Guidelines for the Imposition and Mitigation of Penalties for Violations of 19 U.S.C. 1592

DEPARTMENT OF THE TREASURY

Customs Service

Guidelines for the Imposition and Mitigation of Penalties for

Violations of 19 U.S.C. 1592

19 CFR Part 171

RIN 1515-AC08

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

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes to revise Appendix B to Part 171 of the

Customs Regulations, which sets forth the guidelines for remitting and

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mitigating penalties relating to violations of section 592 of the

Tariff Act of 1930, as amended. A violation of section 592 involves the

entry or introduction or attempted entry or introduction of merchandise

into the United States by fraud, gross negligence, or negligence. Many

of the proposed changes to Appendix B reflect the Customs Modernization

Act and its themes of ``informed compliance'' and ``shared

responsibility.''

DATES: Comments must be received on or before December 28, 1998.

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

inspected at the Regulations Branch, Office of Regulations and Rulings,

U.S. Customs Service, 1300 Pennsylvania Avenue, N.W., 3rd Floor,

Washington, D.C. 20229.

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

927-1203.

SUPPLEMENTARY INFORMATION:

Background

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

Trade Agreement Implementation Act (Public Law 103-182). The Customs

Modernization portion of this Act (Title VI), popularly known as the

Customs Modernization Act or ``the Mod Act'', became effective when it

was signed. The Mod Act emphasizes the themes of shared responsibility

and informed compliance for Customs and the public.

Consistent with the Mod Act, Customs has initiated a thorough

examination and review of its procedures and processes relating to

importer compliance with Customs laws, regulations, and policies. In

this review, the agency has considered a number of innovative

approaches to improving the service it provides the importing public as

well as new approaches to encourage compliance and address incidents of

non-compliance.

With regard to compliance, Customs is dedicated to educating its

personnel to improve agency selection of appropriate remedies to

address incidents of non-compliance. In keeping with the Mod Act theme

of informed compliance, Customs is also attempting to educate the

importing public about its requirements, particularly in areas

involving complex import transactions. A more informed public promotes

an overall greater level of compliance than the threat of an occasional

and often ineffective penalty. A significant aspect of this ``shared

responsibility'' and ``informed compliance'' approach is reflected in

the proposed revision of the guidelines for remitting and mitigating

penalties relating to violations of Sec. 592 of the Tariff Act of 1930,

as amended (19 U.S.C. 1592) (hereinafter referred to as Sec. 592). A

violation of Sec. 592 involves the entry or introduction or attempted

entry or introduction of merchandise into the United States by fraud,

gross negligence, or negligence. The guidelines for remitting and

mitigating penalties relating to violations of Sec. 592 appear as

Appendix B to Part 171 of the Customs Regulations.

The full text of the proposed revised guidelines appears at the end

of this document. It is preceded by a summary of the more significant

proposed revisions to the guidelines. Much of the proposed revision of

the penalty guidelines consists of a reorganization of the content of

the current guidelines into a new format that is intended to more

clearly identify important provisions which are contained in the

present text.

Summary of Proposed Guidelines

After the introductory text, the proposed revised guidelines break

current paragraph (A) into 2 paragraphs. Proposed paragraph (A) now

discusses what constitutes Sec. 592 violations and proposed paragraph

(B) discusses what is meant by materiality.

Paragraph (A) now clarifies that placing merchandise in-bond is

considered entering or introducing merchandise into the United States

for purposes of Sec. 592. The paragraph also makes it clear that if one

unintentionally transmits a clerical error to Customs electronically,

and that clerical error is transmitted repetitively by the electronic

system, Customs will not consider repetitions of the non-intentional

electronic transmission of the initial clerical error as constituting a

pattern, unless Customs has drawn the error to the party's attention.

In the proposed new paragraph (B), defining materiality under

Sec. 592, that definition is expanded by providing that a document,

statement, act, or omission is material if it significantly impairs

Customs ability to collect and report accurate trade statistics,

deceives the public as to the source, origin or quality of the

merchandise, or constitutes an unfair trade practice in violation of

federal law.

Proposed paragraph (C) now discusses the degrees of culpability

under Sec. 592. The degrees of culpability are currently discussed in

paragraph (B).

A new paragraph (D) is proposed to be added to include terms used

throughout the guidelines. Included in this paragraph are discussions

of the terms: duty loss violations; non-duty loss violations; actual

loss of duty; potential loss of duty; reasonable care; clerical error;

and mistake of fact.

The proposed guidelines contain a new paragraph (E) that is

intended to track the administrative penalty process in chronological

order. It is a revision of current paragraph (C). It begins with the

case initiation and proceeds to describe the considerations pertinent

to the decision to issue a pre-penalty notice and how the different

types of violations can produce different proposed claim amounts

depending upon the level of culpability and the presence of mitigating

and/or aggravating factors. The proposed guidelines now contain express

guidance regarding statute of limitations considerations and Customs

policy regarding waivers when the issuance of pre-penalty and penalty

notices are involved.

Continuing in their chronological progression, the proposed

guidelines next address steps to be taken when Customs decides whether

to close a case or issue a penalty notice. Most of this material is

presently contained in paragraph (C)(2) of the current guidelines.

However, the proposed guidelines provide that penalty notices can

indicate higher degrees of culpability and proposed penalty amounts

than were contained in the original pre-penalty notice if less than 9

months remain before the expiration of the statute of limitations, and

a waiver of the statute has not been received. The current guidelines

provide that such increased penalty notices would only be issued if

less than 3 months remained.

Paragraph (F) of the proposed guidelines covers the procedures that

are to be followed and elements that Customs will consider as part of

the case record for any mitigating and/or aggravating factors. The

existing guidelines discuss mitigating factors in paragraph (F) and

aggravating factors in paragraph (G). The new paragraph is arranged so

the various types and degrees of violations are explained and

respective mitigation considerations are explained. The paragraph also

informs the reader who within Customs has the authority to cancel or

remit penalty claims.

Paragraph (F)(2)(f) provides a discussion of prior disclosure and

the reduced penalties based upon the different levels of culpability

for a valid prior disclosure. Prior disclosure is discussed in

paragraph (E) of the existing guidelines.

Paragraph (G) of the proposed guidelines discusses the factors that

are considered by Customs in proposing a penalty or mitigating an

assessed penalty claim. Among these factors are:

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an error by Customs that contributed to the violation; the extent of

cooperation by the violator with the investigation by Customs into the

alleged violation; whether or not the violator takes immediate steps to

remedy the situation that caused the violation; and the prior record of

the violator in its dealings with Customs. This paragraph combines the

factors currently located in paragraphs (F) and (H) of the existing

guidelines. It was felt that a separate paragraph was no longer

necessary for ``extraordinary'' factors such as the ability of Customs

to obtain personal jurisdiction over the violator, the violator's

financial status, and whether Customs had actual knowledge of repeated

violations but failed to inform the violator thus depriving him of the

opportunity to take corrective action. All these factors are now

contained in the one paragraph, but additional factors may be

considered in appropriate circumstances.

Paragraph (H) contains the factors that Customs believes are to be

treated as aggravating factors when considering mitigation of proposed

or assessed penalties. Most of these factors are currently contained in

paragraph (G) of the existing guidelines. While the list of factors is

not intended to be all-inclusive, two new factors have been added. They

are: the discovery of evidence of a motive to evade a prohibition or

restriction on the admissibility of merchandise, and failure to comply

with a lawful demand for records or a Customs summons.

Paragraph (I) of the proposed guidelines addresses offers in

compromise (settlement offers). This is a new element not contained in

the existing guidelines. The paragraph instructs parties who wish to

submit a civil offer in compromise pursuant to 19 U.S.C. 1617 to follow

procedures outlined in Sec. 161.5 of the Customs Regulations (19 CFR

161.5). The paragraph summarizes what steps will be taken by both

parties once such an offer has been made.

Paragraph (J) of the proposed guidelines contains instructions to

be followed in instances where Customs makes a demand for payment of

actual loss of duties pursuant to Sec. 592(d). This is a subject not

addressed in the existing guidelines. The paragraph provides that

Customs will follow the procedures set forth in Sec. 162.79b of the

Customs Regulations (19 CFR 162.79b) and states that no such demand

will be issued unless the record establishes the presence of a

violation of Sec. 592(a). The paragraph states that, absent statute of

limitations problems, Customs will endeavor to issue Sec. 592(d)

demands to concerned sureties and non-violator importers only after

default by principals.

Paragraph (K) of the proposed guidelines addresses violations of

Sec. 592 by brokers. The existing guidelines discuss brokers in

paragraph (I). The paragraph continues the present practice of applying

the overall mitigation guidelines in instances of fraud or where the

broker shares in the financial benefits of a violation. However, where

there has been no fraud or sharing of the financial benefits, the

proposal removes the dollar limitations contained in the present

guidelines and instructs Customs to proceed against the broker under 19

U.S.C. 1641.

Paragraph (L) of the proposed guidelines covers arriving travelers

and consists of a reordering of the current provisions of paragraph (J)

of the present guidelines.

Paragraph (M) of the proposed guidelines refers Customs officers to

other Federal agencies for recommendations in instances where

violations of laws administered by other agencies are discovered. These

provisions are the same as those contained in paragraph (K) of the

existing guidelines.

Comments

Before adopting this proposal, consideration will be given to any

written comments (preferably in triplicate) that are timely submitted

to Customs. All such comments received from the public pursuant to this

notice of proposed rulemaking will be available for public inspection

in accordance with the Freedom of Information Act (5 U.S.C. 552),

Sec. 1.4, Treasury Department Regulations (31 CFR 1.4), and

Sec. 103.11(b), Customs Regulations (19 CFR 103.11(b)), on regular

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

Regulations Branch, 1300 Pennsylvania Avenue, NW, 3rd Floor,

Washington, D.C.

Regulatory Flexibility Act

Although comments have been solicited on this proposal, because the

proposed amendment relates to rules of agency procedure and policy no

notice of proposed rulemaking is required pursuant to 5 U.S.C. 553. For

this reason the document is not subject to the provisions of the

Regulatory Flexibility Act (5 U.S.C. 601 et seq.).

Executive Order 12866

Because the document is not regulatory in nature, but merely serves

to inform the public about certain agency procedures and practices, the

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

regulatory action'' under E.O. 12866.

Drafting Information: The principal author of this document was

Peter T. Lynch, Regulations Branch, Office of Regulations and Rulings,

U.S. Customs Service. However, personnel from other offices

participated in its development.

List of Subjects in 19 CFR Part 171

Customs duties and inspection, Law enforcement, Penalties, Seizures

and forfeitures.

Proposed Amendment to the Regulations

It is proposed to amend Part 171 of the Customs Regulations (19 CFR

part 171) as set forth below:

PART 171--FINES, PENALTIES, AND FORFEITURES

1. The general authority citation for Part 171 continues to read as

follows:

Authority: 19 U.S.C. 66, 1592, 1618, 1624. The provisions of

subpart C also issued under 22 U.S.C. 401; 46 U.S.C. App. 320 unless

otherwise noted.

2. It is proposed to revise Appendix B to Part 171 to read as

follows:

Appendix B to Part 171--Customs Regulations, Guidelines for the

Imposition and Mitigation of Penalties for Violations of 19 U.S.C.

1592

A monetary penalty incurred under section 592 of the Tariff Act of

1930, as amended (19 U.S.C. 1592; hereinafter referred to as section

592) may be remitted or mitigated under section 618 of the Tariff Act

of 1930, as amended (19 U.S.C. 1618), if it is determined that there

are mitigating circumstances to justify remission or mitigation. The

guidelines below will be used by the Customs Service in arriving at a

just and reasonable assessment and disposition of liabilities arising

under section 592 within the stated limitations. It is intended that

these guidelines shall be applied by Customs officers in pre-penalty

proceedings and in determining the monetary penalty assessed in any

penalty notice. The assessed penalty or penalty amount set forth in

Customs administrative disposition determined in accordance with these

guidelines does not limit the penalty amount which the Government may

seek in bringing a civil enforcement action pursuant to section 592(e).

It should be understood that any mitigated penalty is conditioned upon

payment of any actual loss of duty as well as a release by the party

that indicates that the mitigation

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decision constitutes full accord and satisfaction. Further, mitigation

decisions are not rulings within the meaning of part 177 of the Customs

Regulations (19 CFR part 177). Lastly, these guidelines may supplement,

and are not intended to preclude application of, any other special

guidelines promulgated by Customs.

(A) Violations of Section 592

Without regard to whether the United States is or may be deprived

of all or a portion of any lawful duty thereby, a violation of section

592 occurs when a person, through fraud, gross negligence, or

negligence, enters, introduces, or attempts to enter or introduce any

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

document, written or oral statement, or act that is material and false,

or any omission that is material; or when a person aids or abets any

other person in the entry, introduction, or attempted entry or

introduction of merchandise by such means. It should be noted that the

language ``entry, introduction, or attempted entry or introduction''

encompasses placing merchandise in-bond (e.g., filing an immediate

transportation application). There is no violation if the falsity or

omission is due solely to clerical error or mistake of fact, unless the

error or mistake is part of a pattern of negligent conduct. Also, the

unintentional repetition by an electronic system of an initial clerical

error generally shall not constitute a pattern of negligent conduct.

Nevertheless, if Customs has drawn the party's attention to the

unintentional repetition by an electronic system of an initial clerical

error, subsequent failure to correct the error could constitute a

violation of section 592. Also, the unintentional repetition of a

clerical mistake over a significant period of time or involving many

entries could indicate a pattern of negligent conduct and a failure to

exercise reasonable care.

(B) Definition of Materiality Under Section 592.

A document, statement, act, or omission is material if it had the

potential to influence or was capable of influencing agency action

including, but not limited to a Customs action regarding: (1)

determination of the classification, appraisement, or admissibility of

merchandise (e.g., whether merchandise is prohibited or restricted);

(2) determination of an importer's liability for duty (including

marking, antidumping, and/or countervailing duty); (3) collection and

reporting of accurate trade statistics; (4) determination as to the

source, origin, or quality of merchandise; (5) determination of whether

an unfair trade practice has been committed under the anti-dumping or

countervailing duty laws or a similar statute; (6) determination of

whether an unfair act has been committed involving patent, trademark,

or copyright infringement; or (7) the determination of whether any

other unfair trade practice has been committed in violation of federal

law.

(C) Degrees of Culpability Under Section 592

The three degrees of culpability under section 592 for the purposes

of administrative proceedings are:

(1) Negligence. A violation is determined to be negligent if it

results from an act or acts (of commission or omission) done through

either the failure to exercise the degree of reasonable care and

competence expected from a person in the same circumstances either: (a)

in ascertaining the facts or in drawing inferences therefrom, in

ascertaining the offender's obligations under the statute; or (b) in

communicating information in a manner so that it may be understood by

the recipient. As a general rule, a violation is negligent if it

results from failure to exercise reasonable care and competence: (a) to

ensure that statements made and information provided in connection with

the importation of merchandise are complete and accurate; or (b) to

perform any material act required by statute or regulation.

(2) Gross Negligence. A violation is deemed to be grossly negligent

if it results from an act or acts (of commission or omission) done with

actual knowledge of or wanton disregard for the relevant facts and with

indifference to or disregard for the offender's obligations under the

statute.

(3) Fraud. A violation is determined to be fraudulent if a material

false statement, omission, or act in connection with the transaction

was committed (or omitted) knowingly, i.e., was done voluntarily and

intentionally, as established by clear and convincing evidence.

(D) Discussion of Additional Terms

(1) Duty Loss Violations. A section 592 duty loss violation

involves those cases where there has been a loss of duty attributable

to an alleged violation.

(2) Non-duty Loss Violations. A section 592 non-duty loss violation

involves cases where the record indicates that an alleged violation is

principally attributable to evasion of a prohibition, restriction, or

other non-duty related consideration involving the importation of the

merchandise.

(3) Actual Loss of Duties. An actual loss of duty occurs where

there is a loss of duty including any marking, anti-dumping, or

countervailing duties, or any tax and fee (e.g., merchandise processing

and/or harbor maintenance fees) attributable to a liquidated Customs

entry, and the merchandise covered by the entry has been entered or

introduced (or attempted to be entered or introduced) in violation of

section 592.

(4) Potential Loss of Duties. A potential loss of duty occurs where

an entry remains unliquidated and there is a loss of duty, including

any marking, anti-dumping or countervailing duties or any tax and fee

(e.g., merchandise processing and/or harbor maintenance fees)

attributable to a violation of section 592, but the violation was

discovered prior to liquidation. In addition, a potential loss of duty

exists where Customs discovers the violation and corrects the entry to

reflect liquidation at the proper classification and value. In other

words, the potential loss in such cases equals the amount of duty, tax

and fee that would have occurred had Customs not discovered the

violation prior to liquidation and taken steps to correct the entry.

(5) Total Loss of Duty. The total loss of duty is the sum of any

actual and potential loss of duty attributable to alleged violations of

section 592 in a particular case. Payment of any actual and/or

potential loss of duty shall not affect or reduce the total loss of

duty used for assessing penalties as set forth in these guidelines. The

``multiples'' set forth below in paragraph (F)(2) involving assessment

and disposition of cases shall utilize the ``total loss of duty''

amount in arriving at the appropriate assessment or disposition.

(6) Reasonable Care. General Standard: Importers of record or their

agents are required to exercise reasonable care in fulfilling their

responsibilities involving entry of merchandise. These responsibilities

include, but are not limited to: providing a classification and value

for the merchandise; furnishing information sufficient to permit

Customs to determine the final classification and valuation of

merchandise; and taking measures that will lead to and assure the

preparation of accurate documentation. Customs will consider an

importer's failure to follow a binding Customs ruling a lack of

reasonable care. In addition, unreasonable classification will be

considered a lack of reasonable care (e.g., imported snow skis are

classified as water skis). Failure

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to exercise reasonable care in connection with the importation of

merchandise may result in imposition of a section 592 penalty for

fraud, gross negligence or negligence.

(7) Clerical Error. A clerical error is an error in the

preparation, assembly or submission of import documentation or

information provided to Customs that results from a mistake in

arithmetic or transcription that is not part of a pattern of

negligence. The mere non-intentional repetition by an electronic system

of an initial clerical error does not constitute a pattern of

negligence. Nevertheless, as stated earlier, if Customs has drawn a

party's attention to the non-intentional repetition by an electronic

system of an initial clerical error, subsequent failure to correct the

error could constitute a violation of section 592. Also, the

unintentional repetition of a clerical mistake over a significant

period of time or involving many entries could indicate a pattern of

negligent conduct and a failure to exercise reasonable care.

(8) Mistake of Fact. A mistake of fact is a false statement or

omission that is based on a bona fide erroneous belief as to the facts,

so long as the belief itself did not result from negligence in

ascertaining the accuracy of the facts.

(E) Penalty Assessment

(1) Case Initiation--Pre-penalty Notice.

(a) Generally. As provided in section 162.77, Customs Regulations

(19 CFR 162.77), if the appropriate Customs field officer has

reasonable cause to believe that a violation of section 592 has

occurred and determines that further proceedings are warranted, the

Customs field officer shall issue to each person concerned a notice of

intent to issue a claim for a monetary penalty (i.e., the ``pre-penalty

notice''). In issuing such a pre-penalty notice, the Customs field

officer shall make a tentative determination of the degree of

culpability and the amount of the proposed claim. Payment of any actual

and/or potential loss of duty shall not affect or reduce the total loss

of duty used for assessing penalties as set forth in these guidelines.

The ``multiples'' set forth in paragraphs (F)(2)(a)(i), (b)(i) and

(c)(i) involving assessment and disposition of duty loss violation

cases shall use the ``total loss of duty'' amount in arriving at the

appropriate assessment or disposition. Further, where separate duty

loss and non-duty loss violations occur on the same entry, it is within

the Customs field officer's discretion to assess both duty loss and

non-duty loss penalties, or only one of them. Where only one of the

penalties is assessed, the Customs field officer has the discretion to

select which penalty (duty loss or non-duty loss) shall be assessed.

Also, where there is only one violation accompanied by an incidental or

nominal loss of duties, the Customs field officer may assess a non-duty

loss penalty where the incidental or nominal duty loss resulted from a

separate non-duty loss violation. The Customs field officer shall

propose a level of culpability in the pre-penalty notice that conforms

to the level of culpability suggested by the evidence at the time of

issuance. Moreover, the pre-penalty notice shall include a statement

that it is Customs practice to base its actions on the earliest point

in time that the statute of limitations may be asserted (i.e., the date

of occurrence of the alleged violation) inasmuch as the final

resolution of a case in court may be less than a finding of fraud. A

pre-penalty notice that is issued to a party in a case where Customs

determines a claimed prior disclosure is not valid--owing to the

disclosing party's knowledge of the commencement of a formal

investigation of a disclosed violation--shall include a copy of a

written document that evidences the commencement of a formal

investigation. In addition, a pre-penalty notice is not required if a

violation involves a non-commercial importation or if the proposed

claim does not exceed $1,000.

(b) Pre-penalty Notice--Proposed Claim amount.

(i) Fraud. In general, if a violation is determined to be the

result of fraud, the proposed claim ordinarily will be assessed in an

amount equal to the domestic value of the merchandise. Exceptions to

assessing the penalty at the domestic value may be warranted in unusual

circumstances such as a case where the domestic value of the

merchandise is disproportionately high in comparison to the loss of

duty attributable to an alleged violation (e.g., a total loss of duty

of $10,000 involving 10 entries with a total domestic value of

$2,000,000). Also, it is incumbent upon the appropriate Customs field

officer to consider whether mitigating factors are present warranting a

reduction in the customary domestic value assessment. In all 592 cases

of this nature regardless of the dollar amount of the proposed claim,

the Customs field officer shall obtain the approval of the Penalties

Branch at Headquarters prior to issuance of a pre-penalty notice at an

amount less than domestic value.

(ii) Gross Negligence and Negligence. In determining the amount of

the proposed claim in cases involving gross negligence and negligence,

the appropriate Customs field officer shall take into account the

gravity of the offense, the amount of loss of duty, the extent of

wrongdoing, mitigating or aggravating factors, and other factors

bearing upon the seriousness of a violation, but in no case shall the

assessed penalty exceed the statutory ceilings prescribed in section

592. In cases involving gross negligence and negligence, penalties

equivalent to the ceilings stated in paragraphs (F)(2)(b) and (c)

regarding disposition of cases may be appropriate in cases involving

serious violations, e.g., violations involving a high loss of duty or

significant evasion of import prohibitions or restrictions. A

``serious'' violation need not result in a loss of duty. The violation

may be serious because it affects the admissibility of merchandise or

the enforcement of other laws, as in the case of quota evasions, false

statements made to conceal the dumping of merchandise, or violations of

exclusionary orders of the International Trade Commission.

(c) Technical Violations. Violations where the loss of duty is

nonexistent or minimal and/or that have an insignificant impact on

enforcement of the laws of the United States may justify a proposed

penalty in a fixed amount not related to the value of merchandise, but

an amount believed sufficient to have a deterrent effect: e.g.,

violations involving the subsequent sale of merchandise or vehicles

entered for personal use; violations involving failure to comply with

declaration or entry requirements that do not change the admissibility

or entry status of merchandise or its appraised value or

classification; violations involving the illegal diversion to domestic

use of instruments of international traffic; and local point-to-point

traffic violations. Generally, a penalty in a fixed amount ranging from

$1,000 to $2,000 is appropriate in cases where there are no prior

violations of the same kind. However, fixed sums ranging from $2,000 to

$10,000 may be appropriate in the case of multiple or repeated

violations. Fixed sum penalty amounts are not subject to further

mitigation and may not exceed the maximum amounts stated in section 592

and in these guidelines.

(d) Statute of Limitations Considerations--Waivers. Prior to

issuance of any section 592 pre-penalty notice, the appropriate Customs

field officer shall calculate the statute of limitations attributable

to an alleged violation. Inasmuch as 592 cases are reviewed de novo by

the Court of International Trade, the statute of limitations

calculation in cases alleging fraud should assume a level of

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culpability of gross negligence or negligence, i.e., ordinarily

applying a shorter period of time for statute of limitations purposes.

In accordance with section 162.78 of the Customs Regulations, if less

than 1 year remains before the statute of limitations may be raised as

a defense, a shortened response time may be specified in the notice--

but in no case, less than 7 business days from the date of mailing. In

cases of shortened response times, the Customs field officer should

notify alleged violators by telephone and use all reasonable means

(e.g., facsimile transmission of a copy of the notice) to expedite

receipt of the notice by the alleged violators. Also in such cases, the

appropriate Customs field officer should advise the alleged violator

that additional time to respond to the pre-penalty notice will be

granted only if an acceptable waiver of the statute of limitations is

submitted to Customs. With regard to waivers of the statute of

limitations, it is Customs practice to request waivers concurrently

both from all potential alleged violators and their sureties.

(2) Closure of Case or Issuance of Penalty Notice.

(a) Case Closure. The appropriate Customs field officer may find,

after consideration of the record in the case, including any pre-

penalty response/oral presentation, that issuance of a penalty notice

is not warranted. In such cases, the Customs field officer shall

provide written notification to the alleged violator who received the

subject pre-penalty notice that the case is closed.

(b) Issuance of Penalty Notice. In the event that circumstances

warrant issuance of a notice of penalty pursuant to section 162.79 of

the Customs Regulations, the appropriate Customs field officer shall

give consideration to all available evidence with respect to the

existence of material false statements or omissions (including evidence

presented by an alleged violator), the degree of culpability, the

existence of a prior disclosure, the seriousness of the violation, and

the existence of mitigating or aggravating factors. In cases involving

fraud, the penalty notice shall be in the amount of the domestic value

of the merchandise unless a lesser amount is warranted as described in

paragraph (E)(1)(b)(i). In general, the degree of culpability or

proposed penalty amount stated in a pre-penalty notice shall not be

increased in the penalty notice. If, subsequent to the issuance of a

pre-penalty notice and upon further review of the record, the

appropriate Customs field officer determines that a higher degree of

culpability exists, the original pre-penalty notice should be rescinded

and a new pre-penalty notice issued that indicates the higher degree of

culpability and increased proposed penalty amount. However, if less

than 9 months remain before expiration of the statute of limitations,

and a waiver of the statute of limitations has not been provided to

Customs by the party named in the pre-penalty notice, the higher degree

of culpability and higher penalty amount may be indicated in the notice

of penalty without rescinding the earlier pre-penalty notice. In such

cases, the Customs field officer shall consider whether a lower degree

of culpability is appropriate or whether to change the information

contained in the pre-penalty notice.

(c) Statute of Limitations Considerations. Prior to issuance of any

section 592 penalty notice, the appropriate Customs field officer again

shall calculate the statute of limitations attributable to the alleged

violation and request a waiver(s) of the statute, if necessary. In

accordance with section 171.12 of the Customs Regulations, if less than

180 days remain before the statute of limitations may be raised as a

defense, a shortened response time may be specified in the notice--but

in no case less than 7 business days from the date of mailing. In such

cases, the Customs field officer should notify an alleged violator by

telephone and use all reasonable means (e.g., facsimile transmission of

a copy) to expedite receipt of the penalty notice by the alleged

violator. Also, in such cases, the Customs field officer should advise

an alleged violator that, if an acceptable waiver of the statute of

limitations is provided, additional time to respond to the penalty

notice may be granted.

(F) Administrative Penalty Disposition

(1) Generally. It is the policy of the Department of the Treasury

and the Customs Service to grant mitigation in appropriate

circumstances. In certain cases, based upon criteria to be developed by

Customs, mitigation may take an alternative form, whereby a violator

may eliminate or reduce his or her section 592 penalty liability by

taking action(s) to correct problems that caused the violation. In any

case, in determining the administrative section 592 penalty

disposition, the appropriate Customs field officer shall consider the

entire case record--taking into account the presence of any mitigating

or aggravating factors. All such factors should be set forth in the

written administrative section 592 penalty decision. An administrative

disposition is considered ``mitigated'' if the remission amount in the

Customs decision is less than the amount stated as a penalty in the

penalty notice. Once again, Customs emphasizes that any penalty

liability which is mitigated is conditioned upon payment of any actual

loss of duty in addition to that penalty. Finally, section 592 penalty

dispositions in duty-loss and non-duty-loss cases will proceed in the

manner set forth below.

(2) Dispositions.

(a) Fraudulent Violation. Penalty dispositions for a fraudulent

violation shall be calculated as follows:

(i) Duty Loss Violation. An amount ranging from a minimum of 5

times the total loss of duty to a maximum of 8 times the total loss of

duty--but in any such case the amount may not exceed the domestic value

of the merchandise. A penalty disposition greater than 8 times the

total loss of duty may be imposed in a case involving an egregious

violation, or a public health and safety violation, or due to the

presence of aggravating factors, but again, the amount may not exceed

the domestic value of the merchandise.

(ii) Non-Duty Loss Violation. An amount ranging from a minimum of

50 percent of the dutiable value to a maximum of 80 percent of the

dutiable value of the merchandise. A penalty disposition greater than

80 percent of the dutiable value may be imposed in a case involving an

egregious violation, or a public health and safety violation, or due to

the presence of aggravating factors, but the amount may not exceed the

domestic value of the merchandise.

(b) Grossly Negligent Violation. Penalty dispositions for a grossly

negligent violation shall be calculated as follows:

(i) Duty Loss Violation. An amount ranging from a minimum of 2.5

times the total loss of duty to a maximum of 4 times the total loss of

duty--but in any such case, the amount may not exceed the domestic

value of the merchandise.

(ii) Non-Duty Loss Violation. An amount ranging from a minimum of

25 percent of the dutiable value to a maximum of 40 percent of the

dutiable value of the merchandise--but in any such case, the amount may

not exceed the domestic value of the merchandise.

(c) Negligent Violation. Penalty dispositions for a negligent

violation shall be calculated as follows:

(i) Duty Loss Violation. An amount ranging from a minimum of 0.5

times the total loss of duty to a maximum of 2 times the total loss of

duty, but, in any such case, the amount may not exceed the domestic

value of the merchandise.

(ii) Non-Duty Loss Violation. An amount ranging from a minimum of 5

percent of the dutiable value to a

[[Page 57634]]

maximum of 20 percent of the dutiable value of the merchandise, but, in

any such case, the amount may not exceed the domestic value of the

merchandise.

(d) Authority to Cancel Claim. Upon issuance of a penalty notice,

Customs has set forth its formal monetary penalty claim. Except as

provided under 19 CFR 171.31, in those section 592 cases within the

administrative jurisdiction of the concerned Customs field office, the

appropriate Customs field officer shall cancel any such formal claim

whenever it is determined that an essential element of the alleged

violation is not established by the agency record, including pre-

penalty and penalty responses provided by the alleged violator. Except

as provided under 19 CFR 171.31, in those section 592 cases within

Customs Headquarters jurisdiction, the appropriate Customs field

officer shall cancel any such formal claim whenever it is determined

that an essential element of the alleged violation is not established

by the agency record, and such cancellation action precedes the date of

the Customs field officer's receipt of the alleged violator's petition

responding to the penalty notice. On and after the date of Customs

receipt of the petition responding to the penalty notice, jurisdiction

over the action rests with Customs Headquarters including the authority

to cancel the claim.

(e) Remission of Claim. If the Customs field officer believes that

a claim for monetary penalty should be remitted for a reason not set

forth in these guidelines, the Customs field officer should first seek

approval from the Chief, Penalties Branch, Customs Service

Headquarters.

(f) Prior Disclosure Dispositions. It is the policy of the

Department of the Treasury and the Customs Service to encourage the

submission of valid prior disclosures that comport with the laws,

regulations, and policies governing this provision of section 592.

Customs will determine the validity of the prior disclosure including

whether or not the prior disclosure sets forth all the required

elements of a violation of section 592. A valid prior disclosure

warrants the imposition of the reduced Customs civil penalties set

forth below:

(1) Fraudulent Violation.

(a) Duty Loss Violation. The claim for monetary penalty shall be

equal to 100 percent of the total loss of duty (i.e., actual +

potential) resulting from the violation.

(b) Non-Duty Loss Violation. The claim for monetary penalty shall

be equal to 10 percent of the dutiable value of the merchandise in

question.

(2) Gross Negligence and Negligence Violation.

(a) Duty Loss Violation. The claim for monetary penalty shall be

equal to the interest on the actual loss of duty computed from the date

of liquidation to the date of the party's tender of the actual loss of

duty resulting from the violation. Customs notes that there is no

monetary penalty in these cases if the duty loss is potential in

nature.

(b) Non-Duty Loss Violation. There is no monetary penalty in such

cases and any claim for monetary penalty which had been issued prior to

the decision granting prior disclosure shall be remitted in full.

(G) Mitigating Factors

The following factors shall be considered in mitigation of the

proposed or assessed penalty claim or the amount of the administrative

penalty decision, provided that the case record sufficiently

establishes their existence. The list is not all-inclusive.

(1) Contributory Customs Error. This factor includes misleading or

erroneous advice given by a Customs official in writing to the alleged

violator only if it appears that the alleged violator reasonably relied

upon the information and the alleged violator fully and accurately

informed Customs of all relevant facts. The concept of comparative

negligence may be utilized in determining the weight to be assigned to

this factor. If it is determined that the Customs error was the sole

cause of the violation, the proposed or assessed penalty claim shall be

canceled. If the Customs error contributed to the violation, but the

violator also is culpable, the Customs error shall be considered as a

mitigating factor.

(2) Cooperation with the Investigation. To obtain the benefits of

this factor, the violator must exhibit extraordinary cooperation beyond

that expected from a person under investigation for a Customs

violation. Some examples of the cooperation contemplated include

assisting Customs officers to an unusual degree in auditing the books

and records of the violator (e.g., incurring extraordinary expenses in

providing computer runs solely for submission to Customs to assist the

agency in cases involving an unusually large number of entries and/or

complex issues). Another example consists of assisting Customs in

obtaining additional information relating to the subject violation or

other violations. Merely providing the books and records of the

violator should not be considered cooperation justifying mitigation

inasmuch as Customs has the right to examine an importer's books and

records pursuant to 19 U.S.C. 1508-1509.

(3) Immediate Remedial Action. This factor includes the payment of

the actual loss of duty prior to the issuance of a penalty notice and

within 30 days after Customs notifies the alleged violator of the

actual loss of duties attributable to the alleged violation. In

appropriate cases, where the violator provides evidence that

immediately after learning of the violation, substantial remedial

action was taken to correct organizational or procedural defects,

immediate remedial action may be granted as a mitigating factor.

Customs encourages immediate remedial action to ensure against future

incidents of non-compliance.

(4) Prior Good Record. Prior good record is a factor only if the

alleged violator is able to demonstrate a consistent pattern of

importations without violation of section 592, or any other statute

prohibiting false or fraudulent importation practices. This factor will

not be considered in alleged fraudulent violations of section 592.

(5) Inability to Pay the Customs Penalty. The party claiming the

existence of this factor must present documentary evidence in support

thereof, including copies of income tax returns for the previous 3

years, and an audited financial statement for the most recent fiscal

quarter. In certain cases, Customs may waive the production of an

audited financial statement or may request alternative or additional

financial data in order to facilitate an analysis of a claim of

inability to pay (e.g., examination of the financial records of a

foreign entity related to the U.S. company claiming inability to pay).

(6) Customs Knowledge. Additional relief in non-fraud cases (which

also are not the subject of a criminal investigation) will be granted

if it is determined that Customs had actual knowledge of a violation

and, without justification, failed to inform the violator so that it

could have taken earlier corrective action. In such cases, if a penalty

is to be assessed involving repeated violations of the same kind, the

maximum penalty amount for violations occurring after the date on which

actual knowledge was obtained by Customs will be limited to two times

the loss of duty in duty-loss cases or twenty percent of the dutiable

value in non-duty-loss cases if the continuing violations were the

result of gross negligence, or the lesser of one time the loss of duty

in duty-loss cases or ten percent of dutiable value in non-duty-loss

cases if the violations were the result of negligence. This factor

shall not be applicable when a substantial

[[Page 57635]]

delay in the investigation is attributable to the alleged violator.

(H) Aggravating Factors

Certain factors may be determined to be aggravating factors in

calculating the amount of the proposed or assessed penalty claim or the

amount of the administrative penalty decision. The presence of one or

more aggravating factors may not be used to raise the level of

culpability attributable to the alleged violations, but may be utilized

to offset the presence of mitigating factors. The following factors

shall be considered ``aggravating factors,'' provided that the case

record sufficiently establishes their existence. The list is not

exclusive.

(1) Obstructing an investigation or audit,

(2) Withholding evidence,

(3) Providing misleading information concerning the violation,

(4) Prior substantive violations of section 592 for which a final

administrative finding of culpability has been made,

(5) Textile imports that have been the subject of illegal

transshipment, whether or not the merchandise bears false country of

origin markings,

(6) Evidence of a motive to evade a prohibition or restriction on

the admissibility of the merchandise (e.g., evading a quota

restriction),

(7) Failure to comply with a lawful demand for records or a Customs

summons.

(I) Offers in Compromise (``Settlement Offers'')

Parties who wish to submit a civil offer in compromise pursuant to

title 19, United States Code, section 1617 (also known as a

``settlement offer'' ) in connection with any section 592 claim or

potential section 592 claim should follow the procedures outlined in

section 161.5 of the Customs Regulations (19 CFR 161.5). Settlement

offers do not involve ``mitigation'' of a claim or potential claim, but

rather ``compromise'' an action or potential action where Customs

evaluation of potential litigation risks, or the alleged violator's

financial position, justifies such a disposition. In any case where a

portion of the offered amount represents a tender of unpaid duties, the

offeror may designate the amount attributable to such duties in the

written offer; otherwise the Customs letter of acceptance will so

designate any such duty amount. The offered amount should be deposited

at the Customs field office responsible for handling the section 592

claim or potential section 592 claim. The offered amount will be held

in a suspense account pending acceptance or rejection of the offer in

compromise. In the event the offer is rejected, the concerned Customs

field office shall promptly initiate a refund of the money deposited in

the suspense account to the offeror.

(J) Section 592(d) Demands

Section 592(d) demands for actual losses of duty ordinarily are

issued in connection with a penalty action, or as a separate demand

without an associated penalty action. In either case, information must

be present establishing a violation of section 592(a). In those cases

where the appropriate Customs field officer determines that issuance of

a penalty under section 592 is not warranted (notwithstanding the

presence of information establishing a violation of section 592(a)),

but that circumstances do warrant issuance of a demand for payment of

an actual loss of duty pursuant to section 592(d), the Customs field

officer shall follow the procedures set forth in section 162.79b of the

Customs Regulations (19 CFR 162.79b). Except in cases where less than

one year remains before the statute of limitations may be raised as a

defense, information copies of all section 592(d) demands should be

sent to all concerned sureties and the importer of record if such party

is not an alleged violator. Also, except in cases where less than one

year remains before the statute of limitations may be raised as a

defense, Customs will endeavor to issue all section 592(d) demands to

concerned sureties and non-violator importers of record only after

default by principals.

(K) Customs Brokers

If a customs broker commits a section 592 violation and the

violation involves fraud, or the broker committed a grossly negligent

or negligent violation and shared in the benefits of the violation to

an extent over and above customary brokerage fees, the customs broker

shall be subject to these guidelines. However, if the customs broker

commits either a grossly negligent or negligent violation of section

592 (without sharing in the benefits of the violation as described

above), the concerned Customs field officer shall proceed against the

customs broker pursuant to the remedies provided under 19 U.S.C. 1641.

(L) Arriving Travelers

(1) Liability. Except as set forth below, proposed and assessed

penalties for violations by an arriving traveler must be determined in

accordance with these guidelines.

(2) Limitations on Liability on Non-commercial Violations. In the

absence of a referral for criminal prosecution, monetary penalties

assessed in the case of an alleged first-offense, non-commercial,

fraudulent violation by an arriving traveler will generally be limited

as follows:

(a) Fraud--Duty-loss Violation. An amount ranging from a minimum of

three times the loss of duty to a maximum of five times the loss of

duty, provided the loss of duty is also paid;

(b) Fraud--Non-duty Loss Violation. An amount ranging from a

minimum of 30 percent of the dutiable value of the merchandise to a

maximum of 50 percent of its dutiable value;

(c) Gross Negligence--Duty Loss Violation. An amount ranging from a

minimum of 1.5 times the loss of duty to a maximum of 2.5 times the

loss of duty provided the loss of duty is also paid;

(d) Gross Negligence--Non-duty Loss Violation. An amount ranging

from a minimum of 15 percent of the dutiable value of the merchandise

to a maximum of 25 percent of its dutiable value;

(e) Negligence--Duty Loss Violation. An amount ranging from a

minimum of .25 times the loss of duty to a maximum of 1.25 times the

loss of duty provided that the loss of duty is also paid;

(f) Negligence--Non-duty Loss Violation. An amount ranging from a

minimum of 2.5 percent of the dutiable value of the merchandise to a

maximum of 12.5 percent of its dutiable value;

(g) Special Assessments/Dispositions. No penalty action shall be

initiated against an arriving traveller if the violation is not

fraudulent or commercial, the loss of duty is $100.00 or less, and

there are no other concurrent or prior violations of section 592 or

other statutes prohibiting false or fraudulent importation practices.

However, all lawful duties shall be collected. Also, no penalty cases

shall be initiated against an arriving traveler if the violation is not

fraudulent or commercial, there are no other concurrent or prior

violations of section 592, and a penalty is not believed necessary to

deter future violations or to serve a law enforcement purpose.

(M) Violations of Laws Administered by Other Federal Agencies

Violations of laws administered by other federal agencies (such as

the Food and Drug Administration, Consumer Product Safety Commission,

Foreign Assets Control, Agriculture, Fish and Wildlife) should be

referred to the appropriate agency for its recommendation. Such

recommendation, if promptly tendered, will be given due consideration,

and may be followed provided the

[[Page 57636]]

recommendation would not result in a disposition inconsistent with

these guidelines.

Samuel H. Banks,

Acting Commissioner of Customs.

Approved: August 3, 1998.

Dennis M. O'Connell.

Acting Deputy Assistant Secretary of the Treasury.

[FR Doc. 98-28786 Filed 10-27-98; 8:45 am]

BILLING CODE 4820-02-P