29126 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations

the statement number and statement

amount to the importer of record at least

one business day prior to the due date

so that the importer of record can

originate the payment.

(f) Date of collection. The date that the

ACH credit payment transaction is

received by Customs shall be the

collection date which equates to the

settlement date. The appropriate daily

statement or entry or warehouse

withdrawal or bill shall be identified as

paid as of that collection date.

(g) Removal from the ACH credit

program. If a payer repeatedly provides

improperly formatted or erroneous

information when originating ACH

credit payments, the Financial

Management Services Center may

advise the payer in writing to refrain

from using ACH credit and to submit its

payments by bank draft or check

pursuant to § 24.1 or, in the case of daily

statement payments, to use the ACH

debit payment method under § 24.25.

Samuel H. Banks,

Acting Commissioner of Customs.

Approved: May 5, 1998.

John P. Simpson,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 98–14166 Filed 5–27–98; 8:45 am]

BILLING CODE 4820–02–P

DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 162 and 178

[T.D. 98–49]

RIN 1515–AB98

Prior Disclosure

AGENCY: U.S. Customs Service,

Department of the Treasury.

ACTION: Final rule.

SUMMARY: This document amends the

Customs Regulations governing ‘‘prior

disclosure’’, including implementation

of the Customs modernization

provisions of the North American Free

Trade Implementation Act (Mod Act)

concerning prior disclosure by a person

of a violation of law committed by that

person involving the filing or attempted

filing of a drawback claim, or an entry

or introduction, or attempted entry or

introduction of merchandise into the

United States by fraud, gross negligence,

or negligence. Pursuant to the ‘‘prior

disclosure’’ provision of 19 U.S.C.

1592(c)(4) as amended by the Mod Act,

and 19 U.S.C. 1593a(c)(3), if a person

commits a violation of 19 U.S.C. 1592 or

19 U.S.C. 1593a and discloses the

circumstances of the violation before, or

without knowledge of, the

commencement of a formal

investigation of such violation,

merchandise shall not be seized and any

monetary penalty to be assessed shall be

limited. ‘‘Commencement of a formal

investigation’’ for purposes of 19 U.S.C.

1592 and 1593a is defined in these

regulations. The document also amends

the regulations to give Fines, Penalties

and Forfeitures Officers discretion to

defer Customs disclosure verification

proceedings until the disclosing party

has an opportunity to explain all the

circumstances underlying the disclosed

violation.

EFFECTIVE DATE: June 29, 1998.

FOR FURTHER INFORMATION CONTACT:

Robert Pisani, Penalties Branch (202)

927–2344.

SUPPLEMENTARY INFORMATION:

Background

On December 8, 1993, the President

signed the North American Free Trade

Agreement Implementation Act (Pub. L.

103–182). The Customs modernization

portion of this Act (Title VI), popularly

known as the Customs Modernization

Act, or ‘‘the Mod Act’’ became effective

when it was signed. Section 621 of Title

VI amended section 592 of the Tariff Act

of 1930 (19 U.S.C. 1592) (hereinafter

referred to as section 592), and section

622 of Title VI added new section 593a.

On September 26, 1996, Customs

published in the Federal Register (61

FR 50459) a notice of proposed

rulemaking to amend the Customs

Regulations governing prior disclosure

as it relates to sections 592 and 593a.

Pursuant to the ‘‘prior disclosure’’

provision of 19 U.S.C. 1592(c)(4) as

amended by the Mod Act, and 19 U.S.C.

1593a(c)(3), if a person commits a

violation of 19 U.S.C. 1592 or 19 U.S.C.

1593a and discloses the circumstances

of the violation before, or without

knowledge of, the commencement of a

formal investigation of such violation,

merchandise shall not be seized and any

monetary penalty to be assessed shall be

limited.

It is noted that it is the policy of the

Customs Service to encourage the

submission of prior disclosures.

The notice of proposed rulemaking

invited public comments on the

proposals, which would be considered

before adoption of a final rule. The

public comment period closed on

November 25, 1996.

Analysis of Comments

A total of thirty-seven commenters

responded to the solicitation of

comments during the public comment

period. Many commenters applauded

Customs efforts to re-organize and

simplify the regulations involving prior

disclosure. Ten of the commenters set

forth specific recommendations to

change the proposed amendments on a

‘‘section by section’’ basis. Five of these

ten commenters made general

comments which were not directly

related to a specific section of the

proposal. The remaining twenty-seven

commenters set forth the single

recommendation to amend the proposal

to include a regulatory prohibition that

would specify that a valid prior

disclosure precludes the assessment of a

liquidated damage claim for the

disclosed violation.

The specific ‘‘section by section’’

recommendations and/or suggestions,

general recommendations and/or

suggestions, and the Customs responses

thereto, are set forth below.

Proposed § 162.74(a)

Comment: One commenter suggests

that § 162.74(a)(2) be amended to

preclude ‘‘oral’’ prior disclosures. If

adopted, the commenter recommends

deleting all other references to oral prior

disclosures in the proposal. No reason is

articulated for suggesting this change.

Customs Response: We can find no

valid reason for precluding a party from

making an oral prior disclosure. Of

course, as with a party making a written

prior disclosure, a party who elects to

make an oral disclosure must meet the

regulatory criteria governing ‘‘disclosure

of the circumstances of the violation’’

before, or without knowledge of the

commencement of a formal

investigation of such violation, in order

to obtain prior disclosure benefits.

Comment: One commenter suggests

that Customs change proposed

§ 162.74(a)(2) to reflect that the

‘‘appropriate Customs officer,’’ rather

than the Fines, Penalties and Forfeitures

Officer, be the deciding official

regarding whether the party had

included substantially the information

set forth in paragraph (b) of proposed

§ 162.74. The commenter is of the

opinion that the decision-making

authority should be vested in a Customs

officer not connected to a potential

penalty action. For similar reasons,

another commenter suggests that the

port director should be the deciding

official instead of the Fines, Penalties

and Forfeitures Officer.

Customs Response: We disagree.

Inasmuch as the evaluation of

information regarding the potential

assessment of penalties under 19 U.S.C.

1592 or 19 U.S.C. 1593a is within the

province of the Fines, Penalties and

Forfeitures Officer, we are of the

opinion that the Fines, Penalties and
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations 29127

Forfeitures Officer is the appropriate

Customs official to determine whether

the criteria set forth in proposed

§ 162.74(b) is met.

Comment: One commenter suggests

that proposed § 162.74(a)(2) be amended

to include language that indicates that a

disclosing party is presumed to have no

knowledge of the commencement of a

formal investigation of the disclosed

violation, unless Customs can rebut

such presumption by virtue of one or

more of the events set forth in proposed

§ 162.74(i).

Customs Response: Proposed

§ 162.74(i) sets forth events which give

rise to presumptions of knowledge of

the commencement of a formal

investigation of the disclosed

violation(s). Inasmuch as circumstances

may exist that demonstrate

‘‘knowledge,’’ but that are not included

in the list of events set forth in proposed

§ 162.74(i), we do not believe that

adoption of this suggestion is warranted.

Moreover, we believe creating such a

presumption would conflict with 19

U.S.C. 1592 and 1593a, which places

the burden to demonstrate lack of

knowledge on the disclosing party.

Comment: One commenter

recommends that the Fines, Penalties

and Forfeitures Officer should not be

listed in proposed § 162.74(a)(2) as the

sole officer to decide whether the

disclosing party made a ‘‘disclosure of

the circumstances of a violation’’ (i.e.,

the criteria set forth in proposed

§ 162.74(b)), and that any such decisions

should be subject to review or appeal.

Further, for the sake of grammatical

continuity, the commenter recommends

deletion of the word ‘‘that’’ after the

word ‘‘satisfied’’ in proposed

§ 162.74(a)(2).

Customs Response: For reasons

discussed above, we are of the opinion

that the Fines, Penalties and Forfeitures

Officer is the appropriate Customs

official to determine whether or not the

party has met the criteria set forth in

proposed § 162.74(b). With respect to a

right of review or appeal of such

determinations, Customs notes that such

rights already are ensured by virtue of

the disclosing party’s right to petition if

Customs issues a prepenalty or penalty

notice initiating or assessing regular

penalties. Lastly, we note that we have

adopted the commenter’s grammatical

recommendation.

Proposed § 162.74(b)

Comment: One commenter

recommends that the word ‘‘violator’’ in

proposed § 162.74(b)(4) be changed to

‘‘disclosing party.’’

Customs Response: The

recommendation is adopted.

Comment: One commenter suggests

that proposed § 162.74(b)(4) should be

clarified to indicate that requests for

extensions apply to all information

specified in proposed § 162.74(b).

Customs Response: We disagree. The

adoption of the suggestion is contrary to

the principle of ‘‘shared responsibility’’

and would eliminate the obligation to

initially provide any information

regarding a claimed prior disclosure.

Comment: One commenter suggests

that Customs change proposed

§ 162.74(b)(4) to reflect that extension

requests should normally be granted by

Customs except in certain specified

circumstances.

Customs Response: Customs believes

that this change is not necessary. We

note that the commenter did not specify

circumstances that would warrant a

denial of a request for an extension, and

we believe that the creation of such

circumstances would not be in the

interests of either the disclosing party or

the Customs Service.

Comment: One commenter

recommends that proposed

§ 162.74(b)(4) be changed to specify that

information provided to Customs

pursuant to this provision may not be

used to initiate or develop a criminal

investigation or proceeding. The

commenter suggests that use of such

information to develop criminal cases

impinges on the disclosing party’s

Constitutional 5th Amendment rights.

Customs Response: Customs

disagrees. In addition to the fact that a

party elects to make a claimed prior

disclosure, it should be noted that

current law requires referral of

suspected criminal violations to the

concerned U.S. Attorney’s office.

Consequently, the decision to prosecute

a suspected violation of criminal

statutes rests with the concerned U.S.

Attorney’s office rather than the

Customs Service.

Proposed § 162.74(c)

Comment: One commenter suggests a

change in the language in this section to

make it clearer that the disclosing party

may decide to wait to tender the actual

loss of duties until Customs advises the

party of its calculation of the actual loss

of duties. The commenter is of the

opinion that the current language is

ambiguous, and that some ports have

insisted that lost duties be tendered at

the time of disclosure. Further, the

commenter recommends that the period

for tendering an actual loss of duties

after having been notified by Customs of

such loss be extended from 30 days to

60 days, and that the party may request

an extension of time to tender.

Customs Response: We agree that the

language suggested by the commenter

regarding the timing of a tender is less

ambiguous than the proposed language

and have revised this section in

accordance with the commenter’s

recommendation. On the other hand, we

see no reason to change the 30 day

period to tender an actual loss

calculated by Customs to 60 days. We

note that the proposed regulations do

provide the Fines, Penalties and

Forfeitures Officer with the authority to

extend the 30 day period if it is

determined that there is good cause to

do so.

Comment: One commenter

recommends adding a subsection to

proposed § 162.74(c) to provide for

refund in the event that Customs

determines that the amount tendered is

not, in fact, an actual loss of duties.

Three other commenters recommend

that proposed § 162.74(c) be revised to

provide the disclosing party with a

mechanism to challenge or protest

Customs calculation of the actual loss of

duties. Two of these three commenters

suggest that the inability to challenge

Customs actual loss calculation

discourages prior disclosures.

Customs Response: We agree that

where legitimate disputes exist between

a Customs field office and a disclosing

party regarding the amount of the actual

loss of duties due the government, there

should be some mechanism for review

at Customs Headquarters—provided that

the Customs claimed loss of duty is

substantial (i.e., exceeds $100,000); the

disclosing party deposits the Customs

claimed actual duty loss amount; greater

than one year remains under the statute

of limitations; and that the Headquarters

review is limited solely to the basis for

Customs determination of the actual

duty loss. In addition, we note that

granting such review is within the

discretion of Customs Headquarters, and

that such review is conditioned upon

the disclosing party’s compliance with

all other provisions of the prior

disclosure regulations. We also note that

where Headquarters review is afforded,

such review is not limited to the

revenue loss claims raised by the

Customs field office or disclosing party,

but could involve an independent

Headquarters determination. Lastly,

although the Headquarters decision on

such review may result in a partial or

total refund of the deposited duty loss

amount, the regulations indicate that, in

any case where such review is afforded,

the Headquarters decision is final and

not subject to administrative or judicial

appeal. In effect, the disclosing party

who elects to request such Headquarters

review should be aware that, if granted,
29128 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations

the party is waiving any right to contest

Headquarters actual loss of duties

determination—either administratively

or judicially.

Proposed § 162.74(d)

Comment: One commenter

recommends that proposed

§ 162.74(d)(2) be revised to require that

Customs furnish a receipt that indicates

the time and date of Customs receipt of

claimed prior disclosure documents

delivered in person. The commenter

suggests that it is somewhat anomalous

to require a person delivering

documents to Customs to request a

receipt, and that as part of ‘‘shared

responsibility’’ it seems more

appropriate to provide that the person

delivering the documents would be

furnished a receipt.

Customs Response: Customs agrees

that the proposed regulation should be

amended to reflect that a receipt will be

furnished to the person delivering

documents, but in keeping with the

spirit of ‘‘shared responsibility,’’ we

remain of the opinion that the receipt

will be furnished upon request.

Comment: One commenter claims that

proposed § 162.74(d)(3) is silent as to

the specific time and date when a

claimed oral prior disclosure becomes

effective. The commenter provides

revised language which indicates that

orally provided information is ‘‘deemed

to have occurred at the time the oral

communication is made.’’

Customs Response: We disagree with

the premise of this recommendation.

The proposed regulation does, in fact,

provide that claimed oral prior

disclosures are ‘‘deemed to have

occurred at the time Customs was

provided with the information which

substantially complies with the

requirements set forth in paragraph (b)

of this section.’’

Proposed § 162.74(e)

Comment: Two commenters point out

an apparent inconsistency between

proposed § 162.74(e)(2) and proposed

§ 162.74(a)(1), in that the latter proposed

section provides for making a claimed

prior disclosure to a ‘‘Customs officer,’’

whereas the former proposed section

provides for making a ‘‘multi-port’’

claimed prior disclosure to ‘‘all

concerned Fines, Penalties and

Forfeitures Officers.’’ One of the

commenters suggests that Port Director

be substituted for Fines, Penalties and

Forfeitures Officer.

Customs Response: We agree that

there is an apparent inconsistency

between the two proposed sections.

Customs is revising proposed

§ 162.74(e)(2) to reflect that although a

‘‘multi-port’’ claimed prior disclosure

may be made to a Customs officer,

unless the claimed prior disclosure is

made directly to the concerned Fines,

Penalties and Forfeitures Officer, it is

incumbent upon the Customs officer to

refer the claimed prior disclosure to the

concerned Fines, Penalties and

Forfeitures Officer so that consolidation

of the matter can be arranged in

accordance with internal procedures.

We believe that a disclosing party

should not be limited to providing the

claimed prior disclosure to the

concerned port director.

Proposed § 162.74(f)

Comment: One commenter

recommends that the word ‘‘violator’’ in

proposed § 162.74(f) be changed to

‘‘disclosing party.’’

Customs Response: The

recommendation is adopted.

Comment: One commenter

recommends that the Fines, Penalties

and Forfeitures Officer be eliminated in

proposed § 162.74(f) as the Customs

official responsible for requests for the

withholding of initiation of disclosure

verification proceedings. No specific

reason is suggested for this change.

Customs Response: Inasmuch as the

concerned Fines, Penalties and

Forfeitures Officer is the Customs officer

who is responsible for ascertaining the

validity of the claimed prior disclosure,

we see no reason to adopt the

recommended change.

Comment: One commenter suggests

that proposed § 162.74(f) be revised to

include language indicating that

requests to withhold initiation of

disclosure verification proceedings of

the claimed prior disclosure should be

granted ‘‘except for good cause.’’

Customs Response: The suggestion is

not adopted. In the event that Customs

learns of a serious abuse of discretion

regarding such requests, Customs can

take measures to eliminate the problem

through either internal guidelines,

regulatory revisions or whatever other

action is deemed appropriate.

Comment: One commenter suggests

that proposed § 162.74(f) be revised to

provide the Fines, Penalties and

Forfeitures Officer with the discretion to

defer notification to the Office of

Investigations of a claimed prior

disclosure. The commenter is of the

opinion that the deferral of notification

should be predicated on a number of

factors, such as the gravity of the

disclosed violation, any pattern of noncompliance, etc.

Customs Response: The notification to

the Office of Investigations of the

claimed disclosure serves to prevent

delay in the administrative disposition

of the disclosure, in that the Office of

Investigations can take immediate

action to initiate or coordinate

disclosure verification proceedings as

well as ascertain whether or not

Customs already had commenced a

formal investigation of the claimed prior

disclosure. Consequently, Customs is of

the opinion that the proposed regulation

remain unchanged.

Comment: One commenter

recommends that proposed § 162.74(f)

be changed to reflect that a disclosing

party may also request that Customs

audits be included in a request to

withhold initiation of disclosure

verification proceedings.

Customs Response: Inasmuch as

audits initiated solely to verify

disclosures would often be considered

part of the disclosure verification

proceedings, Customs is of the opinion

that the suggested change is

unnecessary.

Comment: One commenter suggests

that Customs add to the end of the first

sentence in proposed § 162.74(f) ‘‘and

the Office of Investigations is requested

to determine whether or not

investigation is pending or

contemplated.’’ The commenter does

not provide a reason for the suggested

change.

Customs Response: In view of the fact

that internal procedures already exist

regarding the handling of claimed prior

disclosures by the Office of

Investigations, Customs is of the

opinion that the suggested change is

unnecessary.

Proposed § 162.74(g)

Comment: Two commenters indicate

that, based upon Congressional

discussions involving the Customs

Modernization Act, proposed

§ 162.74(g) should include language to

require that records of a

‘‘commencement of a formal

investigation’’ be maintained in the

Office of Investigations, Customs

Headquarters or some other central unit.

One of these two commenters also

suggests that the regulation specify the

official who is charged with recording

the ‘‘commencement’’ information.

Also, this commenter suggests that the

words ‘‘with regard to the disclosing

party’’ be added after the word

‘‘commenced’’ in the first sentence of

the proposed section. A third

commenter recommends that this

section be revised to indicate that only

Customs agents from the Office of

Investigations can commence formal

investigations for prior disclosure

purposes. Three other commenters

recommend that the proposed section be

revised to require that a formal
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations 29129

investigations control number be

assigned to the written commencement

document or otherwise require the

Office of Investigations to open an

investigation. Lastly, one other

commenter suggests revisions to the

proposed section which specify the

form and nature of the

‘‘commencement’’ document.

Customs Response: Customs is of the

opinion that proposed § 162.74(g) fully

comports with the Customs

Modernization Act’s statutory language

and intent regarding the definition of

the term ‘‘commencement of a formal

investigation.’’ The proposed language

requires that the Customs Service

evidence the commencement by a

writing, as well as specifies that the

disclosing party will receive written

evidence of such a ‘‘commencement’’ in

any required notice issued to the party

pursuant to 19 U.S.C. 1592 or 1593a, in

the event the claimed prior disclosure is

denied. We do not agree that the law

mandates that agents of the Office of

Investigations are the only Customs

officials capable of commencing a

formal investigation for the purposes of

prior disclosure. Further, in Customs

view, additional requirements involving

custody of such records, or record

forms/formats, record maintenance or

case control numbers are not properly

the province of regulation, but rather,

concern internal procedures developed

by the agency. We do agree with the

suggestion to include the phrase ‘‘with

regard to the disclosing party’’ after the

word ‘‘commenced’’ in the first

sentence, and have revised the proposed

section to reflect adoption of this

recommendation.

Comment: One commenter states that

proposed § 162.74(g) should indicate

that a Customs Form 28 (Request for

Information) and Customs Form 29

(Notice of Action) cannot be considered

written evidence of a ‘‘commencement

of a formal investigation.’’ The

commenter is of the opinion that these

documents will have a ‘‘chilling’’ effect

on the prior disclosure provisions if

they are permitted to be construed as

‘‘formal commencement’’ documents, in

that they, for the most part, merely

request information or propose rate or

value advances.

Customs Response: As indicated

above, Customs is of the opinion that

dictating the form of the

‘‘commencement’’ writing is not

properly the province of regulation. We

do agree that Customs Forms 28 and 29

which merely request information or

propose rate or value advances could

not be considered ‘‘commencement’’

documents for prior disclosure purposes

unless they articulate that a possibility

of a violation existed.

Comment: One commenter

recommends deleting the phrase

‘‘denied prior disclosure treatment on

the basis of the commencement of a

formal investigation of the disclosed

violation’’ in the second sentence of

proposed § 162.74(g). The commenter

points out that ‘‘commencement of a

formal investigation is merely one fact

bearing on the ultimate resolution of the

matter.’’

Customs Response: Customs agrees

with the commenter that

‘‘commencement of a formal

investigation of the disclosed violation’’

is one of several issues concerning the

disposition of the claimed prior

disclosure (e.g., a disclosing party may

be unable to obtain prior disclosure

benefits if the party fails to ‘‘disclose the

circumstances of the violation’’ in

accordance with § 162.74(b)—and this

may occur in cases where Customs had

not commenced a formal investigation).

Nevertheless, this provision of proposed

§ 162.74(g) addresses those instances

where the denial of the prior disclosure

is predicated on the commencement of

the formal investigation of the disclosed

violation. In such cases, the regulation

requires a copy of a writing evidencing

the commencement of a formal

investigation of the disclosed violation.

Accordingly, the recommendation is not

adopted.

Comment: One commenter

recommends that proposed § 162.74(g)

be revised to indicate that any required

notice issued pursuant to 19 U.S.C. 1592

or 1593a should specify the event listed

in proposed § 162.74(i) that provided

the disclosing party with knowledge of

the commencement of a formal

investigation of the disclosed violation.

The commenter believes that inclusion

of such a provision would eliminate

disputes regarding the issue of

knowledge of the commencement.

Customs Response: We disagree.

Customs notes that the purpose

underlying proposed § 162.74(g) is to

provide a definition of the

‘‘commencement of a formal

investigation’’ for prior disclosure

purposes. We note that notices issued to

the disclosing party pursuant to 19

U.S.C. 1592 or 1593a may commence a

formal investigation of the disclosed

violation and may be issued prior to the

claimed disclosure. It should also be

noted that the law establishes the

burden to demonstrate lack of

knowledge of the commencement of the

formal investigation upon the disclosing

party.

Comment: One commenter suggests

that proposed § 162.74(g) be revised to

require that the disclosing party be

notified of the acceptance or denial of

the claimed prior disclosure as soon as

Customs makes that decision, and that

documentary evidence of the

‘‘commencement of a formal

investigation’’ should be furnished to

the disclosing party well in advance of

the initiation of penalty proceedings.

Customs Response: Customs believes

that the statutory and regulatory

procedures already in place are

sufficient to advise parties of the

validity of a claimed prior disclosure.

Also, it is well established that an

invalid prior disclosure may subject the

disclosing party to penalties.

Proposed § 162.74(h)

Comment: One commenter

recommends that proposed § 162.74(h)

be revised to clarify that once an

investigation begins with respect to a

disclosed violation, the disclosing party

still may obtain prior disclosure

treatment for other violations not

covered by the commenced formal

investigation.

Customs Response: Customs does not

believe that clarification is necessary.

The proposed section makes clear that

additional disclosed violations not

covered in the disclosing party’s

original prior disclosure may receive

prior disclosure benefits, provided that

such additional disclosures were made

before ‘‘the date recorded in writing by

the Customs Service as the date on

which facts and circumstances were

discovered or information was received

which caused the Customs Service to

believe that a possibility of such

additional violations existed.’’

Proposed § 162.74(i)

Comment: Five commenters

recommend that proposed § 162.74(i) be

revised to require that for the

‘‘presumption of knowledge’’ to be

effective any Customs notification of the

disclosed violation to the disclosing

party that precedes the claimed prior

disclosure must be evidenced by a

‘‘writing.’’ Four of the five commenters

maintain that such a requirement will

avoid unnecessary conflict or

misunderstandings concerning the

content or circumstances of an oral

notification by Customs. Two of the five

commenters are of the opinion that a

written notification requirement also

should require a return receipt. In

addition, two of the five commenters

recommend that proposed § 162.74(i) be

revised to ensure that ‘‘general

inquiries’’ (e.g., Customs Forms 28 and

29) are not used as evidence of prior

knowledge of the commencement of a

formal investigation of the disclosed
29130 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations

violation. One of these two commenters

suggests inclusion of the phrase ‘‘so

informed the person of that reasonable

belief,’’ immediately following the

statutory citations in proposed

§ 162.74(i)(1)(i) in order to clarify that

‘‘general inquiries’’ would not constitute

a presumption of knowledge.

Customs Response: Customs notes

that although the Customs

Modernization Act prior disclosure

changes added the requirement that a

‘‘commencement of a formal

investigation’’ must be evidenced by a

writing, the Modernization Act changes

did not impose such a writing

requirement regarding ‘‘knowledge of

the commencement of a formal

investigation’’ involving Customs

notification to the disclosing party.

Customs believes that the language of

the proposed regulatory section makes

clear that ‘‘general inquiries’’ or mere

‘‘contact’’ with a Customs officer prior

to the submission of the claimed prior

disclosure is insufficient to create a

‘‘presumption of knowledge’’ of the

commencement of a formal

investigation of the disclosed violation.

In those instances where oral

notification pursuant to proposed

§ 162.74(i) renders the presumption

operative, the concerned Customs

official must meet other criteria—such

as informing the person of the type of

or circumstances of the disclosed

violation.

Customs is of the opinion that its

position regarding ‘‘presumption of

knowledge’’ is consistent with the

underlying Modernization Act theme of

‘‘shared responsibility’’—if a party

receives oral notification from a

Customs officer of the type of or

circumstances of the violation(s) at issue

before making the claimed prior

disclosure, Customs believes that prior

disclosure benefits should not accrue—

unless, of course, the party is able to

rebut the presumption of knowledge as

provided for under the proposed

regulatory provision. Also, it should be

noted that even if one or more of the

events have taken place as set forth in

the proposed § 162.74(i), a party still

may wish to submit a claimed

disclosure—either because the party

believes it can rebut the presumption of

knowledge, or because the party seeks to

obtain substantial mitigation in an

ensuing penalty proceeding (despite the

fact that the information provided to

Customs does not qualify for disclosure

benefits).

Comment: One commenter suggests

changing proposed § 162.74(i) so that it

cannot be read to permit denial of prior

disclosure benefits in those instances

where one of the events or notifications

under the proposed regulatory section

takes place, but no formal investigation

has been commenced. Another

commenter recommends that Customs

should eliminate the language in the

proposed section which places the

burden of proving ‘‘lack of knowledge’’

on the disclosing party.

Customs Response: Customs believes

the proposed section is clear. The

second sentence of proposed § 162.74(i)

sets forth the requirement that the

commencement of a formal

investigation must occur before there

can be a presumption of knowledge.

Consequently, Customs sees no need to

adopt the first commenter’s suggestion.

With respect to the burden of proving

lack of knowledge, we reject the

commenter’s suggestion to eliminate

this burden inasmuch as both concerned

statutory provisions (i.e., 19 U.S.C.

1592(c)(4) and 19 U.S.C. 1593a(c)(3)(c))

establish the burden of proving lack of

knowledge.

General Comments

Comment: One commenter

recommends that prior disclosure

benefits should extend to violations of

the customs laws other than violations

of 19 U.S.C. 1592 or 1593a.

Customs Response: Customs notes

that the proposed regulations are being

promulgated based upon the statutory

authority establishing ‘‘prior disclosure’’

for violations of 19 U.S.C. 1592 and

1593a. Currently, such statutory

authority for permitting ‘‘prior

disclosure’’ of other violations of the

customs laws does not exist.

Nevertheless, it should be noted that in

some instances, a party who discloses a

violation of the customs laws (other

than 19 U.S.C. 1592 or 1593a) may be

entitled to substantial mitigation in the

administrative disposition of the offense

under existing Customs guidelines for

such violations.

Comment: Twenty-six commenters

recommend that the proposed

amendments be revised to prohibit an

assessment of liquidated damages for a

violation revealed in a 19 U.S.C. 1592 or

1593a prior disclosure. The vast

majority of these commenters are of the

opinion that it is unfair for the Customs

Service to assess liquidated damages

against a Foreign-Trade Zone (FTZ)

operator for breach of the FTZ operator’s

bond based on information obtained

from a prior disclosure submitted by an

operator. These commenters believe that

inasmuch as most valid prior

disclosures by FTZ operators involve a

tender of all lost revenue, Customs is

made whole and that the subsequent

assessment of liquidated damages

should not be allowed. The FTZ

commenters are of the opinion that the

proposed regulations unfairly

discriminate against FTZ operators, and

serve to deter such parties from

submitting prior disclosures.

Customs Response: Customs notes

that unlike the assessment of civil

penalties, the assessment of liquidated

damages for a breach of bond terms is

based upon the contractual agreement

with the bondholder. Accordingly,

although Customs may, under existing

guidelines, reduce liquidated damage

amounts in administrative

proceedings—particularly in those cases

where a valid prior disclosure is

submitted, the agency does not believe

the suggestion should be adopted.

Comment: One commenter suggests

that the proposed regulations include a

statement that indicates that the

submission of valid prior disclosures is

encouraged.

Customs Response: Customs notes

that the commenter’s suggested

statement is not provided for by statute,

but rather is a recommended statement

of agency policy. Inasmuch as it is the

policy of the Customs Service to

encourage the submission of prior

disclosures in accordance with the

proposed regulatory requirements, we

have added such a sentence to the

preamble of this document.

Comment: One commenter is of the

opinion that the annual reporting

burden set forth in the section under

Paperwork Reduction Act heading is

understated. The commenter believes

that it also would be helpful for the

estimated number of respondents shown

to be based on the actual number of

prior disclosures filed annually in the

last several years.

Customs Response: Customs notes

that the figures set forth in the notice of

proposed rulemaking are Customs best

estimates of both the annual reporting

burden, estimated annual number of

respondents and estimated average

annual burden per respondent.

Inasmuch as a prior disclosure may

involve one Customs entry with one line

item, or several thousand Customs

entries involving hundreds of line

items, it is virtually impossible to

predict either the frequency at which

disclosures will be made, or the amount

of time necessary to complete a

disclosure. It should also be noted that

the simplicity or complexity of the

‘‘disclosed violation,’’ as well as the

number of line items at issue may

involve a completion time that is either

substantially more or less than the ‘‘one

hour for each Customs entry’’ set forth

in the notice of proposed rulemaking. In

view of these considerations and the

voluntary nature of the prior disclosure
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations 29131

provisions, Customs is of the opinion

that its estimates comport with the

regulatory requirements of the

Paperwork Reduction Act.

Comment: One commenter believes

that it would be helpful to acknowledge

in this document that there may be

instances where the disclosing party

requires several months—or even

longer—to submit all of the required

information to complete its disclosure of

the circumstances of the violation.

Customs Response: Customs

acknowledges that in certain cases a

claimed prior disclosure may involve

numerous transactions, multiple ports,

and/or complex issues and

information—all of which require

adequate research and compilation time.

The agency is of the opinion that the

proposed regulations accommodate

such prior disclosures by virtue of the

ability of the party to request extensions

of time to research and compile such

information.

Comment: One commenter

recommends that the proposed

regulations include a provision that

either establishes a procedure for

appealing a denial of a claimed prior

disclosure, or references such a

procedure found elsewhere in the

Customs Regulations. The commenter is

of the opinion that such a provision or

statement would serve to avoid

unnecessary litigation.

Customs Response: Customs notes

that, ordinarily, the denial of a prior

disclosure is manifested by Customs

initiation of administrative penalty

proceedings at ordinary penalty

amounts under either 19 U.S.C. 1592 or

1593a. Inasmuch as the disclosing party

may avail itself of administrative

petitioning rights in such cases

(including the right to petition Customs

denial of prior disclosure treatment),

Customs believes it is unnecessary to

enact a separate or additional appeal

procedure.

Comment: Four commenters are of the

opinion that Customs should reinstate

the ‘‘minor violations’’ section of the

regulations governing prior disclosure

(former § 162.74(j)). The commenters

believe that the proposed regulations

should state that minor, non-fraudulent

violations should not be subject to

penalty, and one commenter believes

that such infractions should not be

referred to the Office of Investigations.

Another commenter believes that the

deletion of former § 162.74(j) will

discourage prior disclosure of minor

violations.

Customs Response: Customs notes

that despite the deletion of former

§ 162.74(j), the agency does not

anticipate any change of practice with

respect to minor violations. It should be

noted that inasmuch as ‘‘minor

violations’’ already are addressed in

Customs revised penalty guidelines (19

CFR Part 171, Appendix B), former

§ 162.74(j) is unnecessary.

Conclusion

Accordingly, based on the comments

received and the analysis of those

comments as set forth above, and after

further review of this matter, Customs

believes that the proposed regulatory

amendments should be adopted as a

final rule with certain changes thereto

as discussed above and as set forth

below. This document also includes an

appropriate update of the list of

information collection approvals

contained in § 178.2 of the Customs

Regulations (19 CFR § 178.2).

Regulatory Flexibility Act

Insofar as this amendment closely

follows legislative direction, pursuant to

the provisions of the Regulatory

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

is certified that the amendment will not

have a significant economic impact on

a substantial number of small entities.

Accordingly, it is not subject to the

regulatory analysis or other

requirements of 5 U.S.C. 603 and 604.

Executive Order 12866

This amendment does not meet the

criteria for a ‘‘significant regulatory

action’’ as specified in E.O. 12866.

Paperwork Reduction Act

The collection of information

contained in this final regulation was

submitted to the Office of Management

and Budget (OMB) in accordance with

the Paperwork Reduction Act of 1995

(44 U.S.C. 3507(d)) and approved under

OMB control number 1515–0212. An

agency may not conduct or sponsor, and

a person is not required to respond to

a collection of information unless the

collection of information displays a

valid control number assigned by OMB.

The collection of information in this

final rule is in § 162.74. This

information is required in connection

with prior disclosure by a person of a

violation of law committed by that

person involving the filing or attempted

filing of a drawback claim, or an entry

or introduction, or attempted entry or

introduction of merchandise into the

United States by fraud, gross negligence

or negligence. This information will be

used by Customs to determine if the

party discloses the circumstances of a

violation before, or without knowledge

of, the commencement of a formal

investigation of such violation, so that

merchandise would not be seized and

any monetary penalty to be assessed

would be limited. The collection of

information is required to obtain a

benefit. The likely respondents are

business organizations including

importers, exporters, and

manufacturers.

The estimated average burden

associated with the collection of

information in this final rule is 1 hour

per respondent or recordkeeper for each

Customs entry involved in prior

disclosure. Comments concerning the

accuracy of this burden estimate and

suggestions for reducing this burden

should be directed to the U.S. Customs

Service, Paperwork Management

Branch, 1300 Pennsylvania Avenue,

N.W., Washington, D.C. 20229, and to

the OMB, Attention: Desk Officer for the

Department of the Treasury, Office of

Information and Regulatory Affairs,

Washington, D.C. 20503.

Drafting Information: The principal

author of this document was Keith B.

Rudich, Regulations Branch, Office of

Regulations and Rulings, U.S. Customs

Service. However, personnel from other

offices participated in its development.

List of Subjects

19 CFR Part 162

Customs duties and inspection, Law

enforcement, Seizures and forfeitures.

19 CFR Part 178

Administrative practice and

procedure, Exports, Imports, Reporting

and recordkeeping requirements.

Amendment to the Regulations

In accordance with the preamble,

Parts 162 and 178 of the Customs

Regulations (19 CFR Parts 162 and 178)

are amended as set forth below:

PART 162—RECORDKEEPING,

INSPECTION, SEARCH AND SEIZURE

1. The general authority citation for

Part 162 continues to read as follows:

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

1624.

* * * * *

2. Section 162.71 is amended by

removing paragraph (e).

3. Section 162.74 is revised to read as

follows:

§ 162.74 Prior disclosure.

(a) In general.—(1) A prior disclosure

is made if the person concerned

discloses the circumstances of a

violation (as defined in paragraph (b) of

this section) of 19 U.S.C. 1592 or 19

U.S.C. 1593a, either orally or in writing

to a Customs officer before, or without

knowledge of, the commencement of a
29132 Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations

formal investigation of that violation,

and makes a tender of any actual loss of

duties in accordance with paragraph (c)

of this section. A Customs officer who

receives such a tender in connection

with a prior disclosure shall ensure that

the tender is deposited with the

concerned local Customs entry officer.

(2) A person shall be accorded the full

benefits of prior disclosure treatment if

that person provides information orally

or in writing to Customs with respect to

a violation of 19 U.S.C. 1592 or 19

U.S.C. 1593a if the concerned Fines,

Penalties and Forfeitures Officer is

satisfied the information was provided

before, or without knowledge of, the

commencement of a formal

investigation, and the information

provided includes substantially the

information specified in paragraph (b) of

this section. In the case of an oral

disclosure, the disclosing party shall

confirm the oral disclosure by providing

a written record of the information

conveyed to Customs in the oral

disclosure to the concerned Fines,

Penalties and Forfeitures Officer within

10 days of the date of the oral

disclosure. The concerned Fines,

Penalties and Forfeiture Officer may,

upon request of the disclosing party

which establishes a showing of good

cause, waive the oral disclosure written

confirmation requirement. Failure to

provide the written confirmation of the

oral disclosure or obtain a waiver of the

requirement may result in denial of the

oral prior disclosure.

(b) Disclosure of the circumstances of

a violation. The term ‘‘discloses the

circumstances of a violation’’ means the

act of providing to Customs a statement

orally or in writing that:

(1) Identifies the class or kind of

merchandise involved in the violation;

(2) Identifies the importation or

drawback claim included in the

disclosure by entry number, drawback

claim number, or by indicating each

concerned Customs port of entry and

the approximate dates of entry or dates

of drawback claims;

(3) Specifies the material false

statements, omissions or acts including

an explanation as to how and when they

occurred; and

(4) Sets forth, to the best of the

disclosing party’s knowledge, the true

and accurate information or data that

should have been provided in the entry

or drawback claim documents, and

states that the disclosing party will

provide any information or data

unknown at the time of disclosure

within 30 days of the initial disclosure

date. Extensions of the 30-day period

may be requested by the disclosing

party from the concerned Fines,

Penalties and Forfeitures Officer to

enable the party to obtain the

information or data.

(c) Tender of actual loss of duties. A

person who discloses the circumstances

of the violation shall tender any actual

loss of duties. The disclosing party may

choose to make the tender either at the

time of the claimed prior disclosure, or

within 30 days after Customs notifies

the person in writing of his or her

calculation of the actual loss of duties.

The Fines, Penalties and Forfeitures

Officer may extend the 30-day period if

there is good cause to do so. The

disclosing party may request that the

basis for determining Customs asserted

actual duty loss be reviewed by

Headquarters, provided that the actual

duty loss demanded by Customs

exceeds $100,000 and is deposited with

Customs, more than one year remains

under the statute of limitations

involving the shipments covered by the

claimed disclosure, and the disclosing

party has complied with all other prior

disclosure regulatory provisions. A

grant of review is within the discretion

of Customs Headquarters in

consultation with the appropriate field

office, and such Headquarters review

shall be limited to determining issues of

correct tariff classification, correct rate

of duty, elements of dutiable value, and

correct application of any special rules

(GSP, CBI, HTS 9802, etc.). The

concerned Fines, Penalties and

Forfeitures Officer shall forward

appropriate review requests to the Chief,

Penalties Branch, Customs

Headquarters, Office of Regulations and

Rulings. After Headquarters renders its

decision, the concerned Fines, Penalties

and Forfeitures Officer will be notified

and the concerned Customs port will

recalculate the loss, if necessary, and

notify the disclosing party of any actual

duty loss increases. Any increases must

be deposited within 30 days, unless the

local Customs office authorizes a longer

period. Any reductions of the Customs

calculated actual loss of duty shall be

refunded to the disclosing party. Such

Headquarters review decisions are final

and not subject to appeal. Further,

disclosing parties requesting and

obtaining such a review waive their

right to contest either administratively

or judicially the actual loss of duties

finally calculated by Customs under this

procedure. Failure to tender the actual

loss of duties finally calculated by

Customs shall result in denial of the

prior disclosure.

(d) Effective time and date of prior

disclosure.—(1) If the documents that

provide the disclosing information are

sent by registered or certified mail,

return-receipt requested, and are

received by Customs, the disclosure

shall be deemed to have been made at

the time of mailing.

(2) If the documents are sent by other

methods, including in-person delivery,

the disclosure shall be deemed to have

been made at the time of receipt by

Customs. If the documents are delivered

in person, the person delivering the

documents will, upon request, be

furnished a receipt from Customs stating

the time and date of receipt.

(3) The provision of information that

is not in writing but that qualifies for

prior disclosure treatment pursuant to

paragraph (a)(2) of this section shall be

deemed to have occurred at the time

that Customs was provided with

information that substantially complies

with the requirements set forth in

paragraph (b) of this section.

(e) Addressing and filing prior

disclosure.—(1) A written prior

disclosure should be addressed to the

Commissioner of Customs, have

conspicuously printed on the face of the

envelope the words ‘‘prior disclosure,’’

and be presented to a Customs officer at

the Customs port of entry of the

disclosed violation.

(2) In the case of a prior disclosure

involving violations at multiple ports of

entry, the disclosing party may orally

disclose or provide copies of the

disclosure to all concerned Fines,

Penalties and Forfeitures Officers. In

accordance with internal Customs

procedures, the officers will then seek

consolidation of the disposition and

handling of the disclosure. In the event

that the claimed ‘‘multi-port’’ disclosure

is made to a Customs officer other than

the concerned Fines, Penalties and

Forfeitures Officer, the disclosing party

must identify all ports involved to

enable the concerned Customs officer to

refer the disclosure to the concerned

Fines, Penalties and Forfeitures Officer

for consolidation of the proceedings.

(f) Verification of disclosure. Upon

receipt of a prior disclosure, the

Customs officer shall notify Customs

Office of Investigations of the

disclosure. In the event the claimed

prior disclosure is made to a Customs

officer other than the concerned Fines,

Penalties and Forfeitures Officer, it is

incumbent upon the Customs officer to

provide a copy of the disclosure to the

concerned Fines Penalties and

Forfeitures Officer. The disclosing party

may request, in the oral or written prior

disclosure, that the concerned Fines,

Penalties and Forfeitures Officer request

that the Office of Investigations

withhold the initiation of disclosure

verification proceedings until after the

party has provided the information or

data within the time limits specified in
Federal Register / Vol. 63, No. 102 /Thursday, May 28, 1998 /Rules and Regulations 29133

paragraph (b)(4) of this section. It is

within the discretion of the concerned

Fines, Penalties and Forfeitures Officer

to grant or deny such requests.

(g) Commencement of a formal

investigation. A formal investigation of

a violation is considered to be

commenced with regard to the

disclosing party on the date recorded in

writing by the Customs Service as the

date on which facts and circumstances

were discovered or information was

received that caused the Customs

Service to believe that a possibility of a

violation existed. In the event that a

party affirmatively asserts a prior

disclosure (i.e., identified or labeled as

a prior disclosure) and is denied prior

disclosure treatment on the basis that

Customs had commenced a formal

investigation of the disclosed violation,

and Customs initiates a penalty action

against the disclosing party involving

the disclosed violation, a copy of a

‘‘writing’’ evidencing the

commencement of a formal

investigation of the disclosed violation

shall be attached to any required

prepenalty notice issued to the

disclosing party pursuant to 19 U.S.C.

1592 or 19 U.S.C. 1593a.

(h) Scope of the disclosure and

expansion of a formal investigation. A

formal investigation is deemed to have

commenced as to additional violations

not included or specified by the

disclosing party in the party’s original

prior disclosure on the date recorded in

writing by the Customs Service as the

date on which facts and circumstances

were discovered or information was

received that caused the Customs

Service to believe that a possibility of

such additional violations existed.

Additional violations not disclosed or

covered within the scope of the party’s

prior disclosure that are discovered by

Customs as a result of an investigation

and/or verification of the prior

disclosure shall not be entitled to

treatment under the prior disclosure

provisions.

(i) Knowledge of the commencement

of a formal investigation.—(1) A

disclosing party who claims lack of

knowledge of the commencement of a

formal investigation has the burden to

prove that lack of knowledge. A person

shall be presumed to have had

knowledge of the commencement of a

formal investigation of a violation if

before the claimed prior disclosure of

the violation a formal investigation has

been commenced and:

(i) Customs, having reasonable cause

to believe that there has been a violation

of 19 U.S.C. 1592 or 19 U.S.C. 1593a, so

informed the person of the type of or

circumstances of the disclosed

violation; or

(ii) A Customs Special Agent, having

properly identified himself or herself

and the nature of his or her inquiry,

had, either orally or in writing, made an

inquiry of the person concerning the

type of or circumstances of the

disclosed violation; or

(iii) A Customs Special Agent, having

properly identified himself or herself

and the nature of his or her inquiry,

requested specific books and/or records

of the person relating to the disclosed

violation; or

(iv) Customs issues a prepenalty or

penalty notice to the disclosing party

pursuant to 19 U.S.C. 1592 or 19 U.S.C.

1593a relating to the type of or

circumstances of the disclosed

violation; or

(v) The merchandise that is the

subject of the disclosure was seized; or

(vi) In the case of violations involving

merchandise accompanying persons

entering the United States or

commercial merchandise inspected in

connection with entry, the person has

received oral or written notification of

Customs finding of a violation.

(2) The presumption of knowledge

may be rebutted by evidence that,

notwithstanding the foregoing notice,

inquiry or request, the person did not

have knowledge that an investigation

had commenced with respect to the

disclosed information.

PART 178—APPROVAL OF

INFORMATION COLLECTION

REQUIREMENTS

1. The authority citation for part 178

continues to read as follows:

Authority: 5 U.S.C. 301; 19 U.S.C. 1624; 44

U.S.C. 3501 et seq.

2. Section 178.2 is amended by

adding a new listing to the table in

numerical order to read as follows:

§ 178.2 Listing of OMB control numbers.

19 CFR section Description OMB control

No.

* * * * *

§ 162.74 ........................................................................................................................................................ Prior disclosure ......... 1515–0212

* * * * *

Samuel H. Banks,

Acting Commissioner of Customs.

Approved: May 12, 1998.

John P. Simpson,

Deputy Assistant Secretary of the Treasury.

[FR Doc. 98–14154 Filed 5–27–98; 8:45 am]

BILLING CODE 4820–02–P

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Food and Drug Administration

21 CFR Part 173

[Docket No. 97F–0283]

Secondary Direct Food Additives

Permitted in Food for Human

Consumption; Monester of alphaHydro-omega-HydroxyPoly(Oxyethylene) Poly(Oxypropylene)

Poly(Oxyethylene) (15 Mole Minimum)

Blocked Copolymer

AGENCY: Food and Drug Administration,

HHS.

ACTION: Final rule.

SUMMARY: The Food and Drug

Administration (FDA) is amending the

food additive regulations for safe use of

monoester of alpha-hydro-omegahydroxy-poly(oxyethylene)

poly(oxypropylene) poly(oxyethylene)

(15 mole minimum) blocked copolymer

derived from low erucic acid rapeseed

oil as a component of defoaming agents

used in the washing of sugar beets for

processing into sugar. This action

responds to a petition filed by Akzo

Nobel Chemical, Inc.

DATES: The regulation is effective May

28, 1998; written objections and

requests for a hearing by June 29, 1998.