32916 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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.

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

§ 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.’’
32918 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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 § 163.2(a) as being required to

maintain records are specifically

required by § 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

§ 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 §§ 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 § 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, § 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 § 163.4(b) text as discussed

above in the point 2 comment response.

The modified § 163.4(b) text, together

with the provision for alternative

storage of records in § 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

§ 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

§ 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 § 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 § 111.21(b) was

included to reflect this fact. Thus, the

‘‘provisions’’ referred to in § 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 § 163.1(a).

Customs notes that present § 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
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 32919

was importer of record, etc.) which,

even if they are not records required to

be maintained under section 508, are

nevertheless records that pertain to the

conduct of ‘‘customs business’’ as that

term is defined in section 1641. For

purposes of consistency and in order to

clarify the broad scope of amended

§ 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 § 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 § 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

§ 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 § 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 § 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 § 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 § 111.21 which requires a customs

broker to designate a knowledgeable

company employee to be the broker’s

recordkeeping officer as well as a backup 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

§ 111.21 as discussed above in the

comment response regarding

§ 111.21(b).

Section 111.22—Additional Record of

Transactions

Comment: A commenter supported

the proposed amendment to § 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 § 111.21(c) discussed in the comment

response immediately above would

appear to affect the wording of the

proposed changes to § 111.22, Customs

has reconsidered the need for § 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

§ 111.22, and the recordkeeping burden

imposed thereby, are no longer

necessary. Accordingly, the final

regulatory amendments set forth below

include the removal of § 111.22 in its

entirety.

Section 111.23(a)(1)—Consolidation of

Records

Comment: Four comments were

received on the proposed revision of

§ 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
32920 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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 § 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 § 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 § 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 § 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

§ 111.23 amendments) has been

removed because its substance is

adequately covered by other provisions

within § 111.23 and Part 163.

3. Customs agrees, and the modified

§ 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 § 163.6.

5. While Customs agrees with this

commenter’s observation, it is

essentially rendered moot by the

changes to §§ 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 § 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

§ 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
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 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 § 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 § 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 § 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 § 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 § 163.5; thus, in

view of the cross-reference to Part 163

in amended § 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

§ 143.37.

In addition, also based on a further

internal review, Customs has

determined that present § 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

§ 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

§ 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

§ 163.6(b)(5)(ii) (redesignated as

§ 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
32922 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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 § 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 § 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

§ 163.2(g) (redesignated as § 163.2(e) as

set forth below).

Comment: In the introductory text of

proposed § 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 § 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 § 163.5 and in

referring to demanded ‘‘information’’ in

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

§ 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

§ 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 (§ 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 § 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 § 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 § 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 § 111.21 without client

participation.’’ This commenter asserted

that: (1) The purpose of § 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 § 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 § 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 § 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 § 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

§ 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

§ 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 § 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

§ 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
32924 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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 § 163.5(b) and

would not relieve the primary

recordkeeper from certification

requirements set forth in proposed

§ 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

§ 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 § 163.5(c)(9); and

(5) it would expedite the quarterly

internal sampling-exception-reporting/

testing required by proposed

§ 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

§ 163.1(c) (definition of ‘‘audit’’),

because the § 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

§ 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 § 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 § 163.1

definitions did not address this

distinction. It is clear that, in the
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 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, § 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 § 163.1(h) but also with

reference to the basic requirement in

proposed § 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

§ 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 § 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 § 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 § 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 § 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
32926 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

under § 163.5(b). The third and fourth

commenters suggested that the reference

in the definition to copies and multipart 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 § 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 § 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 § 163.1(h) should include provision

for exemption which may be granted

under § 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

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

§ 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 ‘‘ThirdParty 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 § 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 § 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

§ 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 § 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

§ 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 § 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
32928 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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 § 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 § 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 § 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

§ 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 § 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 § 163.2(b) text, Customs

has discovered that the text (which was

based on present § 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 § 163.2(a).
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 32929

The wording of introductory text of

§ 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 § 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, § 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 § 143.39.

Based on a further internal review of

proposed § 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 § 163.1(a) definition of ‘‘records’’

and in paragraph (a) of § 163.2.

Accordingly, these two paragraphs have

been removed from the text of § 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 § 163.2(g)

(redesignated below as § 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 § 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

§ 163.6, to the exclusion of the § 163.3

legal guidelines. This commenter

therefore stated that the § 163.3

language should be moved to § 163.6

where it is more appropriate.

2. One commenter noted that, because

under § 163.2(a) recordkeepers include

companies that do not act as importers

of record but that knowingly caused

merchandise to be imported, § 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

§ 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 § 163.3 guidelines referred to by this

commenter were also reflected in the

proposed § 163.6(a) text. However, on

further reflection, Customs believes that

it is not necessary to state in § 163.3 the

general standard by which entry records

must be produced because § 163.6 is

more appropriate for that purpose.

Accordingly, § 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 § 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
32930 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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

§ 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 § 163.6(b)(4)(iii) contradicts

§ 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

§ 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 § 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

§ 163.4(b) text as discussed above in the
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 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

§ 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 § 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

§ 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 § 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 § 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 § 163.1(h) rather than

‘‘original records/information’’ as

discussed above, the first sentence of

§ 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,

§ 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 § 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 § 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:
32932 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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 § 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 § 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 § 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 § 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,

§ 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

§ 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, § 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 § 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

§ 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 § 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 § 163.5: (1) proposed

paragraph (e), which concerned

retrievability of records and is

adequately covered by § 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
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 32933

reorganization of § 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 § 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 § 163.5

(this new paragraph is addressed in

more detail below in the comment

discussion regarding proposed

§ 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 § 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

§ 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 § 163.5 discussed above in

connection with the comments

regarding proposed § 163.5(b)) to clarify

that the listed items are not allinclusive.

2. Customs disagrees, except as

regards the issue of needing Customs

approval as already discussed above in

connection with proposed § 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 § 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
32934 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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 § 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 § 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 § 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 § 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 § 163.5(c) as

discussed above.

Section 163.5(c)(10)—One-Year

Retention of Original Records

Comment: Ten comments were

submitted on proposed § 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-exceptionreporting/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
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 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 § 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, § 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

§ 163.5(c)(13) there must be a capability

to make hard copies and under

§ 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 § 163.5(c) as discussed

above.

Section 163.5(d)—Retention of

Approved Media Records

Comment: Three commenters objected

to proposed § 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 § 163.5(d) (redesignated

as § 163.5(b)(2)(vi) as set forth below)

that are discussed above in connection

with § 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 backup 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

§ 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 § 163.5(e), as discussed above

in connection with the comments on

§ 163.5(b), effectively addresses this

comment.

Comment: Three commenters objected

to the last sentence of proposed

§ 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 § 111.24.

Customs response: Again, the

elimination of proposed § 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
32936 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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 § 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 § 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

§ 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 § 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 § 163.5(g), as discussed above

in connection with the comments on

§ 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 § 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

§ 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

§ 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 § 163.6 for failure to do

so.’’

Customs response: While the

elimination of proposed paragraph (i) of

§ 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

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

§ 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
32938 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

specific recommendations made by

these commenters.

Section 163.6(a)(2)—Previously

Requested Records

Comment: Four comments were

received on proposed § 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 § 163.6 is

overly burdensome and should be

removed, and § 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 § 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 § 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 § 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.
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 32939

Customs response: 1. Customs agrees.

The word ‘‘entry’’ has been added

throughout § 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

§ 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 § 163.6(b)(4)(ii)

(§ 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

§ 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 §§ 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

§ 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 § 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

§ 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 § 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 § 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 § 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

§ 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
32940 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

summons were clearly set forth in

paragraph (c) of proposed § 163.10

(which has been redesignated as § 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 §§ 163.7–163.12, Customs has

determined that the following changes

should be made to the proposed texts:

a. Although proposed §§ 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 § 163.7,

with proposed § 163.7 covered by

paragraph (a), proposed § 163.8 covered

by paragraph (b), and proposed § 163.9

covered by paragraph (c). In addition,

because paragraph (b) of proposed

§ 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 § 163.7 as

paragraph (d). As a consequence of the

adoption of the one-section approach for

proposed §§ 163.7–163.9, the remaining

sections of Part 163 (that is, §§ 163.10–

163.15) have been redesignated below as

§§ 163.8–163.13.

b. In paragraph (a) of new § 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 § 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 § 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

§ 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 § 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 § 163.9

(enforcement of summons), a sentence

has been added at the end to state that

a person who is entitled to notice under

§ 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

§ 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

§§ 163.1(c) and (e), the provisions

regarding the examination of records in

§ 163.6, and the provisions of this

section which has been redesignated as

§ 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 § 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
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 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 § 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 § 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
32942 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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 § 163.14 (redesignated below

as § 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 § 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 (§ 163.1(a)(2)); both the

statute (section 509(f)(2)(A)–(F)) and the

implementing regulations

(§ 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 § 163.12 and

proposed § 163.15 (redesignated as

§ 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 § 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 § 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 § 163.12(b)(1), the

reference ‘‘§ 163.2(a) and (c)’’ has been

changed to read ‘‘§ 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 § 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 § 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

§§ 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 § 163.12(d)(1), the

following changes have been made: (1)

The first sentence of the text as

proposed (proposed § 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 § 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 § 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
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 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 § 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 §§ 7.8(a)

and 7.8(b) by a listing for § 7.3(f), in

order to reflect the revision and

redesignation of former § 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 § 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 § 19.4

which, in paragraph (b)(4)(i)(B), sets

forth a requirement to retain all records

‘‘defined in § 162.1(a),’’ which section is

being removed by this document in

favor of the definition in new § 163.1(a);

accordingly, this document corrects that

paragraph (b)(4)(i)(B) section reference

to read ‘‘§ 163.1(a).’’ In addition, the

new § 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 § 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

§ 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

§ 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 § 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

‘‘§ 162.1d’’ has been changed to read

‘‘part 163’’ to reflect adoption of new

Part 163. In addition, in § 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 § 181.22(a) of the Customs

Regulations (19 CFR 181.22(a)), the

reference in the last sentence to records

as specified in ‘‘§ 162.1a(a)’’ has been

changed to read ‘‘§ 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 § 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
32944 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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 § 19.4, paragraph (b)(4)(i)(B) is

amended by removing the reference

‘‘§ 162.1(a)’’ and adding, in its place, the

reference ‘‘§ 163.1(a)’’ and paragraph

(b)(5) is revised to read as follows:

§ 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 § 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.

* * * * *

§ 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 § 111.1, the definition of

‘‘Records’’ is revised to read as follows:

§ 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 § 163.1(a) of

this chapter, that are required to be

maintained by a broker under part 163

of this chapter.

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

§ 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.

§ 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’’:

§ 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:

§ 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.

§ 143.32 [Amended]

2. In § 143.32, paragraph (n) is

amended by removing the reference

‘‘§ 162.1a(a)’’ and adding, in its place,

the reference ‘‘part 163’’.

3. Section 143.35 is revised to read as

follows:

§ 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 § 24.25 of this

chapter).

4. In § 143.36, the first sentence of

paragraph (a) and the introductory text

of paragraph (c) are revised to read as

follows:

§ 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 §§ 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 § 143.37, paragraphs (c) and (d)

are removed and paragraph (a) is revised

to read as follows:

§ 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.

* * * * *

§ 143.38 [Removed and Reserved]

6. Section 143.38 is removed and

reserved.

7. Section 143.39 is revised to read as

follows:

§ 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:

§ 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.
32946 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

4. In Subpart A, the Subpart heading

is revised to read as follows:

Subpart A—Inspection, Examination,

and Search

5. In Subpart A, §§ 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.

§ 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 StatesCanada Free Trade Agreement and the

North American Free Trade Agreement

are contained in parts 10 and 181 of this

chapter, respectively.

§ 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 § 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 § 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 § 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. ‘‘Thirdparty recordkeeper’’ means any

attorney, any accountant or any customs
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 32947

broker other than a customs broker who

is the importer of record on an entry.

§ 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 noncommercial merchandise acquired

abroad which falls within the traveler’s

personal exemptions or which is

covered by a flat rate of duty.

§ 163.3 Entry records.

Any person described in § 163.2(a)

with reference to an import transaction

shall be prepared to produce or transmit

to Customs, in accordance with

§ 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.

§ 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 § 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

§§ 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.

§ 163.5 Methods for storage of records.

(a) Original records. All persons listed

in § 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

§ 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
32948 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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 § 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 § 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

§ 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 § 163.6

for entry records or sanctions pursuant

to §§ 163.9 and 163.10 for other records.

(5) Failure to comply with alternative

storage requirements. If a person listed

in § 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.

§ 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 § 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)
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 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 § 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 § 163.7, and

seek its enforcement pursuant to

§§ 163.9 and 163.10, to compel the

production of any records required to be

maintained and produced under this

chapter.

§ 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 § 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 StatesCanada 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.

§ 163.8 Third-party recordkeeper

summons.

(a) Notice required. Except as

otherwise provided in paragraph (f) of

this section, if a summons issued under

§ 163.7 to a third-party recordkeeper
32950 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

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 § 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 § 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.

§ 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

§ 163.8(a) shall have a right to intervene

in any such enforcement proceeding.

§ 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.

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

§ 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 § 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

§ 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 § 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

§ 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 § 163.6(b) and

removal of certification under the

program (see § 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:
32952 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

(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.

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

§§ 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

§ 141.19 * Declaration of entry (usually

contained on the entry summary or

warehouse entry)

§ 141.32 Power of attorney (when required

by regulations)

§ 141.54 Consolidated shipments authority

to make entry (if this procedure is

utilized)

§ 142.3 Packing list (where appropriate)

§ 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 § 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:

§§ 142.3, 142.3a * Entry Number

* Entry Type Code

* Elected Entry Date

* Port Code

§ 142.4 * Bond information

§§ 141.61, 142.3a * Broker/Importer Filer

Number

§§ 141.61, 142.3 * Ultimate Consignee

Name and Number/street address of

premises to be delivered

§ 141.61 * Importer of Record Number

* Country of Origin

§ 141.11 * IT/BL/AWB Number and Code

* Arrival Date

§ 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)

§ 142.6 * Description of Merchandise

§ 142.6 * HTSUSA Number

§ 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:

§ 141.61 * Entry Summary Date

§ 141.61 * Entry Date

§ 142.3 *Bond Number, Bond Type Code

and Surety code

§ 142.3 * Ultimate Consignee Address

§ 141.61 * Importer of Record Name and

Address

§ 141.61 * Exporting Country and Date

Exported

* I.T. (In-bond) Entry Date (for IT Entries

only)

* Mode of Transportation (MOT Code)

§ 141.61 * Importing Carrier Name

§ 141.82 Conveyance Name/Number

* Foreign Port of Lading

* Import Date and Line Numbers

* Reference Number

* HTSUS Number

§ 141.61 * Identification number for

merchandise subject to Anti-dumping or

Countervailing duty order (ADA/CVD

Case Number)

§ 141.61 * Gross Weight

* Manifest Quantity

§ 141.61 * Net Quantity in HTSUSA Units

§ 141.61 * Entered Value, Charges, and

Relationship

§ 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)

§ 141.61 Non-Dutiable Charges

§ 141.61 * Signature of Declarant, Title, and

Date

* Textile Category Number

§ 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)

§ 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)

§ 10.102 Duty Free Entry Certificate

(9808.00.30009 HTS)

§ 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:

§ 4.14 CF 226 Information for vessel repairs,

parts and equipment

§ 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:

§§ 10.1 through 10.6 Foreign shipper’s

declaration or master’s certificate,

declaration for free entry by owner,

importer or consignee

§ 10.7 Certificate from foreign shipper for

reusable containers
32954 Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations

§ 10.8 Declaration of person performing

alterations or repairs

Declaration for non-conforming

merchandise

§ 10.9 Declaration of processing

§ 10.24 Declaration by assembler

Endorsement by importer

§§ 10.31, 10.35 Documents required for

Temporary Importations Under Bond:

Information required, Bond or Carnet

§ 10.36 Lists for samples, professional

equipment, theatrical effects

Documents required for Instruments of

International Traffic:

§ 10.41 Application, Bond or TIR carnet

Note: additional 19 U.S.C. 1508 records:

see § 10.41b(e)

§ 10.43 Documents required for exempt

organizations

§ 10.46 Request from head of agency for

9808.00.10 or 9808.00.20 HTSUS

treatment

Documents required for works of art

§ 10.48 Declaration of artist, seller or

shipper, curator, etc.

§§ 10.49, 10.52 Declaration by institution

§ 10.53 Declaration by importer

USFWS Form 3–177, if appropriate

§§ 10.59, 10.63 Documents/CF 5125 for

withdrawal of ship supplies

§§ 10.66, 10.67 Declarations for articles

exported and returned

§§ 10.68, 10.69 Documents for commercial

samples, tools, theatrical effects

§§ 10.70, 10.71 Purebred breeding

certificate

§ 10.84 Automotive Products certificate

§ 10.90 Master records and metal matrices:

detailed statement of cost of production

§ 10.98 Declarations for copper fluxing

material

§ 10.99 Declaration of non-beverage ethyl

alcohol, ATF permit

§§ 10.101 through 10.102 Stipulation for

government shipments and/or

certification for government duty-free

entries, etc.

§ 10.107 Report for rescue and relief

equipment

15 CFR part 301 Requirements for entry of

scientific and educational apparatus

§ 10.121 Certificate from USIA for visual/

auditory materials

§ 10.134 Declaration of actual use (When

classification involves actual use)

§ 10.138 End Use Certificate

§§ 10.171 through 10.178 Documents, etc.

required for entries of GSP merchandise,

GSP Declaration (plus supporting

documentation)

§ 10.174 Evidence of direct shipment

§ 10.179 Certificate of importer of crude

petroleum

§ 10.180 Certificate of fresh, chilled or

frozen beef

§ 10.183 Civil aircraft parts/simulator

documentation and certifications

§§ 10.191 through 10.198 Documents, etc.

required for entries of CBI merchandise,

CBI declaration of origin (plus

supporting information)

§ 10.194 Evidence of direct shipment

†[§ 10.306 Evidence of direct shipment for

CFTA]

†[§ 10.307 Documents, etc. required for

entries under CFTA Certificate of origin

of CF 353]

[†CFTA provisions are suspended while

NAFTA remains in effect. See part 181]

§ 12.6 European Community cheese

affidavit

§ 12.7 HHS permit for milk or cream

importation

§ 12.11 Notice of arrival for plant and plant

products

§ 12.17 APHIS Permit animal viruses,

serums and toxins

§ 12.21 HHS license for viruses, toxins,

antitoxins, etc. for treatment of man

§ 12.23 Notice of claimed investigational

exemption for a new drug

§§ 12.26 through 12.31 Necessary permits

from APHIS, FWS & foreign government

certificates when required by the

applicable regulation

§ 12.33 Chop list, proforma invoice and

release permit from HHS

§ 12.34 Certificate of match inspection and

importer’s declaration

§ 12.43 Certificate of origin/declarations for

goods made by forced labor, etc.

§ 12.61 Shipper’s declaration, official

certificate for seal and otter skins

§§ 12.73, 12.80 Motor vehicle declarations

§ 12.85 Boat declarations (CG–5096) and

USCG exemption

§ 12.91 FDA form 2877 and required

declarations for electronics products

§ 12.99 Declarations for switchblade knives

§§ 12.104 through 12.104i Cultural property

declarations, statements and certificates

of origin

§ 12.105 through 12.109 Pre-Columbian

monumental and architectural sculpture

and murals

Certificate of legal exportation

Evidence of exemption

§ 12.110 Pesticides, etc. notice of arrival

§§ 12.118 through 12.127 Toxic substances:

TSCA statements

§ 12.130 Textiles & textile products

Single country declaration

Multiple country declaration

VISA

§ 12.132 NAFTA textile requirements

§ 12.140 Province of first manufacture,

export permit number and fee status of

softwood lumber from Canada

§ 54.5 Declaration by importer of use of

certain metal articles

§ 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

§ 128.21 * Manifests with required

information (filed by carrier)

§ 132.23 Acknowledgment of delivery for

mailed items subject to quota

§ 133.21(b)(6) Consent from trademark or

trade name holder to import otherwise

restricted goods

§§ 134.25, 134.36 Certificate of marking;

notice to repacker

§ 141.88 Computed value information

§ 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.

§ 143.13 Documents required for

appraisement entries Bills, statements of

costs of production Value declaration

§ 143.23 Informal entry: commercial invoice

plus declaration

§ 144.12 Warehouse entry information

§ 145.11 Customs Declaration for Mail,

Invoice

§ 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

§ 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

§ 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:

§ 178.2 Listing of OMB control numbers.
Federal Register / Vol. 63, No. 115 /Tuesday, June 16, 1998 /Rules and Regulations 32955

19 CFR section Description OMB control No.

* * * * * * *

Part 163 ........................................................................................ General recordkeeping and record production requirements ...... 1515–0214

* * * * * * *

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.

§ 181.12 [Amended]

2. In § 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

‘‘§ 162.1d’’ and adding, in its place, the

reference ‘‘part 163’’.

3. In § 181.13, a new sentence is

added at the end to read as follows:

§ 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

§ 181.12.

§ 181.22 [Amended]

4. In § 181.22, the second sentence of

paragraph (a) is amended by removing

the reference ‘‘§ 162.1a(a)’’ and adding,

in its place, the reference ‘‘§ 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