Customs Revises Mitigation Guidelines

January 1, 2003

In keeping with its theme of informed compliance and shared responsibility under the Customs Modernization Act ("Mod Act"), Customs has initiated a thorough examination and review of its processes and procedures relating to importer compliance with Customs laws and regulations. As a part of this effort, Customs has revised the guidelines for remitting and mitigating penalties relating to violations of 19 U.S.C. Section 1592.

This process began in late 1998 when Customs published a notice of proposed rulemaking in the Federal Register. The proposed revisions consisted of a reorganization of the content of the current guidelines to more clearly identify important provisions. The notice of proposed rulemaking invited public comments, which were received until December 28, 1998. After careful consideration of all comments received, Customs adopted the proposed revised guidelines and made certain clarifying changes as well. These amendments will take effect on July 24, 2000. An overview of the relevant amendments appears below.

Under the revised regulations, a monetary penalty incurred under section 592 of the Tariff Act of 1930 (19 U.S.C. § 1592) may be remitted or mitigated under section 618 of the Tariff Act (19 U.S.C. § 1618), if it is determined that there are mitigating circumstances to justify remission or mitigation. A violation of 19 U.S.C. § 1592 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 material omissions or acts that are material and false. Customs defines "materiality" as something having a natural tendency to influence agency action (i.e. classification, marking, origin, etc.). The major changes in the mitigation guidelines are as follows:

1. Additional Terms (Section D)
Under the new guidelines, a section has been added that explains certain terms used throughout the guidelines. Included in this section are terms such as duty and non-duty loss violations, actual loss of duties, potential loss of duties, total loss of duties, reasonable care, clerical error, and mistake of fact.

One notable definitional addition is that of unintentional clerical errors. As Customs explains, an unintentional repetition by an electronic system of an initial clerical error does not constitute a pattern of negligence, unless Customs has previously drawn a party's attention to the repetition.

2. Penalty Assessment (Section E)
A section (E) (a revision of current section C) has been added to track the administrative penalty process in chronological order, beginning with case initiation. Customs also describes 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.

Furthermore, the guidelines address steps to be taken when Customs decides whether to close a case or issue a penalty notice. Also, the new 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 nine months remain before the expiration of the statute of limitations or any waiver thereof has been received. The current guidelines provide that such increased penalty notices would only be issued if less than three months remained.

3. Administrative Penalty Disposition (Section F)
New Section (F) covers the procedures to be followed and elements that Customs will consider as part of the case record for any mitigating and/or aggravating factors. This section is arranged so that the various types and degrees of violations are explained along with the respective mitigation considerations.

4. Mitigating Factors (Section G)
This section deals with those factors considered by Customs in proposing a penalty or mitigating an assessed penalty claim. This section combined the factors located in sections (F) and (H) of the current guidelines, because Customs felt that a separate section was no longer necessary for "extraordinary" factors such as the ability of Customs to obtain personal jurisdiction over the violator. Also, the new guidelines retain "inexperience in importing" as a mitigating variable, even though Customs had proposed to eliminate this factor.

5. Aggravating Factors (Section H)
Section (H) contains factors that Customs believes should be considered as aggravating factors for the purpose of assessing penalties. While most of these factors are found in section (G) of the current guidelines, two factors were added: 1) the discovery of evidence of a motive to evade a prohibition or restriction on the admissibility of merchandise; and 2) failure to comply with a lawful demand for records or a Customs summons.

6. Offers in Compromise (Section I)
This section addresses settlement offers, and is a new section not contained in the current guidelines. This section instructs parties who wish to submit a civil offer in compromise pursuant to 19 U.S.C. § 1617 to follow the procedures outlined in 19 C.F.R. § 161.5. The section also outlines the steps to be taken by both parties once a settlement offer has been made.

7. Section 1592(d) Demands (Section J)
This section addresses the guidelines to be followed in instances where Customs makes a demand for payment of actual loss of duties, and provides that Customs will follow the procedures set forth in 19 C.F.R. § 162.79(b). Furthermore, this section states that, absent statute of limitations problems, Customs will attempt to issue section 1592(d) demands to concerned sureties and non-violator importers only after default by principals.

8. Customs Brokers (Section K)
This section addresses violations of section 1592 by customs brokers. This section states that Customs will continue the present practice of applying the overall mitigation guidelines in instances of broker fraud or where the broker shares in the financial benefits of a violation. However, where no fraud or sharing of financial benefits is present, the dollar limitations have been removed and Customs may charge the broker under 19 U.S.C. § 1641.

As mentioned above, these guidelines are intended as a revision of Appendix B to Part 171 of the Customs Regulations, setting forth the guidelines for remitting and mitigating penalties relating to violations of 19 U.S.C. § 1592. These guidelines will take effect on July 24, 2000.

To view the full Treasury Decision as published in the Federal Register, click here.
Or visit the Customs website.