proposed regulatory text:
1. There should be no provision for review and approval by the
local Field Director of Regulatory Audit; all that should be required
is that the Field Director of Regulatory Audit be notified of the
storage location. Moreover, the proposed regulatory text could lead to
inconsistent treatment of requests since the text allows for the
rejection of a request without requiring a reason or justification.
Accordingly, the proposed text should be modified (1) to set forth

[[Page 32920]]

the reasonable requirements for consolidation that the broker must
meet, (2) to provide for a certification from the broker that it meets
those requirements, and (3) to provide for issuance of an
acknowledgment from the Field Director of Regulatory Audit to the
broker showing receipt of the consolidation plan.
2. A broker should only be required to notify Customs of
consolidation of records, and such notification should be provided to
Customs Headquarters rather than to a field office. The approach taken
in the Federal Maritime Commission regulations in 15 CFR 762.5 should
be followed.
3. While one commenter read the proposed text as permitting
consolidation of records in multiple locations, another commenter
recommended that the text specifically provide that brokers can
consolidate records in one or more (regional) locations.
4. The regulatory text should provide that, where electronic data
storage or imaging is being used, the term ``consolidate'' covers a
computer system that may have a distributed database.
5. Brokerage firms having multiple district permits could possibly
have, if required, a recordkeeping officer located in a different
geographic area than its home district where its licensed qualifying
officer is located, thus creating confusion over authorities and
responsibilities.
6. The regulatory text should specifically provide that for brokers
for which multiple district permits have been issued, only one
application and approval to consolidate records would be required for
use in all permitted districts.
Customs response: 1 and 2. While Customs has reconsidered the
proposed provision and agrees with the commenters both that brokers
need only notify Customs in advance of the decision to consolidate
their records and that such notification should go to a single,
centralized location, Customs does not agree that such notification
should go to Customs Headquarters. Rather, Customs believes that the
Miami regulatory audit field office is the appropriate location for
submission of the written notice of consolidation because the Miami
office houses the field audit specialist on recordkeeping requirements
and also houses the staff that will be responsible for creating
Customs-wide recordkeeping information data bases and entering the data
therein. The proposed regulatory text in question (redesignated in this
document as paragraph (b)(2) of Sec. 111.23 as discussed below) has
been modified accordingly.
Based on the agreement of Customs to dispense with the proposed
requirement for Customs approval of consolidation of records, and in
view of the changes to the Part 111 proposed amendments already
discussed above, the Sec. 111.23 amendments as set forth below
incorporate some other changes not reflected in the amendments as
originally proposed. The following points are noted in this regard: (1)
In paragraph (a)(1), reference is simply made to ``records'' (the
meaning of which should be clear from the new definition thereof in
Sec. 111.1), the reference to Customs approval and the last sentence
regarding appeal of a denial of approval have been removed, reference
is made to consolidation at ``one or more'' locations (to clarify that
the intent was not to restrict consolidation to one location, so that a
broker could, for example, opt to keep all entry records at one
location and all client financial account records at another location),
and the reference to the geographical location of the broker's
recordkeeping officer has been removed in favor of a simple reference
at the end of the text to the subparagraph which sets forth the
notification procedures (formerly paragraph (e)); (2) proposed new
paragraph (b) has been omitted (because it adds nothing that is not
already stated in new Sec. 111.21(b) and because the reference in the
proposed text to only Part 163 failed to reflect that some records
required to be maintained under the Part 111 texts are not records
covered by Part 163) and, consequently, former paragraph (e) has been
redesignated as (b) (rather than as (c)); (3) within newly designated
paragraph (b), the word ``financial'' has been removed from
subparagraphs (1) and (2)(ii) and the word ``accounting'' has been
removed from the first sentence of subparagraph (2)(i) in order to
reflect that consolidation applies to all records (that is, those
required under Part 111 and those required to be maintained under Part
163), and new language regarding where notice of consolidation is to be
given, as discussed above, has been included in the introductory text
of subparagraph (2); (4) former paragraph (b) has been removed (because
it will not be replaced by a new paragraph (b) text as originally
proposed and, as with the other paragraphs removed from this section,
is superseded by the Part 163 texts); and (5) paragraph (f) (which was
inadvertently not redesignated or otherwise mentioned in the proposed
Sec. 111.23 amendments) has been removed because its substance is
adequately covered by other provisions within Sec. 111.23 and Part 163.
3. Customs agrees, and the modified Sec. 111.23(a)(1) text, as
discussed above and set forth below, now makes this clear.
4. Customs disagrees. The issue raised by this comment in effect
concerns alternate methods for storage of records and is adequately and
more properly addressed in Sec. 163.6.
5. While Customs agrees with this commenter's observation, it is
essentially rendered moot by the changes to Secs. 111.21 and 111.23 as
discussed above and set forth below.
6. The substance of this comment has been addressed by the
regulatory text changes discussed above and set forth below.

Section 143.35--Procedure for Electronic Entry Summary

Comment: With regard to the proposed revision of Sec. 143.35 which
provides that documentation submitted before being requested by Customs
will not be accepted or retained by Customs, a commenter requested that
the regulatory text be modified to provide that any such documents will
be promptly returned to the filer.
Customs response: Customs disagrees with the requested change.
Documents submitted before being requested by Customs will not be
accepted by Customs, thus obviating the need to return them.

Section 143.36(c)--Retention and Submission of Invoice

Comment: Two comments were received on the proposed changes to
Sec. 143.36(c) which would provide (1) that the invoice is to be
retained by the filer unless requested by Customs and (2) that Customs
will not accept or retain an invoice submitted by a filer before a
request is made by Customs.
One commenter claimed that the refusal of Customs to accept and
retain the invoice will impose an unreasonable burden on broker-filers
in cases where the broker knows that the entry summary may later be
used in connection with a drawback entry. This commenter stated that it
already has been overwhelmed in some cases when Customs requested
copies of entry summaries and related documents for paperless entries
because a drawback claim was later filed by the importer or exporter,
pointing out that the request from Customs usually is not for a single
entry summary but rather for dozens at a time. This commenter therefore
suggested that a broker should be allowed the option of filing such

[[Page 32921]]

documents at the time of entry summary while its files are at hand,
rather than be forced to assume the time and expense of retrieving
documents from a storage location.
The second commenter argued that, where Customs refuses to accept
and retain an invoice filed without a request for it having been made,
the regulatory text should provide for a prompt return of the document
to the filer.
Customs response: Customs disagrees. As regards the first comment,
section 615 of the Mod Act and the subsequent proposed recordkeeping
regulations were written in order to reduce the burden of filing other
documents with the entry or entry summary because Customs frequently
did not need the documents to process the entry or entry summary. The
decision of whether Customs needs the documentation either at or after
the time of entry is a decision best left to Customs. If the broker
knows that certain entry summaries and supporting documentation will be
used for a subsequent claim for drawback, the broker could maintain
those records separately and thus forego any time or expense for future
retrieval. The substance of the second comment has been addressed above
in the comment response regarding Sec. 143.35.

Section 143.37(a)--Retention of Records

Comment: With regard to the reference to records that must be
retained by a broker, a commenter requested clarification on whether or
not a Customs electronic response to a broker transmission must be
maintained.
Customs response: Since a Customs electronic response to a broker
transmission is not one of the documents or data elements covered by
sections 508 and 509 and by the definition of ``records'' in
Sec. 163.1(a), there is no regulatory requirement that such electronic
responses be maintained; however, a prudent broker might want to retain
them for other purposes.
Also with regard to Sec. 143.37, as a result of a further internal
review of the proposed regulatory amendments to paragraphs (c) and (d),
Customs has concluded that these two paragraphs should be removed
rather than merely amended as proposed. As regards paragraph (c), which
concerns consolidation of electronic entry records, the issue of
consolidated records is specifically covered for brokers in amended
Sec. 111.23(a) because that provision also sets forth a basic standard
for where records are to be maintained in the absence of consolidation;
however, in the case of other entry filers, consolidation of records
lacks a regulatory context because the regulations have never
prescribed (and the proposed new Part 163 texts did not mention) a
basic records location standard to which consolidation would have
reference. Thus, the removal of paragraph (c) would allow Parts 111 and
163 to control and would have the added benefit of avoiding an
unnecessary distinction between electronic entry records (for which
consolidation was specifically mentioned under the proposed texts) and
other records (for which no consolidation standards were proposed). As
regards paragraph (d), which concerns the condition in which supporting
documentation must be retained, Customs notes that the substance of
this provision is also the subject of proposed Sec. 163.5; thus, in
view of the cross-reference to Part 163 in amended Sec. 143.37(a),
paragraph (d) no longer serves any necessary or useful purpose.
Accordingly, the regulatory amendments set forth below include the
removal of paragraphs (c) and (d) of Sec. 143.37.
In addition, also based on a further internal review, Customs has
determined that present Sec. 143.38, which concerns the retrievability
of supporting documentation regarding electronic transactions (and
which was not affected by the proposed regulatory amendments),
duplicates, or is inconsistent with, the new Part 163 provisions. Since
Customs believes that the Part 163 provisions should control, the
regulatory amendments set forth below also include the removal of this
section.

Section 143.39--Penalties

Comment: Four comments were received on the proposed revision of
Sec. 143.39 which refers to brokers and importers unable to produce
documents requested by Customs within a reasonable time and provides
that such brokers will be subject to penalties pursuant to Parts 111
and/or 163 and that such importers will be subject to penalties
pursuant to Part 163. The points made by these commenters were as
follows:
1. One commenter argued that the maximum period for production of
records is much too short for large companies with centralized payment
offices and that, thus, it is unreasonable to penalize an importer for
a failure to produce documents within a ``reasonable time''. Noting
that there are currently no administrative penalties for failure to
keep and produce required records for examination, this commenter
complained that, under the proposed rule, recordkeepers that fail to
comply could find themselves held in contempt by a district court,
subject to monetary penalties fixed by the court, and could be
prohibited from importing until they comply.
2. One commenter argued that brokers should not be liable for
penalties under both Part 111 and Part 163 because this could represent
double liability for one error. This commenter suggested limiting
liability for brokers to Part 111 which subjects a broker to the
greatest potential liability, that is, loss of its license.
3. One commenter stated that since broker records are retained by a
broker only because of the requirements of Part 111, brokers should be
subject to penalties only under Part 111 (and not under Part 163)
unless the broker is also the importer of record or unless the broker
is a certified recordkeeping agent for one or more of its clients.
Similarly, another commenter requested clarification on its assumption
that penalties under Part 163 would apply to a broker only when the
broker acts as importer of record and that penalties under Part 111
would apply in all other cases.
Customs response: 1. Customs has extensively modified proposed
Sec. 163.6(a), as discussed below in connection with the comments
received on that provision, and the regulatory text, as so modified,
addresses the substance of this comment.
2 and 3. Customs agrees with these comments only in regard to the
issue of double liability: Whether a broker on a Customs transaction
was acting as the importer of record or only as an agent for the
importer of record, if disciplinary action (including the assessment of
monetary penalties) under 19 U.S.C. 1641 and Part 111 of the Customs
Regulations is taken against the broker for a recordkeeping violation,
no additional penalties under 19 U.S.C. 1509(g) and Part 163 of the
Customs Regulations can be assessed; this is made clear by the text of
proposed Sec. 163.6(b)(5)(ii) (redesignated as Sec. 163.6(b)(4)(ii)) as
set forth below. On the other hand, whenever a broker engages in an
activity (such as filing an entry as importer of record or as an agent
for the importer of record) that triggers the record maintenance and
production requirements of 19 U.S.C. 1508 and 1509 and Part 163 of the
Customs Regulations, Customs may, in response to a recordkeeping
violation by that broker and depending on the nature and circumstances
of the violation, opt for imposition of a section 509/Part 163

[[Page 32922]]

penalty in lieu of taking disciplinary action under section 641/Part
111.
Based on a further internal Customs review of the proposed
regulatory amendments, the following clarifying changes have been
included in the text of revised Sec. 143.39 as set forth below: (1) in
paragraph (a) and paragraph (b), the word ``documents'' has been
replaced by ``records'' for purposes of terminology consistency vis-a-
vis Parts 111 and 163, and the words ``within a reasonable time'' have
been removed in light of the changes made to the record production
requirements of Sec. 163.6(a) as discussed below; and (2) in paragraph
(a), reference is made to ``disciplinary action or'' penalties, and
reference is made to part 111 ``or'' part 163 (rather than ``and/or'',
for the reason stated in the points 2 and 3 comment response
immediately above).

Section 163.1(a)--Definition of ``Records''

Comment: In the definitions of ``records'' and ``activities'' it
should be specified that records either are, or need not be, kept for
imports where no entry or record of importation needs to be filed by a
customs broker. This should be clarified for informal entries,
importations of merchandise under $250 where no entry is required, all
forms of in-bond entries and the like. Without such clarification the
importing community will not know whether those documents fit under the
definition.
Customs response: Customs disagrees. The meanings of the terms
``records'' and ``activities'' are quite specific and, in the case of
the latter, are provided by statute. Whether or not a particular
importation is subject to formal entry or informal entry, or is exempt
from entry, the transaction would still fall within the scope of either
an ``importation'' or the requiring of a ``declaration'' and therefore
there must be records, documents or data associated with that
importation or declaration and they must be maintained. In all cases,
the activities described in the comment (informal entry, exemption from
entry, and movement under bond) are all subject to the recordkeeping
requirements. The sole exception would be for declarations made by
arriving travelers as provided for in proposed Sec. 163.2(g)
(redesignated as Sec. 163.2(e) as set forth below).
Comment: In the introductory text of proposed Sec. 163.1(a),
Customs has included the words ``directly or indirectly'' although the
concept of ``indirectly'' pertaining to an activity is nowhere
specified in the statute itself. Thus, this is a ``stretch'' not
sanctioned by law.
Customs response: Customs agrees that these words should be removed
from the text. Section 163.1(a) as set forth below has been modified
accordingly.
Comment: With regard to subparagraph (1)(ii) of the proposed
definition, which refers to shipments carried under bond, a commenter
noted that, under the anticipated remote location filing program, goods
will move to designated examination sites under the importer's bond and
it is likely that carriers will not be aware that such movements are
under bond and thereby potentially be in violation. This commenter
stated that clarity is needed regarding what constitutes ``under bond''
and suggested doing this either by simply referring to 19 CFR Part 18
or by exemption in the case of movements covered by the bond provisions
set forth in 19 CFR 113.62, because a carrier should not be required to
be aware of or be required to keep records related to goods moving to a
designated examination site under the remote location filing program.
Customs response: There are no regulations in place concerning
remote entry filing, and creation of special language in this provision
in anticipation of possible future regulations under the entry
procedure therefore would be inappropriate. If and when such provisions
are created which may cause a conflict or confusion with the
recordkeeping provisions, amendments can be made at that time.
Comment: With regard to subparagraph (2) of the proposed
definition, which sets forth examples of information which are
considered records, a commenter took issue with the reference to
``computer programs necessary to retrieve information in a usable
form''. This commenter asserted that under no circumstances should
Customs seek to obtain from an importer or other affected party the
source or object code or any other program information that would
permit Customs, as contrasted with the affected party, to retrieve data
independent of production by the affected party. Customs has the right
to ask for the production of records and, if the records are not
produced, Customs may take such steps as are within the scope of 19
U.S.C. 1509 to obtain production.
Customs response: The requirement in question is not new but rather
has been in the Customs Regulations since 1979 when Part 162 was first
adopted. The inclusion of language to cover computer programs was
intended to ensure that recordkeepers who store documents/information
electronically would also maintain the programming necessary to
retrieve the documents/information in a format which could be read by
Customs. The substantive interest of Customs lies not in the
programming per se but rather in the data stored with the use of that
programming. Without this requirement, it could be argued that the
submission to Customs of corrupted or encrypted data, or data produced
by obsolete programs, would satisfy the statutory and regulatory record
maintenance and production requirements.
Based on a further internal Customs review of the proposed
definition of ``records'', the text of Sec. 163.1(a) as set forth below
has been modified to incorporate some changes in addition to the change
discussed above. Aside from minor editorial-type wording changes, these
changes are as follows:
a. The proposed introductory text has been designated as
subparagraph (1), subparagraph (2) of the proposed text (examples) has
been moved into the text of new subparagraph (1), and subparagraph (1)
of the proposed text (activities) has been redesignated as subparagraph
(2). These organizational changes will improve the clarity of the text
by placing the examples next to the part of the text to which they
directly relate.
b. The word ``Further'' has been removed from the beginning of the
second sentence of the definition in order to avoid any appearance that
what is mentioned in that sentence is in addition to, rather than
within the scope of, the first sentence (in other words, what is
mentioned in the second sentence is subject to the basic first sentence
``normally kept in the ordinary course of business'' standard which
reflects a basic requirement of section 508(a)).
c. The words ``electronically stored or transmitted information or
data'' have been added to the examples in the text in order to (1)
ensure coverage of what is referred to in section 509(g)(1) and (2)
facilitate removal of all references to ``information'' elsewhere in
the Part 163 texts (e.g., in the term ``records/information'' used in
Sec. 163.5 and in referring to demanded ``information'' in Sec. 163.6)
when the regulatory text clearly is attempting to address ``records.''
With regard to the second point, Customs now recognizes that the
proposed texts had the improper effect of introducing an undefined term
(``information''), or of joining that undefined term with a defined
term (``records'') by means of a slash (thereby creating another
undefined term ``records/information''), into substantive text, thereby
creating

[[Page 32923]]

potential confusion regarding the coverage of the regulatory texts and
frustrating the purpose behind the adoption of the regulatory
definition of ``records'' (which was to bring together in one all-
inclusive definition all the different statutory terms and contexts
that are subject to the maintenance and production requirements of
sections 508 and 509). Accordingly, in addition to the above-described
addition to the definition of ``records,'' the Part 163 texts as set
forth below have been modified by removing all references to ``/
information'' and by replacing all references to ``information'' by the
term ``records'' wherever the context clearly relates to records as
defined in Sec. 163.1(a).
d. Subparagraph (iv) in the list of activities has been modified to
refer to the ``completion and signature of a NAFTA Certificate of
Origin'' (rather than only to ``any exportation to a NAFTA country'')
in order to conform to the terms of the statute (section 508(b)(2)(A)).
A similar conforming change has been made to the text of Sec. 163.2(c)
as set forth below.
e. In subparagraph (v) within the list of activities, a reference
to ``duties'' has been added to ensure consistency with the statutory
(section 509) and regulatory (Sec. 163.6) record examination authority,
and the text has been rearranged for purposes of clarity.

Section 163.1(d)--Definition of ``Certified Recordkeeper''

Comment: Three comments were received on the proposed Sec. 163.1(d)
definition as it relates to customs brokers. The points made by these
commenters were as follows:
1. One commenter requested confirmation of its understanding that
the ``agent'' referred to as a certified recordkeeper would be a broker
acting as importer of record and would not apply when entry is made in
the name of the actual importer.
2. Another commenter proposed, as in the case of Sec. 111.21(c)
discussed above, that the certified recordkeeper automatically be the
licensed qualifying officer of a broker unless the broker makes an
alternate designation.
3. The third commenter took issue with that portion of the
Sec. 163.1(d) definition that provides that a customs broker ``may be a
certified recordkeeper's agent in its own name and on its own account
for records required by Sec. 111.21 without client participation.''
This commenter asserted that: (1) The purpose of Sec. 111.21 is to
ensure that the broker will maintain records which support the entry
and that such records are available to Customs officials; (2) until the
passage of the ``Mod Act'' provisions allowing electronic entries and
entry summaries, relevant importer documents were routinely submitted
to Customs and the broker did not have to retain copies; (3) with
paperless entries, the importer is required to maintain those documents
required for release of a shipment (the ``(a)(1)(A) list'') and, to the
extent that these documents are not submitted with the entry, they must
also be retained by the broker; and (4) the failure of a broker to
submit the paper entry documents is solely a violation of 19 U.S.C.
1641, punishable either by monetary fine or by license suspension or
termination. This commenter further stated that, in contrast, the
purpose of participation in the ``certified recordkeeper'' program
under proposed Sec. 163.14 is the avoidance or reduction of penalties
under 19 U.S.C. 1509 for failure to produce (a)(1)(A) documents when
requested by Customs. Since Sec. 111.21 is unrelated to the provisions
for maintaining the (a)(1)(A) records, for which brokers may be liable
for penalties under section 1641, there is no reason for a broker to
seek certification, as an ``agent'' or otherwise, for Sec. 111.21
records unless it is the intention of Customs to grant the same relief
to brokers in connection with a section 1641 violation (i.e., avoidance
of a section 1641 penalty). Accordingly, this commenter requested that
the provision at issue be deleted from the Sec. 163.1(d) text.
Customs response:
1. This commenter is generally correct regarding its understanding
of the intent of the proposed regulatory text.
2. Since it is the brokerage firm that is a recordkeeper and that
would be certified, Customs sees no point in referring to a certified
recordkeeper as an individual holding a license or someone designated
by the broker. Notwithstanding the designation of a recordkeeping
contact under amended Sec. 111.21(c) as discussed above and set forth
below, Customs would still hold the firm responsible.
3. Customs does not agree with all of the statements in this
comment, in particular as regards the relationship between the broker
statute/regulations and sections 508/509/Part 163. Section 111.21, as
discussed above and as set forth in part below, clearly has reference,
inter alia, to records required to be maintained and produced under
sections 508 and 509 and Part 163; therefore, a failure to comply with
Sec. 111.21 as it relates to Part 163 record maintenance requirements
could result in penalties under section 509/Part 163 (in which case, as
stated above, disciplinary action under section 641/Part 111 could not
be taken). A broker can be a certified recordkeeper in his own name and
on his own account and as such might be able to obtain relief from
section 509/Part 163 penalties; however a broker's status as a
certified recordkeeper would afford no basis for relief if Customs
opted for disciplinary action under section 641/Part 111 in lieu of
penalty action under section 509/Part 163.
In view of the uncertainty reflected in the above comments
regarding the role of agents/brokers as certified recordkeepers, and
based on a further internal review of the proposed text, Customs
believes that the proposed text should be changed to simply parallel
the statute (section 509(f)) as regards participation in the
Recordkeeping Compliance Program. Accordingly, the proposed definition
of ``certified recordkeeper'' in Sec. 163.1(d) has been modified, as
set forth below, by removing the last two sentences and by revising the
remaining first sentence to refer simply to a person who is required to
keep records under the Customs Regulations and who is a participant in
the Recordkeeping Compliance Program (the section within Part 163
dealing with eligibility for that Program identifies the eligible
participants specifically as persons described in Sec. 163.2(a), that
is, persons required to keep records under section 508(a)). Thus, under
the statute and under the regulatory texts as set forth below, the
eligibility of brokers and other persons to apply to become certified
recordkeepers is simply a function of their obligation (based on their
activities either as a principal or as an agent) to maintain records
under section 508(a).
Comment: A commenter referred to ISO9000 which was described as an
internationally recognized system that by definition is a minimum
system requirement which helps ensure items are provided in accordance
with good management practice and which includes documentation of the
system, control of documents and both internal and external auditing.
In order to achieve the benefits of a certified, audited recordkeeping
program without asking importers to expose more information than they
feel comfortable, this commenter recommended that importers who become
registered to the ISO9000 standard be considered automatically a
``certified recordkeeper''.
Customs response: Customs disagrees. While the ISO9000 standard is
a rigorous one, it certainly applies to a number of areas other than
recordkeeping. The fact that an importer

[[Page 32924]]

meets those standards is a factor, and admittedly a significant factor,
to be considered in the certification process under the Recordkeeping
Compliance Program, but it cannot and should not be the sole criterion.

Section 163.1(e)--Definition of ``Certified Recordkeeper's Agent''

Comment: Customs should consider either expanding the proposed
definition of a certified recordkeeper's agent (that is, beyond an
importer of record or a customs broker) or creating a new class of
agent (an Independent Certified Recordkeepers Agent, or ICRA) to
include only those who utilize alternative storage methods, such as CD
ROM and optical disk, to maintain records. The ICRA would essentially
be a specialized service bureau that scans paper documents,
appropriately indexes and permanently stores the scanned images on CD
ROM or optical disk; the ICRA would be independently certified by
Customs but such certification would be limited in scope to
certification of alternative recordkeeping methods as provided for in
proposed Sec. 163.5(b) and would not relieve the primary recordkeeper
from certification requirements set forth in proposed Sec. 163.14. The
ICRA would ``team up'' with a certified recordkeeper to provide the
conversion, indexing, storage and retrieval portion of the overall
certification program. This commenter argued that adding a provision
for an ICRA would result in the following benefits for Customs and the
importing community: (1) It would expedite the certification process
for Customs and the party wishing to become a certified recordkeeper
who uses alternative storage methods because the ICRA would have
established standards regarding conversion techniques, the system of
storage to be used and the security safeguards to prevent alteration of
the stored images, and thus Customs would only have to review the ICRA
standards once; (2) it would make it easier and more convenient for a
primary recordkeeper to become a certified recordkeeper and thus would
encourage more recordkeepers to become certified; (3) by independently
certifying an ICRA, the proposed Sec. 163.5(c)(3) standard for
alternative record storage (i.e., vendor specifications/documentation
and benchmark data regarding the storage medium) would already have
been made available to Customs and would be the same for each certified
recordkeeper that the ICRA represents; (4) it would automatically
provide for segregation of duties between those responsible for
maintaining and producing the original records and those responsible
for the transfer process, as required in proposed Sec. 163.5(c)(9); and
(5) it would expedite the quarterly internal sampling-exception-
reporting/testing required by proposed Sec. 163.5(c)(10) because the
ICRA would perform the testing and file the necessary reports on behalf
of each certified recordkeeper it represents, using standardized
procedures and reporting which would facilitate the Customs review
process.
Customs response: Customs does not agree with this suggestion. As
pointed out above in the discussion of the definition of ``certified
recordkeeper'', Customs may certify under section 509(f) only persons
who are required to keep records under section 508(a); thus, Customs
has no authority to certify persons who do not have a recordkeeping
responsibility under the applicable Customs laws and regulations, and
it was never intended that such persons would be covered by the
``certified recordkeeper's agent'' definition. In this light and in
view of the modified text of the definition of ``certified
recordkeeper'' as discussed above and set forth below, Customs has
reconsidered this matter and no longer believes that it is necessary or
appropriate either to retain the definition of ``certified
recordkeeper's agent'' or to include any references to a certified
recordkeeper's agent in the operative provisions dealing with the
Recordkeeping Compliance Program. The Part 163 texts as set forth below
have been modified accordingly.

Section 163.1(f)--Definition of ``Compliance Assessment''

Comment: A commenter suggested that the last sentence of this
proposed definition be made a part of proposed Sec. 163.1(c)
(definition of ``audit''), because the Sec. 163.1(f) definition both
states what a compliance assessment is and then goes on to note that a
compliance assessment can be expanded into a ``detailed audit''.
Customs response: This suggestion should not be adopted. The last
sentence of the proposed ``compliance assessment'' definition was
considered necessary in that specific context in order to indicate that
there is a distinction between compliance assessment procedures and
more detailed ``audit'' (as defined in paragraph (c)) procedures.
However, based on this comment and as a result of a further
internal review of the proposed regulatory texts, Customs no longer
believes that a compliance assessment should be specifically defined as
the first phase of an audit. Customs notes in this regard that (1) in
many cases compliance assessments are concluded without the need to
expand the inquiry into a detailed audit and (2) in some cases an audit
may be initiated without having been preceded by a compliance
assessment. Accordingly, the definition of ``compliance assessment''
(redesignated below as paragraph (e) of Sec. 163.1) has been revised to
more precisely describe a compliance assessment as a type of importer
audit and to more succinctly describe the procedures and purposes of a
compliance assessment.
Comment: A commenter took issue with the statement in this proposed
definition that in the compliance phase of an audit Customs will review
``* * * internal controls, operations, and procedures to ensure
compliance. * * *'' While a review of an importer's systems (i.e.,
controls, operations and procedures) may be a reasonable way for
Customs to test for accuracy of records and may be appropriate in some
circumstances, this commenter stated that it was aware of no provision
of law requiring an importer to subject its ``systems'', as
distinguished from its required records, to Customs scrutiny, noting in
particular that 19 U.S.C. 1508 merely identifies those records which an
importer shall make, keep, and render for examination and that 19
U.S.C. 1509 merely sets forth rules for the examination of such
records. This commenter stated that the proposed definition should be
amended accordingly and suggested, as a minimum, the addition of the
words ``and may, in appropriate circumstances, review'' before the
words ``internal controls, operations, and procedures''.
Customs response: Notwithstanding the revision of the proposed
definition of ``compliance assessment'' as discussed above, Customs
disagrees with the basic premise of this comment. A compliance
assessment is designed to test exactly those areas referred to by this
commenter. It should be noted that records and recordkeeping systems
are a part of compliance, not its sole purpose. In this regard, see the
second sentence of Sec. 163.0 which spells out the various purposes of
compliance assessments, audits and other inquiries.
While considering the above issues regarding the definitions of
``audit'' and ``compliance assessment'', Customs noted that whereas the
statute (section 509) makes the basic distinction between an
``investigation'' and an ``inquiry'', the proposed Sec. 163.1
definitions did not address this distinction. It is clear that, in the

[[Page 32925]]

context of section 509, the broad term ``inquiry'' is intended to cover
any request for information by a Customs officer that does not
constitute an investigation (and thus would encompass, for example,
compliance assessment and other audit procedures and more informal
procedures such as requests for information made by telephone or on
Customs Form 28). In order to address this point, Sec. 163.1 has been
modified as set forth below by the addition of a new paragraph (g)
definition of ``inquiry'', and additional editorial changes have been
made elsewhere in the Part 163 texts as set forth below to conform
those texts to the principle reflected in this new definition.

Section 163.1(h)--Definition of ``Original Records'' and ``Original
Information''

Comment: Ten comments were received on the concept of ``original''
records and information, in some cases not only with reference to the
definition in proposed Sec. 163.1(h) but also with reference to the
basic requirement in proposed Sec. 163.5(a) that records be retained in
their original formats. The points made by these commenters were as
follows:
1. One commenter referred specifically to the first sentence of the
Sec. 163.1(h) definition which mentions ``paper documents or electronic
data retained in the condition they were received by the party
responsible for maintaining records pursuant to 19 U.S.C. 1508.'' This
commenter complained that this requirement as it reads is open-ended
and suggests that all original records and original information
received by an importer are covered, whether or not the record or
information is one normally kept in the ordinary course of business or
is one required to be maintained by statute or is identified as one
listed on the (a)(1)(A) list. This commenter argued that the
recordkeeping statute does not require maintenance of every piece of
paper or electronic data received by an importer and that, therefore,
original records and electronic data should be limited in the
regulatory text to such records and electronic data received and
normally kept in the ordinary course of the importer's business and
such records and electronic data that are required to be maintained by
statutory fiat or that are included on the (a)(1)(A) list.
2. Three commenters complained that the proposed definition does
not adequately distinguish between documents and data and thus does not
accurately reflect the way that companies do business, particularly
with regard to how they receive and process electronic information. One
of these commenters pointed out that some importers receive shipment
data from the foreign seller in a proprietary electronic data interface
(EDI) format as enormous strings of raw data in a preliminary record
layout form which, as such, is not used for commercial purposes and is
not transmitted as such to a customs broker for filing with Customs;
this raw EDI data must undergo system edits to test its reliability,
and only after the data has been processed through the importer's
system (and thus is no longer raw data) can it be used for commercial
and entry purposes. Thus, although the entry information transmitted to
Customs would not match the original record layout data as transmitted
by the foreign seller, the information transmitted to Customs is the
most accurate information and, from a practical and legal standpoint,
it is ``original'' data for purposes of conducting business and making
the proper declarations to Customs. Another commenter stated that when
paper documents are involved, often they are a result of data acquired
through a chain of computer activities (purchase order, pick lists,
invoice, shipping data, etc.); the regulatory texts, by not including a
reference to ``electronic documentation'', place too much emphasis on
the original paper and the retention thereof, where, in fact, the
information should be the focus. Moreover, imaging is increasingly
becoming a standard for preservation of data because it facilitates
workflow and storage management (particularly for large customs brokers
and importers who handle large volumes of paper), and thus paper
documents are routinely scanned into a computer upon receipt and
facsimile transmissions are received directly into the image system
without making ``hard copies'' unless requested by Customs. The third
commenter noted that an importer or other required recordkeeper
probably will not receive records only in a single format but rather
will receive them in more than one format, such as an EDIFACT
electronic invoice, a facsimile transmission of the same invoice, a
carbon copy air waybill, and an original hard copy truck bill of lading
for delivery; while under the proposed rule the importer would be
maintaining these records in at least two formats, it would be more
realistic for the importer to be able to keep them all in hard copy or
all electronically, instead of in a combination of methods based on how
they were received, without having to obtain specific approval from
Customs so long as certain basic requirements are met. In addition to
these observations, the commenters made the following specific
suggestions:
a. The recordkeeping requirements and definition at issue should be
revised to allow importers' systems data, as described above, to be
considered as ``original''. This could be done by adopting the standard
in Rule 1001 of the Federal Rules of Evidence which states that ``[i]f
data are stored in a computer or similar device, any printout or other
output readable by sight, shown to reflect the data accurately, is an
`original'.''
b. The regulations should recognize that, in addition to
photocopies and facsimile, a printout of an image from a computer may
be considered an original in satisfying all Customs requirements.
c. The first sentence of Sec. 163.1(h) should be amended to read
``[t]he terms `original records' or `original information' mean paper
documents or electronic documentation or data retained in the condition
they were received * * *''.
d. In the first sentence of Sec. 163.1(h), ``and/or'' should be
used in place of ``or'' between the terms ``paper documents'' and
``electronic data''.
3. Four commenters stated that the fifth sentence in the
Sec. 163.1(h) definition may create some confusion with regard to
maintaining multi-part or carbon copy (multiple impression) forms (for
example, delivery orders or bills of lading), photocopies and facsimile
copies. One of these commenters noted that, in the case of multi-part
or carbon copy forms, the originals are often separated and information
or notations are placed on one copy only or only on the top copy, thus
raising the question of which copy is the true original copy; this
commenter stated that the regulations should be more specific as to
what constitutes an original record. Another commenter noted that
whereas an original hard copy record may, for example, be submitted to
a bank and the importer, broker or other person may only have a copy,
the importer, broker or other person would be considered to have an
``original'' record within the definition so long as the copy is
``retained in the condition received * * *''; this commenter questioned
whether the definition was necessary, suggesting that it would be as
easy to revise proposed Sec. 163.5(a) to require the party responsible
for maintaining records pursuant to 19 U.S.C. 1508 to retain the record
in the condition received unless an alternative method was approved

[[Page 32926]]

under Sec. 163.5(b). The third and fourth commenters suggested that the
reference in the definition to copies and multi-part forms should be
clarified since the record/information received as a copy is acceptable
under the definition; one of these commenters also questioned whether
the fifth sentence was necessary if the importer is obligated to retain
the record in the condition received, and both commenters believed that
the reference to ``a certified copy'' in the sixth sentence of the
definition should be clarified as to who would be the certifier, one
commenter suggesting that it would have to be the importer because of
what is stated in the next sentence.
4. With reference to the overall effect of proposed Sec. 163.1(h)
and 163.5 and in particular the requirement of obtaining Customs
approval before converting records to another format for storage and
retrieval, a commenter requested clarification as to whether the
regulatory texts mean that every system that an importer may use to
maintain records (microfiche, CD-ROM, etc.) must be approved in advance
by Customs when such systems are part of a company's normal course of
business. This commenter further questioned whether Customs has the
staffing necessary to certify these systems for importers.
5. A commenter referred to the provision in proposed Sec. 163.1(h)
that electronically received data will be considered the original
record even though it is converted to paper upon request by Customs.
This commenter stated that it expects to obtain authority to convert
paper documents into an electronic storage medium, and reasonably soon
thereafter, to be allowed to destroy the original paper documents. This
commenter suggested that Sec. 163.1(h) should include provision for
exemption which may be granted under Sec. 163.5; under the exemption,
such a converted document may, upon the request of Customs, be
certified to be a true copy of the original record or document.
Customs response:
1. Customs disagrees. Proposed Sec. 163.1(h) was merely intended to
define what is meant by the term ``original records/information''.
Which records or information are to be maintained is properly the
subject of other provisions of Part 163.
2. The raw EDIFACT feed is original information from which other
forms of the data are created; putting it in a readable form is
acceptable. Customs agrees that it is the information that is the focus
of the Part 163 retention and production provisions, provided that the
information in question falls within the Sec. 163.1(a) definition of
``records'' (see the above discussion of the changes made to that
definition and the below discussion of the changes to the definition at
issue here). Although alternate storage is the subject of Sec. 163.5
and is discussed below in that context, Customs notes that where
originals are in different formats and importers wish to use a single
format for storage, the alternative storage provisions of Sec. 163.5
are intended to accommodate that. The following are the Customs
responses to the specific suggestions of these commenters:
a. Customs disagrees. The standard cited from Federal Rules of
Evidence provides a very limited guideline which would not qualify as a
proper definition encompassing a wide variety of situations. Customs
believes that the approach in the proposed definition is sufficient to
cover advances in technology.
b. Customs agrees in part. Photocopies and facsimiles, if
originally received in that format, would be considered to be original
documents. A computer printout, however, is a secondary source or copy
because the electronic data stored in the computer is the original
data. While not considered as an original, the printout may in fact
satisfy Customs requirements for production of the record since it
would qualify as a ``facsimile paper format'' or possibly as a
``hardcopy spreadsheet''.
c. The substance of this comment has already been addressed above.
d. This comment is obviated by the changes made to the proposed
definition as discussed below.
3. Customs disagrees generally with the comments. In the case of a
multi-part form or document, the first copy where the initial
impression occurs could be considered the ``original'' and the
subsequent carbon copies could be considered ``copies''. Recognizing
that other entities such as carriers or banks may remove and keep the
``original'' (top) copy, the proposed regulatory text provided for the
acceptability of a carbon copy form, a facsimile copy and a photocopy
in lieu of the original (top copy) page, thus rendering moot the
question of which copy is the ``original''. The provisions regarding
alternative storage methods (Sec. 163.5) are not the proper context for
dealing with this issue. Moreover, the phrase in the first sentence
``retained in the condition they were received'' does not answer the
question and obviate the need for the sentence regarding multi-part
forms because the importer could be the person who created the form to
begin with or who received the form from a third party and removed a
copy and then forwarded the form; in those cases, the ``original'' form
issue is not addressed by the words ``condition . . . received''. With
regard to the last two sentences of the proposed definition, Customs
believes that, in view of the overall subject matter of Part 163 which
is the maintenance and production of records, it should be sufficiently
clear that the person who would certify the copy can only be the person
who has the statutory and regulatory responsibility for maintaining and
producing the record (and who thus knows what happened to the
``original'').
4. The concerns of this commenter are addressed in the changes
which have been made to proposed Sec. 163.5 as discussed below in
connection with the comments received on that section.
5. Customs disagrees with this suggestion. Substantive requirements
regarding storage methods are set forth in Sec. 163.5 and thus are
inappropriate for this definitional provision.
In consideration of the comments received and based on a further
review of the regulatory text, Customs has determined that some changes
should be made to the definition as proposed. In addition to some
minor, editorial changes, the text of the Sec. 161.1(h) definition as
set forth below incorporates the following changes:
a. The defined term has been changed to read simply ``original'',
for four reasons. First, the term defined in the proposed text was not
used as such in the text of the proposed provision to which it had the
most direct relevance (that is, Sec. 163.5(a) which used the words
``original formats''). Second, inclusion of the word ``records'' in the
defined term is unnecessary and inappropriate because ``records'' has
already been defined (and thus cannot have a new meaning here). Third,
use of the word ``information'', thereby implying something different
from ``records'', is inappropriate for the reasons stated above at the
end of the comment discussion concerning Sec. 163.1(a). Finally, based
on the proposed definition and the proposed Part 163 texts as a whole,
it seems clear that the proposed definition was in essence merely
trying to establish the concept of ``original''.
b. As a companion to the change in the term that is defined, the
proposed first sentence of the definition has been modified to refer to
the specific context in which the defined term is used within Part 163
(that is, in the context of maintenance of records). In addition, this
text, as modified, refers to records that are in the condition in which
they were ``made or'' received, because

[[Page 32927]]

section 508 refers to the making and keeping of records and some
records that are required to be kept by section 508 and Part 163 are
made (rather than merely received) by the person required to keep them
(compare this textual change to the change to the introductory text of
Sec. 163.2(a) discussed below at the end of the Customs responses to
the comments on that section). Finally, the first sentence of the
proposed definition has been changed into an introductory text and,
except as otherwise stated in point c immediately below, the remaining
text of the proposed definition has been set forth as a list of four
subparagraph exemplars of original records covered by the general
definition in the introductory text.
c. The third sentence in the proposed text (regarding when original
electronic information or paper documents must be provided to Customs)
and a portion of the language in the sixth sentence of the proposed
text (that is, regarding the assessment of penalties) have been omitted
from the modified definition because they are not appropriate for a
definitional text and merely repeat what is more appropriately covered
in Sec. 163.6.
d. In the first exemplar of the modified definition text (which
corresponds to the second sentence of the proposed text), a reference
to ``other electronic records'' has been included to clarify that
electronic information may be used to develop not only paper documents
but also other records set forth and maintained in an electronic
format.
e. Finally, in the fourth exemplar of the modified definition text
(which corresponds to the last two sentences of the proposed text),
provision is made for submission of a signed certifying statement only
if required by Customs (rather than in all cases covered by that
exemplar).

Section 163.1(k)--Definition of ``Third-Party Recordkeeper''

Comment: With regard to accountants as third-party recordkeepers, a
commenter contended that the definition should state that accountants
are not empowered to conduct ``customs business'' as statutorily
defined.
Customs response: Customs disagrees. The regulatory text in
question (redesignated below as Sec. 163.1(l)) merely provides a
definition of a third party recordkeeper in the context of Part 163
which concerns recordkeeping. The concept of ``customs business,'' and
the rules regarding who may engage in customs business, are established
under the customs broker statute and regulations (19 U.S.C. 1641 and 19
CFR Part 111) and are not relevant to these recordkeeping regulations.
With regard to the Sec. 163.1 definitions, an internal Customs
review of the proposed regulatory texts disclosed that the terms
``party'' and ``person'' were used throughout the proposed Part 163
texts without the appearance of any clear rationale for using one term
or the other in a given context (except as regards references to a
``third party recordkeeper'' which is a statutory expression), and it
is noted that sections 508 and 509 are similarly inconsistent in the
use of these terms. In order to avoid the impression that a different
meaning is intended when one term is used and not the other, and
because Customs does not believe that any such difference in meaning
was intended in the applicable statutory provisions, Customs has
modified the Part 163 texts as set forth below (1) by adding a new
definition of ``party/person'' as Sec. 163.1(i) and (2) by using the
term ``person'' throughout the Part 163 texts except where the
expression ``third party recordkeeper'' appears. The new definition is
similar to what is found in other parts of the Customs Regulations
(see, for example, 19 CFR 177.1(c)) except that ``natural person'' is
used in place of ``individual'' because that term is used in the Part
163 service of summons provisions.

Section 163.2--Parties Required To Maintain Records

Comment: Two commenters complained about the absence from this
proposed section of any specific mention of recordkeeping requirements
for express consignment operators and couriers who operate under Part
128 of the regulations. One of these commenters stated that there are
unique situations under Part 128 that should be addressed, especially
regarding manifest entries and consolidated informal entries. The other
commenter, noting the large number of shipments carried by express
consignment courier companies and the fact that they or their agents
act as importer of record, suggested the addition of a new paragraph
(f) to Sec. 163.2 to read as follows: ``(f) Recordkeeping required for
express consignment operators and carriers. Each courier, express
consignment operator or carrier shall maintain records of all
documents, entries and clearances associated with international import
shipments in accordance with 163 of this chapter.''
Customs response: Customs does not agree that the suggested new
text is necessary. As in the case of the underlying statute, the
proposed text of Sec. 163.2 adequately covers the activities of express
consignment operators and couriers.

Section 163.2(a)--General Recordkeeping Obligation

Comment: Five comments were received on proposed Sec. 163.2(a)
which sets forth the basic categories of persons required to make and
keep records and render them for examination and inspection. The points
made by these commenters were as follows:
1. The proposed regulatory text expands the recordkeeping
requirement to include those who cause an importation, anyone who files
an entry or declaration, drawback claimants, customs bonded carriers
and cartmen, bonded warehouse proprietors, and foreign trade zone
operators. Importers must also keep all information and documents
required by law for the entry of merchandise. The proposed rule would
require many importers that do not receive and retain all entry
documents in their business process to set up recordkeeping systems to
capture and retain those documents. This places an undue hardship on
many importers.
2. A commenter complained that Customs proposes that persons who
``knowingly cause merchandise to be imported'' will be subject to
recordkeeping requirements and that Customs includes within this group
persons who ``control the terms and conditions of the importation'' and
persons who supplied the importer with ``technical data, molds,
equipment, other production assistance, material, components, or parts
* * * with knowledge that they will be used in the manufacture or
production of the imported merchandise.'' This commenter stated that
this proposal will result in some companies being required to maintain
documents which normally would be discarded in the ordinary course of
business. The commenter referred specifically to companies that have
established so-called L/C ``direct import'' programs under which a U.S.
company's foreign vendor sells merchandise directly to the company's
domestic customer (for example, a retailer or mass merchandiser) which
acts as importer of record and as such assumes responsibility for
customs duty payments and entry requirements, and under which the U.S.
company may be responsible for designing imported merchandise,
providing equipment used in the production process, or supplying the
foreign vendors with materials, components or parts; these L/C programs
benefit all concerned by reducing costs to the U.S. customers and the
ultimate consumers, and they allow the mass merchandiser, which is more

[[Page 32928]]

knowledgeable regarding Customs rules and regulations (including the
need to maintain records and thus obtain any relevant documents from
the U.S. company that may be necessary), to assume responsibility for
Customs requirements by acting as importer of record. This commenter
argued that ``legal'' responsibility to maintain records should rest
with the importer of record and that a non-importing party should not
be required to maintain a second set of such records which constitutes
an unnecessary burden on the public without enhancing the ability of
Customs to effectively administer the laws it is charged with
enforcing. Accordingly this commenter urged Customs to modify the
proposed regulations to provide that persons who do not themselves act
as importers of record will not be subjected to recordkeeping
requirements merely because they may knowingly cause merchandise to be
imported. Alternatively, this commenter requested that the regulations
be clarified to provide that: (1) persons who do not act as importers
of record are not required to make, keep and render for examination and
inspection any records which they do not otherwise maintain in the
ordinary course of business; and (2) Part 163 does not impose on a
party which does not itself act as importer of record any requirements
to maintain any records which the party does not otherwise maintain in
the ordinary course of business for reasons not relating to customs
laws and regulations.
3. By mentioning an ``entry filer'' (subparagraph (1)) and an
``agent'' (subparagraph (2)), proposed Sec. 163.2(a) requires that,
where a customs broker acts as importer of record, both the actual
importer and the broker are required to maintain all records, including
those specified in the (a)(1)(A) list. If this reading is correct, the
proposed regulation will have a chilling effect on when a broker will
choose to act as the importer of record (currently, that decision is
made based on convenience to the importer and because of the need to
expedite the release of the goods).
4. In subparagraph (1), the term ``entry filer'' should be replaced
by ``customs broker'' because the only filers are customs brokers and
importers handling their own transactions and importers are already
specifically mentioned. In this context ``entry filer'' is confusing.
5. A customs broker serving as importer of record will almost never
be in possession of all of the records defined in proposed
Sec. 163.1(a), because the broker will not have caused the importation
or subsequent uses of imported goods. A broker when also serving as
importer of record should only be required to maintain records which
support the entry/entry summary declarations.
Customs response:
1. Customs disagrees. The proposed regulatory text merely reflects
the relevant statutory provisions as amended by the Mod Act. Moreover,
Customs notes that the provision for recordkeeping by importers,
including maintenance of entry records, is not new but rather was in
existence prior to the Mod Act changes (19 U.S.C. 1508 and 19 CFR Part
162, Subpart A).
2. Customs disagrees with the basic complaint of this commenter.
Customs did not create the language ``knowingly causes the
importation.'' That language comes directly from the statute (section
508(a)(1)(B)) as modified by the Mod Act, and Customs does not have
authority to promulgate regulations that are inconsistent with the
statutory requirements. Customs is not able to respond to the example
of the ``L/C direct import program'' because the paucity of information
regarding the role of the U.S. firm makes it impossible to determine
whether or not it ``knowingly caused the importation.'' Customs also
disagrees with the two specific suggested clarifications because the
first one is already provided for in the Part 163 texts and the second
one would be in direct opposition to the statute.
3. Customs agrees with the commenter's reading of these provisions.
As regards the alleged effect on a broker's decision whether to act as
importer of record, Customs notes that such a decision is merely one of
the business decisions that each broker must make when conducting
customs business.
4. Customs disagrees. The term ``entry filer'' reflects the
statutory language. The fact that a party could be mentioned twice (for
example, an owner/purchaser is usually the importer) is not the issue
here. Customs does not have authority to promulgate regulations that
are inconsistent with the statutory requirements.
5. Customs disagrees. When a customs broker is listed as the
importer of record, the broker is responsible for all the records
listed in Sec. 163.1(a) along with any additional duties or taxes
determined to be due and any other requirements placed on the party
shown as the importer of record.
Based on a further internal review of the proposed texts, Customs
has determined that the introductory text of Sec. 163.2(a) should only
reflect the requirement to maintain (rather than also ``make'') records
for the following reasons: (1) Maintenance of records is the thrust of
Sec. 163.2 as a whole; and (2) while it is true that section 508
reflects an obligation to ``make'' records, that obligation is
reflected throughout the Customs Regulations according to the specific
substantive context to which the records relate (for example, basic
entry record requirements are prescribed in Parts 141-143, and drawback
record requirements are prescribed in Part 191) and thus does not have
to be, nor should be, reflected in the more general Part 163 texts.

Section 163.2(b)--Exclusion of Domestic Transactions

Comment: The words ``who does not knowingly cause merchandise to be
imported'' should be eliminated from the introductory text of this
proposed section, because often a person in a domestic transaction is
aware that the goods ordered from an importer have been, or will be,
imported but the buyer's purchase and sale is domestic and is not
connected directly or indirectly with the import transaction; such a
domestic buyer should not be required to maintain records on the import
transaction just because he knows that the goods are imported. With
this suggested change, a person ordering merchandise from an importer
in a domestic transaction, whether or not that person knows that the
goods are to be imported, will not be required to maintain records
unless the person controls the import transaction or is involved with
the production of the goods by furnishing assists.
Customs response: Customs disagrees. The regulatory language in
question reflects the statute, and Customs does not have authority to
promulgate regulations that are inconsistent with the statutory
requirements. Further, the regulatory text gives two examples which
clearly demonstrate that the domestic buyer who simply knows that the
goods are imported is not, by that fact alone, encompassed within the
concept of knowingly causing merchandise to be imported.
Based on a further internal review of the proposed Sec. 163.2(b)
text, Customs has discovered that the text (which was based on present
Sec. 162.1b(b)), included in the introductory text the addition of the
word ``who'' before the words ``does not knowingly * * * ''; the
addition of this word, from a grammatical standpoint and with reference
to the rest of the text, had the unintended effect of creating a new
class of persons required to maintain records that was not listed in
the general provisions of Sec. 163.2(a).

[[Page 32929]]

The wording of introductory text of Sec. 163.2(b) as set forth below
has been appropriately modified to correct this and clarify that the
provision specifically relates to the class of persons listed in
Sec. 163.2(a)(1)(ii).

Section 163.2(d)--Recordkeeping Required for Customs Brokers

Comment: Irrespective of whether the broker acts as the importer of
record, the (a)(1)(A) recordkeeper under section 1509 is always the
actual importer, and that statutory provision is worded so that Customs
may always require the importer to produce the (a)(1)(A) records.
Accordingly, Sec. 163.2(d) should reflect that, when the broker acts as
the importer of record, the broker is only subject to the provisions of
section 1509(g) relating to assessment of additional duties, but is
never liable for ``penalties'' for failure to produce the (a)(1)(A)
records.
Customs response: Customs disagrees and notes that the substance of
this comment has been addressed above in the Customs response to the
comments on Sec. 143.39.
Based on a further internal review of proposed Sec. 163.2, Customs
now believes that paragraph (e) (which concerned recordkeeping required
for parties filing drawback claims) and paragraph (f) (which concerned
recordkeeping required for other activities) are not needed. Customs
notes in this regard that these two paragraphs merely repeat what has
already been provided for in the Sec. 163.1(a) definition of
``records'' and in paragraph (a) of Sec. 163.2. Accordingly, these two
paragraphs have been removed from the text of Sec. 163.2 as set forth
below and proposed paragraph (g) has been redesignated below as
paragraph (e).

Section 163.2(g)--Recordkeeping Required for Travelers

Comment: A commenter claimed that this proposed section sets up a
bifurcated recordkeeping requirement that almost no returning traveler
will know exists and that flies in the face of the mandate to make
regulations truly meaningful: a traveler does not have to maintain
records either before entering or while physically within a Customs
facility, but the traveler would have to keep records for merchandise
acquired abroad that exceeds the personal exemption or the flat rate of
duty. This commenter asked whether a traveler could not make a
declaration that all merchandise acquired abroad was within the
personal exemption and flat rate, pay no duty, and then take the
position that no recordkeeping obligation existed. The commenter noted
that while it is probably best that returning travelers be required to
produce records of all purchases abroad, once they clear the Customs
facility (even after having made a misdeclaration of value while having
on their persons records showing the true value of the purchases) there
is little likelihood that Customs will catch up with them.
Customs response: Customs disagrees. This provision is not
radically different from existing provisions or practices. Customs may
or may not ask for supporting documentation (purchase receipts or
invoices) at the time the declaration is made. After clearance, Customs
in the vast majority of cases would have no further interest in the
declaration and, consequently, in the supporting documentation. In
other words, any questions are usually resolved at the time of
presentation or declaration as Customs normally does not go back and
review declarations. The net effect of proposed Sec. 163.2(g)
(redesignated below as Sec. 163.2(e)) was to provide that for most
travelers bringing in non-commercial merchandise valued at no more than
$1,400 (that is, the $400 personal exemption amount for returning
residents plus $1,000 to which the flat rate of duty applies) per
traveler, no supporting documents will be required to be maintained;
for commercial importations or declarations over $1,400, supporting
documents must be maintained. It should be noted that application of
the personal exemption and flat rate of duty dollar limits (and thus
application of the recordkeeping exemption) is a function of the actual
value of the imported merchandise and thus does not, as a matter of
law, depend solely on what value the traveler chooses to declare to
Customs.

Section 163.3--Entry Records

Comment: Four commenters made observations on proposed Sec. 163.3
which sets forth general requirements regarding the production of
records required by law or regulation for the entry of merchandise (the
``(a)(1)(A)'' list). The points made by these commenters were as
follows:
1. One commenter approved of the language giving general time
standards for the production of documents but expressed concern that
local Customs offices would focus on the table under Sec. 163.6, to the
exclusion of the Sec. 163.3 legal guidelines. This commenter therefore
stated that the Sec. 163.3 language should be moved to Sec. 163.6 where
it is more appropriate.
2. One commenter noted that, because under Sec. 163.2(a)
recordkeepers include companies that do not act as importers of record
but that knowingly caused merchandise to be imported, Sec. 163.3 could
be interpreted to mean that persons other than importers of record are
required to maintain (a)(1)(A) records. Given the substantial penalties
which may be imposed for a failure to produce those records on demand,
and given the fact that those penalties were only intended to apply to
importers of record who no longer will be required to submit certain
specified information to Customs at the time of entry, this commenter
requested that Customs modify the regulations to expressly provide that
responsibility for producing (a)(1)(A) list records is limited to the
importer of record who is responsible for filing (or expressly
authorizing the filing of) a Customs Form 7501 (entry summary) and
commercial invoice with Customs at the time of entry.
3. Two commenters objected to the requirement to retain copies of
records when the records have been given to Customs. One of these
commenters referred specifically to cases in which the records are
returned by Customs, stating that this places an unreasonable burden of
proof on the party to whom the records are allegedly returned because
there would otherwise be no proof of such return and/or receipt. The
other commenter stated that customs brokers should not be required to
maintain any record that has already been tendered to Customs, and this
commenter further asserted that this requirement is contradicted by
Sec. 163.6(b)(4)(iii).
Customs response: 1. Customs does not agree that Customs personnel
would overlook, and thus fail to apply, a clear regulatory standard,
and it is noted that the Sec. 163.3 guidelines referred to by this
commenter were also reflected in the proposed Sec. 163.6(a) text.
However, on further reflection, Customs believes that it is not
necessary to state in Sec. 163.3 the general standard by which entry
records must be produced because Sec. 163.6 is more appropriate for
that purpose. Accordingly, Sec. 163.3 as set forth below has been
modified by removing all statements regarding the manner in which entry
records should be produced and by adding a simple reference to the
production of entry records ``in accordance with Sec. 163.6(a)''.
2. Customs disagrees. Each party specified in section 1508(a) is
individually required to ``* * * make, keep, and render for examination
and inspection records * * * '' that pertain to an activity described
in section 508(a) and that are normally kept in the ordinary course of
business; thus, under

[[Page 32930]]

the terms of the statute, the fact that one party mentioned in the
statute is subject to a particular recordkeeping requirement cannot
have the effect of precluding application of that recordkeeping
requirement to another party covered by the statute. Since the
(a)(1)(A) records referred to by this commenter are entry records and
thus are covered by the statute, adoption of this commenter's suggested
change to Sec. 163.3 would represent an improper limitation of the
statutory terms.
3. Customs disagrees with the first comment. The purpose of the
statutory and regulatory changes is to reduce the number of documents/
information filed at time of entry so that Customs would request and
retain only those documents that are needed. All other documents should
therefore be retained by the responsible party. Customs may simply
review a document and return it to the responsible party. That party
must maintain the document/information in the event Customs returns to
the entry or issue. Customs also disagrees that proposed
Sec. 163.6(b)(4)(iii) contradicts Sec. 163.3 because the former section
involves a different regulatory context (that is, the liability for
penalties).

Section 163.4--Record Retention Period

Comment: A commenter stated that the general 5-year record
retention period requirement set forth in proposed paragraph (a), on
its face, would require that any importer, person involved in the
import transaction, or person supplying technical assistance to the
manufacturer maintain every piece of paper, every fax and every E-mail
or voice-mail communication for a period of 5 years from entry,
notwithstanding that in the ordinary course of business the particular
record would normally be destroyed immediately upon receipt. On the
assumption that Customs did not intend to impose such an onerous
requirement on the importing community in contravention of its
obligation to impose a minimum burden on the public it is serving, this
commenter requested that Customs confirm that: (1) the only records
which must be maintained are those records which the company usually
maintains in the ordinary course of business; and (2) the Customs
recordkeeping requirements do not impose upon a person an obligation to
maintain faxes, E-mail or voice-mail communications which are normally
discarded after receipt or upon completion of a transaction and which
do not constitute normal business records otherwise required to be
maintained for commercial purposes.
Customs response: While Customs agrees that the only records that
are required to be maintained under section 508(a) are those that are
normally kept in the ordinary course of business, Customs disagrees
with the other statements of this commenter. Section 163.4 does not set
forth a new requirement: While the parties listed in Sec. 163.2
represent an expansion over those listed in the present regulation (19
CFR 162.1(b)) as a result of changes made to section 508 by the Mod
Act, the parties mentioned by the commenter have since 1978 been
required to maintain records for five years. As regards the second
point on which confirmation was requested, Customs notes that the
proposed definition of ``records'' in Sec. 163.1(a) included a
reference to ``information pertaining directly or indirectly to any
information element set forth in a collection of information required
by the Tariff Act of 1930, as amended, in connection with any activity
listed in paragraph (a)(1) of this section.'' Clearly, this could
include faxes, E-Mail and similar records, depending on prevailing
business requirements and practices, because the nexus between a
particular record and the requirement to maintain it is the activity to
which the record relates: If the record pertains to an activity
specified in section 508(a) and is normally kept in the ordinary course
of business, it must be maintained for the applicable period specified
in the statute and regulations.
The observations made by this commenter demonstrate the need for a
clear statement of the position of Customs regarding the relationship
between sections 508(a) and 509 and the meaning of the statutory
expression ``normally kept in the ordinary course of business'', in
particular as concerns ``(a)(1)(A)'' records. Section 508(a) requires
making and keeping and rendering for examination and inspection those
records that pertain to specified activities and that are normally kept
in the ordinary course of business. Section 509 on the other hand sets
forth specific standards for the examination of records by Customs,
including special rules under paragraph (a)(1)(A) for records that are
required by law or regulation for the entry of merchandise (the so-
called ``(a)(1)(A)'' records, also referred to in the Part 163 texts as
``entry'' records). Central to the operation of section 509 is the
assumption that the records to be produced under that section have been
made and maintained in accordance with section 508(a) (in other words,
if a record, including an (a)(1)(A) record, is not required to be made
and maintained, there can be no requirement to produce it under section
509). Thus, whereas not all section 508(a) records are (a)(1)(A)
records, all (a)(1)(A) records are covered by section 508(a).
As regards (a)(1)(A) records, it is the position of Customs that
they meet the two essential tests that define the coverage of section
508(a), that is, they pertain to an activity specified in the statute
and they are normally kept in the ordinary course of business. As
regards the first test, the fact that they relate to the entry process
clearly means that they pertain to the actions of an owner, importer,
consignee, importer of record, entry filer, or other party who imports,
or knowingly causes the importation of, merchandise into the customs
territory of the United States, as provided in section 508(a)(1)(A) and
(B). With regard to the second test, the fact that a record is required
by law or regulation for the entry of merchandise means that it is, by
definition, normally kept in the ordinary course of business (in other
words, the legal requirement for the existence of the record is
sufficient to meet the statutory test); if this were not the case, no
record that is prescribed by a provision of the Customs Regulations
would have to be maintained under section 508(a) or produced under
section 509 unless the person identified in section 508(a) chose of his
own volition to maintain it for business purposes, and this would
render any such regulatory requirement essentially unenforceable and
thus useless. Thus, contrary to the position implicit in this
commenter's assertions, what constitutes a record ``normally kept in
the ordinary course of business'' is not exclusively a function of what
a businessman may choose to create and maintain.
Comment: A commenter suggested that Customs should consider
different (i.e., shorter) record retention periods for express
consignment carrier shipments (for example, letter and document
shipments, shipments that may be entered free of duty under 19 U.S.C.
1321, and shipments covered by an informal entry). This commenter
argued that in such cases, where the cost of record retention is high
due to the large number of shipments and enforcement or compliance
measurement normally is performed at the time of entry, there is little
justification for lengthy record retention periods.
Customs response: The substance of this comment has been addressed
in significant part by the addition of new subparagraphs (3) and (4) to
the Sec. 163.4(b) text as discussed above in the

[[Page 32931]]

Customs responses to the comments regarding the treatment of express
consignment carriers.
Comment: With regard to the proposed paragraph (b)(1) exception to
the 5-year rule in the case of drawback claims, a commenter referred to
the May 5, 1997, correction document which clarified the Background
section of the April 23, 1997, notice of proposed rulemaking with
regard to the (maximum) length of time that drawback records could have
to be maintained under the proposed regulatory text, that is, ``a
period of about eleven years from the date of importation''. Noting
that the correction document assumed a payment under the accelerated
payment program, this commenter asserted that the retention period in
fact could be considerably longer when the accelerated payment program
is not used because payment in such cases is made at the time of
liquidation of the drawback claim and there is no deadline imposed on
Customs for the liquidation of drawback claims (the commenter alleged
that there have been many instances in which Customs liquidated a
drawback claim more than five years after the claim date). Assuming
that manufactured goods are exported five years after importation of
the drawback merchandise and a drawback claim is filed three years
after export, liquidation may take place ten to twelve years after
importation, thus creating a record retention period of from thirteen
to fifteen years. This commenter further asserted that the recently
published proposed revision of the drawback regulations would impose
new, stringent requirements for the accelerated payment ``privilege'',
thus leading to increased record retention periods because a larger
percentage of drawback claimants will receive payment at the time of
liquidation.
Customs response: The published statement was correct under the
stated facts. However, the commenter is also correct that if a claimant
is not paid under the accelerated payment program and liquidation is
delayed, the recordkeeping period is necessarily extended.
Comment: With regard to the proposed paragraph (b)(2) exception to
the 5-year rule in the case of packing lists, two commenters stated
that there should be no requirement to retain a packing list for any
period of time. These commenters argued that a packing list is a
temporary, transition document that has no use, and thus is discarded,
once the shipment is unloaded or released.
Customs response: Customs disagrees. Customs finds packing lists to
be very useful in performing examinations of cargo, in verifying
invoice data, and in verifying inventory receipts.
Based on a further internal review of the proposed regulatory
texts, the words ``whichever is later'' have been added at the end of
the first part of the Sec. 163.4(b)(2) text as set forth below in order
to remove a possible ambiguity in determining the applicable 60-day
period for retention of packing lists following a release or
conditional release period.

Section 163.5(a)--Original Format Record Storage

Comment: Four comments were received on proposed Sec. 163.5(a)
which provides for the maintenance of all required records in the
original formats unless alternative storage methods have been approved
by Customs. The points made by these commenters were as follows:
1. It is unclear from the proposed text whether or not electronic
ABI records serve the same purpose as the hardcopy Customs forms. If
stored electronically, this commenter asked whether the trade would be
required to produce the information in the format of the current
hardcopy records (i.e., Customs Form 3461, 7501) or whether the
electronic data would suffice. This commenter stated its desire to
store the records in the electronic ABI formats and to eliminate the
requirement to store paper records, suggesting that for audit purposes
the electronic data could easily be linked to its accounts payable
records through the entry number.
2. The term ``original formats'' in this section is too limiting
and unmanageable because it does not comport with modern business
practices. If the normal course of business is to take paper documents
and scan them directly into a computer image system, then, practically,
once there are assurances that the image meets Customs standards, the
paper should be allowed to be discarded.
3. A commenter suggested that the text of the section be revised to
read simply as follows: ``All parties listed in Sec. 163.2 must
maintain all records required by law and regulation for the required
retention periods. The records must be capable of being retrieved on
request or demand by Customs.'' This commenter argued that this
shortened version states the basic requirement of the law and also
eliminates reference to prior approval of the recordkeeping program
(the latter point is addressed more fully in the Sec. 163.5(b) comment
discussion below).
4. There should be no requirement for Government approval of
alternative storage methods.
Customs response:
1. Customs agrees that the electronic data would suffice. Clearly,
the ABI data could qualify as ``original'' records. The definition of
``original'' in Sec. 163.1(g) as discussed above and as set forth below
includes ``electronic information which was used to develop paper
documents''.
2. Customs does not believe the proposed reference to ``original
formats'' would be limiting, and it is further noted that use of
alternative storage methods would allow for discarding the original
paper documents. In consideration of the decision to define
``original'' in Sec. 163.1(h) rather than ``original records/
information'' as discussed above, the first sentence of Sec. 163.5(a),
as set forth below, has been modified by replacing the words ``in the
original formats'' by ``as original records'' as regards how records
generally are to be maintained.
3. Customs agrees with the basic principle reflected in this
comment and therefore, on further reflection, has concluded that the
requirement for advance approval of alternative storage methods is
unnecessarily onerous and thus should be eliminated. Accordingly,
Sec. 163.5(a), as set forth below, has been modified by removing the
words ``approved in writing by the director of the regulatory audit
field office who has responsibility for the geographical area in which
the designated requestor's recordkeeping officer resides'' and adding
in their place the words ``adopted in accordance with paragraph (b) of
this section''. See also the related changes to the text of
Sec. 163.5(b) noted below in the Customs response to the comments on
that section.
4. Customs agrees. The substance of this comment has been addressed
in the comment response immediately above.

Section 163.5(b)--Alternative Storage Method Approval

Comment: Five comments were received on proposed Sec. 163.5(b)
which sets forth the procedures for approval by Customs of alternative
methods (formats) for storing records. One of these commenters
supported the proposed text, stating that the approval process is sound
and will allow the trade to employ consistent procedures for the entire
recordkeeping system and will eliminate port-to-port differences and
will reduce the cycle time for approval and implementation of
alternative storage methods. The other four commenters made the
following negative comments or suggestions regarding the proposed text:

[[Page 32932]]

1. The requirement for written authorization from Customs to
maintain records and information in alternative formats is contrary to
the Mod Act which in section 614 amended 19 U.S.C. 1508(a) to allow
importers to maintain records in electronically generated or machine
readable data formats, and this was a self-implementing amendment.
Thus, the Mod Act amendment gives the option to engage in electronic
recordkeeping as an unencumbered right, not as a ``privilege'' as
stated in proposed Sec. 163.5(i). While Customs may audit or review the
electronic recordkeeping systems of an importer to determine
compliance, it may not make review a prerequisite to the establishment
of an electronic recordkeeping system.
2. The last sentence should be reworded to read as follows: ``If
the applicable director of the regulatory audit field office needs
additional information on the alternative method of storage, or
disapproves of the method proposed, he or she will contact the
requesting party within 30 calendar day

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A98-15771. Public record. Not legal advice.