[Federal Register Volume 63, Number 115 (Tuesday, June 16, 1998)]
[Rules and Regulations]
[Pages 32916-32955]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-15771]



[[Page 32915]]

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Part II





Department of the Treasury





_______________________________________________________________________



Customs Service



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19 CFR Part 19 et al.



Recordkeeping Requirements; Rule

Federal Register / Vol. 63, No. 115 / Tuesday, June 16, 1998 / Rules 
and Regulations

[[Page 32916]]



DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 19, 24, 111, 113, 143, 162, 163, 178 and 181

[T.D. 98-56]
RIN 1515-AB77


Recordkeeping Requirements

AGENCY: Customs Service, Treasury.

ACTION: Final rule.

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

EFFECTIVE DATE: July 16, 1998.

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

SUPPLEMENTARY INFORMATION:

Background

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

[[Page 32917]]

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

Discussion of Comments

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

Treatment of Express Consignment Carriers

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

[[Page 32918]]

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

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

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

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

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

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

Section 111.22--Additional Record of Transactions

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

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

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

[[Page 32920]]

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

Section 143.35--Procedure for Electronic Entry Summary

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

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

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

[[Page 32921]]

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

Section 143.37(a)--Retention of Records

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

Section 143.39--Penalties

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

[[Page 32922]]

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

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

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

[[Page 32923]]

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

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

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

[[Page 32924]]

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

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

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

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

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

[[Page 32925]]

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

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

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

[[Page 32926]]

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

[[Page 32927]]

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

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

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

Section 163.2--Parties Required To Maintain Records

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

Section 163.2(a)--General Recordkeeping Obligation

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

[[Page 32928]]

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

Section 163.2(b)--Exclusion of Domestic Transactions

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

[[Page 32929]]

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

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

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

Section 163.2(g)--Recordkeeping Required for Travelers

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

Section 163.3--Entry Records

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

[[Page 32930]]

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

Section 163.4--Record Retention Period

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

[[Page 32931]]

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

Section 163.5(a)--Original Format Record Storage

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

Section 163.5(b)--Alternative Storage Method Approval

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

[[Page 32932]]

    1. The requirement for written authorization from Customs to 
maintain records and information in alternative formats is contrary to 
the Mod Act which in section 614 amended 19 U.S.C. 1508(a) to allow 
importers to maintain records in electronically generated or machine 
readable data formats, and this was a self-implementing amendment. 
Thus, the Mod Act amendment gives the option to engage in electronic 
recordkeeping as an unencumbered right, not as a ``privilege'' as 
stated in proposed Sec. 163.5(i). While Customs may audit or review the 
electronic recordkeeping systems of an importer to determine 
compliance, it may not make review a prerequisite to the establishment 
of an electronic recordkeeping system.
    2. The last sentence should be reworded to read as follows: ``If 
the applicable director of the regulatory audit field office needs 
additional information on the alternative method of storage, or 
disapproves of the method proposed, he or she will contact the 
requesting party within 30 calendar days of receipt; if not, the 
request is deemed approved.'' The reason for this suggested change is 
that the regulations as proposed could cause hundreds or thousands of 
parties to contact regulatory audit seeking approval of their proposed 
methods and, given the standards in proposed Sec. 163.5(c), such 
requests could be voluminous. In order to ease the burden on Customs 
and the importing public, Customs needs to adopt a set of standards and 
guidelines and then allow parties subject to recordkeeping requirements 
to establish programs that meet those standards and guidelines, and 
acceptance of the proposed method would be assumed unless some 
information is missing or there are serious flaws in the proposal. This 
commenter argued that this approach is consistent with ``informed 
compliance'' in that Customs would provide the information and set the 
standards and recordkeepers would have to establish programs to comply. 
In addition, Customs can periodically check to ensure that the 
recordkeeper is continuing to follow the standards, with authority to 
impose sanctions or hold the recordkeeper to a corrective action plan 
if the standards are not being followed.
    3. In the case of customs brokers, the requirement for ``approval'' 
is unnecessary. A more enlightened and reasonable approach can be found 
in the Department of Commerce regulations at 15 C.F.R. 762.5 which 
requires neither notice to, nor advance approval by, the Department of 
Commerce but rather sets forth the requirements for which compliance is 
expected, and the same should be true for Customs. If a broker cannot 
produce the ``original'' or a ``copy'' of a document, which it is 
required to maintain under Sec. 111.21, it is in violation of 19 U.S.C. 
1641 and is subject to a penalty. The fact that a broker received 
permission from Customs to make copies using a particular method will 
not aid the broker when it cannot produce a requested record.
    4. There should be provision for grandfathering-in existing 
programs for alternative record storage methods that meet the standards 
of these regulations.
    Customs response: Customs does not entirely agree with the comment 
made at point 1 above. In order to capture or encompass all possible 
records, section 508(a) had to refer to ``electronically generated or 
machine readable data'' along with other possible documents and 
information. This does not per se constitute an approval of those 
formats, nor does it constitute express authority to alter original 
paper documents, records or information into such formats; it is merely 
a recognition of existing data technology rather than an expression of 
an unencumbered right regarding records maintenance methodology. 
However, as stated above in connection with Sec. 163.5(a), Customs does 
agree that, as a general principle, advance review and approval by 
Customs should not be a prerequisite of alternative storage methods. In 
order to accommodate this principle and also enhance the clarity of the 
proposed text, Sec. 163.5, as set forth below, reflects the following 
modifications in structure and content:
    a. It is noted that, with the exception of paragraph (a) which sets 
forth the basic rule regarding maintenance of original records, the 
text of proposed Sec. 163.5 (that is, paragraphs (b) through (j)) 
related entirely to alternative records storage which operates as an 
exception to the paragraph (a) rule. In order to more clearly reflect 
the relationship between these provisions, Sec. 163.5 has been 
reorganized into two paragraphs, with paragraph (a) corresponding to 
proposed paragraph (a) and with paragraph (b) entitled ``alternative 
method of storage'' and covering the remainder of proposed Sec. 163.5 
but with a number of additional substantive changes as noted below.
    b. Paragraph (b)(1) corresponds to proposed paragraph (b) and thus 
sets forth general provisions regarding alternative storage methods. 
The modified text, except in the case of records required to be 
maintained as original records under laws and regulations administered 
by other Federal government agencies (which requirements may not be 
obviated by the Customs Regulations), (1) allows use of an alternative 
method for records storage so long as the recordkeeper provides written 
notification thereof to the Miami regulatory audit field office 
(Customs believes that a single, centralized location should be used 
for this purpose and that it should be the Miami office, for the same 
reasons stated above as regards notification of consolidation of broker 
records under Sec. 111.23) at least 30 calendar days before 
implementation of the alternative method, (2) provides that the written 
notice must identify the type of alternative storage method to be used 
and must state that the alternative storage method complies with the 
standards of paragraph (b)(2), and (3) provides for an exception to 
alternative storage under certain circumstances if Customs at any time 
instructs the recordkeeper in writing that records described therein 
must be maintained as original records (this exception is necessary, 
for example, to ensure consistency in the form, identification and 
custody of records and could be applied whenever the records are 
relevant to an ongoing inquiry or investigation or administrative or 
judicial proceeding). Thus, there is no longer any reference to a 
formal request and approval process, and the reference to the location 
of a recordkeeping officer has been eliminated (see the changes 
reflected in new paragraph (b)(2) as discussed below in connection with 
the comments on proposed Sec. 163.5(c)).
    c. As a consequence of the removal of the request/approval process 
and based on a further internal review of the proposed texts, Customs 
believes that it is neither necessary nor appropriate to retain the 
following paragraphs of proposed Sec. 163.5: (1) proposed paragraph 
(e), which concerned retrievability of records and is adequately 
covered by Sec. 163.6; (2) proposed paragraph (g), which concerned 
notification of noncompliance with the agreed-upon alternative storage 
method and is no longer necessary since there will be no such specific 
agreement between Customs and the recordkeeper; (3) proposed paragraph 
(i), which concerned revocation of the alternative storage method 
privilege and thus is no longer relevant; and (4) proposed paragraph 
(j), which concerned appeal procedures for denial or revocation of the 
alternative storage method privilege and thus also is no longer 
relevant. As a result of the removal of these four proposed paragraphs 
and the

[[Page 32933]]

reorganization of Sec. 163.5 as discussed above, proposed paragraphs 
(f) and (h) have been redesignated as paragraphs (b)(3) and (b)(4) and, 
for purposes of consistency with the notice procedures under modified 
paragraph (b)(1) as discussed above, the new paragraph (b)(3) text as 
set forth below has been modified to provide that notice of changes to 
alternative recordkeeping procedures must be given to the Director of 
the Miami regulatory audit field office. In addition, as a consequence 
of the removal of the request/approval process, newly designated 
paragraph (b)(4) has been modified as set forth below by the removal of 
all references to requesting, granting and revoking alternative storage 
method privileges. See also the below discussion of the comments on 
proposed Sec. 163.5(c) for the treatment in this document of proposed 
paragraphs (c) and (d). Finally, a new paragraph (b)(5) has been added 
to provide that Customs may instruct a recordkeeper in writing to 
discontinue its use of an alternative storage method if the 
recordkeeper fails to comply with the conditions and requirements for 
alternative storage set forth in Sec. 163.5 (this new paragraph is 
addressed in more detail below in the comment discussion regarding 
proposed Sec. 163.5(i)).
    The substance of the comments made in points 2, 3, and 4 above have 
been addressed by the changes described above.

Section 163.5(c)--Standards for Alternative Storage Methods

    Comment: Seven commenters made general observations regarding the 
approach of proposed Sec. 163.5(c) which provides examples of commonly 
used methods for storage of records, sets forth a general rule 
regarding what storage methods will satisfy Customs requirements, and 
prescribes minimum standards that Customs will consider in evaluating 
proposals for alternative storage methods. The points made by these 
commenters were as follows:
    1. One commenter stated that the examples of storage methods in the 
first sentence of the introductory text of the section should be 
expanded to include disc access storage devices (DASD) used for the 
capture and storage of electronic transmissions, image storage devices 
such as CD ROM juke boxes, voice recordings and full motion video in 
computerized files.
    2. One commenter stated that the Sec. 163.5(c) standards are too 
intrusive in that they impose on private industry new sets of 
procedures regarding business records. This commenter argued that since 
companies regularly undergo independent financial audits that test 
business record integrity and because the Mod Act was not intended to 
hinge industry efficiencies on the good graces of Customs, importers 
should not need Customs approval to use alternative storage techniques 
for records kept in the ordinary course of business.
    3. Four commenters objected to the minimum standards that Customs 
will use to evaluate alternative storage proposals, arguing that the 
proposed regulatory standards are too detailed and burdensome, are not 
achievable by the great majority of importers and thus will discourage 
use of alternative storage methods, are difficult to understand and 
follow, and will lead Customs to micro manage the recordkeeping 
programs of importing parties. Three of these commenters further 
questioned whether Customs would have the resources necessary to manage 
such alternative recordkeeping standards, and two of these commenters 
also noted that Customs has permitted alternative methods or storage in 
the past without imposing ``minimum standards'' and without major 
problems arising therefrom. In order to address these problems, one of 
the four commenters specifically recommended removal of the last 
sentence of the introductory text of the section and removal of 
subparagraphs (1) through (12) and inclusion of the substance of 
subparagraph (13) as a second unnumbered paragraph, arguing that the 
resulting text would represent a concise summary of the recordkeeping 
program requirements for which no further detail is required.
    4. One commenter argued, with specific reference to customs 
brokers, that some of the ``minimum standards'' (i.e., subparagraph (9) 
regarding segregation of duties and subparagraph (11) regarding 
continuing surveillance over the medium transfer system), while well 
suited to the handling and storage of ``top secret'' documents, are 
largely inapplicable to a broker's customs records.
    Customs response:
    1. Customs disagrees. The specific storage methods listed are 
intended to be illustrative rather exhaustive; therefore, Customs sees 
no reason to add to that list. However, language has been added to the 
first sentence of the text (redesignated as paragraph (b)(2) as set 
forth below as part of the structural changes to Sec. 163.5 discussed 
above in connection with the comments regarding proposed Sec. 163.5(b)) 
to clarify that the listed items are not all-inclusive.
    2. Customs disagrees, except as regards the issue of needing 
Customs approval as already discussed above in connection with proposed 
Sec. 163.5(b). It is noted that alternative storage is voluntary and 
not a requirement. Furthermore, alternative storage is concerned with 
only those records involving Customs matters and accordingly does not 
impose any additional burden on business as regards other records.
    3. Based on these comments and the comments below regarding 
individual standards for alternative storage methods (proposed 
paragraphs (c)(1)-(13)), and as a result of further internal review of 
the proposed paragraph (c) text, Customs has determined that a number 
of additional changes should be made to the text of proposed paragraph 
(c) of Sec. 163.5. These changes, as reflected in the text of 
redesignated paragraph (b)(2) set forth below, are as follows:
    a. In the last sentence of the introductory text of the paragraph, 
the reference to minimum standards that will be considered by Customs 
in evaluating proposals for alternative storage methods has been 
replaced by a reference to standards that must be applied by 
recordkeepers when using alternative storage methods, in order to 
reflect the decision discussed above to do away with the requirement 
for advance review and approval by Customs.
    b. In order to simplify the procedures to be followed by, and thus 
reduce the burden on, recordkeepers who choose to use alternative 
storage methods, and in other cases in order to reduce the complexity 
of the text where the proposed text in effect added nothing of 
substance to the basic obligation to maintain records and make them 
available to Customs, the following provisions that were contained in 
proposed paragraph (c) have been entirely eliminated from new paragraph 
(b)(2) as set forth below: Subparagraph (1), which concerned 
recordkeeping officer designation; subparagraph (4), which concerned 
documentation of data retention and transfer procedures; subparagraph 
(5), which referred to a data transfer audit trail; subparagraph (6), 
which provided for the integrity and nonerasability of the storage 
medium; subparagraph (7), which concerned the maintenance of papers 
regarding the transfer process; subparagraph (9), which concerned 
internal control systems covering persons responsible for maintaining, 
producing or transferring records; subparagraph (11), which concerned 
medium transfer system surveillance and availability of

[[Page 32934]]

internal review files; and subparagraph (12), which concerned 
procedures for preventing the destruction of hard copy records.
    c. Proposed paragraphs (c)(2) and (c)(3) have been combined and 
redesignated as paragraph (b)(2)(i), and the new text no longer 
contains the proposed provisions concerning documentation of the 
electronic media used and life cycle and disposition procedures, 
certification regarding documents required by other agencies, and 
showing that the medium to which the transfer will occur is reliable. 
In addition, in the provision regarding having in place operational and 
written procedures ``to ensure that the imaging and/or other media 
storage process preserves the integrity, readability, and security of 
the original records'', the words ``the information contained in'' have 
been added before ``the original records'' in order to clarify that in 
an alternative storage context the standard relates to what is 
alternatively stored.
    d. Proposed paragraph (c)(8) has been redesignated as paragraph 
(b)(2)(ii) and the text has been modified to simply provide for an 
effective labeling, naming, filing, and indexing system (thus, the 
references to permitting easy retrieval in a timely manner and to where 
the finding aids must be located have been eliminated).
    e. Proposed paragraph (c)(10) has been divided into two new 
paragraphs (b)(2)(iii) and (b)(2)(iv) which incorporate the following 
changes to the proposed paragraph (c)(10) text: (1) in new paragraph 
(b)(2)(iii), the requirement for maintenance of all original records 
for a minimum of one year after the date of transfer has been replaced 
by a requirement for maintenance of entry records (except packing lists 
which, under Sec. 163.4(b)(2), do not have to be retained in any format 
beyond 60 calendar days) in their original formats for 120 calendar 
days, with the start of the 120-day period determined in the same 
manner as in the case of that 60-day packing list retention period; and 
(2) new paragraph (b)(2)(iv) merely provides that an internal testing 
of the system must be performed on a yearly basis (thus, the new text 
eliminates the quarterly testing standard and the prohibition against 
destruction of original records after one year in the absence of proof 
of accurate transfer of records).
    f. Proposed paragraph (c)(13) has been redesignated as paragraph 
(b)(2)(v) and the text has been modified by removing the reference to 
parties who requested and were granted permission to use alternative 
storage methods.
    g. Finally, proposed paragraph (d) has been moved into paragraph 
(b) as paragraph (b)(2)(vi) and the text has been modified as follows: 
(1) the reference to parties who requested and were granted permission 
to use alternative storage methods has been eliminated; and (2) the 
requirement for retaining and keeping available two copies of the 
records on approved media at different locations has been replaced by a 
requirement for retaining and keeping available one working copy and 
one back-up copy stored in a secure location.
    4. The changes to the proposed texts discussed under point 3 above 
effectively address the substance of this comment.

Section 163.5(c)(1)--Recordkeeping Officer and Back-Up Officer

    Comment: The requirement to designate a recordkeeping officer and a 
back-up officer should not apply to customs brokers who are licensed 
and thus should be aware of their obligations regarding recordkeeping.
    Customs response: The substance of this comment has been addressed 
by the changes made to proposed Sec. 163.5(c) as discussed above.

Section 163.5(c)(2)--Operational and Written Procedures

    Comment: A commenter stated that the purpose and intent of the 
second sentence of this proposed section is unclear, asking in this 
regard whether it is intended to require that other agency documents 
required for Customs purposes be stored using the same procedures, or 
whether it is intended to require that every recordkeeper in every 
department of a corporation keep records using exactly the same 
software, hardware and procedures. This commenter argued that if the 
latter is the intent, the requirement is unreasonable and will prevent 
any corporation of significant size from using an alternative storage 
process.
    Customs response: The substance of this comment has been addressed 
by the changes made to proposed Sec. 163.5(c) as discussed above.

Section 163.5(c)(6)--Integrity of the Storage Medium

    Comment: A commenter noted that during the life cycle of a document 
management program, documents and data hopefully will evolve as time 
passes from on-line to near-line and ultimately to tape storage, and 
current documents and data will be kept on-line for quick access. This 
commenter stated that proposed Sec. 163.5(c)(6) seems to provide that 
hard-drive disk space cannot be reused when documents or data are moved 
to tape storage and that, if so, the requirement is unacceptable and 
unnecessary. This commenter questioned why Customs cares what happens 
to the medium if the recordkeeper has a process in place to ensure that 
the documents or data are not destroyed, discarded or written over.
    Customs response: The substance of this comment has been addressed 
by the changes made to proposed Sec. 163.5(c) as discussed above.

Section 163.5(c)(10)--One-Year Retention of Original Records

    Comment: Ten comments were submitted on proposed Sec. 163.5(c)(10) 
which provides that all original records be maintained for a minimum of 
one year after the date of transfer, that internal sampling-exception-
reporting/testing of accuracy and readability must be performed on a 
quarterly basis, and that no original records will be destroyed after a 
year unless there is acceptable proof that the records are being 
accurately transferred. The comments concerned primarily the 1-year 
retention requirement and all commenters were opposed to the 
requirement which they felt was excessively long, commercially 
unrealistic, unnecessary, burdensome, costly, redundant and 
unreasonable and thus should be removed. The following additional 
arguments were made by these commenters in opposition to the proposed 
provision:
    1. If a failure to comply with recordkeeping requirements should 
arise, Customs and the courts can impose penalties for failure to 
maintain or produce records, and these avenues would seem to provide 
Customs with more than adequate protection.
    2. If the internal sampling-exception-reporting/testing of accuracy 
and readability are performed, the records should be eligible for 
destruction immediately after capture or at most after a 30-day 
retention period.
    3. It is not possible to comply with this provision as written. 
Almost all forms of media can be destroyed. The requirements for 
alternative media should be no more restrictive than for the media 
being copied (paper).
    4. There will always be, at a minimum, at least three copies of the 
records available to Customs: the first copy will be records stored by 
the alternative storage medium; the second copy will be the back up of 
the alternative storage system; and the third copy will be the copy 
maintained by the broker. Thus, there is no value in requiring the 
importer to maintain the

[[Page 32935]]

hard copy version of the records when alternative storage media are 
employed.
    5. The requirement to test accuracy and readability on a quarterly 
basis will also be burdensome to the trade. If the approved system is 
reliable, a year-end check will suffice.
    6. The guidelines and standards presented in Sec. 163.5 provide 
stringent procedures for alternate storage methods in order to meet the 
expectations of Customs, and those guidelines and standards should be 
sufficient so as to obviate the redundant requirement of maintaining 
the original records, the cost of which would be (for this one 
commenter) approximately $32,000 per year. Therefore, Sec. 163.5(c)(10) 
should be revised to read as follows: ``Upon receiving written approval 
for alternate storage methods by the director of the regulatory audit 
field office, original documents are not required to be maintained once 
the transfer process has been successfully completed. Quarterly 
sampling, exception reporting and testing of accuracy and readability 
must be performed and documented.''
    7. There should be no requirement to maintain paper documents in 
addition to electronic records because: (1) section 637 of the Mod Act 
states that electronic transmission of data must be certified by the 
importer of record as to its accuracy and truth and thus each certified 
transmission is as binding, and has the same force and effect, as a 
signed paper document; (2) the proposed section assumes that paper 
documents are the basis for all business transactions, but this is not 
the case; and (3) if the purpose of maintaining hard copies is to 
ensure that the electronic records are backed up, there are already 
sufficient back-up procedures in that under Sec. 163.5(c)(13) there 
must be a capability to make hard copies and under Sec. 163.5(d) two 
copies of the records must be maintained in two separate locations.
    8. If an electronic image of an invoice is satisfactory for Customs 
purposes 366 days after the transfer from paper, then it should be 
acceptable even one day after transfer.
    9. If the purpose of the 1-year document retention requirement is 
to permit quarterly testing and sampling, the requirement is 
inappropriate. In a professionally managed imaging process, documents 
are checked for quality more frequently than once a quarter. Typically, 
one out of ten documents is checked for quality during the scanning 
process so that, if a quality problem exists, no more than ten 
documents need to be rescanned.
    10. If the regulatory provision at issue cannot be deleted in its 
entirety, it should at least be modified to permit the destruction of 
paper documents sooner for those importers who exceed the quarterly 
quality testing standard.
    Customs response: The concerns reflected in these comments have 
been largely addressed by the changes made to proposed Sec. 163.5(c) as 
discussed above.

Section 163.5(d)--Retention of Approved Media Records

    Comment: Three commenters objected to proposed Sec. 163.5(d) which 
provides that parties who were granted permission to use alternative 
storage methods shall retain and keep available two copies of the 
records/information on approved media at different locations. One of 
these commenters stated that the requirement is too intrusive, another 
commenter questioned the need to retain two copies in a paperless 
environment, and the third commenter alleged that the proposed 
provision is so burdensome that it will discourage customs brokers from 
electing to use alternative storage methods.
    Customs response: The changes to the text of proposed Sec. 163.5(d) 
(redesignated as Sec. 163.5(b)(2)(vi) as set forth below) that are 
discussed above in connection with Sec. 163.5(c) include removal of the 
requirement to retain copies at different locations. As regards the 
requirement to retain two copies, Customs believes that retention of a 
working copy and a back-up thereof is essential and consistent with 
prudent business practice.

Section 163.5(e)--Retrievability of Records

    Comment: One comment was received in regard to that portion of 
proposed Sec. 163.5(e) that provides that a ``certified hardcopy'' may 
be used when information is received and stored electronically for 
Customs requests for information. This commenter argued that this 
requirement is unreasonable because electronically-stored data is now 
printed out in hard copy from mainframe systems every day for Customs 
without certification being required, noting that Customs will have the 
same remedies it now has (i.e., penalties, rate advances, 
investigations) if the hard copy provided to Customs is incorrect. The 
commenter also complained that the regulations do not set forth the 
certification process and objected that any such process will add to 
the expense of producing hard copies.
    Customs response: The elimination of proposed Sec. 163.5(e), as 
discussed above in connection with the comments on Sec. 163.5(b), 
effectively addresses this comment.
    Comment: Three commenters objected to the last sentence of proposed 
Sec. 163.5(e) that provides that records shall be kept of the frequency 
and to whom copies of the records were given. The points made by these 
commenters were as follows:
    1. The provision could be interpreted to mean that a separate 
tracking and measuring system must be maintained. Typically, a customs 
broker receives numerous and multiple requests for records from the 
importer and/or Customs, and some requests are as simple as asking for 
a copy of the import invoice to enable the importer to place the 
broker's bill in line for payment. To maintain a separate tracking 
system outside of an entry summary notation system for this type of 
request is onerous and not economically justifiable and is an 
unnecessary level of detail.
    2. The reason or rationale for this requirement should be 
explained. There is no such requirement for paper documents and, 
clearly, it would be extremely burdensome and costly to the 
recordkeeper with no apparent benefit to Customs or anyone else.
    3. The requirement does not seem to have any usefulness to any 
parties and would be excessively burdensome, particularly on customs 
brokers operating from multiple locations. Customs should only be 
interested in obtaining the documents it seeks in a timely manner. A 
confidentiality requirement in the case of brokers already exists in 
Sec. 111.24.
    Customs response: Again, the elimination of proposed Sec. 163.5(e) 
effectively addresses these comments.

Section 163.5(f)--Changes to Alternate Storage Procedures

    Comment: It is unreasonable to require the approval of Customs 
before making any changes to the alternative recordkeeping procedures, 
and Customs will end up micro managing every one of these programs 
without having the requisite resources for doing this. Significant 
changes should be reported to Customs but, while it might be preferable 
to report the changes before implementation, realistically there will 
be times when this will not occur (what will happen when an importer 
must make a change to ensure continued compliance, but Customs cannot 
respond in a timely manner?). In the past, Customs tried to impose the 
same type of procedure in the Foreign Trade Zone Procedure Manual and 
found that it could not review and approve changes in a timely or 
effective manner; as a result, the requirement was changed to provide 
that the zone operator keep an

[[Page 32936]]

up-to-date manual available for Customs review. This is a more 
practical and realistic approach.
    Customs response: Customs agrees with regard to the issue of 
advance Customs approval of changes, for the same reason that Customs 
has agreed that initial advance approval of the use of alternative 
recordkeeping methods is not necessary. However, as in the case of an 
initial decision to use alternative storage methods, Customs believes 
that advance notice to Customs is necessary when a change in 
alternative storage procedures is made. Accordingly, the proposed 
regulatory text (redesignated in this document as Sec. 163.5(b)(3) as 
discussed above) has been modified to require written notification of 
the change at least 30 calendar days before implementation of the 
change.

Section 163.5(g)--Notification of Noncompliance

    Comment: Five comments were received on proposed Sec. 163.5(g) 
which provides that written notification of noncompliance with the 
agreed upon alternative storage methods must be made to Customs within 
10 business days and that the notification must detail what corrective 
action will take place. The points made by these commenters were as 
follows:
    1. This regulation makes little sense in light of the fact that 
proposed Sec. 163.5(f) will prove to be unworkable (viz. the above 
comment on that section). Customs will be unable to approve every 
change to these programs, and the burden on even the most diligent 
recordkeeper will be wholly out of proportion to the benefit to be 
derived by Customs. Customs and importers only are interested in the 
failure to produce documents or data requested by Customs, and the 
mission of Customs is to protect the revenue and ensure compliance with 
the laws enacted by Congress. The proposed regulation creates an 
unnecessarily stringent requirement which will likely result in 
unnecessary disputes over whether notification was required in certain 
situations and which will simply result in a waste of the resources of 
importers and Customs without a counterbalancing benefit to either 
side.
    2. The absolute requirement of notification to Customs regarding 
noncompliance gives rise to the concern that Customs is conceivably 
requiring self-incrimination for criminal violations.
    3. The 10-day requirement for notification to Customs is 
unnecessarily short because, regardless of the time period specified 
for notification, none of the newly generated records will be destroyed 
since original records are to be maintained for at least one year under 
proposed Sec. 163.5(c)(10). Since it may take much longer than ten days 
to find out the scope of the problem and to determine what corrective 
action to take, thirty (30) days would be a more appropriate time 
period.
    4. Two commenters stated that the required notification period 
should run from the ``date of discovery'' by the recordkeeper.
    Customs response: The elimination of proposed Sec. 163.5(g), as 
discussed above in connection with the comments on Sec. 163.5(b), 
effectively addresses these comments.

Section 163.5(i)--Revocation of Privilege To Maintain Alternative 
Records

    Comment: Two comments were received on proposed Sec. 163.5(i) which 
provides for revocation of the privilege to use alternative storage 
methods for failure to meet regulatory conditions and requirements, 
states that the revocation is effective on the date of issuance of the 
written notice of revocation and shall remain in effect pending any 
appeal, and in the last sentence provides that revocation requires the 
party immediately to begin to maintain original records and subjects 
the party to penalties under Sec. 163.6 for failure to do so. The 
points made by these commenters were as follows:
    1. Taking a recordkeeper off the alternative method of storage 
pending appeal is too restrictive and gives too much authority to a 
field officer (the applicable regulatory audit field office director). 
Customs should decide on a case-by-case basis whether the recordkeeper 
should be taken off the program pending appeal and the decision to do 
so should be made at Customs Headquarters, because often these are 
nationwide programs involving tremendous investment.
    2. With regard to the last sentence of the proposed text, proposed 
Sec. 163.5(c)(10) already requires the maintenance of (original) 
records. Since the effect of revocation will be to deny a party the 
right to destroy records in favor of the alternative method of storage, 
the last sentence should be revised to read as follows: ``Revocation 
requires the party immediately to cease to destroy original records and 
will subject such person to penalties provided for in Sec. 163.6 for 
failure to do so.''
    Customs response: While the elimination of proposed paragraph (i) 
of Sec. 163.5, as discussed above, renders moot some of the specific 
points made by these commenters, Customs believes that there must be 
provision for preventing a recordkeeper from continuing to use 
alternative storage procedures when the recordkeeper has failed to 
comply with the regulatory standards for alternative storage, because 
those regulatory standards have ongoing, rather than only initial, 
relevance; new paragraph (b)(5) of Sec. 163.5 as mentioned above was 
added for this specific purpose. The new paragraph (b)(5) text uses the 
word ``may'' in order to ensure that written instructions to 
discontinue alternative storage are issued on a case-by-case basis. 
However, Customs remains of the view that any appropriate Customs 
office should have authority to make the determination as to whether 
such an instruction is necessary, similar to the procedure reflected in 
the modified paragraph (b)(1) text discussed above and set forth below. 
The new text does not set forth an appeal procedure but rather refers 
to the availability of a more direct and expeditious procedure (that 
is, the recordkeeper may give to Customs the 30-day notification of 
[re-]initiation of alternative storage under paragraph (b)(1) once the 
noncompliance situation has been rectified). As regards the last 
comment, Customs believes that neither the proposed text nor the 
replacement text suggested by the commenter is necessary.

Section 163.6(a)(1)--Production of Entry Records

    Comment: Ten commenters made observations on proposed 
Sec. 163.6(a)(1) which provides for written, oral, or electronic 
requests by Customs for entry records, requires a written follow-up to 
an oral request, provides for timely production of such records taking 
into consideration the number, type and age of the item, sets forth a 
table containing guidelines as to the maximum time Customs expects to 
wait for the records (maximum period in business days, with reference 
to the age of the entry/entry summary), and provides for the 
recordkeeper to notify Customs if the recordkeeper believes that he 
will not be able to meet the applicable production time period. All of 
the commenters were concerned with the effect of the time limits on a 
recordkeeper's ability to properly comply with a Customs request for 
records. The various specific points made by these commenters were as 
follows:
    1. While the time periods specified in the table for producing 
records might be suitable in the case of requests for single records or 
small numbers of records, a large volume of records would require

[[Page 32937]]

more time to produce; thus, the time periods set forth in the table, 
which are tied to the date of the entry/entry summary, are not suitable 
when large numbers of records are involved. One commenter suggested 
that large requests will increase as Customs moves toward an audit 
basis of review and gave, as an example, a request for all files for a 
specific product over a period of several years, which could involve 
generating a program to search for particular files and printing a list 
of those files and identifying them with entry numbers and file numbers 
and then going to several locations to pull the information, possibly 
involving hundreds of files.
    2. Although the timetable set forth in the table is characterized 
in the regulatory text as ``general guidelines'', experience shows that 
this table would be treated by Customs field officers as a mandatory 
and inflexible rule.
    3. In the case of an entry/entry summary not more than one month 
old, the 5-day period for producing a record is not enough time because 
in the case of mailed written requests the postal delivery/receipt 
process will consume most or all of that time. Also, the proposed 
regulatory text is unclear as to whether the requested records must be 
merely sent to, or be actually received by, Customs within the 5-day 
period.
    4. Where a request is made orally, the text should state (1) that 
the oral request ``must'' (rather than ``will'') be followed by a 
written request and (2) that the time period for producing the record 
runs from the date of the written request as is the current practice 
with Customs Forms 28 and 29.
    5. Customs brokers in many instances receive requests for records 
covering a year or more without reference to particular entry numbers 
(e.g., a request for copies of all entries filed by an importer during 
a particular time period), and brokers may also receive requests from 
several Customs sources at the same time. Thus, guidelines are needed 
to grant brokers substantially more time than the periods set forth in 
the proposed regulation.
    In addition, the following specific recommendations were made by 
some of these commenters to address the general points made above:
    a. The fourth sentence of the text and the table should be removed.
    b. A uniform production date of 30 days should be established for 
all documents except where extenuating circumstances require a shorter 
or longer period.
    c. The word ``maximum'' in the second column of the table should be 
changed to read ``suggested''.
    d. The word ``maximum'' in the second column of the table should be 
changed to read ``normal''.
    e. The word ``maximum'' in the fourth sentence of the text and in 
the second column of the table should be changed to read ``expected''.
    f. Increase the 5-day period in the table to ten days.
    g. If the 5-day period in the table is to be retained, it should 
run from the date a properly addressed request is received, and a 
minimum of three days should be added to effect a response to a request 
delivered by mail.
    Customs response: 1. Customs agrees with the substance of this 
comment and therefore has modified the proposed text (redesignated in 
this document as paragraph (a) of Sec. 163.6 as a result of the removal 
of proposed paragraph (a)(2) as discussed below) as follows: (1) by 
removing the table at the end; (2) by specifying in the text a general 
30-day maximum period for the production of the records unless Customs 
prescribes a shorter period when the records are needed in connection 
with a determination regarding the release or admissibility of 
merchandise; and (3) by replacing the last sentence (regarding written 
notice of an inability to meet the record production deadline) with a 
text setting forth a procedure whereby a recordkeeper may make a 
written or electronic request for approval of an additional period of 
time to produce the entry records if the recordkeeper encounters a 
problem in timely complying with the demand, which Customs would either 
approve or deny based on the circumstances of the individual case. It 
should be noted that in a case involving an admissibility or release 
issue, a failure to produce the records within the period set by 
Customs may result in a refusal by Customs to release the merchandise 
(or issuance of a demand for return to Customs custody if release has 
taken place). Moreover, it should be noted that, under the modified 
text, the mere act of submitting a request to Customs for additional 
time to produce entry records would preclude the imposition of monetary 
penalties or other lawful sanctions for failure to comply with the 
original demand only if the request for additional time is approved by 
Customs. Finally, the word ``demand'' has been inserted in place of 
``request'' throughout the paragraph (a) text in order to align on the 
terminology used in the statute in the case of entry records.
    Customs believes that the general 30-day response time, coupled 
with the opportunity to obtain additional time to produce the entry 
records if such additional time is warranted by the circumstances, 
provides a more appropriate framework for the flexible approach that 
Congress had in mind when the section 509 amendments were enacted, in 
particular as regards the requirement in section 509(a)(1)(A) to 
produce an entry record ``within a reasonable time after demand for its 
production is made, taking into consideration the number, type, and age 
of the item demanded.'' In this regard, Customs notes the following 
statement contained in the relevant legislative history (H. Rep. 103-
361, 103d Cong., 1st Sess., at 116):

    The Committee believes that the statute is relatively clear on 
how factors such as ``number, type, and age of the item demanded'' 
will impact on the obligation to produce. A single request for a 
single page document associated with a six-month old entry should be 
produced within a matter of days. In contrast, the production of 50 
commercial invoices from an equal number of entries that were filed 
more than two years preceding the date of the demand obviously will 
take longer to produce, and may take as much as two to four weeks, 
depending on whether the records had to be retrieved from storage 
and the method of storage. Again, if the Informed Compliance Program 
works as the Committee intends, the Customs Service and the 
importing public should be able to develop document production 
schedules that do not impact adversely on the current business at 
hand, but at the same time permit the Customs Service to verify the 
accuracy of information directly related to one or more import 
transactions.

    It is expected that, as a result of experience gained while working 
with the trade in applying the modified Sec. 163.1(a) text discussed 
above and set forth below, Customs will be able to develop more 
detailed guidelines for inclusion in an appropriate informed compliance 
publication to further assist the public in this area.
    2 and 3. The elimination of the table and the adoption of the 30-
day period, as discussed above, effectively addresses these comments.
    4. Customs agrees with the first point and has replaced ``will'' by 
``shall'' to clarify the mandatory nature of the text. Customs 
disagrees with the second point because the date of initial 
communication of the demand (whether oral or otherwise) should control. 
In addition, the text has been modified to permit an ``electronic'' 
demand as a follow-up to an oral demand.
    5. Customs believes that the concerns reflected in this comment 
have been addressed by the revised text as discussed above and set 
forth below.
    Finally, Customs believes that the changes to the text discussed 
above and reflected below effectively address the

[[Page 32938]]

specific recommendations made by these commenters.

Section 163.6(a)(2)--Previously Requested Records

    Comment: Four comments were received on proposed Sec. 163.6(a)(2) 
which concerns requests for records that include records previously 
requested and provided to Customs and which requires that a 
recordkeeper provide specific information regarding the record 
previously requested and provided. The points made by these commenters 
were as follows:
    1. The word ``entry'' must be added to the text to modify the words 
``record'' and ``records''.
    2. The regulatory text should make clear that entry records 
previously filed with Customs, irrespective of whether they were 
specifically requested, are exempt from the new production request.
    3. One commenter stated that the text needs to be restructured 
because, although it requires the recordkeeper to provide a copy of the 
Customs notice letter pertaining to the previous request, the beginning 
of the text does not specify that the request by Customs must be in 
writing. Three commenters argued that this provision places an 
unnecessary burden on importers (including the need to review all 
requests to see if a particular requested record had been previously 
provided) and that the recordkeeper should not be required to ensure 
that Customs coordinates effectively by providing Customs with a copy 
of the letter which originally requested the record or the date it was 
provided to Customs: the name and address of the Customs officer to 
whom the record was provided should suffice.
    Customs response: 1 and 3. Based on the comments received and as a 
result of further internal review of the proposed texts, Customs agrees 
that paragraph (a)(2) of proposed Sec. 163.6 is overly burdensome and 
should be removed, and Sec. 163.6 as set forth below has been modified 
accordingly. Thus, the textual changes suggested by these commenters 
have been rendered moot by the removal of the paragraph.
    2. Notwithstanding the removal of proposed paragraph (a)(2) as 
discussed above, Customs must emphasize its disagreement with the 
statement of this commenter. Entry records previously filed but 
returned by Customs to the broker/importer are not exempt from the 
production requirement. Moreover, whereas penalties under section 
509(g) for a failure to produce demanded entry records may be avoided 
if the records were presented to and retained by Customs at the time of 
entry or were submitted to Customs in response to an earlier demand, 
the avoidance of penalties does not affect the basic statutory 
requirement to produce demanded entry records and Customs has other 
enforcement tools that may be used in cases where section 509(g) 
penalties are not applicable.

Section 163.6(b)--Penalties for Failure To Maintain or Produce Entry 
Records

    Comment: Three commenters submitted observations on this proposed 
section. The points made by these commenters were as follows:
    1. The word ``entry'' should modify the word ``record'' throughout 
the text since that is the term of reference, and the reference to 
``paragraph (b)(2)'' in paragraph (b)(1) should read ``paragraph 
(b)(4)''.
    2. The final regulations should confirm (1) that (a)(1)(A) list 
records are the only documents whose nonproduction can result in 
Sec. 163.6 penalties, (2) that importers of record (or designated 
recordkeepers) are the only persons required to maintain (a)(1)(A) list 
documents, and (3) that importers of record (or designated 
recordkeepers) are the only persons who can be subjected to Sec. 163.6 
penalties.
    3. Sliding scale guidelines are needed in this area. For example, 
if a document is insignificant and satisfactory information can be 
provided by other means to satisfy the production requirement, there 
should be no penalty.
    4. There is a danger that Customs officers will construe this 
proposed section as a license to assess the maximum penalties specified 
by law whenever (a)(1)(A) list documents are not produced within the 
time periods specified in Sec. 163.6(a), including in instances in 
which a failure to comply with a lawful request for documents resulted 
from non-negligent inadvertence, including a failure on the part of 
Customs to notify the person in the company primarily responsible for 
recordkeeping and to impress upon the company the importance of the 
request. In order to avoid these problems, before a penalty is assessed 
Customs should establish clearly defined procedures ensuring that the 
demand for documents was properly made and received and that the 
company recognizes the severe consequences of noncompliance; these 
guidelines should be codified in the regulations, and if Customs does 
not follow the specified procedures it should be precluded from 
penalizing a company for failure to produce records in a timely manner. 
In addition, the regulations should provide that any penalties assessed 
will be mitigated to nominal amounts, as specified in the regulations, 
if the records are provided to Customs during the course of the penalty 
proceeding; it is critical for Customs to distinguish situations in 
which the information was not maintained from situations in which the 
required information was maintained but for one reason or another not 
presented to Customs in a timely manner, similar to the way that 
Customs has published guidelines for mitigating ``late filing'' 
penalties.
    5. With regard to proposed paragraph (b)(2) which permits 
reliquidation and denial of special (column 1) rate of duty status for 
an entry liquidated within two years of a demand for a record that was 
not properly produced, one commenter requested that this provision be 
removed and made the following specific observations in this regard: 
(1) the proposed text must be consistent with NAFTA claims since denial 
of NAFTA status requires the United States to adhere to the NAFTA 
Agreement and NAFTA regulations, and Customs recordkeeping requirements 
clearly cannot override U.S. international obligations; and (2) the 
(a)(1)(A) list includes ``GSP declaration (plus supporting 
documentation)'' but without defining the supporting documentation so 
that Customs has total discretion as to the nature of documents 
necessary to support GSP claims, and thus Customs has effectively 
rendered meaningless the liquidation of entries of merchandise at the 
special GSP duty rate.
    6. Also with regard to proposed paragraph (b)(2), a commenter 
referred to a situation in which an entry was liquidated as entered and 
the entered classification did not involve a column 1 special rate of 
duty and, after a demanded record is produced, Customs finds a 
misclassification of the goods; this commenter asked whether Customs 
could reliquidate the entry for the change in classification.
    7. With regard to proposed subparagraph (b)(4)(iv), it is too 
restrictive to provide an exemption from these heavy penalties for just 
the first willful violation because in some cases there can be multiple 
violations arising out of one general negligent act. In addition, 
provision should be made for the volume of records required to be kept, 
with more room for error being given to very large firms with multiple 
locations. Moreover, there should be a time limit allowing renewal of 
exempt status, such as allowing one mistake every year or every two 
years depending on the size of the recordkeeper.

[[Page 32939]]

    Customs response: 1. Customs agrees. The word ``entry'' has been 
added throughout Sec. 163.6(b) and elsewhere in the Part 163 texts as 
set forth below wherever the context clearly relates to entry records, 
and the erroneous reference to paragraph ``(b)(2)'' has been corrected.
    2. Customs disagrees with the suggested changes. The regulations 
already provide for penalties only for nonproduction of entry records. 
Importers of record are not the only parties required to maintain and 
produce entry records, nor are they the only parties who may be subject 
to Sec. 163.6 penalties. Customs does not have the authority to 
promulgate regulations that are inconsistent with the statutory 
requirements.
    3. Customs disagrees. The ``sliding scale guidelines'' are more 
appropriate to mitigation guidelines. As regards the example provided, 
it was reflected in proposed Sec. 163.6(b)(4)(ii) (Sec. 163.6(b)(3)(ii) 
as set forth below) as one of the bases for avoidance of penalties.
    4. The reason for the substantial statutory penalties is to impress 
upon recordkeepers the importance of maintaining and producing records 
and speaks more eloquently to the issue than any narrative attempt by 
Customs. Customs Headquarters will exercise tight control over the 
imposition of recordkeeping penalties and, until Customs gains some 
experience in administering this penalty provision, no such penalty 
will be issued without prior Headquarters review and approval. Customs 
is preparing mitigation guidelines to cover recordkeeping penalties; 
however, Customs does not have authority to promulgate regulations that 
are inconsistent with the basic statutory requirements to maintain 
entry records and produce them pursuant to a demand from Customs. 
Finally, the changes to Sec. 163.6(a) discussed above will eliminate 
much of the source of the concerns reflected in this comment.
    5. Customs agrees that regulations, standing alone, cannot override 
U.S. international obligations, but Customs does not agree that these 
recordkeeping regulations override the NAFTA and the regulations 
thereunder in any respect. Moreover, even if there were a conflict 
between the NAFTA and the Part 163 provisions, the latter would prevail 
to the extent that they reflect the requirements of sections 508 and 
509 (see 19 U.S.C. 3312(a)). As regards the GSP, the Customs 
requirements regarding evidence to support a claim for free entry under 
the GSP are contained in Secs. 10.171-10.178 of the Customs Regulations 
and continue in effect. Neither the Part 163 regulatory texts nor the 
(a)(1)(A) list would have the effect of amending or superseding those 
regulations. The (a)(1)(A) list is merely a convenient summary list of 
existing entry requirements.
    6. Since the record in the example was produced, the provisions of 
Sec. 163.6(b)(2) would not apply. As to whether Customs could 
reliquidate the entry to correct the classification error, it would 
depend on whether the liquidation was final. If it was, the government 
could only collect increased duties pursuant to 19 U.S.C. 1592(d) and 
only if a violation of 19 U.S.C. 1592(a) was involved.
    7. Customs does not agree that the subparagraph is too restrictive, 
and it is noted in this regard that the regulatory text reflects the 
terms of the statute (section 509(g)(7)(A)). Nor does Customs believe 
that a graduated scale should be made for the volume of records 
required to be kept by large firms with multiple locations. It is noted 
that the statute (section 509(a)(1)(B)) provides that a person ``may be 
subject to penalty under subsection (g)'' if the person fails to comply 
with a demand for entry records. The statute and the legislative 
history relating thereto make it clear that imposition of penalties for 
failure to comply with a demand for entry records is discretionary with 
Customs, not mandatory.
    In addition to the changes discussed above, the following changes 
have been made to the text of Sec. 163.6(b) as set forth below:
    a. Paragraphs (2) and (3) have been merged into one paragraph (2), 
with proposed paragraph (2) set forth as subparagraph (2)(i) and titled 
``general'' and proposed paragraph (3) set forth as subparagraph 
(2)(ii) and titled ``exception,'' and proposed paragraphs (4)-(7) have 
consequently been redesignated as paragraphs (3)-(6).
    b. In redesignated subparagraph (3)(iv), which concerns avoidance 
of penalties by persons who participate in the Recordkeeping Compliance 
Program, a reference to being ``generally in compliance with *  *  * 
that program'' has been added to reflect the terms of the statute 
(section 509(g)(7)(A)(ii)).
    c. Redesignated paragraph (6) has been redrafted to more closely 
reflect the terms of the statute (section 509(g)(6)) as regards the 
relationship between the imposition of penalties and the issuance of a 
summons and in order to avoid the impression given by the proposed text 
that the issuance of a summons is in the nature of a sanction.

Section 163.6(c)(2)--Notice of Examination of Records

    Comment: This proposed section states that the notice of intent to 
examine records may be provided ``electronically, orally or in 
writing''. However, when notice is provided orally, provision must be 
made for the oral request to be followed by a written request.
    Customs response: Customs does not agree with this suggestion in 
the case of non-entry records because the need to examine specific 
records under Sec. 163.6(c)(2) could arise during the course of an on-
site inquiry, compliance assessment, audit or investigation, in which 
case the requirement for a written follow-up notice would be 
impractical. However, Customs agrees with the suggestion insofar as 
entry records are concerned because there is no basis under the statute 
for making a distinction in this regard between entry records demanded 
under paragraph (a) and entry records examined under paragraph (c) (see 
the below discussion of the changes that Customs has made to the text 
of Sec. 163.6(c)(2)).
    Based on a further internal review of the proposed text, Customs 
has made the following substantive changes to the text of 
Sec. 163.6(c)(2) as set forth below:
    a. A reference to ``entry or other'' records has been added to 
clarify that, consistent with the statutory provision on which 
Sec. 163.6(c) is based (that is, section 509(a)), the examination of 
records applies equally to entry records.
    b. The words ``, statements, declarations, or other documents'' 
have been removed after the word ``records'' because they are covered 
by the Sec. 163.1(a) definition of ``records'' and thus are redundant.
    c. The word ``reasonable'' has been added as a modifier of 
``notice'' in order to reflect a basic standard contained in the 
statute (that is, section 509(a)(1)).
    d. A new sentence has been added at the end to clarify that the 
notice and production procedures under paragraph (a), and the penalties 
or other actions under paragraph (b) for failure to produce, apply to 
the examination of entry records under this provision.

Section 163.10(e)--Stay of Summons

    Comment: The proposed text did not explain the process by which an 
owner, importer, etc., would issue a stay of a summons. The procedure 
should be described in detail so that the affected persons will know 
how to issue such a stay.
    Customs response: The procedures whereby an owner, importer, etc. 
would issue a stay of compliance with a

[[Page 32940]]

summons were clearly set forth in paragraph (c) of proposed Sec. 163.10 
(which has been redesignated as Sec. 163.8 as discussed below). In 
order to clarify the application of the regulatory texts, the paragraph 
(e) text as set forth below has been modified by the addition of a 
reference to issuance of a stay ``in accordance with paragraph (c) of 
this section''.
    Based on a further internal review of the summons and related 
provisions of proposed Secs. 163.7-163.12, Customs has determined that 
the following changes should be made to the proposed texts:
    a. Although proposed Secs. 163.7-163.9 followed the 3-section 
approach of present Part 162, Customs now believes that it would be 
preferable to combine these three sections into one section for the 
following reasons: (1) The three sections all deal with various aspects 
of essentially one subject, that is, the basic procedures regarding the 
issuance and execution of a summons; and (2) a single-section approach 
will assist in drawing the necessary distinction between these normal 
procedures and the special procedures for third-party recordkeepers 
covered by the next section. Accordingly, the three proposed sections 
have been redesignated in the Part 163 texts set forth below as 
Sec. 163.7, with proposed Sec. 163.7 covered by paragraph (a), proposed 
Sec. 163.8 covered by paragraph (b), and proposed Sec. 163.9 covered by 
paragraph (c). In addition, because paragraph (b) of proposed 
Sec. 163.7 (which concerns the transcript of testimony under oath) was 
clearly out-of-place (context), it has been moved to the end of new 
Sec. 163.7 as paragraph (d). As a consequence of the adoption of the 
one-section approach for proposed Secs. 163.7-163.9, the remaining 
sections of Part 163 (that is, Secs. 163.10-163.15) have been 
redesignated below as Secs. 163.8-163.13.
    b. In paragraph (a) of new Sec. 163.7: (1) The first sentence of 
the introductory text has been modified by the addition of a reference 
to issuance of a summons requiring a person ``within a reasonable 
period of time to appear before the appropriate Customs officer,'' in 
order to more closely reflect the terms of the corresponding statutory 
provision (section 509(a)(2)); and (2) in subparagraph (2), the words 
``Canada or Mexico pursuant to the North American Free Trade Agreement 
Implementation Act (19 U.S.C. 3301(4)'' have been replaced by ``a NAFTA 
country as defined in 19 U.S.C. 3301(4),'' again in order to more 
closely track the corresponding statutory provision (section 
509(a)(2)(A)(ii)).
    c. In paragraph (b) of new Sec. 163.7, subparagraph (1)(ii) has 
been modified by the addition of a reference to the address ``within 
the customs territory of the United States,'' in order to reflect the 
terms of the statute (section 509(a)(2)).
    d. The text of paragraph (a) of redesignated Sec. 163.8 (third-
party recordkeeper summons) has been modified to refer to testimony 
relating to ``records pertaining'' to transactions of a person, in 
order to reflect the terms of the statute (section 509(d)(1)(B) and 
(d)(2)(B)).
    e. In paragraph (e) of redesignated Sec. 163.8, the three 
references to the taking of testimony have been removed because the 
statute (section 509(d)(6)) mentions (that is, precludes) only the 
examination of records in this context.
    f. In the introductory text of paragraph (f)(3) of redesignated 
Sec. 163.8, a reference has been added to ``the stay of compliance 
provisions of paragraph (c),'' because the judicial determination 
exception in the statute (section 509(d)(7)) is not limited to the 
notice provisions.
    g. In redesignated Sec. 163.9 (enforcement of summons), a sentence 
has been added at the end to state that a person who is entitled to 
notice under Sec. 163.8(a) shall have the right to intervene in the 
enforcement proceeding. This new sentence reflects the terms of section 
509(d)(5)(A) and, by being limited to a person entitled to notice, also 
reflects the exception contained in section 509(d)(7).

Section 163.13--Regulatory Audit Procedures

    Comment: Three comments were submitted in regard to this proposed 
section. One commenter specifically stated its support for proposed 
paragraph (a)(9) which requires Customs auditors to send a copy of the 
formal written audit report to the person audited within 30 days 
following completion of the audit. The other two commenters expressed 
disappointment with the overall content of proposed Sec. 163.13 and 
made the following points with regard to what they felt was missing 
from, and thus should be added to, the proposed text:
    1. The proposed text sets forth only vague procedures to be 
followed by auditors, sets few time limits regarding the conduct of an 
audit, and provides for no direct consequences (sanctions) on the audit 
or the auditor for failing to adhere to the procedures or time limits 
that are provided. Thus, in effect, the proposed section does little 
more than repeat the provisions of 19 U.S.C. 1509(b).
    2. For the new importer or an importer that has never been 
subjected to a regulatory audit, the proposed text fails to explain the 
purpose of a regulatory audit and does not distinguish between a 
compliance assessment and a full audit.
    3. The proposed text does not specify what information will be 
required and does not outline the rights and obligations of the 
parties.
    Customs response: 1. Customs disagrees and believes the regulatory 
provisions appropriately serve the intended purpose.
    2 and 3. Customs believes that the Part 163 texts as set forth 
below (in particular, the definitions of ``audit'' and ``compliance 
assessment'' in Secs. 163.1(c) and (e), the provisions regarding the 
examination of records in Sec. 163.6, and the provisions of this 
section which has been redesignated as Sec. 163.11 as discussed above) 
provide adequate basic guidance regarding these issues. Moreover, to 
the extent that more detailed guidance is required, other published 
agency guidelines and procedures are, or will be, made available (for 
example, cat kits, standard operating procedures, and audit manuals).
    In the light of the modified definition of ``compliance 
assessment'' as discussed above (in which a compliance assessment is 
described as a type of importer audit but is no longer described as the 
first phase of an audit), and based on a further internal review of the 
proposed regulatory text, a number of changes have been incorporated in 
redesignated Sec. 163.11 as set forth below. The majority of these 
changes are based on the view of Customs that, notwithstanding the fact 
that the term ``audit'' technically encompasses a compliance 
assessment, and consistent with current Customs practice, the statutory 
procedures applicable to full audits (that is, notice and time 
estimates, entry and closing conferences, and preparing and providing a 
copy of a formal written report) should be reflected specifically and 
succinctly in the regulations as applying equally to compliance 
assessments which are often performed independently of other audit 
procedures. The changes in question are as follows:
    a. The section title has been modified to read ``compliance 
assessment and other audit procedures'', and throughout the section 
text each separate reference to an ``audit'' or to a ``compliance 
assessment'' has been replaced by a reference to a ``compliance 
assessment or other audit.''
    b. The words ``which does not include a quantity verification for a 
customs bonded warehouse or general purpose

[[Page 32941]]

foreign trade zone or an inquiry,'' which are definitional in nature, 
have been removed from the introductory text of paragraph (a), and 
equivalent phraseology has been included in the definition of ``audit'' 
in Sec. 163.1(c) but without any reference to an ``inquiry'' (see the 
above discussion regarding the addition of a new definition covering 
this term).
    c. Although subparagraphs (a)(1) (regarding notice and time 
estimates), (a)(2) (regarding the entry conference) and (a)(3) 
(regarding additional time) remain essentially the same except for the 
textual change (use of the expression ``compliance assessment or other 
audit'') discussed above, the remainder of proposed paragraph (a) has 
been reorganized into three subparagraphs (a)(4) through (a)(6) in 
order to avoid repetitive text and otherwise simplify the text and in 
order to make clear the equal applicability of the subject procedures 
to all audit procedures (including compliance assessments). New 
subparagraph (a)(4) covers closing conferences, new subparagraph (a)(5) 
concerns the preparation of reports, and new subparagraph (a)(6) 
concerns sending a copy of the report.
    d. The order of proposed paragraphs (b) (exceptions) and (c) 
(petitions regarding failure to hold a closing conference) has been 
reversed because the exceptions include, and thus should follow, the 
petition provision.
    e. The reference in proposed paragraph (b) to paragraphs ``(a)(4) 
through (a)(6) and (a)(8) through (a)(9) and (c)'' has been modified in 
the paragraph (c) text of Sec. 163.11 set forth below to read ``(a)(5), 
(a)(6) and (b)'' in order to properly reflect the exceptions in the 
statute (section 509(b)(5), which refers to paragraphs (3) and (4) but 
not to paragraph (2) which concerns entry and closing conferences) and 
in order to reflect the simplified paragraph (a) structure discussed 
above.

Section 163.14--Recordkeeping Compliance Program

    Comment: Six commenters made the following points regarding this 
proposed section:
    1. Customs does not have the resources necessary to grant the 
number of requests to become certified recordkeepers that will come in 
under the program. Customs may wish to allow customs brokers (the only 
persons licensed and regulated by Customs) to handle these requests and 
audit parties participating in the program. Customs could then audit 
the customs brokers' processes in providing these suggested services.
    2. There is no concrete benefit for companies to enter into the 
certification program. A blanket waiver from all penalties (except 
perhaps those resulting from the intentional destruction of records) 
would be a more meaningful inducement for companies to enter the 
program. If a participant fails to meet the level of service required 
by the certification program, the participant would be given a warning 
notice or have its certification revoked.
    3. One commenter stated that while the Recordkeeping Compliance 
Program concept is good, the proposed benefits are less than what would 
be expected for the time and effort to establish and maintain such a 
program because the proposed text appears to grant one violation 
whereby mitigation would be considered, and thereafter suspension or 
removal of participation would result and without further consideration 
for mitigation of monetary penalties; even a ``three strikes and out'' 
law appears to be less severe on violators. Based on similar reasoning, 
another commenter recommended that the following new sentence be added 
after the first sentence of paragraph (b) of this proposed section: 
``The participant is also eligible for reduction or cancellation of any 
liquidated damages assessments or penalties arising under 19 U.S.C. 
1592 or 1641 for failure to produce certain records.''
    4. The Recordkeeping Compliance Program must be limited to 
(a)(1)(A) entry records because the quid pro quo of the program is the 
avoidance of penalties for failure to produce demanded entry records; 
thus, the program should not apply to records kept in the ordinary 
course of business. In this regard, some of the program requirements 
take on a radically burdensome character when applied to ordinary 
business records. For example, proposed paragraph (a)(3)(iv) requires 
the participant to have procedures in place regarding the preparation 
and maintenance of required records and the production of such records 
to Customs. Thousands of hours would be required for a Fortune 500 
company to comply with this requirement because of the extensive nature 
of its financial accounting recordkeeping systems.
    5. Proposed paragraph (a)(3)(vi) should be revised to read as 
follows: ``(vi) Have a record maintenance procedure which complies with 
the requirements of Customs and other federal agencies whose 
regulations apply to the import transactions.'' This change will 
simplify the text and also recognizes that an importer may be subject 
to other related regulatory recordkeeping requirements.
    6. Two commenters criticized proposed paragraph (a)(3)(vii) which 
requires program participants to disclose to Customs variances to, and 
violations of, the program requirements and to take corrective action 
when notified by Customs of any such variances or violations. One 
commenter complained that it creates the potential for self-
incrimination and eliminates the voluntary nature of prior disclosures 
of violations pursuant to the civil penalty statute; this commenter 
argued that acceptable procedures should merely require that the 
recordkeeper consult with legal counsel and take remedial steps that 
may include Customs notification. The other commenter stated that the 
recordkeeper should be allowed a reasonable time after discovery to 
correct the error before reporting to Customs; the recordkeeper would 
still be obliged to report the error to Customs and Customs may still 
take appropriate action if not satisfied with the corrective action 
taken by the recordkeeper.
    7. The Recordkeeping Compliance Handbook referred to in this 
proposed section should be part of the regulatory text or should be 
posted on the Customs Internet web site.
    Customs response: 1. Customs disagrees. Customs has adequate 
resources to process applications for the Recordkeeping Compliance 
Program. Moreover, since Customs will be performing the investigations 
and compliance assessments, audits and other inquiries, it is only 
appropriate that Customs retain the approval authority for this program 
and not delegate it to private concerns.
    2. Customs disagrees. The regulatory text provides for issuance of 
a notice in lieu of a penalty for the first violation, and Customs 
considers this to be a reasonably concrete benefit. A blanket waiver 
would not be feasible and would be unwarranted since the statute 
(section 509(g)(7)(A)) specifically provides for an alternative to 
penalties only if the violation is not a repeat or willful violation.
    3. Customs disagrees. The proposed text did not limit mitigation 
under 19 U.S.C. 1618 to the first violation. Moreover, the regulatory 
text permits, but does not mandate, removal from the program. The 
suggested additional sentence would be inappropriate since it goes 
beyond the authority conferred on Customs by the statute.
    Based on a further review of the proposed regulatory text, Customs 
has concluded that it is redundant, and thus unnecessary, to refer to 
penalty mitigation in this regulatory context because the opportunity 
for mitigation

[[Page 32942]]

is in theory available to any person under section 509(g)(5) and 19 
U.S.C. 1618 without regard to whether the person is a participant in 
the Recordkeeping Compliance Program; the text of the opening paragraph 
of proposed Sec. 163.14 (redesignated below as Sec. 163.12 as discussed 
above) has been modified accordingly. In addition, a new sentence has 
been added at the end of that opening paragraph to clarify that 
participation in the Recordkeeping Compliance Program has no limiting 
effect on the authority of Customs to use other legal means (summons, 
court order, etc.) to compel a participant to produce records.
    4. Customs agrees that a recordkeeper's quid pro quo for 
participating in the Recordkeeping Compliance Program (that is, having 
an alternative to a penalty for failure to produce a demanded record) 
only has reference to entry ((a)(1)(A) list) records, and appropriate 
references to ``entry'' records have been added to the text of 
redesignated Sec. 163.12 to clarify this point. However, this does not 
mean that a recordkeeper's responsibilities or obligations under the 
Recordkeeping Compliance Program relate only to ``entry records.'' In 
this regard, the importing community is reminded of the requirement to 
make, keep, and render for examination and inspection business, 
financial and other records (including, but not limited to, statements, 
declarations, documents and electronically generated data) which 
pertain to any activity specified in the statute (section 508(a) and 
(b)) and in the regulations (Sec. 163.1(a)(2)); both the statute 
(section 509(f)(2)(A)-(F)) and the implementing regulations 
(Sec. 163.12(b)(3)(i)-(vi)) set forth Recordkeeping Compliance Program 
certification criteria involving recordkeeping standards that clearly 
relate to records in this broad sense rather than only in the narrower 
context of ``entry records.'' Thus, whereas a failure to properly 
maintain and produce a particular record will not always constitute a 
violation giving rise to a potential liability for section 509(g) 
penalties, such a failure nevertheless would always be relevant to the 
issue of whether a recordkeeper may participate in the Recordkeeping 
Compliance Program.
    5. Customs does not believe that it is necessary or appropriate to 
refer to the requirements of other government agencies in this context.
    6. Customs disagrees. The reporting of recordkeeping violations 
under the Recordkeeping Compliance Program does not affect the 
voluntary nature of prior disclosures. The regulatory text in question 
merely reflects the terms of the statute (section 509(f)(2)(F)).
    7. Customs does not agree that the Recordkeeping Compliance 
Handbook (which is merely for guidance purposes) should be included 
within the regulatory texts. However, the Handbook will be posted to 
the Customs internet web site (www.customs.ustreas.gov) and will be 
available through the Customs Electronic Bulletin Board (703-921-6155).
    Based on a further internal review of the proposed regulatory texts 
and as a result of other changes made to the proposed texts as 
discussed above, Customs has determined that a number of additional 
changes should be made to the Recordkeeping Compliance Program 
provisions of redesignated Sec. 163.12 and proposed Sec. 163.15 
(redesignated as Sec. 163.13 as discussed above). These changes, 
reflected in the texts set forth in this document, are as follows:
    a. As a consequence of the changes to the definition of ``certified 
recordkeeper'' and the removal of the definition of ``certified 
recordkeeper's agent'', all references to agents of certified 
recordkeepers, and all textual discussions of such agents, have been 
removed.
    b. As a consequence of the removal from Sec. 163.5 of the 
requirement for Customs approval of alternate storage methods, all 
references to ``approved'' alternate storage methods have been replaced 
by references to ``adopted'' alternate storage methods.
    c. In redesignated Sec. 163.12, the following organizational 
changes have been made: (1) The introductory text has been designated 
as paragraph (a) and proposed paragraph (a) has been redesignated as 
(b); (2) proposed paragraph (b), which concerned benefits of 
participation, has been redesignated as paragraph (d) and has been 
reheaded ``alternatives to penalties''; (3) the discussion of the 
Customs Recordkeeping Compliance Handbook has been moved from paragraph 
(c) to paragraph (b)(2) since it relates to application procedures, and 
the paragraph (c) heading has been modified to refer to application 
``review''; and (4) in redesignated paragraph (b)(3), which concerns 
certification requirements, the first listed requirement (proposed 
subparagraph (i) concerning compliance with the Customs Recordkeeping 
Compliance Handbook) has been moved into the introductory text and the 
remaining listed requirements have been renumbered accordingly.
    d. In redesignated Sec. 163.12(b)(1), the reference ``Sec. 163.2(a) 
and (c)'' has been changed to read ``Sec. 163.2(a)'' to conform to the 
statute (section 509(f)(1)) which, in identifying who may participate 
in the program, refers only to ``parties listed in section 508(a).'' 
The recordkeepers described in Sec. 163.2(c) (preparers and signers of 
NAFTA Certificates of Origin) are mentioned in section 509(b) and thus 
are outside the scope of the statutory (and, thus, regulatory) 
provisions in question. In addition, the second sentence of the 
proposed text (regarding the voluntary nature of program participation) 
has been removed because it repeats what has already been said in the 
preceding paragraph.
    e. In redesignated Sec. 163.12(b)(3), all references to an 
``agreement'' between Customs and the participant have been removed 
because no separate agreements will exist.
    f. The texts of redesignated Secs. 163.12(c)(1) and (c)(2) have 
been modified to clarify that the Miami regulatory audit field office 
will also be responsible for reviewing and approving the application 
and issuing the certification.
    g. In redesignated Sec. 163.12(d)(1), the following changes have 
been made: (1) The first sentence of the text as proposed (proposed 
Sec. 163.14(b)(1)) has been eliminated because the benefits of the 
program have already been stated earlier; (2) in the first sentence of 
the text below, a proviso has been added regarding general compliance 
with the procedures and requirements of the program in order to reflect 
the terms of the statute (section 509(g)(7)(A)(ii); and (3) in the last 
sentence regarding the application of sanctions, the references to ``no 
attempt to correct deficiencies'' and to ``a failure to exercise 
reasonable care'' have been removed, and a reference to removal of 
certification ``until corrective action satisfactory to Customs is 
taken'' has been added at the end in order to reflect the terms of the 
statute (section 509(g)(7)(A)).
    h. In redesignated Sec. 163.12(d), a new subparagraph (3) has been 
added to reflect the requirement in the statute (section 509(g)(7)(C)) 
that a program participant who has received a notice of violation must 
notify Customs within a reasonable time regarding the steps that have 
been taken to prevent a recurrence of the violation.
    i. In addition to the changes noted above, redesignated Sec. 163.13 
as set forth below has been extensively modified (1) by providing for 
``removal'' of certification in place of ``suspension'' or 
``revocation'' of certification, (2) by adding a new paragraph (b) text 
to set forth specific grounds and procedures for denial of an 
application for

[[Page 32943]]

certification which were missing from the text as proposed, (3) by 
revising the list of grounds upon which a certification removal action 
may be based to conform to other changes made to the proposed texts by 
this document and to reflect more closely the standards that are 
applied in other regulatory contexts involving the removal of 
privileges previously granted by Customs, and (4) by joining the denial 
appeal provisions with the removal appeal procedures in paragraph (d) 
and adding a 30-day appeal period for removal appeals to align on the 
appeal period prescribed for denial appeals. Thus, under the modified 
Sec. 163.13 text, paragraph (a) consists of a general statement 
referring to certification denial and removal actions, paragraph (b) 
sets forth certification denial procedures, paragraph (c) concerns 
certification removal, and paragraph (d) concerns the appeal of 
certification denial and removal. Finally, the texts in new paragraphs 
(b) and (c) have been modified to specify that both initial 
application/certification denials and initial certification removal 
actions are taken by the Director of the Miami regulatory audit field 
office, and the text of new subparagraph (c)(3), which concerns the 
effect of removal actions, has been modified to limit the circumstances 
in which a removal action will take effect upon issuance of the notice 
(thus, in most cases the action will be effective only after the appeal 
procedure has been concluded).

Appendix to Part 163

    Although several comments were received with regard to the 
(a)(1)(A) list which was set forth in the Appendix to proposed new Part 
163, Customs believes that such comments should be dealt with not in 
this document but rather in connection with the overall review of the 
(a)(1)(A) list referred to in the notice published in the Federal 
Register on December 24, 1996 (61 FR 67872). Accordingly, the Appendix 
to Part 163 as set forth below reflects the (a)(1)(A) list as 
previously published except for two changes thereto which are necessary 
in order to reflect amendments to the Customs Regulations that were 
adopted after initial publication of the (a)(1)(A) list. These changes 
involve the following: (1) Replacement of the listings for Secs. 7.8(a) 
and 7.8(b) by a listing for Sec. 7.3(f), in order to reflect the 
revision and redesignation of former Sec. 7.8 effected by T.D. 97-75 
(published in the Federal Register on September 3, 1997, 62 FR 46433); 
and (2) the addition of a listing for Sec. 12.140 which was added by 
T.D. 97-9 (published in the Federal Register on February 26, 1997, 62 
FR 8620) and which requires the submission of specific new information 
in connection with the entry of certain softwood lumber products from 
Canada.

Additional Changes to the Regulations

    In addition to the changes to the proposed regulatory texts 
identified and discussed above in connection with the public comments, 
Customs has made numerous editorial, nonsubstantive changes to the 
proposed texts (in most cases involving wording, punctuation or 
structure) in order to enhance the clarity, readability and application 
of the regulatory texts. Furthermore, following publication of the 
proposed regulatory texts, Customs discovered that a number of other 
changes to other provisions of the Customs Regulations, that are 
necessary in order to ensure conformity with the new Part 163 
provisions, were inadvertently omitted from the published proposals. 
These additional conforming regulatory changes have therefore been 
included in this final rule document and are summarized below:

Part 19

    On April 3, 1997, a final rule amending Part 19 of the Customs 
Regulations (19 CFR Part 19) in regard to duty-free stores was 
published in the Federal Register (62 FR 15831). The final texts 
included a revision of Sec. 19.4 which, in paragraph (b)(4)(i)(B), sets 
forth a requirement to retain all records ``defined in Sec. 162.1(a),'' 
which section is being removed by this document in favor of the 
definition in new Sec. 163.1(a); accordingly, this document corrects 
that paragraph (b)(4)(i)(B) section reference to read 
``Sec. 163.1(a).'' In addition, the new Sec. 19.4 text sets forth, in 
paragraph (b)(5), rules regarding record retention in lieu of originals 
(including provisions regarding Customs approval of alternative storage 
methods); since the new Part 163 provisions (which have general 
application and thus clearly apply to duty-free store operators) 
include, in Sec. 163.5, rules regarding alternative record storage, and 
in order to ensure regulatory consistency, this document replaces that 
paragraph (b)(5) text with a shorter text that refers to the Sec. 163.5 
provisions.

Part 113

    Section 113.62(j) of the Customs Regulations (19 CFR 113.62(j)) 
sets forth the text of an agreement to comply with electronic entry 
filing requirements provided for in Part 143, as one of the conditions 
of the basic importation and entry bond. Subparagraphs (2) and (3) 
thereof refer to the retention of supporting documents and the 
production thereof, but the language therein is not entirely consistent 
with the new Part 163 provisions. In the light of the changes to the 
Part 143 texts set forth in this document (which include an appropriate 
cross-reference regarding the applicability of the Part 163 
provisions), this document revises the Sec. 113.62(j) text to eliminate 
the subparagraph (2) and (3) provisions, thereby avoiding any possible 
inconsistency with the Part 143 and Part 163 texts.

Part 181

    In Sec. 181.12 of the Customs Regulations (19 CFR 181.12) which 
concerns the maintenance and availability of NAFTA export records: (1) 
In the introductory text of paragraph (a)(1), a specific reference to 
maintenance of the Certificate of Origin (or a copy thereof) has been 
added to more accurately reflect the scope of the corresponding 
statutory provisions (sections 508(b) and (c)); and (2) in paragraph 
(b)(1), the reference to ``Sec. 162.1d'' has been changed to read 
``part 163'' to reflect adoption of new Part 163. In addition, in 
Sec. 181.13 of the Customs Regulations (19 CFR 181.13) a sentence has 
been added at the end to clarify that penalties may be imposed pursuant 
to 19 U.S.C. 1508(e) for a failure to retain NAFTA export records. 
Finally, in Sec. 181.22(a) of the Customs Regulations (19 CFR 
181.22(a)), the reference in the last sentence to records as specified 
in ``Sec. 162.1a(a)'' has been changed to read ``Sec. 163.1(a)'' to 
reflect the location of the definition of ``records'' in the new Part 
163 texts.

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 Sec. 178.2 of the Customs Regulations (19 CFR 178.2).

Executive Order 12866

    This document does not meet the criteria for a ``significant 
regulatory action'' as specified in E.O. 12866.

Regulatory Flexibility Act

    Insofar as the regulatory amendments closely follow legislative 
direction, pursuant to the provisions of the Regulatory Flexibility Act 
(5 U.S.C. 601

[[Page 32944]]

et seq.), it is certified that the amendments will not have a 
significant economic impact on a substantial number of small entities. 
Accordingly, they are not subject to the regulatory analysis or other 
requirements of 5 U.S.C. 603 and 604.

Paperwork Reduction Act

    The collection of information contained in this final rule has been 
reviewed and approved by the Office of Management and Budget (OMB) in 
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) 
under control number 1515-0214. An agency may not conduct or sponsor, 
and a person is not required to respond to, a collection of information 
unless it displays a valid control number assigned by OMB.
    The collection of information in this final rule is in Part 163. 
Although other parts of the Customs Regulations are being amended, all 
information required by these amendments is contained or identified in 
Part 163. This information is to be maintained in the form of records 
which are necessary to ensure that the Customs Service will be able to 
effectively administer the laws it is charged with enforcing while, at 
the same time, imposing a minimum burden on the public it is serving. 
Respondents or recordkeepers are already required by statute or 
regulation to maintain the vast majority of the information covered in 
this proposed regulation. The likely respondents or recordkeepers are 
business organizations including importers, exporters and 
manufacturers.
    The estimated average annual burden associated with the collection 
of information in this final rule is 117.2 hours per respondent or 
recordkeeper. Comments concerning the accuracy of this burden estimate 
and suggestions for reducing this burden should be directed to the U.S. 
Customs Service, Information Services Group, Office of Finance, 1300 
Pennsylvania Avenue, N.W., Washington, D.C. 20229, and to 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 Francis W. Foote, Office 
of Regulations and Rulings, U.S. Customs Service. However, personnel 
from other offices participated in its development.

List of Subjects

19 CFR Part 19

    Customs duties and inspection, Imports, Exports, Reporting and 
recordkeeping requirements, Warehouses.

19 CFR Part 24

    Accounting, Customs duties and inspection, Reporting and 
recordkeeping requirements, Harbors, Taxes.

19 CFR Part 111

    Administrative practice and procedures, Customs duties and 
inspection, Brokers, Reporting and recordkeeping requirements, 
Penalties.

19 CFR Part 113

    Bonds, Customs duties and inspection, Imports, Reporting and 
recordkeeping requirements, Surety bonds.

19 CFR Part 143

    Customs duties and inspection, Reporting and recordkeeping 
requirements.

19 CFR Part 162

    Administrative practice and procedure, Customs duties and 
inspection, Recordkeeping and reporting requirements, Trade agreements.

19 CFR Part 163

    Administrative practice and procedure, Customs duties and 
inspection, Exports, Imports, Recordkeeping and reporting requirements.

19 CFR Part 178

    Administrative practice and procedure, Recordkeeping and reporting 
requirements.

19 CFR Part 181

    Canada, Customs duties and inspection, Exports, Imports, Mexico, 
Recordkeeping and reporting requirements, Trade agreements (North 
American Free Trade Agreement).

Amendments to the Regulations

    Accordingly, for the reasons stated in the preamble, Chapter I of 
Title 19, Code of Federal Regulations (19 CFR Chapter I) is amended by 
amending Parts 19, 24, 111, 113, 143, 162, 178 and 181 and by adding a 
new Part 163 to read as follows:

PART 19--CUSTOMS WAREHOUSES, CONTAINER STATIONS AND CONTROL OF 
MERCHANDISE THEREIN

    1. The authority citation for Part 19 continues to read in part as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1202 (General Note 20, 
Harmonized Tariff Schedule of the United States), 1624.
* * * * *
    2. In Sec. 19.4, paragraph (b)(4)(i)(B) is amended by removing the 
reference ``Sec. 162.1(a)'' and adding, in its place, the reference 
``Sec. 163.1(a)'' and paragraph (b)(5) is revised to read as follows:


Sec. 19.4  Customs and proprietor responsibility and supervision over 
warehouses.

* * * * *
    (b) * * *
    (5) Record retention in lieu of originals. A warehouse proprietor 
may, in accordance with Sec. 163.5 of this chapter, utilize alternative 
storage methods in lieu of maintaining records in their original 
formats.
* * * * *

PART 24--CUSTOMS FINANCIAL AND ACCOUNTING PROCEDURE

    1. The authority citation for Part 24 continues to read in part as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 58a-58c, 66, 1202 (General 
Note 20, Harmonized Tariff Schedule of the United States), 1624; 31 
U.S.C. 9701.
* * * * *


Sec. 24.22   [Amended]

    2. Section 24.22(d)(5) is amended by removing the phrase ``shall be 
maintained for a period of 3 years'' and adding, in its place, the 
phrase ``shall be maintained in the United States for a period of 5 
years''.
    3. Section 24.22(g)(6) is amended by removing the phrase ``shall be 
maintained for a period of 2 years'' and adding, in its place, the 
phrase ``shall be maintained in the United States for a period of 5 
years''.

PART 111--CUSTOMS BROKERS

    1. The authority citation for Part 111 continues to read in part as 
follows:

    Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized 
Tariff Schedule of the United States), 1624, 1641.
* * * * *
    2. In Sec. 111.1, the definition of ``Records'' is revised to read 
as follows:


Sec. 111.1  Definitions.

* * * * *
    Records. ``Records'' means documents, data and information referred 
to in, and required to be made or maintained under, this part and any 
other records, as defined in Sec. 163.1(a) of this chapter, that are 
required to be maintained by a broker under part 163 of this chapter.
* * * * *

[[Page 32945]]

    3. Section 111.21 is amended by designating the existing paragraph 
as paragraph (a), by removing from the second sentence of newly 
designated paragraph (a) the words ``a copy of each entry made by him 
with all supporting records, except those documents he is required to 
file with Customs, and'', and by adding new paragraphs (b) and (c) to 
read as follows:


Sec. 111.21  Record of transactions.

    (a) * * *
    (b) Each broker shall comply with the provisions of this part and 
part 163 of this chapter when maintaining records that reflect on his 
transactions as a broker.
    (c) Each broker shall designate a knowledgeable company employee to 
be the contact for Customs for broker-wide customs business and 
financial recordkeeping requirements.


Sec. 111.22   [Removed and reserved]

    4. Section 111.22 is removed and reserved.
    5. Section 111.23 is amended by revising paragraph (a)(1) to read 
as follows, by removing paragraphs (b), (c), (d) and (f), by 
redesignating paragraph (e) as paragraph (b), in newly redesignated 
paragraph (b) by removing the word ``centralized'' each time it appears 
and adding, in its place, the word ``consolidated'', in newly 
redesignated paragraphs (b)(1) and (b)(2)(ii) by removing the word 
``financial'', in the introductory text of newly designated paragraph 
(b)(2) by removing the words ``Office of Field Operations, 
Headquarters'' [sic] and adding, in their place, the words ``Director, 
Regulatory Audit Division, U.S. Customs Service, 909 S.E. First Avenue, 
Miami, Florida 33131'', and in the first sentence of newly redesignated 
paragraph (b)(2)(i) by removing the word ``accounting'':


Sec. 111.23  Retention of records.

    (a) Place and period of retention--(1) Place. Records shall be 
retained by a broker in accordance with the provisions of this part and 
part 163 of this chapter within the broker district that covers the 
Customs port to which they relate unless the broker chooses to 
consolidate records at one or more other locations, and provides 
advance notice of such consolidation to Customs, in accordance with 
paragraph (b) of this section.
* * * * *

PART 113--CUSTOMS BONDS

    1. The authority citation for Part 113 continues to read in part as 
follows:

    Authority: 19 U.S.C. 66, 1623, 1624.
* * * * *
    2. Section 113.62(j) is revised to read as follows:


Sec. 113.62  Basic importation and entry bond conditions.

* * * * *
    (j) Agreement to comply with electronic entry filing requirements. 
If the principal is qualified to utilize electronic entry filing as 
provided for in part 143, subpart D, of this chapter, the principal 
agrees to comply with all conditions set forth in that subpart and to 
send and accept electronic transmissions without the necessity of paper 
copies.
* * * * *

PART 143--SPECIAL ENTRY PROCEDURES

    1. The authority citation for Part 143 continues to read as 
follows:

    Authority: 19 U.S.C. 66, 1481, 1484, 1498, 1624.


Sec. 143.32   [Amended]

    2. In Sec. 143.32, paragraph (n) is amended by removing the 
reference ``Sec. 162.1a(a)'' and adding, in its place, the reference 
``part 163''.
    3. Section 143.35 is revised to read as follows:


Sec. 143.35  Procedure for electronic entry summary.

    In order to obtain entry summary processing electronically, the 
filer will submit certified entry summary data electronically through 
ABI. Data will be validated and, if the transmission is found error-
free, will be accepted. If it is determined through selectivity 
criteria and review of data that documentation is required for further 
processing of the entry summary, Customs will so notify the filer. 
Documentation submitted before being requested by Customs will not be 
accepted or retained by Customs. The entry summary will be scheduled 
for liquidation once payment is made under statement processing (see 
Sec. 24.25 of this chapter).
    4. In Sec. 143.36, the first sentence of paragraph (a) and the 
introductory text of paragraph (c) are revised to read as follows:


Sec. 143.36  Form of immediate delivery, entry and entry summary.

    (a) Electronic form of data. If Customs determines that the 
immediate delivery, entry or entry summary data is satisfactory under 
Secs. 143.34 and 143.35, the electronic form of the immediate delivery, 
entry or entry summary through ABI shall be deemed to satisfy all 
filing requirements under this part. * * *
* * * * *
    (c) Submission of invoice. The invoice will be retained by the 
filer unless requested by Customs. If the invoice is submitted by the 
filer before a request is made by Customs, it will not be accepted or 
retained by Customs. When Customs requests presentation of the invoice, 
invoice data must be submitted in one of the following forms:
* * * * *
    5. In Sec. 143.37, paragraphs (c) and (d) are removed and paragraph 
(a) is revised to read as follows:


Sec. 143.37  Retention of records.

    (a) Record maintenance requirements. All records received or 
generated by a broker or importer must be maintained in accordance with 
part 163 of this chapter.
* * * * *


Sec. 143.38   [Removed and Reserved]

    6. Section 143.38 is removed and reserved.
    7. Section 143.39 is revised to read as follows:


Sec. 143.39  Penalties.

    (a) Brokers. Brokers unable to produce records requested by Customs 
under this chapter will be subject to disciplinary action or penalties 
pursuant to part 111 or part 163 of this chapter.
    (b) Importers. Importers unable to produce records requested by 
Customs under this chapter will be subject to penalties pursuant to 
part 163 of this chapter.

PART 162--INSPECTION, SEARCH, AND SEIZURE

    1. The authority citation for Part 162 continues to read in part as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1624.
* * * * *
    2. The heading of Part 162 is revised to read as set forth above.
    3. Section 162.0 is revised to read as follows:


Sec. 162.0  Scope.

    This part contains provisions for the inspection, examination, and 
search of persons, vessels, aircraft, vehicles, and merchandise 
involved in importation, for the seizure of property, and for the 
forfeiture and sale of seized property. It also contains provisions for 
Customs enforcement of the controlled substances laws. Provisions 
relating to petitions for remission or mitigation of fines, penalties, 
and forfeitures incurred are contained in part 171 of this chapter.

[[Page 32946]]

    4. In Subpart A, the Subpart heading is revised to read as follows:

Subpart A--Inspection, Examination, and Search

    5. In Subpart A, Secs. 162.1a through 162.1i are removed.
    1. Part 163 is added to read as follows:

PART 163--RECORDKEEPING

Sec.
163.0  Scope.
163.1  Definitions.
163.2  Persons required to maintain records.
163.3  Entry records.
163.4  Record retention period.
163.5  Methods for storage of records.
163.6  Production and examination of entry and other records and 
witnesses; penalties.
163.7  Summons.
163.8  Third-party recordkeeper summons.
163.9  Enforcement of summons.
163.10  Failure to comply with court order; penalties.
163.11  Compliance assessment and other audit procedures.
163.12  Recordkeeping Compliance Program.
163.13  Denial and removal of program certification; appeal 
procedures.

Appendix to Part 163--Interim (a)(1)(A) List

    Authority: 5 U.S.C. 301; 19 U.S.C. 66, 1484, 1508, 1509, 1510, 
1624.


Sec. 163.0  Scope.

    This part sets forth the recordkeeping requirements and procedures 
governing the maintenance, production, inspection, and examination of 
records. It also sets forth the procedures governing the examination of 
persons in connection with any investigation or compliance assessment, 
audit or other inquiry conducted for the purposes of ascertaining the 
correctness of any entry, for determining the liability of any person 
for duties, fees and taxes due or that may be due, for determining 
liability for fines, penalties and forfeitures, or for ensuring 
compliance with the laws and regulations administered or enforced by 
Customs. Additional provisions concerning records maintenance and 
examination applicable to U.S. importers, exporters, and producers 
under the United States-Canada Free Trade Agreement and the North 
American Free Trade Agreement are contained in parts 10 and 181 of this 
chapter, respectively.


Sec. 163.1  Definitions.

    When used in this part, the following terms shall have the meaning 
indicated:
    (a) Records--(1) In general. The term ``records'' means any 
information made or normally kept in the ordinary course of business 
that pertains to any activity listed in paragraph (a)(2) of this 
section. The term includes any information required for the entry of 
merchandise (the (a)(1)(A) list) and other information pertaining to, 
or from which is derived, any information element set forth in a 
collection of information required by the Tariff Act of 1930, as 
amended, in connection with any activity listed in paragraph (a)(2) of 
this section. The term includes, but is not limited to, the following: 
Statements; declarations; documents; electronically generated or 
machine readable data; electronically stored or transmitted information 
or data; books; papers; correspondence; accounts; financial accounting 
data; technical data; computer programs necessary to retrieve 
information in a usable form; and entry records (contained in the 
(a)(1)(A) list).
    (2) Activities. The following are activities for purposes of 
paragraph (a)(1) of this section:
    (i) Any importation, declaration or entry;
    (ii) The transportation or storage of merchandise carried or held 
under bond into or from the customs territory of the United States;
    (iii) The filing of a drawback claim;
    (iv) The completion and signature of a NAFTA Certificate of Origin 
pursuant to Sec. 181.11(b) of this chapter;
    (v) The collection, or payment to Customs, of duties, fees and 
taxes; or
    (vi) Any other activity required to be undertaken pursuant to the 
laws or regulations administered by Customs.
    (b) (a)(1)(A) list. See the definition of ``entry records''.
    (c) Audit. ``Audit'' means a Customs regulatory audit verification 
of information contained in records required to be maintained and 
produced by persons listed in Sec. 163.2 or pursuant to other 
applicable laws and regulations administered by Customs but does not 
include a quantity verification for a customs bonded warehouse or 
general purpose foreign trade zone. The purpose of an audit is to 
determine that information submitted or required is accurate, complete 
and in accordance with laws and regulations administered by Customs.
    (d) Certified recordkeeper. A ``certified recordkeeper'' is a 
person who is required to keep records under this chapter and who is a 
participant in the Recordkeeping Compliance Program provided for in 
Sec. 163.12.
    (e) Compliance assessment. A ``compliance assessment'' is a type of 
importer audit performed by a Customs Compliance Assessment Team which 
uses various audit techniques, including statistical testing of import 
and financial transactions, to assess the importer's compliance level 
in trade areas, to determine the adequacy of the importer's internal 
controls over its customs operations, and to determine the importer's 
rates of compliance.
    (f) Entry records/(a)(1)(A) list. The terms ``entry records'' and 
``(a)(1)(A) list'' refer to records required by law or regulation for 
the entry of merchandise (whether or not Customs required their 
presentation at the time of entry). The (a)(1)(A) list is contained in 
the Appendix to this part.
    (g) Inquiry. An ``inquiry'' is any formal or informal procedure, 
other than an investigation, through which a request for information is 
made by a Customs officer.
    (h) Original. The term ``original'', when used in the context of 
maintenance of records, has reference to records that are in the 
condition in which they were made or received by the person responsible 
for maintaining the records pursuant to 19 U.S.C. 1508 and the 
provisions of this chapter, including records consisting of the 
following:
    (1) Electronic information which was used to develop other 
electronic records or paper documents;
    (2) Electronic information which is in a readable format such as a 
facsimile paper format or an electronic or hardcopy spreadsheet;
    (3) In the case of a paper record that is part of a multi-part form 
where all parts of the form are made by the same impression, one of the 
carbon-copy parts or a facsimile copy or photocopy of one of the parts; 
and
    (4) A copy of a record that was provided to another government 
agency which retained it, provided that, if required by Customs, a 
signed statement accompanies the copy certifying it to be a true copy 
of the record provided to the other government agency.
    (i) Party/person. The terms ``party'' and ``person'' refer to a 
natural person, corporation, partnership, association, or other entity 
or group.
    (j) Summons. ``Summons'' means any summons issued under this part 
that requires the production of records or the giving of testimony, or 
both.
    (k) Technical data. ``Technical data'' are records which include 
diagrams and other data with regard to a business or an engineering or 
exploration operation, whether conducted inside or outside the United 
States, and whether on paper, cards, photographs, blueprints, tapes, 
microfiche, film, or other media or in electronic or magnetic storage.
    (l) Third-party recordkeeper. ``Third-party recordkeeper'' means 
any attorney, any accountant or any customs

[[Page 32947]]

broker other than a customs broker who is the importer of record on an 
entry.


Sec. 163.2  Persons required to maintain records.

    (a) General. Except as otherwise provided in paragraph (b) or (e) 
of this section, the following persons shall maintain records and shall 
render such records for examination and inspection by Customs:
    (1) An owner, importer, consignee, importer of record, entry filer, 
or other person who:
    (i) Imports merchandise into the customs territory of the United 
States, files a drawback claim, or transports or stores merchandise 
carried or held under bond, or
    (ii) Knowingly causes the importation or transportation or storage 
of merchandise carried or held under bond into or from the customs 
territory of the United States;
    (2) An agent of any person described in paragraph (a)(1) of this 
section; or
    (3) A person whose activities require the filing of a declaration 
or entry, or both.
    (b) Domestic transactions. For purposes of paragraph (a)(1)(ii) of 
this section, a person who orders merchandise from an importer in a 
domestic transaction knowingly causes merchandise to be imported only 
if:
    (1) The terms and conditions of the importation are controlled by 
the person placing the order with the importer (for example, the 
importer is not an independent contractor but rather is the agent of 
the person placing the order: Whereas a consumer who purchases an 
imported automobile from a domestic dealer would not be required to 
maintain records, a transit authority that prepared detailed 
specifications from which imported subway cars or busses were 
manufactured would be required to maintain records); or
    (2) Technical data, molds, equipment, other production assistance, 
material, components, or parts are furnished by the person placing the 
order with the importer with knowledge that they will be used in the 
manufacture or production of the imported merchandise.
    (c) Recordkeeping required for certain exporters. Any person who 
exports goods to Canada or Mexico for which a Certificate of Origin was 
completed and signed pursuant to the North American Free Trade 
Agreement must also maintain records in accordance with part 181 of 
this chapter.
    (d) Recordkeeping required for customs brokers. Each customs broker 
must also make and maintain records and make such records available in 
accordance with part 111 of this chapter.
    (e) Recordkeeping not required for certain travelers. After having 
physically cleared the Customs facility, a traveler who made a baggage 
or oral declaration upon arrival in the United States will not be 
required to maintain supporting records regarding non-commercial 
merchandise acquired abroad which falls within the traveler's personal 
exemptions or which is covered by a flat rate of duty.


Sec. 163.3  Entry records.

    Any person described in Sec. 163.2(a) with reference to an import 
transaction shall be prepared to produce or transmit to Customs, in 
accordance with Sec. 163.6(a), any entry records which may be demanded 
by Customs. If entry records submitted to Customs not pursuant to a 
demand are returned by Customs, or if production of entry records at 
the time of entry is waived by Customs, such person shall continue to 
maintain those entry records in accordance with this part. Entry 
records which are normally kept in the ordinary course of business must 
be maintained by such person in accordance with this part whether or 
not copies thereof are retained by Customs.


Sec. 163.4  Record retention period.

    (a) General. Except as otherwise provided in paragraph (b) of this 
section, any record required to be made, kept, and rendered for 
examination and inspection by Customs under Sec. 163.2 or any other 
provision of this chapter shall be kept for 5 years from the date of 
entry, if the record relates to an entry, or 5 years from the date of 
the activity which required creation of the record.
    (b) Exceptions. (1) Any record relating to a drawback claim shall 
be kept until the third anniversary of the date of payment of the 
claim.
    (2) Packing lists shall be retained for a period of 60 calendar 
days from the end of the release or conditional release period, 
whichever is later, or, if a demand for return to Customs custody has 
been issued, for a period of 60 calendar days either from the date the 
goods are redelivered or from the date specified in the demand as the 
latest redelivery date if redelivery has not taken place.
    (3) A consignee who is not the owner or purchaser and who appoints 
a customs broker shall keep a record pertaining to merchandise covered 
by an informal entry for 2 years from the date of the informal entry.
    (4) Records pertaining to articles that are admitted free of duty 
and tax pursuant to 19 U.S.C. 1321(a)(2) and Secs. 10.151 through 
10.153 of this chapter, and carriers' records pertaining to manifested 
cargo that is exempt from entry under the provisions of this chapter, 
shall be kept for 2 years from the date of the entry or other activity 
which required creation of the record.
    (5) If another provision of this chapter sets forth a retention 
period for a specific type of record that differs from the period that 
would apply under this section, that other provision controls.


Sec. 163.5  Methods for storage of records.

    (a) Original records. All persons listed in Sec. 163.2 shall 
maintain all records required by law and regulation for the required 
retention periods and as original records, whether paper or electronic, 
unless alternative storage methods have been adopted in accordance with 
paragraph (b) of this section. The records, whether in their original 
format or under an alternative storage method, must be capable of being 
retrieved upon lawful request or demand by Customs.
    (b) Alternative method of storage--(1) General. Any of the persons 
listed in Sec. 163.2 may maintain any records, other than records 
required to be maintained as original records under laws and 
regulations administered by other Federal government agencies, in an 
alternative format, provided that the person gives advance written 
notification of such alternative storage method to the Director, 
Regulatory Audit Division, U.S. Customs Service, 909 S.E. First Avenue, 
Miami, Florida 33131, and provided further that the Director of the 
Miami regulatory audit field office does not instruct the person in 
writing as provided herein that certain described records may not be 
maintained in an alternative format. The written notice to the Director 
of the Miami regulatory audit field office must be provided at least 30 
calendar days before implementation of the alternative storage method, 
must identify the type of alternative storage method to be used, and 
must state that the alternative storage method complies with the 
standards set forth in paragraph (b)(2) of this section. If an 
alternative storage method covers records that pertain to goods under 
Customs seizure or detention or that relate to a matter that is 
currently the subject of an inquiry or investigation or administrative 
or court proceeding, the appropriate Customs office may instruct the 
person in writing that those records must be maintained as original 
records and therefore may not be converted to an alternative format 
until specific written authorization is received from that Customs 
office. A written instruction to a person under

[[Page 32948]]

this paragraph may be issued during the 30-day advance notice period 
prescribed in this section or at any time thereafter, must describe the 
records in question with reasonable specificity but need not identify 
the underlying basis for the instruction, and shall not preclude 
application of the planned alternative storage method to other records 
not described therein.
    (2) Standards for alternative storage methods. Methods commonly 
used in standard business practice for storage of records include, but 
are not limited to, machine readable data, CD ROM, and microfiche. 
Methods that are in compliance with generally accepted business 
standards will generally satisfy Customs requirements, provided that 
the method used allows for retrieval of records requested within a 
reasonable time after the request and provided that adequate provisions 
exist to prevent alteration, destruction, or deterioration of the 
records. The following standards must be applied by recordkeepers when 
using alternative storage methods:
    (i) Operational and written procedures are in place to ensure that 
the imaging and/or other media storage process preserves the integrity, 
readability, and security of the information contained in the original 
records. The procedures must include a standardized retrieval process 
for such records. Vendor specifications/documentation and benchmark 
data must be available for Customs review;
    (ii) There is an effective labeling, naming, filing, and indexing 
system;
    (iii) Except in the case of packing lists (see Sec. 163.4(b)(2)), 
entry records must be maintained in their original formats for a period 
of 120 calendar days from the end of the release or conditional release 
period, whichever is later, or, if a demand for return to Customs 
custody has been issued, for a period of 120 calendar days either from 
the date the goods are redelivered or from the date specified in the 
demand as the latest redelivery date if redelivery has not taken place;
    (iv) An internal testing of the system must be performed on a 
yearly basis;
    (v) The recordkeeper must have the capability to make, and must 
bear the cost of, hard-copy reproductions of alternatively stored 
records that are required by Customs for audit, inquiry, investigation, 
or inspection of such records; and
    (vi) The recordkeeper shall retain and keep available one working 
copy and one back-up copy of the records stored in a secure location 
for the required periods as provided in Sec. 163.4.
    (3) Changes to alternative storage procedures. No changes to 
alternative recordkeeping procedures may be made without first 
notifying the Director of the Miami regulatory audit field office. The 
notification must be in writing and must be provided to the director at 
least 30 calendar days before implementation of the change.
    (4) Penalties. All persons listed in Sec. 163.2 who use alternative 
storage methods for records and who fail to maintain or produce the 
records in accordance with this part shall be subject to penalties 
pursuant to Sec. 163.6 for entry records or sanctions pursuant to 
Secs. 163.9 and 163.10 for other records.
    (5) Failure to comply with alternative storage requirements. If a 
person listed in Sec. 163.2 uses an alternative storage method for 
records that is not in compliance with the conditions and requirements 
of this section, the appropriate Customs office may instruct the person 
in writing to discontinue use of the alternative storage method. The 
instruction shall take effect upon receipt thereof and shall remain in 
effect until the noncompliance has been rectified and alternative 
storage has recommenced in accordance with the procedures set forth in 
paragraph (b)(1) of this section.


Sec. 163.6  Production and examination of entry and other records and 
witnesses; penalties.

    (a) Production of entry records. Pursuant to written, oral, or 
electronic notice, any Customs officer may require the production of 
entry records by any person listed in Sec. 163.2(a) who is required 
under this part to maintain such records, even if the entry records 
were required at the time of entry. Any oral demand for entry records 
shall be followed by a written or electronic demand. The entry records 
shall be produced within 30 calendar days of receipt of the demand or 
within any shorter period as Customs may prescribe when the entry 
records are required in connection with a determination regarding the 
admissibility or release of merchandise. Should any person from whom 
Customs has demanded entry records encounter a problem in timely 
complying with the demand, such person may submit a written or 
electronic request to Customs for approval of a specific additional 
period of time in which to produce the records; the request must be 
received by Customs before the applicable due date for production of 
the records and must include an explanation of the circumstances giving 
rise to the request. Customs will promptly advise the requesting person 
electronically or in writing either that the request is denied or that 
the requested additional time period, or such shorter period as Customs 
may deem appropriate, is approved. The mere fact that a request for 
additional time to produce demanded entry records was submitted under 
this section shall not by itself preclude the imposition of a monetary 
penalty or other sanction under this part for failure to timely produce 
the records, but no such penalty or other sanction will be imposed if 
the request is approved and the records are produced before expiration 
of that additional period of time.
    (b) Failure to produce entry records--(1) Monetary penalties 
applicable. The following penalties may be imposed if a person fails to 
comply with a lawful demand for the production of an entry record and 
is not excused from a penalty pursuant to paragraph (b)(3) of this 
section:
    (i) If the failure to comply is a result of the willful failure of 
the person to maintain, store, or retrieve the demanded record, such 
person shall be subject to a penalty, for each release of merchandise, 
not to exceed $100,000, or an amount equal to 75 percent of the 
appraised value of the merchandise, whichever amount is less; or
    (ii) If the failure to comply is a result of negligence of the 
person in maintaining, storing, or retrieving the demanded record, such 
person shall be subject to a penalty, for each release of merchandise, 
not to exceed $10,000, or an amount equal to 40 percent of the 
appraised value of the merchandise, whichever amount is less.
    (2) Additional actions--(i) General. In addition to any penalty 
imposed under paragraph (b)(1) of this section, and except as otherwise 
provided in paragraph (b)(2)(ii) of this section, if the demanded entry 
record relates to the eligibility of merchandise for a column 1 special 
rate of duty in the Harmonized Tariff Schedule of the United States 
(HTSUS), the entry of such merchandise:
    (A) If unliquidated, shall be liquidated at the applicable HTSUS 
column 1 general rate of duty; or
    (B) If liquidated within the 2-year period preceding the date of 
the demand, shall be reliquidated, notwithstanding the time limitation 
in 19 U.S.C. 1514 or 1520, at the applicable HTSUS column 1 general 
rate of duty.
    (ii) Exception. Any liquidation or reliquidation under paragraph 
(b)(2)(i)(A) or (b)(2)(ii)(B) of this section shall be at the 
applicable HTSUS column 2 rate of duty if Customs demonstrates that the 
merchandise should be dutiable at such rate.
    (3) Avoidance of penalties. No penalty may be assessed under 
paragraph (b)(1)

[[Page 32949]]

of this section if the person who fails to comply with a lawful demand 
for entry records can show:
    (i) That the loss of the demanded record was the result of an act 
of God or other natural casualty or disaster beyond the fault of such 
person or an agent of the person;
    (ii) On the basis of other evidence satisfactory to Customs, that 
the demand was substantially complied with;
    (iii) That the record demanded was presented to and retained by 
Customs at the time of entry or submitted in response to an earlier 
demand; or
    (iv) That he has been certified as a participant in the 
Recordkeeping Compliance Program (see Sec. 163.12), that he is 
generally in compliance with the appropriate procedures and 
requirements of that program, and that the violation in question is his 
first violation and was a non-willful violation.
    (4) Penalties not exclusive. Any penalty imposed under paragraph 
(b)(1) of this section shall be in addition to any other penalty 
provided by law except for:
    (i) A penalty imposed under 19 U.S.C. 1592 for a material omission 
of any information contained in the demanded record; or
    (ii) Disciplinary action taken under 19 U.S.C. 1641.
    (5) Remission or mitigation of penalties. A penalty imposed under 
this section may be remitted or mitigated under 19 U.S.C. 1618.
    (6) Customs summons. The assessment of a penalty under this section 
shall not limit or preclude the issuance or enforcement of a summons 
under this part.
    (c) Examination of entry and other records--(1) Reasons for 
examination. Customs may initiate an investigation or compliance 
assessment, audit or other inquiry for the purpose of:
    (i) Ascertaining the correctness of any entry, determining the 
liability of any person for duties, taxes and fees due or duties, taxes 
and fees which may be due, or determining the liability of any person 
for fines, penalties and forfeitures; or
    (ii) Ensuring compliance with the laws and regulations administered 
or enforced by Customs.
    (2) Availability of records. During the course of any investigation 
or compliance assessment, audit or other inquiry, any Customs officer, 
during normal business hours, and to the extent possible at a time 
mutually convenient to the parties, may examine, or cause to be 
examined, any relevant entry or other records by providing the person 
responsible for such records with reasonable written, oral or 
electronic notice that describes the records with reasonable 
specificity. The examination of entry records shall be subject to the 
notice and production procedures set forth in paragraph (a) of this 
section, and a failure to produce entry records may result in the 
imposition of penalties or the taking of other action as provided in 
paragraph (b) of this section.
    (3) Examination notice not exclusive. In addition to, or in lieu 
of, issuance of an examination notice under paragraph (c)(2) of this 
section, Customs may issue a summons pursuant to Sec. 163.7, and seek 
its enforcement pursuant to Secs. 163.9 and 163.10, to compel the 
production of any records required to be maintained and produced under 
this chapter.


Sec. 163.7  Summons.

    (a) Who may be served. During the course of any investigation or 
compliance assessment, audit or other inquiry initiated for the reasons 
set forth in Sec. 163.6(c), the Commissioner of Customs or his 
designee, but no designee of the Commissioner below the rank of port 
director, field director of regulatory audit or special agent in 
charge, may issue a summons requiring a person within a reasonable 
period of time to appear before the appropriate Customs officer and to 
produce records or give relevant testimony under oath or both. Such a 
summons may be issued to any person who:
    (1) Imported, or knowingly caused to be imported, merchandise into 
the customs territory of the United States;
    (2) Exported merchandise, or knowingly caused merchandise to be 
exported, to a NAFTA country as defined in 19 U.S.C. 3301(4) (see also 
part 181 of this chapter) or to Canada during such time as the United 
States-Canada Free Trade Agreement is in force with respect to, and the 
United States applies that Agreement to, Canada;
    (3) Transported or stored merchandise that was or is carried or 
held under customs bond, or knowingly caused such transportation or 
storage;
    (4) Filed a declaration, entry, or drawback claim with Customs;
    (5) Is an officer, employee, or agent of any person described in 
paragraph (a)(1) through (a)(4) of this section;
    (6) Has possession, custody or care of records relating to an 
importation or other activity described in paragraph (a)(1) through 
(a)(4) of this section; or
    (7) Customs may deem proper.
    (b) Contents of summons--(1) Appearance of person. Any summons 
issued under this section to compel the appearance of a person shall 
state:
    (i) The name, title, and telephone number of the Customs officer 
before whom the appearance shall take place;
    (ii) The address within the customs territory of the United States 
where the person shall appear, not to exceed 100 miles from the place 
where the summons was served;
    (iii) The time of appearance; and
    (iv) The name, address, and telephone number of the Customs officer 
issuing the summons.
    (2) Production of records. If a summons issued under this section 
requires the production of records, the summons shall set forth the 
information specified in paragraph (b)(1) of this section and shall 
also describe the records in question with reasonable specificity.
    (c) Service of summons--(1) Who may serve. Any Customs officer is 
authorized to serve a summons issued under this section if designated 
in the summons to serve it.
    (2) Method of service--(i) Natural person. Service upon a natural 
person shall be made by personal delivery.
    (ii) Corporation, partnership, association. Service shall be made 
upon a domestic or foreign corporation, or upon a partnership or other 
unincorporated association which is subject to suit under a common 
name, by delivery to an officer, managing or general agent, or any 
other agent authorized by appointment or law to receive service of 
process.
    (3) Certificate of service. On the hearing of an application for 
the enforcement of a summons, the certificate of service signed by the 
person serving the summons is prima facie evidence of the facts it 
states.
    (d) Transcript of testimony under oath. Testimony of any person 
taken pursuant to a summons may be taken under oath and when so taken 
shall be transcribed or otherwise recorded. When testimony is 
transcribed or otherwise recorded, a copy shall be made available on 
request to the witness unless for good cause shown the issuing officer 
determines under 5 U.S.C. 555 that a copy should not be provided. In 
that event, the witness shall be limited to inspection of the official 
transcript of the testimony. The testimony or transcript may be in the 
form of a written statement under oath provided by the person examined 
at the request of the Customs officer.


Sec. 163.8  Third-party recordkeeper summons.

    (a) Notice required. Except as otherwise provided in paragraph (f) 
of this section, if a summons issued under Sec. 163.7 to a third-party 
recordkeeper

[[Page 32950]]

requires the production of, or the giving of testimony relating to, 
records pertaining to transactions of any person, other than the person 
summoned, who is identified in the description of the records contained 
in the summons, then notice of the summons shall be provided to the 
person so identified in the summons.
    (b) Time of notice. The notice of service of summons required by 
paragraph (a) of this section should be provided by the issuing officer 
immediately after service of summons is obtained under Sec. 163.7(c), 
but in no event shall notice be given less than 10 business days before 
the date set in the summons for the production of records or the giving 
of testimony.
    (c) Contents of notice. The issuing officer shall ensure that any 
notice issued under this section includes a copy of the summons and 
provides the following information:
    (1) That compliance with the summons may be stayed if written 
direction not to comply with the summons is given by the person 
receiving notice to the person summoned;
    (2) That a copy of any such direction to not comply and a copy of 
the summons shall be sent by registered or certified mail to the person 
summoned and to the Customs officer who issued the summons; and
    (3) That the actions under paragraphs (c)(1) and (c)(2) of this 
section shall be accomplished not later than the day before the day 
fixed in the summons as the day upon which the records are to be 
examined or the testimony is to be given.
    (d) Service of notice. The Customs officer who issues the summons 
shall serve the notice required by paragraph (a) of this section in the 
same manner as is prescribed in Sec. 163.7(c)(2) for the service of a 
summons, or by certified or registered mail to the last known address 
of the person entitled to notice.
    (e) Examination of records precluded. If notice is required by this 
section, no record may be examined before the date fixed in the summons 
as the date to produce the records. If the person entitled to notice 
under paragraph (a) of this section issues a stay of compliance with 
the summons in accordance with paragraph (c) of this section, no 
examination of records shall take place except with the consent of the 
person staying compliance or pursuant to an order issued by a U.S. 
district court.
    (f) Exceptions to notice and stay of summons provisions--(1) 
Personal liability for duties, fees, or taxes. The notice provisions of 
paragraph (a) of this section shall not apply to any summons served on 
the person, or on any officer or employee of the person, with respect 
to whose liability for duties, fees, or taxes the summons is issued.
    (2) Verification of existence of records. The notice provisions of 
paragraph (a) of this section shall not apply to any summons issued to 
determine whether or not records of transactions of an identified 
person have been made or kept.
    (3) Judicial determination. The notice provisions of paragraph (a) 
of this section and the stay of compliance provisions of paragraph (c) 
of this section shall not apply with respect to a summons described in 
paragraph (a) of this section if a U.S. district court determines, upon 
petition by the issuing Customs officer, that reasonable cause exists 
to believe that the giving of notice may lead to an attempt:
    (i) To conceal, destroy, or alter relevant records;
    (ii) To prevent the communication of information from other persons 
through intimidation, bribery, or collusion; or
    (iii) To flee to avoid prosecution, testifying, or production of 
records.


Sec. 163.9  Enforcement of summons.

    Whenever a person does not comply with a Customs summons, the 
issuing officer may request the appropriate U.S. attorney to seek an 
order requiring compliance from the U.S. district court for the 
district in which the person is found or resides or is doing business. 
A person who is entitled to notice under Sec. 163.8(a) shall have a 
right to intervene in any such enforcement proceeding.


Sec. 163.10  Failure to comply with court order; penalties.

    (a) Monetary penalties. The U.S. district court for any judicial 
district in which a person served with a Customs summons is found or 
resides or is doing business may order such person to comply with the 
summons. Upon the failure of a person to obey a court order to comply 
with a Customs summons, the court may find such person in contempt and 
may assess a monetary penalty.
    (b) Importations prohibited. If a person fails to comply with a 
court order to comply with a Customs summons and is adjudged guilty of 
contempt, the Commissioner of Customs, with the approval of the 
Secretary of the Treasury, for so long as that person remains in 
contempt:
    (1) May prohibit importation of merchandise by that person, 
directly or indirectly, or for that person's account; and
    (2) May withhold delivery of merchandise imported by that person, 
directly or indirectly, or for that person's account.
    (c) Sale of merchandise. If any person remains in contempt for more 
than 1 year after the Commissioner issues instructions to withhold 
delivery under paragraph (b)(2) of this section, the merchandise shall 
be considered abandoned and shall be sold at public auction or 
otherwise disposed of in accordance with subpart E of part 162 of this 
chapter.


Sec. 163.11  Compliance assessment and other audit procedures.

    (a) Conduct of a Customs compliance assessment or other audit. In 
conducting a compliance assessment or other audit, the Customs 
auditors, except as otherwise provided in paragraph (c) of this 
section, shall:
    (1) Provide notice, telephonically and in writing, to the person 
who is to be the subject of the compliance assessment or other audit, 
in advance of the compliance assessment or other audit and with a 
reasonable estimate of the time to be required for the compliance 
assessment or other audit;
    (2) Inform the person who is to be the subject of the compliance 
assessment or other audit, in writing and before commencing the 
compliance assessment or other audit, of his right to an entry 
conference at which time the objectives and records requirements of the 
compliance assessment or other audit will be explained and the 
estimated termination date will be set;
    (3) Provide a further estimate of any additional time for the 
compliance assessment or other audit if, in the course of the 
compliance assessment or other audit, it becomes apparent that 
additional time will be required;
    (4) Schedule a closing conference upon completion of the compliance 
assessment or other audit on-site work to explain the preliminary 
results of the compliance assessment or other audit;
    (5) Complete a formal written compliance assessment or other audit 
report within 90 calendar days following the closing conference 
referred to in paragraph (a)(4) of this section, unless the Director, 
Regulatory Audit Division, at Customs Headquarters provides written 
notice to the person who was the subject of the compliance assessment 
or other audit of the reason for any delay and the anticipated 
completion date; and
    (6) After application of any exemption contained in 5 U.S.C. 552, 
send a copy of the formal written compliance assessment or other audit 
report to the person who was the subject of the compliance assessment 
or other audit

[[Page 32951]]

within 30 calendar days following completion of the report.
    (b) Petition procedures for failure to conduct closing conference. 
Except as otherwise provided in paragraph (c) of this section, if the 
estimated or actual termination date for a compliance assessment or 
other audit passes without a Customs auditor providing a closing 
conference to explain the results of the compliance assessment or other 
audit, the person who was the subject of the compliance assessment or 
other audit may petition in writing for such a conference to the 
Director, Regulatory Audit Division, U.S. Customs Service, Washington, 
DC 20229. Upon receipt of such a request, the Director shall provide 
for such a conference to be held within 15 calendar days after the date 
of receipt.
    (c) Exception to procedures. Paragraphs (a)(5), (a)(6) and (b) of 
this section shall not apply after Customs commences a formal 
investigation with respect to the issue involved.


Sec. 163.12  Recordkeeping Compliance Program.

    (a) General. The Recordkeeping Compliance Program is a voluntary 
Customs program under which certified recordkeepers may be eligible for 
alternatives to penalties (see paragraph (d) of this section) that 
might be assessed under Sec. 163.6 for failure to produce a demanded 
entry record. However, even where a certified recordkeeper is eligible 
for an alternative to a penalty, participation in the Recordkeeping 
Compliance Program has no limiting effect on the authority of Customs 
to use a summons, court order or other legal process to compel the 
production of records by that certified recordkeeper.
    (b) Certification procedures--(1) Who may apply. Any person 
described in Sec. 163.2(a) who is required to maintain and produce 
entry records under this part may apply to participate in the 
Recordkeeping Compliance Program.
    (2) Where to apply. An application for certification to participate 
in the Recordkeeping Compliance Program shall be submitted to the 
Director, Regulatory Audit Division, U.S. Customs Service, 909 S.E. 
First Avenue, Miami, Florida 33131. The application shall be submitted 
in accordance with the guidelines contained in the Customs 
Recordkeeping Compliance Handbook which may be obtained by downloading 
it from the Customs Electronic Bulletin Board (703-921-6155) or by 
writing to the Recordkeeping Compliance Program, Regulatory Audit 
Division, Office of Strategic Trade, U.S. Customs Service, 909 S.E. 
First Avenue, Suite 710, Miami, Florida 33131.
    (3) Certification requirements. A recordkeeper may be certified as 
a participant in the Recordkeeping Compliance Program after meeting the 
general recordkeeping requirements established under this section or 
after negotiating an alternative program suited to the needs of the 
recordkeeper and Customs. To be certified, a recordkeeper must be in 
compliance with Customs laws and regulations. Customs will take into 
account the size and nature of the importing business and the volume of 
imports and Customs workload constraints prior to granting 
certification. In order to be certified, a recordkeeper must meet the 
applicable requirements set forth in the Customs Recordkeeping 
Compliance Handbook and must be able to demonstrate that it:
    (i) Understands the legal requirements for recordkeeping, including 
the nature of the records required to be maintained and produced and 
the time periods relating thereto;
    (ii) Has in place procedures to explain the recordkeeping 
requirements to those employees who are involved in the preparation, 
maintenance and production of required records;
    (iii) Has in place procedures regarding the preparation and 
maintenance of required records, and the production of such records to 
Customs;
    (iv) Has designated a dependable individual or individuals to be 
responsible for recordkeeping compliance under the program and whose 
duties include maintaining familiarity with the recordkeeping 
requirements of Customs;
    (v) Has a record maintenance procedure acceptable to Customs for 
original records or has an alternative records maintenance procedure 
adopted in accordance with Sec. 163.5(b); and
    (vi) Has procedures for notifying Customs of any occurrence of a 
variance from, or violation of, the requirements of the Recordkeeping 
Compliance Program or negotiated alternative program, as well as 
procedures for taking corrective action when notified by Customs of 
violations or problems regarding such program. For purposes of this 
paragraph, the term ``variance'' means a deviation from the 
Recordkeeping Compliance Program that does not involve a failure to 
maintain or produce records or a failure to meet the requirements set 
forth in this section. For purposes of this paragraph, the term 
``violation'' means a deviation from the Recordkeeping Compliance 
Program that involves a failure to maintain or produce records or a 
failure to meet the requirements set forth in this section.
    (c) Application review and approval and certification process--(1) 
Review of applications. The Miami regulatory audit field office will 
process the application and will coordinate and consult, as may be 
necessary, with the appropriate Customs Headquarters and field 
officials. The Miami regulatory audit field office will review and 
verify the information contained in the application and may initiate an 
on-site verification prior to approval and certification. If an on-site 
visit is warranted, the Miami regulatory audit field office shall 
inform the applicant. If additional information is necessary to process 
the application, the applicant shall be notified. Customs requests for 
information not submitted with the application or for additional 
explanation of details will cause a delay in the application approval 
and certification of applicants and may result in the suspension of the 
application approval and certification process until the requested 
information is received by Customs.
    (2) Approval and certification. If, upon review, Customs determines 
that the application should be approved and that certification should 
be granted, the Director of the Miami regulatory audit field office 
shall issue the certification with all the applicable conditions stated 
therein.
    (d) Alternatives to penalties--(1) General. If a certified 
participant in the Recordkeeping Compliance Program does not produce a 
demanded entry record for a specific release or provide the information 
contained in the demanded entry record by acceptable alternate means, 
Customs shall, in lieu of a monetary penalty provided for in 
Sec. 163.6(b), issue a written notice of violation to the person as 
described in paragraph (d)(2) of this section, provided that the 
certified participant is generally in compliance with the procedures 
and requirements of the program and provided that the violation was not 
a willful violation and was not a repeat violation. A willful failure 
to produce demanded entry records or repeated failures to produce 
demanded entry records may result in the issuance of penalties under 
Sec. 163.6(b) and removal of certification under the program (see 
Sec. 163.13) until corrective action satisfactory to Customs is taken.
    (2) Contents of notice. A notice of violation issued to a 
participant in the Recordkeeping Compliance Program for failure to 
produce a demanded entry record or information contained therein shall:

[[Page 32952]]

    (i) State that the recordkeeper has violated the recordkeeping 
requirements;
    (ii) Identify the record or information which was demanded and not 
produced;
    (iii) Warn the recordkeeper that future failures to produce 
demanded entry records or information contained therein may result in 
the imposition of monetary penalties and could result in the removal of 
the recordkeeper from the Recordkeeping Compliance Program.
    (3) Response to notice. Within a reasonable time after receiving 
written notice under paragraph (d)(1) of this section, the recordkeeper 
shall notify Customs of the steps it has taken to prevent a recurrence 
of the violation.


Sec. 163.13  Denial and removal of program certification; appeal 
procedures.

    (a) General. Customs may take, and applicants and participants may 
appeal and obtain administrative review of, the following decisions 
regarding the Recordkeeping Compliance Program provided for in 
Sec. 163.12:
    (1) Denial of certification for program participation in accordance 
with paragraph (b) of this section; and
    (2) Removal of certification for program participation in 
accordance with paragraph (c) of this section.
    (b) Denial of certification for program participation--(1) Grounds 
for denial. Customs may deny an application for certification for 
participation in the Recordkeeping Compliance Program for any of the 
following reasons:
    (i) The applicant fails to meet the requirements set forth in 
Sec. 163.12(b)(3);
    (ii) A circumstance involving the applicant arises that would 
justify initiation of a certification removal action under paragraph 
(c) of this section; or
    (iii) In the judgment of Customs, the applicant appears not to be 
in compliance with Customs laws and regulations.
    (2) Denial procedure. If the Director of the Miami regulatory audit 
field office determines that an application submitted under Sec. 163.12 
should not be approved and that certification for participation in the 
Recordkeeping Compliance Program should not be granted, the Director 
shall issue a written notice of denial to the applicant. The notice of 
denial shall set forth the reasons for the denial and shall advise the 
applicant of its right to file an appeal of the denial in accordance 
with paragraph (d) of this section.
    (c) Certification removal--(1) Grounds for removal. The 
certification for participation in the Recordkeeping Compliance Program 
by a certified recordkeeper may be removed when any of the following 
conditions are discovered:
    (i) The certification privilege was obtained through fraud or 
mistake of fact;
    (ii) The program participant no longer has a valid bond;
    (iii) The program participant fails on a recurring basis to provide 
entry records when demanded by Customs;
    (iv) The program participant willfully refuses to produce a 
demanded or requested record;
    (v) The program participant is no longer in compliance with the 
Customs laws and regulations, including the requirements set forth in 
Sec. 163.12(b)(3); or
    (vi) The program participant is convicted of any felony or has 
committed acts which would constitute a misdemeanor or felony involving 
theft, smuggling, or any theft-connected crime.
    (2) Removal procedure. If Customs determines that the certification 
of a program participant should be removed, the Director of the Miami 
regulatory audit field office shall serve the program participant with 
written notice of the removal. Such notice shall inform the program 
participant of the grounds for the removal and shall advise the program 
participant of its right to file an appeal of the removal in accordance 
with paragraph (d) of this section.
    (3) Effect of removal. The removal of certification shall be 
effective immediately in cases of willfulness on the part of the 
program participant or when required by public health, interest, or 
safety. In all other cases, the removal of certification shall be 
effective when the program participant has received notice under 
paragraph (c)(2) of this section and either no appeal has been filed 
within the time limit prescribed in paragraph (d)(2) of this section or 
all appeal procedures thereunder have been concluded by a decision that 
upholds the removal action. Removal of certification may subject the 
affected person to penalties.
    (d) Appeal of certification denial or removal--(1) Appeal of 
certification denial. A person may challenge a denial of an application 
for certification for participation in the Recordkeeping Compliance 
Program by filing a written appeal with the Director, Regulatory Audit 
Division, U.S. Customs Service, Washington, DC 20229. The appeal must 
be received by the Director, Regulatory Audit Division, within 30 
calendar days after issuance of the notice of denial. The Director, 
Regulatory Audit Division, will review the appeal and will respond with 
a written decision within 30 calendar days after receipt of the appeal 
unless circumstances require a delay in issuance of the decision. If 
the decision cannot be issued within the 30-day period, the Director, 
Regulatory Audit Division, will advise the appellant of the reasons for 
the delay and of any further actions which will be carried out to 
complete the appeal review and of the anticipated date for issuance of 
the appeal decision.
    (2) Appeal of certification removal. A certified recordkeeper who 
has received a Customs notice of removal of certification for 
participation in the Recordkeeping Compliance Program may challenge the 
removal by filing a written appeal with the Director, Regulatory Audit 
Division, U.S. Customs Service, Washington, DC 20229. The appeal must 
be received by the Director, Regulatory Audit Division, within 30 
calendar days after issuance of the notice of removal. The Director, 
Regulatory Audit Division, shall consider the allegations upon which 
the removal was based and the responses made thereto by the appellant 
and shall render a written decision on the appeal within 30 calendar 
days after receipt of the appeal.

Appendix to Part 163--Interim (a)(1)(A) List

List of Records Required for the Entry of Merchandise

General Information

    (1) Section 508 of the Tariff Act of 1930, as amended (19 U.S.C. 
1508), sets forth the general recordkeeping requirements for 
Customs-related activities. Section 509 of the Tariff Act of 1930, 
as amended (19 U.S.C. 1509) sets forth the procedures for the 
production and examination of those records (which includes, but is 
not limited to, any statement, declaration, document, or 
electronically generated or machine readable data).
    (2) Section 509(a)(1)(A) of the Tariff Act of 1930, as amended 
by title VI of Public Law 103-182, commonly referred to as the 
Customs Modernization Act (19 U.S.C. 1509(a)(1)(A)), requires the 
production, within a reasonable time after demand by the Customs 
Service is made (taking into consideration the number, type and age 
of the item demanded) if ``such record is required by law or 
regulation for the entry of the merchandise (whether or not the 
Customs Service required its presentation at the time of entry).'' 
Section 509(e) of the Tariff Act of 1930, as amended by Public Law 
103-182 (19 U.S.C. 1509(e)) requires the Customs Service to identify 
and publish a list of the records and entry information that is 
required to be maintained and produced under subsection (a)(1)(A) of 
section 509 (19 U.S.C. 1509(a)(1)(A)). This list is commonly 
referred to as ``the (a)(1)(A) list.''
    (3) The Customs Service has tried to identify all the presently 
required entry

[[Page 32953]]

information or records on the following list. However, as automated 
programs and new procedures are introduced, these may change. In 
addition, errors and omissions to the list may be discovered upon 
further review by Customs officials or the trade. Pursuant to 
section 509(g), the failure to produce listed records or information 
upon reasonable demand may result in penalty action or liquidation 
or reliquidation at a higher rate than entered. A recordkeeping 
penalty may not be assessed if the listed information or records are 
transmitted to and retained by Customs.
    (4) Other recordkeeping requirements: The importing community 
and Customs officials are reminded that the (a)(1)(A) list only 
pertains to records or information required for the entry of 
merchandise. An owner, importer, consignee, importer of record, 
entry filer, or other party who imports merchandise, files a 
drawback claim or transports or stores bonded merchandise, any agent 
of the foregoing, or any person whose activities require them to 
file a declaration or entry, is also required to make, keep and 
render for examination and inspection records (including, but not 
limited to, statements, declarations, documents and electronically 
generated or machine readable data) which pertain to any such 
activity or the information contained in the records required by the 
Tariff Act in connection with any such activity, and are normally 
kept in the ordinary course of business. While these records are not 
subject to administrative penalties, they are subject to examination 
and/or summons by Customs officers. Failure to comply could result 
in the imposition of significant judicially imposed penalties and 
denial of import privileges.
    (5) The following list does not replace entry requirements, but 
is merely provided for information and reference. In the case of the 
list conflicting with regulatory or statutory requirements, the 
latter will govern.

List of Records and Information Required for the Entry of 
Merchandise

    The following records (which include, but are not limited to, 
any statement, declaration, document, or electronically generated or 
machine readable data) are required by law or regulation for the 
entry of merchandise and are required to be maintained and produced 
to Customs upon reasonable demand (whether or not Customs required 
their presentation at the time of entry). Information may be 
submitted to Customs at the time of entry in a Customs authorized 
electronic or paper format. Not every entry of merchandise requires 
all of the following information. Only those records or information 
applicable to the entry requirements for the merchandise in question 
will be required/mandatory. The list may be amended as Customs 
reviews its requirements and continues to implement the Customs 
Modernization Act. When a record or information is filed with and 
retained by Customs, the record is not subject to recordkeeping 
penalties, although the underlying backup or supporting information 
from which it is obtained may also be subject to the general record 
retention regulations and examination or summons pursuant to 19 
U.S.C. 1508 and 1509. (All references, unless otherwise indicated, 
are to the current edition of title 19, Code of Federal Regulations, 
as amended by subsequent Federal Register documents.)
    I. General list of records required for most entries. 
Information shown with an asterisk (*) is usually on the appropriate 
form and filed with and retained by Customs:

Secs. 141.11 through 141.15  Evidence of right to make entry (airway 
bill/bill of lading or *carrier certificate, etc.) when goods are 
imported on a common carrier
Sec. 141.19  * Declaration of entry (usually contained on the entry 
summary or warehouse entry)
Sec. 141.32  Power of attorney (when required by regulations)
Sec. 141.54  Consolidated shipments authority to make entry (if this 
procedure is utilized)
Sec. 142.3  Packing list (where appropriate)
Sec. 142.4  Bond information (except if 10.101 or 142.4(c) applies)
Parts 4, 18, 122, 123  * Vessel, Vehicle or Air Manifest (filed by 
the carrier)

    II. The following records or information are required by 
Sec. 141.61 on Customs Form (CF) 3461 or CF 7533 or the regulations 
cited. Information shown with an asterisk (*) is contained on the 
appropriate form and/or otherwise filed with and retained by 
Customs:

Secs. 142.3, 142.3a  * Entry Number
    * Entry Type Code
    * Elected Entry Date
    * Port Code
Sec. 142.4  * Bond information
Secs. 141.61, 142.3a  * Broker/Importer Filer Number
Secs. 141.61, 142.3  * Ultimate Consignee Name and Number/street 
address of premises to be delivered
Sec. 141.61  * Importer of Record Number
    * Country of Origin
Sec. 141.11  * IT/BL/AWB Number and Code
    * Arrival Date
Sec. 141.61  * Carrier Code
    * Voyage/Flight/Trip
    * Vessel Code/Name
    * Manufacturer ID Number (for AD/CVD must be actual mfr.)
    * Location of Goods-Code(s)/Name(s)
    * U.S. Port of Unlading
    * General Order Number (only when required by the regulations)
Sec. 142.6  * Description of Merchandise
Sec. 142.6  * HTSUSA Number
Sec. 142.6  * Manifest Quantity
    * Total Value
    * Signature of Applicant

    III. In addition to the information listed above, the following 
records or items of information are required by law and regulation 
for the entry of merchandise and are presently required to be 
produced by the importer of record at the time the Customs Form 7501 
is filed:

Sec. 141.61  * Entry Summary Date
Sec. 141.61  * Entry Date
Sec. 142.3  * Bond Number, Bond Type Code and Surety code
Sec. 142.3  * Ultimate Consignee Address
Sec. 141.61  * Importer of Record Name and Address
Sec. 141.61  * Exporting Country and Date Exported
    * I.T. (In-bond) Entry Date (for IT Entries only)
    * Mode of Transportation (MOT Code)
Sec. 141.61  * Importing Carrier Name
Sec. 141.82  Conveyance Name/Number
    * Foreign Port of Lading
    * Import Date and Line Numbers
    * Reference Number
    * HTSUS Number
Sec. 141.61  * Identification number for merchandise subject to 
Anti-dumping or Countervailing duty order (ADA/CVD Case Number)
Sec. 141.61  * Gross Weight
    * Manifest Quantity
Sec. 141.61  * Net Quantity in HTSUSA Units
Sec. 141.61  * Entered Value, Charges, and Relationship
Sec. 141.61  * Applicable HTSUSA Rate, ADA/CVD Rate, I.R.C. Rate, 
and/or Visa Number, Duty, I.R. Tax, and Fees (e.g. HMF, MPF, Cotton)
Sec. 141.61  Non-Dutiable Charges
Sec. 141.61  * Signature of Declarant, Title, and Date
    * Textile Category Number
Sec. 141.83, 141.86  Invoice information which includes, e.g., date, 
number, merchandise (commercial product) description, quantities, 
values, unit price, trade terms, part, model, style, marks and 
numbers, name and address of foreign party responsible for 
invoicing, kind of currency
    Terms of Sale
    Shipping Quantities
    Shipping Units of Measurements
    Manifest Description of Goods
    Foreign Trade Zone Designation and Status
    Designation (if applicable)
    Indication of Eligibility for Special Access Program (9802/GSP/
CBI)
Sec. 141.89  CF 5523
Part 141  Corrected Commercial Invoice
141.86 (e)  Packing List
177.8  * Binding Ruling Identification Number (or a copy of the 
ruling)
Sec. 10.102  Duty Free Entry Certificate (9808.00.30009 HTS)
Sec. 10.108  Lease Statement

    IV. Documents/records or information required for entry of 
special categories of merchandise (the listed documents or 
information is only required for merchandise entered [or required to 
be entered] in accordance with the provisions of the sections of 19 
CFR [the Customs Regulations] listed). These are in addition to any 
documents/records or information required by other agencies in their 
regulations for the entry of merchandise:

Sec. 4.14  CF 226 Information for vessel repairs, parts and 
equipment
Sec. 7.3(f)  CF 3229 Origin certificate for insular possessions 
Shipper's and importer's declaration for insular possessions
Part 10  Documents required for entry of articles exported and 
returned:
Secs. 10.1 through 10.6  Foreign shipper's declaration or master's 
certificate, declaration for free entry by owner, importer or 
consignee
Sec. 10.7  Certificate from foreign shipper for reusable containers

[[Page 32954]]

Sec. 10.8  Declaration of person performing alterations or repairs
    Declaration for non-conforming merchandise
Sec. 10.9  Declaration of processing
Sec. 10.24  Declaration by assembler Endorsement by importer
Secs. 10.31, 10.35  Documents required for Temporary Importations 
Under Bond:
    Information required, Bond or Carnet
Sec. 10.36  Lists for samples, professional equipment, theatrical 
effects
    Documents required for Instruments of International Traffic:
Sec. 10.41  Application, Bond or TIR carnet

    Note: additional 19 U.S.C. 1508 records: see Sec. 10.41b(e)

Sec. 10.43  Documents required for exempt organizations
Sec. 10.46  Request from head of agency for 9808.00.10 or 9808.00.20 
HTSUS treatment
    Documents required for works of art
Sec. 10.48  Declaration of artist, seller or shipper, curator, etc.
Secs. 10.49, 10.52  Declaration by institution
Sec. 10.53  Declaration by importer
    USFWS Form 3-177, if appropriate
Secs. 10.59, 10.63  Documents/CF 5125 for withdrawal of ship 
supplies
Secs. 10.66, 10.67  Declarations for articles exported and returned
Secs. 10.68, 10.69  Documents for commercial samples, tools, 
theatrical effects
Secs. 10.70, 10.71  Purebred breeding certificate
Sec. 10.84  Automotive Products certificate
Sec. 10.90  Master records and metal matrices: detailed statement of 
cost of production
Sec. 10.98  Declarations for copper fluxing material
Sec. 10.99  Declaration of non-beverage ethyl alcohol, ATF permit
Secs. 10.101 through 10.102  Stipulation for government shipments 
and/or certification for government duty-free entries, etc.
Sec. 10.107  Report for rescue and relief equipment
15 CFR part 301  Requirements for entry of scientific and 
educational apparatus
Sec. 10.121  Certificate from USIA for visual/auditory materials
Sec. 10.134  Declaration of actual use (When classification involves 
actual use)
Sec. 10.138  End Use Certificate
Secs. 10.171 through 10.178  Documents, etc. required for entries of 
GSP merchandise, GSP Declaration (plus supporting documentation)
Sec. 10.174  Evidence of direct shipment
Sec. 10.179  Certificate of importer of crude petroleum
Sec. 10.180  Certificate of fresh, chilled or frozen beef
Sec. 10.183  Civil aircraft parts/simulator documentation and 
certifications
Secs. 10.191 through 10.198  Documents, etc. required for entries of 
CBI merchandise, CBI declaration of origin (plus supporting 
information)
Sec. 10.194  Evidence of direct shipment
<dagger>[Sec. 10.306  Evidence of direct shipment for CFTA]
<dagger>[Sec. 10.307  Documents, etc. required for entries under 
CFTA Certificate of origin of CF 353]

    [<dagger>CFTA provisions are suspended while NAFTA remains in 
effect. See part 181]

Sec. 12.6  European Community cheese affidavit
Sec. 12.7  HHS permit for milk or cream importation
Sec. 12.11  Notice of arrival for plant and plant products
Sec. 12.17  APHIS Permit animal viruses, serums and toxins
Sec. 12.21  HHS license for viruses, toxins, antitoxins, etc. for 
treatment of man
Sec. 12.23  Notice of claimed investigational exemption for a new 
drug
Secs. 12.26 through 12.31  Necessary permits from APHIS, FWS & 
foreign government certificates when required by the applicable 
regulation
Sec. 12.33  Chop list, proforma invoice and release permit from HHS
Sec. 12.34  Certificate of match inspection and importer's 
declaration
Sec. 12.43  Certificate of origin/declarations for goods made by 
forced labor, etc.
Sec. 12.61  Shipper's declaration, official certificate for seal and 
otter skins
Secs. 12.73, 12.80  Motor vehicle declarations
Sec. 12.85  Boat declarations (CG-5096) and USCG exemption
Sec. 12.91  FDA form 2877 and required declarations for electronics 
products
Sec. 12.99  Declarations for switchblade knives
Secs. 12.104 through 12.104i  Cultural property declarations, 
statements and certificates of origin
Sec. 12.105 through 12.109  Pre-Columbian monumental and 
architectural sculpture and murals
    Certificate of legal exportation
    Evidence of exemption
Sec. 12.110  Pesticides, etc. notice of arrival
Secs. 12.118 through 12.127  Toxic substances: TSCA statements
Sec. 12.130  Textiles & textile products
    Single country declaration
    Multiple country declaration
    VISA
Sec. 12.132  NAFTA textile requirements
Sec. 12.140  Province of first manufacture, export permit number and 
fee status of softwood lumber from Canada
Sec. 54.5  Declaration by importer of use of certain metal articles
Sec. 54.6(a)  Re-Melting Certificate
Part 114  Carnets (serves as entry and bond document where 
applicable)
Part 115  Container certificate of approval
Part 128  Express consignments
Sec. 128.21  * Manifests with required information (filed by 
carrier)
Sec. 132.23  Acknowledgment of delivery for mailed items subject to 
quota
Sec. 133.21(b)(6)  Consent from trademark or trade name holder to 
import otherwise restricted goods
Secs. 134.25, 134.36  Certificate of marking; notice to repacker
Sec. 141.88  Computed value information
Sec. 141.89  Additional invoice information required for certain 
classes of merchandise including, but not limited to:
    Textile Entries: Quota charge Statement, if applicable including 
Style Number, Article Number and Product
    Steel Entries: Ordering specifications, including but not 
limited to, all applicable industry standards and mill certificates, 
including but not limited to, chemical composition.
Sec. 143.13  Documents required for appraisement entries Bills, 
statements of costs of production Value declaration
Sec. 143.23  Informal entry: commercial invoice plus declaration
Sec. 144.12  Warehouse entry information
Sec. 145.11  Customs Declaration for Mail, Invoice
Sec. 145.12  Mail entry information (CF 3419 is completed by Customs 
but formal entry may be required.)
Part 148  Supporting documents for personal importations
Part 151, subpart B  Scale Weight
Part 151, subpart B  Sugar imports sampling/lab information 
(Chemical Analysis)
Part 151, subpart C  Petroleum imports sampling/lab information Out 
turn Report 24. to 25.--Reserved
Part 151, subpart E  Wool and Hair invoice information, additional 
documents
Part 151, subpart F  Cotton invoice information, additional 
documents
Sec. 181.22  NAFTA Certificate of origin and supporting records
19 U.S.C. 1356k  Coffee Form O (currently suspended)

Other Federal and State Agency Documents

State and Local Government Records
Other Federal Agency Records (See 19 CFR part 12, 19 U.S.C. 1484, 
1499)
Licenses, Authorizations, Permits

Foreign Trade Zones

Sec. 146.32  Supporting documents to CF 214

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:


Sec. 178.2  Listing of OMB control numbers.

      

[[Page 32955]]



------------------------------------------------------------------------
                                                             OMB control
          19 CFR section                  Description            No.    
------------------------------------------------------------------------
                                                                        
*                  *                  *                  *              
                  *                  *                  *               
Part 163.........................  General recordkeeping       1515-0214
                                    and record production               
                                    requirements.                       
                                                                        
*                  *                  *                  *              
                  *                  *                  *               
------------------------------------------------------------------------

PART 181--NORTH AMERICAN FREE TRADE AGREEMENT

    1. The authority citation for Part 181 continues to read as 
follows:

    Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized 
Tariff Schedule of the United States), 1624, 3314.


Sec. 181.12  [Amended]

    2. In Sec. 181.12, the introductory text of paragraph (a)(1) is 
amended by removing the words ``all records'' and adding, in their 
place, the words ``the Certificate (or a copy thereof) and all other 
records'', and paragraph (b)(1) is amended by removing the reference 
``Sec. 162.1d'' and adding, in its place, the reference ``part 163''.
    3. In Sec. 181.13, a new sentence is added at the end to read as 
follows:


Sec. 181.13  Failure to comply with requirements.

    * * * Such measures may include the imposition of penalties 
pursuant to 19 U.S.C. 1508(e) for failure to retain records required to 
be maintained under Sec. 181.12.


Sec. 181.22  [Amended]

    4. In Sec. 181.22, the second sentence of paragraph (a) is amended 
by removing the reference ``Sec. 162.1a(a)'' and adding, in its place, 
the reference ``Sec. 163.1(a)''.

    Approved: May 26, 1998.
Samuel H. Banks,
Acting Commissioner of Customs.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 98-15771 Filed 6-15-98; 8:45 am]
BILLING CODE 4820-02-P