Slip Op. 05-87 UNITED STATES COURT OF INTERNATIONAL TRADE BEFORE: SENIOR JUDGE NICHOLAS TSOUCALAS

________________________________________ : UNITED STATES, : : Plaintiff, : : Court No. 02-00116 v. : : FORD MOTOR COMPANY, : : Defendant. : ________________________________________: Plaintiff, the Bureau of Customs and Border Protection of the Department of HomelandSecurity (“Customs”), seeks collection of a civil penalty pursuant to 19 U.S.C. § 1592 (1988), and customs duties concerning entries of vehicles and vehicle components made between 1987 and 1992 by defendant, Ford Motor Company (“Ford”). Customs alleges that Ford violated 19 U.S.C. § 1592 by acting grossly negligent or negligen t in making false statements or omissions in connection with the entry of the merchandise at issue. Accordingly, Customs seeks civil penalties in the amount of $34,576,559 if Ford’s conduct was grossly negligent or $17,288,279 if such conduct was negligent. Customs also requests the Court to awardit $68,178 for unpaid duties. Ford counterclaims for a refundof all or part of the $8,575,961.80 it h as t endered for duties in connec tion with this matter plus interest, as provided for by law. Held: Pursuant to the findings of fact and conclusions of law, judgment is entered in favor of Customs. Ford acted negligently in its entry of the merchandise subject to this action. Accordingly, Ford is assessed a civil penalty of two times the loss of revenue, $17,151,923.60, plus lawful interest. Customs’ request for $68,178 for unpaid duties is denied. Defendant’s counterclaim for a credit for duty tenders made in connection with this matter is dismissed. [Judgment is entered in favor of Customs for $17,151,923.60, plus lawful interest.] Peter D. Keisler , Assistant Attorney General, David M. Cohen , Director, Patricia M. McCarthy , Assistant Director, Commercial Li tigation Branch, Civil Division, United States Departmen t o f Ju stice ( David A. Levitt and David S. Silverbrand ); of counsel :Case No. 02-00116 Page 2

Jeffrey E. Reimand Katherine F. Kramarich , Bureau of Customs and Border Protection, for the United States, plaintiff. Grunfeld, Desiderio, Lebowitz, Silverman, & Klestadt, LLP ( Steven P. Fl ors heim , Robert B. Silverman , David M. Murphy , and Robert F. Seely ); of counsel: Paulsen K. Vandevert , for Ford Motor Company, defendant. Dated: July 21, 2005

OPINION TSOUCALAS, Senior Judge : Plaintiff, the Bureau of Customs and Border Protection of the Depar t ment of Homeland Security (“Customs”), seeks c oll ection of a civil penalty pursuant to 19 U.S.C. § 1592 (1988), and customs duties concerning entries of vehicles an d vehi cle components made between 1987 and 1992 by defendant, Ford Motor Company (“Ford”). Customs alleges that Ford violated19 U.S.C. § 1592 by acting grossly negligent or negligent in making false statements or omissions in connection with the entry of the merchandise at issue. Accordingly, Customs seeks civil penalties in the amount of $34,576,559 if Ford’s conduct was grossly negligent or $17,288,279 if such conduct was negligent. Customs also requests the Court to award it $68,178 for unpaid duties. Ford counterclaims for a refund of all or part of the $8,575,961.80 it has tendered for duties in connection with this matter plus interest, as provided for by law.Case No. 02-00116 Page 3

DISCUSSION Customs filed a timely complaint on January 29, 2002, alleging tha t F ord made material false statements or acts or material omissions in conn ection with the entries of vehicles and vehicle components entered into the United States between January 1, 1987,

c ontinuing through December 1992. See Compl. ¶¶ 4-6. In its complaint, Customs alleges that Ford acted grossly negligent or negligent by: (1) falsely understating to Customs in its entry documents the price it paid or agreed to pay for the subject merchandise; (2) falsely declaring as true and correct the prices andother statements in the entry documents for the subject merchandise; (3) failing to declare on the entry documents that the prices set forth therein were not the final prices and were subject to adjustments based upon agreements Ford had with its suppliers; (4) failing to report upon entry the value of assists provided by Fordfor the production o f t he imported merchandise; and (5) failing to produce to Customs “at once” information received after importation indicating that prices on its entry documents had been adjustedto include lump sum payments made by Ford to its suppliers pursuant to purchase contracts. See id. ¶ 6. Customs claims that Ford’s false statements or material omissions deprived the United States of $8,644,139.80 for l awful duty of which $68,178 remains unpaid. See id. at ¶ 9. A bench trial was held on March 15, 2005, through March 23, 2005, to resolve the issues of fact remaining inCase No. 02-00116 Page 4

this action. Pursuant to USCIT R. 52(a), “[i]n all actions tried upon the facts without a jury . . . the court shall find the facts specially and state separately its conclusions of law thereon . .

. .” USCIT R. 52(a). Accordingly, the Court’s findings of fact and conclusions of law are set forth below.

I. Findings of Fact At trial, Customs produced two witnesses, Mr. Michael Turner, former Special Agent in the Detroit Customs Office of Enforcement, andMr. Robert Ne ckel, former group supervisor of the Detroit Customs Office of Enforcement. Both witnesses testifiedto various factual matters relevant to Customs’ investigation of Ford such as, the scope of the investigation, the date such investigation commenced, and the findings Customs made pu rsua nt to its investigation. Ford produced two wit ness es, Mr. Harry Gibson, former attorney in Ford’s Office of General Counsel, and Mr. Donald Co hen, former manager of Ford’s International Transportation an d Customs Office. Both witnesses testif ied , inter alia , to their knowledge of Customs’ investigation and the scope of the investigation as it related to Ford. Messieurs Gibson and Cohen also testified about Ford’s customs compliance procedures,

com plia nce record, and Ford’s responses to inquiries made by Customs regarding its investigation.Case No. 02-00116 Page 5

Customs and Ford identified documents relating to the investigation and Ford’s compliance measures. Such documents were movedby the parties and admitted by the Court into evidence. The Court finds most of these documents highly probative because they provide contemporaneous accounts of eve nts r elated to Customs’ investigation, Ford’s res p onse to the investigation, and Ford’s customs compliance procedures. The Court finds that the testimony of Messieurs Gibson and Cohen was not highly probative because the demeanor of the witnesses and the testimony they suppli ed proves that they did not independently recall events or facts relevant to Customs’ investigation of Ford. The Court, however, finds the testimony of Messieurs Turner and Neckel highly probative and credible based on their demeanor and ability to independently recollect Customs’ investigation of Ford.

The Court also heard testimony from: (1) Ms. Laura Cox (formerly Ms. Laura Erpelding), former Special Agent in the Detroit Customs Office of Enforcement; (2) Ms. Dathrenal Dav is, former Import Special ist and Field National Import Specialist for the commodity automotive team in Detroit Customs; (3) Mr. Richard Bridenbaugh, f ormer member of Ford’s customs unit; (4) Ms. Karen Monro, former member of Ford’s customs unit; and (5) Mr. Walter Manns, former Supervisory Import Specialist and former mem ber of Ford’s customs unit. Based on the demeanor and quality ofCase No. 02-00116 Page 6

testimony of these witnesses, the Court finds them slightly probative because they didnot exhibit an independent recollection

or have knowl edge of ev ents or facts relating to the subject of this action. Ford and Customs stipulated to the admission of deposition testimony of Mr. Phillip Kru zich , former analyst in Ford’s customs unit, and the deposition and prior trial testimony given in Court No. 02-00106 of Ms. Angela Ryan, former Supervisory Import Specialist of the automotive team in Detroit Customs.

The testimony presented at trial along with the documents admittedinto evidence established by a preponderance of the evidence the following facts.

A. Findings of Fact Relevant to the Commencement and Scope of Customs’ Investigation 1. Fordentered the vehicles, vehicle c o mponents, tooling and related materials for the five import programs identified in Exhibit A to the complaint between J anuary 1, 1987, through December 31, 1992. See Pretrial Order, Schedule C ¶ 3. 2. Operation Hat Trick was a trade enforcement initiative meant to “subject certain Big Three import programs to joint Office of Enforcement, Commercial Operations, and Regulatory Audit scrutiny to identify undeclared assists andindirect payments, determine the level of culpability of parties responsible for the failure to declare the assists/payments, and, refer casesCase No. 02-00116 Page 7

for criminal and civil action as appropriate.” Pl.’s Ex. 70;

see also Trial Transcript (“TT”) at 37-39. Operation Hat Trick was initiated by Mr. Turner , base d on his personal observations and information obtained from import specialists indicating that Ford and other car manufacturers were not declaring the full valu e, or price paid or to be paid, for merchandise entered into the United States. See TT at 37-38 & 283. 3. Plaintiff moved into evidence several reports of investigation (“ROI”) prepared by Mr. Turner or Ms. Cox in the ordinary

course of their business as special agents of Customs’ Office of Enforcement. See Pl.’s Ex. 1, 52, 59, 70, 71. The Court pla ces substantial weight on the veracity of the ROIs that

were contemporaneously written with events concerning the commencement of Customs’ investigation of Ford. See Pl.’s Ex. 70 & 71. The Court gives less weight to the ROIs which summarizedthe findings of Customs’ investigation, particularly ROI #15 and ROI #22, because these ROIs were preparedin anticipation of pe nalt y proceedings. See e.g. , Pl.’s Ex. 1, 52 & 59. In preparing certain ROIs, the special agents often used notes and previ ous ROIs to compile their findings. See TT at 170-172; see e.g. , Pl.’s Ex. 52 at 5 (referencing ROIs #3 & 5). While events are recorded in ROIs #15, 22, and 27, see Pl.’s Ex. 1, 52, 59, these ROIs alsoCase No. 02-00116 Page 8

1 ACF 28 was a request for information made by Customs to importers when it had questions regarding an entry. See TT at 304- 05. contain the legal conclusions of Customs. Se e TT at 18 5 & 226. For example, ROI #22, dated November 23, 1994, is a penalty referral reporting the findings of Customs’ Office of Enforc emen t as well as making legal conclusions relating to Ford’s culpability under 19 U.S.C. § 1592. See Pl.’s Ex. 1. Consequently, the Court gives ROIs #15, 22, and 27 less weight than the earlier reports, ROI #1 and 2, because the former did not simply record contemporaneous events or facts. 4. Operation Hat Trick “included all the components surrounding value, material omissions, undervaluations, payments that may not have been reflected on the invoice that was submitted with the entry summary . . . .” TT at 283; see also TT 37-38. 5. During Operation Hat Trick, Customs looked at Ford’s prior importations and found repeated ins ta nces where Ford had “failedto declare and pay duties on assists and indirect payments at the time of entry summary, but only declared those assists/payments in response to import specialist Requests for Information (‘CF-28 s’ ).” 1 Pl.’s Ex. 71 at 1; See also TT at 283.Case No. 02-00116 Page 9

2 The Capri was also referred to as the “ SA3 0” vehicle. See Pl.’s Ex. 52 at 5

. 6. The Ford vehicle and vehicle component programs investigated by Customs included the Lincoln Mercury Capri (“Capri), 2 Ford Festiva (“Festiva”), Mercury Tracer and Taurus SH O eng ine (“Yamaha SHO engine”). See Pl.’s Ex. 70. 7. On May 23, 1991, Customs notified Ford by letter that it had opened a formal investigation of Ford “concerning the proper declaration of assists and indirect payments in imports of vehicles and vehicle component assemblies.” Pl.’s Ex. 5; see also TT at 39-42; Pl.’s Ex. 71; Pretrial Order, Schedule C ¶ 14. 8. Ford requested a meeting with Customs to discuss the May 23, 1991, letter because nei ther Mr. Gibson nor Mr. Cohen knew what Customs meant by an indirect payment. See TT at 496-97;

see also TT at 45-46. Ford did not “make indirect payments in terms of the general definition that we knew; that is, a payment to A, A makes a payment to B for the benefit of C. That is what we thought was an indirect payment, and Ford did not do that.” TT at 498; see also TT at 508. 9. The meeting was held on June 7, 1991, and was attended by Messieurs Turner and Neckel from Customs and Messieurs Gibson, Cohen, and Ron Hamell from Ford ( the “June 1991 Meeting”). See TT at 45-50; Pl.’s Ex. 71.Case No. 02-00116 Page 10

10. The sc ope of the investigation, the meaning of the term “indirect payment,” andprior disclosure were issues discussed at the June 1991 Meeting. See TT at 45-50, 480-81, 489, 498- 99; Pl.’s Ex. 71. Customs explained to Ford that “the investigation was going to look at the full scope of their imports of automobile s an d automobile parts; that [Customs] would be looking programatically one program at a time.” TT at 47; see also TT at 51-52; Pl.’s Ex. 71. 11. Messieu rs Cohen and Gibson testified that they asked for a definition of “indirect payment” from Customs at the June 1991 Meeting, but Ford never recei ved a definition from Customs. See TT at 481 & 498. Mr. Gibson testified that, “We asked what was an indirect payment. Agent Turner says ‘Here.’ He presents two summonses . . . I signed for the two summonses, andwe said we would get back to them with our responses, and

we left.” TT at 498; see also TT 510 (stating that Ford left the meeting not understanding the meaning of indirect payments). The Court finds it incredible that Ford requested the meeting to discuss the def initio n of the term “indirect payment” only to leave the meeting without having received a satisfactory response from Customs. 12. During the June 1991 Meeting, Customs served Fo rd wit h a

summons relating to the Capri program. See Pl.’s Ex. 7 & 71; TT at 53-56.Case No. 02-00116 Page 11

13. The s ummon s requested “all original records and documents relatedto any andall assists and payment made by Ford Motor Company in connection with the design, development, engineering, production, purchase, and importation of Mercury Capri automobiles into the United States . . . .” Pl.’s Ex. 7. The scope of the investigation with regard to Capri “involved. . . all records relating to the importation of Capri and Capri parts.” TT at 482; see also TT at 285. 14. Fordwas advi sed at the June 1991 Meeting that Customs’ investigation included the entire scope of Ford’s importations of certain vehicles and vehicle components. See TT at 286-88; Pl.’s Ex. 71. 15. Fordknew or should have known that the term “indirect payment,” as used by Customs in its notification to Ford of the investigation, includ e d all payments that impacted the final price paid by Ford for the merchandise in question. See TT at 511-12. The term “indirect payments” included lump sum payments for engineering and manufacturing expenses, retroactive price adjustments, and volume price adjustments. See TT at 47-48, 284, 287-88, 482; Pl.’s Ex. 71.Case No. 02-00116 Page 12

16. An assist is an item provided by the buyer, such as Ford, to the seller either free or at a reduced cost for th e des ign, developme n t or production of merchandise imported into the UnitedStates. See Joint Ex. 2 at G at 17; see also TT at 284 & 493. 17. “The investigation included all payment, indirect or otherwise, so [Customs] wanted to be sure that we were thorough and we got the information relative to all payment.” TT at 286. “At the conclusion of the meeting Ford indicated that they better understood what [Customs was] looking at; the fact that it was automobiles and automobile parts; that it was both the actual providing of assists as well as payments that impacted the agreed upon price.” TT at 48. 18. Fordwas advised by Customs that the investigation would encompass entries made between 1987 through the 1991 model year. See TT at 188-90. Importations related to the 1992 model year and thereafter were not within the scope of Customs’ investigation. See TT at 188-90.

B. Findings of Fact Relevant to Ford’s Reconciliation Agreement with Customs 19. Ford’s supply agreements with m any of its foreign vendors containedpost-importation price adjustments, which typically provideda per vehicle or vehicle component base price subject to possible modifications. See Pretrial Order, Schedule C ¶Case No. 02-00116 Page 13

1. Although the prices Ford paid for vehicles and vehicle components was “fairly firm,” the prices could increase based

on the supply agreements Ford had with its vendors. See TT at 492. 20. The supply agreements requiring lump sum payments, retroactive price adjustments and other post-entry payments were negotiatedand signed prior to the shipment of the merchandise. See TT at 512. 21. In a letter dated October 14, 1988, Ford proposed to Customs

a change in how it reported lump sum payments. See Pl.’s Ex. 55. In its letter, Ford stated that a lump s um annua l reconciliation report would allow Ford to track all lump sum billings throughout the entire model year and reduce the paperwork and time associated with the reconciliation process for both Ford and Customs. See id. Ford pro posed the following policy: 1. The Ford Motor Company will track all lump sum billings throughout each model year (July 1 to June 30) andreport the dut i able expenses associated with each import program. Credits will be used to offset relevant debits with final dutiable expenses being reported. If the final dutiable expense results in a credit balance to the Ford Motor Company, a negative report will be presentedto U.S. Customs. Dutiable expenses for future model year import programs will be reco rded in their respective m odel y ear and reported at the close of the model year.

. . . 3. An annual reconciliation report will be prepared forCase No. 02-00116 Page 14

eac h import program and filed with the Detroit custom s district within 60 days after the clos e o f each model year (July 30) to enable us to followup and capture all rel evant model year expenses. All backup data wil l b e retainedin our office and will be availa ble for your review up request. Pl.’s Ex. 55 (emphasis in original). 22. In a letter dat ed August 29, 1989, Customs accepted Ford’s propo sal to report and reconcile lump sum payments on a n annual basis (“Reconciliation Agreement”). See Pretrial Order, Sched ule C ¶ 8. Customs, however, made two modifications to Ford’s proposal: ( 1) F ord would not be allowedto offset debits with credits; and (2) Ford would only be allowed to annually reconcile withheld du ties on entry

sum maries which had already been liquidated. See Pl.’s Ex . 55. Customs response did not indicate a modification to the time period proposed by Ford. See Pl.’s Ex. 55; TT at 550. 23. Amodel year ran from July 1 to June 30. See Pretrial Order, Schedule C ¶ 2. 24. Under the Reconciliation Agreement, Ford was obligated to file its annual reconciliation report with Detroit Customs within 60 da ys of the end of the model year, i.e. August 31. See Pl.’s Ex. 55; see also Pl.’s Ex. 17 at 2 (Ford states that certain costs incurred for Yamaha SHO engines “will be declared60 days after the end of the 1992 model scheduled to endJuly 30, 1992”); TT at 307-09 & 476-77. Mr. KruzichCase No. 02-00116 Page 15

testifiedthat he came up with the 60 day time period because he “thought it was reasonable at the time.” Joint Ex. 2 at 114. 25. With the exception of one reconciliation report, see Pl.’s Ex. 8, Ford failed to file reconciliation reports within 60 days of the end of the model year. See e.g. , Pl.’s Ex. 14, 15, 17, 19, 20; Def.’s Ex. LL, MM, NN. 26. Fordwas not notified of the untimely nature of its submissions. See TT at 322-23, 355-56, 394. Ford did not ask Customs for permission to extend the 60 day period. See TT. at 364; Joint Ex. 2 at 117. 27. Ms. Monro, the Fordemplo yee responsible for the reconciliation program from approximately 1990 through 1993,

see TT at 381, was not aware of the deadline for the submis sion of reconciliation reports to Customs. See TT at 392. 28. The lump sum payments Ford made to its suppliers were made subsequent to entry and, therefore, the amount of the payments

was not known at the time of entry. See TT at 382. The invoices or entry documents reviewed to make reconciliation reports did not indic ate th at the prices were subject to change. See TT at 410 & 492. 29. “[A]ny expenses that came in for a model year for a particular programafter that model year closed wen t into the programCase No. 02-00116 Page 16

folder for the next model year when [Ford] would declare it.” TT at 386; see also TT at 402-03 & 435-36. “If the entry had been liquidated, then [Ford] would tack . . . the additional duties onto an entry that was not liquidated even though the entry may not have related to the program that initially incurred it.” TT at 488; see also Joint Ex. 2 at 179. 30. Fordbegan the reconciliation process at the end of the model year, see TT at 387-88, even though the reconciliation process “couldtake anywhere from a few months to six months to eight months.” TT at 391. 31. Between 1987 and 1992, Customs did not have a regul ation requiring an im porter to put a statement on the entry documents indicating that the price may chan ge a fter entry. See TT at 531; Joint Ex. 1 at 511. 32. Ford did not entirely capture additional assists or lump sum pay ments in its initial reconciliation reports for eac h program. See TT at 471 & 474-75; Joint Ex. 2 at Z.

C. Find ings of Fact Relevant to Ford’s Unreported Tooling Assists and Payments for 1987-1992 33. Fordhad a program to report assists, whereby it gathered information about assists at the time of importation and paid all duties related to such assists on the first entry. See TT at 493-94. 34. Assists related to vehicles and vehicle components “start toCase No. 02-00116 Page 17

occur in Ford’s majo r pr ograms sometimes two, three years prior to the good actually being imported into the United States.” TT at 493. 35. F ord al so declared assists by “looking at the total assists

versus the total sales, [and] coming up with a factor, and adding that to the entry that [Ford] brought across from . . . Canada.” TT at 495. 36. If Ford learned of an additional assist after the first importation, then Fo rd would “sweep those and file them as necessary.” TT at 494. 37. On May 22, 1992, Ford submitted a letter to Customs, which it claim ed wa s a prior disclosure relating to certain undervaluations of imported tooling assists from 1987 through 1992. Se e Pr etrial Order, Schedule C ¶ 24; Pl.’s Ex. 22. Customs, however, did not accept the letter as a prior disclosure. See Pretrial Order, Schedule C ¶ 24. Ford stated that the tooling assists were “omitted from the dutiable values of the related parts because of inadequate instructions to certain Ford foreign suppliers.” Pl.’s Ex. 22. 38. On August 6, 1992 Ford submitted a letter to Customs claiming to be a prior disclosure relating to lump sum payments for merchandise imp ort ed between 1987 and August 6, 1992. See Pretrial Order, Schedule C ¶ 39; Pl.’s Ex. 32. Ford explained that “[t]he undervaluation of these imported goods was due toCase No. 02-00116 Page 18

revisions to the price of these goods made subsequent to their importation and not identified by Ford and reporte d to U .S. Customs.” Pl.’s Ex. 32. 39. On October 22, 1992, Ford indicated to Customs that it had manufactureddevelopmental engine parts for engines manufacturedat its Essex Engine Plant located in Canada (“Essex Plant”). See Pretrial Order, Schedule C ¶ 40. These parts were provided free of charge to the plant and Ford had provided$1,327,455 of such parts for the 1990, 1991, and 1992 model year engines manufactured at the Essex Plant. See id. On April 13, 1993, Ford tendered $15,92 0.9 5 for duties for these undeclared assists. See id. ; Pl.’s Ex. 26. 40. In a letter dated November 18, 1992, Ford advised Customs that it had failed to identify in its previous reconciliation

su bmi ssions all of the duties and fees owed for tooling assists for mer ch andise imported between January 1, 1987 through and including May 22, 1992. See Pl.’s Ex. 23. The total value Ford failed to declare was $41,165,251. See id. ; TT at 99. As part of the reconciliation, Fordtendered $1,304,847.95 in duties and fees. See Pl.’s Ex. 23; See Pretrial Order, Schedule C ¶ 24. 41. Ford submitted a letter, dated December 16, 1992, to Customs claiming to be “a partial voluntary disclosure reconciliation of additional duties and fees owed for unreported retroactiveCase No. 02-00116 Page 19

price adjustment payments and lump-sum payments for imported goods made during the period January 1, 1987 through various dates in July 1992.” Pl.’s Ex. 33. In connection with these payments, Ford tendered $848,262.34 as unpaid duties and fees andstated that it needed further time to analyze some additional payments. See i d. ; Pretrial Order, Schedule C ¶ 39. 42. On January 29, 1993, Ford tende red an additional $17,888.23 for duties and fees for unrep orted lump sum payments for merchand ise imported between 1987 and 1992. See Pretrial Order, Schedule C ¶ 39; Pl.’s Ex. 34. 43. By letter dated February 24, 1993, Ford advised Customs that it had failed to report assists paid four years earlier, in 1989, to Sheller-Ryobi, Indiana to produce prototype castings in Japan. See Pl.’s Ex. 24. In conn ection w ith these payments, Ford tendered $2,664.35 in duties and fees. See id. 44. In a letter dated April 6, 1993, Ford advised Customs that, between 1990 and 1992, it had provided assists to the Essex Plant totaling $1,327,455. See Pl.’s Ex. 25. Ford tendered $15,920.95 for duties and merch an dise processing fees in connection with this merchandise. See Pl.’s Ex. 26. 45. In a letter dated February 14, 1994, Ford stated that it had discoveredthat it had not previously reported certain tooling assists for merchandise imported betwe en 1 987 through 1993.Case No. 02-00116 Page 20

See Pl.’s Ex. 27. Ford stated that “[c]ertain tooling assists may have been omitted because the country of origin for some tool orders was not co ded correctly in the Ford payment records.” Id. 46. In two letters dated March 17, 1994, Customs advised Ford that it would accept Ford’s letters submitted on May 22, 1992, and March 1, 1993, relating to undeclared tooling and assists for the period of 1987 through 1992, as prior disclosures. See Def.’s Ex. VVV & WWW. In both instances, Customs found that the misclassification of the relevant entries was due to Ford’s failure to exercise reasonable care in the preparation of the entries. See Def.’s Ex. VVV & WWW. Therefore, Customs foundFord negligent and penalized Ford the intere st on the withheldduties from the date of th e liqu idation and the balance of withheld duties. See id. 47. By letter dated May 13, 1994, Ford advised Customs that it had failedto declare $6,674,338 in tooling assists associated with imported merchandise from 1987 through 1993. See Pl.’s Ex. 28. In connection with these assists , Ford tendered $248,215 for duties and fees. See id. Ford indicated that it had“discovered supplier location coding errors in the payment records that [led] to some tooling assists being excluded from the prio r reports.” Id. Ford advised Customs that it ha d made changes to assure that tooling assists did not goCase No. 02-00116 Page 21

undeclared due to supplier location coding errors in payment records. See id. Ford stated that it is “now using a tooling report that uses information drawn directly from the tool order system as well as payment record data.” Id.

D. Findings of Fact Relevant to the Capri Investigation 48. In April 1990, Ford began to purchase and import the Capri vehicles from Ford of Australia. See Pl.’s Ex. 57 at 2. As of July 31, 1991, Ford had imported 32,959 Capri vehicles valuedat over $372,000,000. See id. In connection with the importation of the Capri vehicles, Ford filed 23 entries between April 1990 through July 1991. See Pl.’s Ex. 57 at Ex. A; Pl.’s Ex. 52 at 7; see also Pl.’s Ex. 82. 49. On September 5, 1992, Ford complied with the summons issued at the June 1991 Meeting and provided Customs with the requested doc uments. See Pl.’s Ex. 52 at 5. Ford provided a copy of the supply contract for the Capri vehicl es, which indicated that transfer prices would be adjusted every six mon ths to reflect increases or decreases in a market basket of similar vehicles. See Pretrial Order, Schedule C ¶ 19. 50. Fordmade lump sum payments to Ford of Australia for the 1991 model year Capri vehicle, which wer e in addition to the payments reflected on the commercial invoices at the time of entry. See Pl.’s Ex. 8 & 57 at 4.Case No. 02-00116 Page 22

51. Ford disclosed these lump sum payments, totaling $5,570,900, to Customs in a letter dated August 26, 1991 and t ender ed a check for $155,708 for duties and fees. See Pl.’s Ex. 8; see also Pretrial Order, Schedule C ¶ 17.

E. Findings of Fact Relevant to the Festiva Investigation 52. Fordfiled 372 entr ies importing Ford Festiva vehicles from Ki a Mo tors Corporation between December 15, 1988 and August 18, 1989. See Pl.’s Ex. 1; see also Pl.’s Ex. 1 4. Fo rd purchasedFestiva vehicles fr om KM Corporation, a trading company consisting of Kia Motors Corporation and Mazda Motor Corporation. See Pl.’s Ex. 14. 53. Customs issued a summons on March 20, 1992, requesting Ford to produce “[a]ll original records and documents related to any andall assists given and payments made by Ford Motor Company in connection with the design, development, engineering, production, purchase, and importation of Ford Festiva automobiles manufa ctured by Kia Motors Corporation . . . .” Pl.’s Ex. 13; See also Pretrial Order, Schedule C ¶ 20. 54. In a letter dated June 5, 1992, Ford responded to the Festiva

summons and stated that “there is $11,408,470.92 of undeclared engineering and tooling cost prior to 1993 model and $309,169.56 is owed including duty and other fees.” Pl.’s Ex. 12; Pretrial Order, Schedule C ¶ 25. Ford tendered the dutiesCase No. 02-00116 Page 23

andfees on A pril 29, 1993. See Pretrial Order, Schedule C ¶ 25. Ford indicated that $63,893 for duties and fees were applicable to the 1993 model year which it undertook to report 60 days after the end of the 1992 model year. See Pl.’s Ex. 12 . 55. In a letter dated November 13, 1992, Ford advised Customs that it had failed to report, in its June 5, 1990 reconciliation, $13,358,413 paid to Kia Motors Corporation for the production shortfall of the 1990 model year Festiva. See Pl.’s Ex. 14; Pretrial Order, Schedule C ¶ 27. Ford tendered $362,013 in duties owed in connection wit h the shortfall payments. See id. 56. FordandKM Corporation had a business agreement entitled Passenger Vehicle Program Agreement (“Festiva Agreement”), and datedJuly 1, 1988, containing an annual volume commitment clause and volume price adjustment clause. See Pl.’s Ex. 58; Pretrial Order, Schedule C ¶ 26. Pursuant to the annual volume commitment clause, Ford was obligated to pur ch ase 85,000 Festivas for resale in the Un ited States and Canada. See Pl.’s Ex. 58 at 11. 57. Under section 2.3A of the Festiva Agreement, if the number of orders for Festivas to be delivered during any production year

was between 50 and 90 percent of 85,000 vehicles, then “the purchase price for each Ford vehicle ordered for delivery”Case No. 02-00116 Page 24

would increase. See Pl.’s Ex. 58 at 11-12. 58. Pursuant to secti on 2.3B of the Festiva Agreement, if Ford orderedless than 50 percent of 85,000 Festivas, then the parties were obligated to engage in “good faith discussions.” See id. at 12-13. Either the purchase price for each vehicle would increase further, or the parties would renegotiate the terms of the contract or terminate the agreement. See id. 59. If Ford purchased more than the annua l volume commitment by ten percent, then Ford would receive a lump sum payment from KM Corporation for the adjusted purchase price as calculated pursuant to Section 2.3C of the agreement. See Pl.’s Ex. 58 at 13. 60. The adjustments required under the Festiva Agreement were to the purchase price of each vehicle. See Pl .’s Ex. 58 , See also TT at 77-79. 61. In a letter dated November 18, 1992, Ford advised Customs that it had made supplemental lump sum payments in the amount of $43,663,125 to Kia Motors for the 1991 and 1992 model year Festiva. See Pl.’s Ex. 15; See TT at 84-86; Pretrial Order, Schedule C ¶ 28. Fordtendered $1,220,384 for duties and fees associatedwith these payments. See Pl.’s Ex . 15, Pretrial Order, Schedule C ¶ 28 .Case No. 02-00116 Page 25

F. Findings of Fact Relevant to the Yamaha SHO Engines Investigation 62. Fordmade 322 entries for Yahama SHO engines between December 22, 1988 through December 31, 1991 at the ports of Atlanta, Georgia and Detroit, Michigan. See Pretrial Order, Schedule C ¶ 33. 63. There were three variations to the Yamaha SHO engines: (1) the 3.0 liter engine introduced with the launch of the Taurus SHO 1988 model; (2) the 3.2 liter engine introduced in July 1992 for the 1993 model year; and (3) the 3.4 liter engine that was to be introduced at the launch of the 1996 model. See Pl.’s Ex. 17. 64. By letter dated January, 31, 1991, Ford advised Customs that it had made supplemental lump sum payments of $5,762,1 29 t o Fordof Germany for the 1990 model year 2.9 liter V-6 engines. See Def.’s Ex. LL. In connection with these payments, Ford tendered$190,727 f or duties and fees. See id. Ford also advisedCustoms that it had made supplemental lump sum payments of $77,217,109 to Ford of Germany for 1990 model year 4.0 liter V-6 engines. See Def.’s Ex. MM. In connection with these payments, Ford tendered $2,128,953 for duties and fees. See id. 65. In a letter dated January 31, 1991, Ford advised Customs that it had made supplemental lump sum payments of $58,457,120 toCase No. 02-00116 Page 26

Fordof France for the 1990 m ode l year A4LD Bordeaux transmissions. See Def.’s Ex. NN. Ford tendered $1,665,215 for duties and fees in connection with these payments. See id. 66. Customs issued a summons on January 22, 1992, requesting Ford to produce “[a]ll ori gina l records and documents related to any and all assists given and payments made by Ford,” in connection with automobile engines manufactured by the Yamaha Motor Co., Ltd. for the Taurus SHO automobile. See Pl.’s Ex. 18; TT at 88-89; see also Pretrial Order, Schedule C ¶ 29. 67. Ford’s response to the summon s, on June 5, 1992, indicated that the value declared for the 3.0 liter engine had been $15,100,449 but that the total value had been $15,387,841. See Pl.’s Ex. 17 at 3. Accordingly, Ford advised Customs that it was liable for $287,112 in undeclared value for the 3.0 liter engine. See id. at 3-4; Pretrial Order ¶ 30. Ford tendered an additional $9,623.16 for duties and fees owed in connection with Customs’ investigation of the 3.0 liter engine. See Pl.’s Ex. 21; Pre trial Order, Schedule C ¶ 30. Fordalso informed Customs that there w ere $14,779,026 in prototype and development costs for the 3.2 liter SHO engine for the 1993 model year, which would be declared 60 days after the end of the 1992 model year. See Pl.’s Ex. 17; See Pretrial Order, Schedule C ¶ 32.Case No. 02-00116 Page 27

68. Fordalso provided Customs with a copy of it s supply agreement, indicating that the base price for the SHO engines could be adjusted. See Pretrial Order, Schedule C ¶ 31. 69. In a letter dated November 13, 1992, Ford identified $2,158, 417 in retroactive payments it made between 1987 through 1991 for the 3.0 liter engines, which it had failed to include in its June 5, 1992, reconciliation. See Pl.’s Ex. 19; see also Pretrial Order, Schedule C ¶ 34. Ford tendered $59,707 for duties and fees in connection with these lump sum payments. See Pl.’s Ex. 19. 70. In a letter dated Novemb er 18, 1992, Ford tendered $404,100 for dut ies associated with lump sum payments of $14,274,097 relatedto design and development costs for the 3.2 liter SHO engines made during 1991 and 1992. See Pl.’s Ex. 20; Pretrial Order, Schedule C ¶ 35. Ford also indicated that at the end of the 1993 model year it would reconcile actual usage and tender additional money owed or request a refund based on actual occurrences during the 1993 model year. See Pl.’s Ex. 20; Pretrial Order, Schedule C ¶ 35. 71. In a meeting with Customs Import Specialist Spiro Karras held on December 18, 1992, Ford admitted that it had not declared development costs appor tion ed to Yamaha prototype 3.2 liter SHO engines that were to be retained in Japan rather than shippedto the United States. See Pretrial Order, Schedule CCase No. 02-00116 Page 28

¶ 36. Ford sought advice from Customs’ Office of Regulations andRulings (“Customs’ OR&R”) on March 26, 1993. See id. Fo rdwas advised that the development costs shouldb e apport ione d over the imported production engines. See id. ; Pl.’s E x. 59 at 5. Customs’ OR&R advised Ford that the payment for development anddesign costs were attributable to the production of engines and, therefore, constitu ted t he price actually paid or payable for the 3.2 liter SHO engines. See Pl.’s Ex. 59 at 5. Ford has not tendered $68,178 of allegedduties owed on the undeclared development c osts for 3.2 liter SHO engines. See Pretrial Order, Schedule C ¶ 37.

G. Findings of Fact Relevant to Customs I n vestigation of Engines From Germany and Transmissions from France 72. Prior to the commencement of Operation Hat Trick, Ford filed

a voluntary disclosure on August 3, 1988, rela ting to undeclared lump sum payments made to Ford of France and Ford of Germany. See Pl.’s Ex. 1 at 22; Joint Ex. 2 at Z. In a letter dated October 3, 1988, Ford tendered duties and fees in connection with these payments. See Joint Ex. 2 at Z. Ford informedCustoms that it had taken corrective action and that its accounting services had been instructed to provide copies of all debit and credit memoranda it processed. See id. ; TT at 255-56.Case No. 02-00116 Page 29

73. In letters dated March 23, 1992, Fo rd advised Customs that lump sum payments totaling $ 21,401,808 and $32,130,256 had been made to Ford of Germany for 1991 model year 2.9 liter and 4.0 liter V-6 engines, respectively . S ee Pretrial Order, Schedule C ¶ 21-22; Pl.’s Ex. 29 & 31. Ford tendered $726,591 and $1,047,074, respectively, for duties and fees associated with these payments. See Pretrial Order, Schedule C ¶ 21-22; Pl.’s Ex. 29 & 31. 74. Fordinformed Customs, in a letter dated May 6, 1993, that it hadmade lump sum payments to Ford of Germany totaling $4,783,094 for 1991 model year 2.6 liter V-6 engines. See Pretrial Order, Schedule C ¶ 42; Pl.’s Ex. 36. Ford tendered $162,625 for duti es a nd fees in connection with these payments. See Pl.’s Ex. 36. 75. Ford disclosed on May 6, 1993, that it had made lump sum payments to Ford of Germany for 1992 model year 4.0 liter V-6 engines in the amount of $25,782,651. See Pl.’s Ex. 35; Pretrial Order, Schedule C ¶ 43. Ford tendered $695,874 in unpaidduties and fees in connection with these payments. See Pl.’s Ex. 35. 76. On May 28, 1993, Customs issued a summons to Ford requesting “documents and informat ion regarding ‘lump sum payments’ on engines imported from Ford of Germany for the period January 1990 to the present . . . .” Pl.’s Ex. 39; see also PretrialCase No. 02-00116 Page 30

Order, Schedule C ¶ 45. 77. In a letter dated August 9, 1993, Ford responded to Customs’

summons. See Pl.’s Ex. 38. Ford adjusted the 1990 submission data relating to 1990 model year V-6 engines from Germany resulting in additional duties and fees of $73,635.13, which Ford tendered. See id. ; TT at 258. 78. By letter dated March 23, 1992, Ford informed Customs that it hadmade lump sum payments in the amount of $10,875,431 to Fordof France for 1991 model year A4LD Bordeaux transmissions. See Pretrial Order, Schedule C ¶ 23; Pl.’s Ex. 30. Ford tendered $339,379 for duties and fees in connection with these payments. See Pl.’s Ex. 30. 79. Fordinformed Customs by letter, dated May 6, 1993, that it hadmade lump sum payments to Ford of France in the amount of $16, 359,794 for 1992 model year A4LD Bordeaux transmissions and tendered $458,893 for unpaid duties and fees. See Pl.’s Ex. 37; Pretrial Order, Schedule C ¶ 44. 80. FordinformedCustoms by letter dated September 2, 1993, that the value of certain lump sum payments relating to transmissions imported fromFor d of France for the 1989 through 1992 model year were not reported to Customs because of “incorrect currency exchange rates applied at the time of payment, missing billing invoices and a change in Ford’s internal tracking/reporting process from manual to aCase No. 02-00116 Page 31

3 When asked when the reviews began, Mr. Cohen did not recall if it was before or after the commencement of Customs’ investigation. See TT at 447. mechanized procedure.” Pl.’s Ex. 42. 81. In a letter dated December 1, 1993, Ford explained how it calculatedduties and fees it owed on the additional payments referred to in its September 2, 1993, letter. See Pl.’s Ex. 43. Ford determined that it had not declare $4,973,042 of value upon entry of the merchandise. See id. ; Pretrial Order, Schedule C ¶ 47. Fordcalculatedthat it owed $113,387.68 for duties and fees and tendered a check to Customs in that amount. See id.

H. Ford’s Compliance Measures 82. After the Ju ne 1991 Meeting, Ford undertook a review of earlier po st-e ntry submissions and tenders dating from 1987 through 1992 (“Five Year Look Back ”). TT at 446-48. Mr. Cohen testified that the Five Year Look Back was not in response to a summons. 3 See TT at 447. Mr. Gibson testified that the review did not occur after Ford was notified of Customs’ investigation. See TT at 503-04. No testimony or documentary evidence was presented at trial to support the conclusion that Ford had undertaken a Five Year Look Back prior to the commencement of Customs’ investigation or that it has undertaken such a review with regard to any other programCase No. 02-00116 Page 32

that was not within the scope of Customs’ investigation. The Court finds the testimony of Messieurs Cohen and Gibson incredible and finds that the Five Year Look Back was in response to Customs’ investigation of Ford. 83. Fordhad a Customs compliance manual which instructed Ford employees on how to properly file documents for imported goods. See TT at 422; Joint Ex. 2 at G. 84. Ford’s compliance manual states that, “[t]he invoice must be pricedso that the tru e va lue can be ascertained. In the event that the value is not completely and correctly shown, a ‘provisional’ disclaimer is stated on t h e invoice, thereby advising customs.” Joint Ex. 2 at G at 12. The manual further explains that Ford is required to re port t o Customs all extra neous dutiable payments that affect the original enteredvalue of the imported merchandise. See Joint Ex. 2 at G. Examples of extraneous payments list in the manual may be in the form of: (a) retroactive adjustments; (b) lump sum payments for engineering and manufacturing expenses; ©) adjustments for currency fluctuations; or (d) volume price adjustments. See id. 85. Fordsent a draft copy of the manual to Customs for review and comment. See TT at 423. Customs offered several suggestions, which Ford subsequently incorporated in its final manual. See Def.’s Ex. H; TT at 423 & 425.Case No. 02-00116 Page 33

86. During the relevant time period, Ford had training videos, a Customs compliance hotline, and held seminars and meetings to make its employees aware of their responsibilities with regard to complying with Customs’ laws and regulations. See Def.’s Ex. J, K, & L; see also TT at 381 & 425-28. 87. Fordreceived a letter from Customs’ regional director, in September 1988, commending Ford “for recognizing the importance of complying with Customs’ regulations and taking constructive a nd p ositive steps to educate other members of the Ford Motor Company community in these matters.” Def. ’s Ex. Q. 88. Ford’s purchasing and finance departments were instructed to provide Ford’s customs unit “with copies of anything that might impact the cost of the goods.” TT at 437. Every Ford employee in the purchasin g department involved in overseas purchas es was instructed to provide a copy of the purchase order to Ford’s International Transportation and Customs Office. See Joint Ex. 2 at 19. The employees of Ford’s purchasing unit, however, did not always comply with these instructions. See id. 89. Ford’s customs unit “had to rely on the procedures in place at the time that we were to get a copy of the purchase order, period.” Joint Ex. 2 at 30. If a purchase order was not sent to Ford’s customs unit then it would not know what was beingCase No. 02-00116 Page 34

importe d. See id. at 31. Ford’s customs unit knew t ha t Ford’s purchasing unit’s failure to provide it with purchase orders would open Ford to liability for failure to report dutiable payments. See id. 90. After Oper ation Hat Trick had commenced, Ford proposed to Customs a change in its methodology for reporting dutiable assists. See Def.’s Ex. V. In a letter dated August 26, 1992, Ford advised Customs that it “wouldlike to discontinue reporting assist values at the time of the first importation of the applicable goods.” Id. Instead, Ford proposed to provide Customs with information on potential assists before importation, in July for the upcoming year, and report and ten der duties on such assists in December of the following year. See id. Customs, in a letter dated February 1, 1993, acceptedFord’s proposal to change its methodology of reporting assists. See Def.’s Ex. W. 91. In a repor t date d October 27, 2000, Customs assessed Ford’s compliance andimport practices beginning in 1995. See Joint Ex. 1 at Ex. 114. Customs’ audit of Ford found that “Ford lackedadequate internal control procedures in . . . verifying the reliability of their brokers’ work [and] . . . ensuring the reporting of correct values on entries . . . .” Id. Customs, found, however, that Ford “has attempted to improve their Customs compliance through their involvement in variousCase No. 02-00116 Page 35

4 The relevant portions of the statute state: The Court of International Trade shall have exclusive jurisdiction of any civil action which arises out of an import transaction and which is commen ce d by the United States— (1) to recover a civil penalty under section 592 . . . of the Tariff Act of 1930 . . . (3) to recover customs duties. 28 U.S.C. § 1582. other programs.” Id. Based on corrective action taken by Ford, Customs’ Compliance Assessment Team recommended that “Ford’s imports . . . should receive the level of cargo examinations and document reviews associated with companies that pose a low risk.” Id.

II. Conclusions of law The Court has jurisdiction of thi s matt er pursuant to 28 U.S.C. § 1582 (2000). 4 In actions brought for the recovery of any monetary penalty claimed under section 592 of the Tariff Act of 1930, as amended, 19 U.S.C. § 1592, all issues are tried de novo , see 28 U.S.C. § 2640(a)(6) (2000), including the amount of the penalty. See 19 U.S.C. § 1592(e)(1). The level of culpability has a direct correlation to the maximum amount of penalty that can be assessed. See 19 U.S.C. § 1592©).Case No. 02-00116 Page 36

Customs has alleged that Ford vio lated 19 U.S.C. § 1592, thereby depriving the United States of all or a portion of lawful duty through grossly negligent or, in the alt erna tive, negligent conduct. See Compl. I n p ertinent part, 19 U.S.C. § 1592(a) states: Without regard to whether the United States is or may be deprivedof all or a portion of any lawful duty thereby, no person, by fraud, gross negligence, or negligence– (A) may enter, introduce, or attempt to ente r or introduce any merchandise into the commerce of the United States by means of– (I) any document, written or oral statement, or act which is material and false, or (ii) any omission which is material. 19 U.S.C. § 1592(a). An act or omission is deemed material if it has the potential to alter the appraisement or liability for duty. See 19 C.F.R. pt. 171, App. B(A) (1992). The issue of materiality is for the Court to determine. See United States v. Hitachi Am., Ltd. (“ Hitachi I ”) , 21 CIT 373, 386, 964 F. Supp. 344, 360 (1997), aff’din part and rev’d in part on other grounds , 172 F.3d 1319 (Fed. Cir. 1999); see also United States v. Rockwell Int’l Corp. , 10 CIT 38, 42, 628 F. Supp. 206, 210 (1986) (stating that “the measurement of the materiality of the false statement is its potential impact upon Customs’ dete rmin ation of the correct duty for the imported merchandise”).

As a threshold issue, Ford asserts that Customs failed to offer into evidence entries related to the subject merchandise,Case No. 02-00116 Page 37

except for the Capri vehicle and Yamaha SHO engine entry documents. See Def.’s Post-Trial Br. at 16-17. Ford argues that, without the entries admitted into evidence, th e C ourt has no means of evaluating Customs’ claim that the ent ere d values were false or t hat Ford failed to notify Customs that the prices reflec te d therein were not final. See id. Ford’s argument is flawed because the statutory language contemplates violations where the importer has either made material omissions or failed to act. Accordingly, an importer may violate the statute by failing to provide Customs with entry documents in the first place. Pursuant to Ford’s argument, Customs would be precluded fromsuccessfully bringing an action pursuant to 19 U.S.C. § 1592 in instances where entry documents or sp ecif ic entry information was never submitted to Customs. This reasoning is untenabl e a nd contradicts the plain language of the statute. The totality of the evidence submitted at trial provides the Court with enough evidence of the values Ford declared on its entry documents. Therefore, such docume nts ne ed not be introduced and admittedinto evidence. The testimony of Ford’s own witnesses establishedits failure to declare assists at entry and Ford’s failure to alert Customs “at once” of dutiable lump sump payments made after entry. See e.g. Pl.’s Ex. 12, 14, 15, 16, 17, 19, 23, 24, 25, 28, 29, 30, 31, 33, 35, 36 37; See also TT at 402-03; 435-Case No. 02-00116 Page 38

36, 488. Such failures and acts may be found by a trier of fact to constitute gross negligence or negligence in violation of 19 U.S.C. § 1592. Based on the testimony and evidence prese nted at trial, the Court finds that there is sufficient eviden ce to evaluate Customs’ claim that values appearing on Ford’s entry documents were false or that Ford failed to notify Customs that the prices reflected therein were not final.

A. Customs Failed to Establish by a Preponderance of the Evidence that Ford’s Conduct Was Grossly Negligent 1. Statutory Background Gross negligence arises “if it results froman act or acts (of commission or omi ssion) done with actual knowledge of or wanton d isregardfor the relevant facts and with indifference to o r di sregardfor the offender’s obligations under the statute. ” 1 9 C.F.R. pt. 171, App. B(C)(2). A finding of gross negligence requires the Court to d eter mine that Ford’s omissions of information from entry documents and its failure to comply with its statutory obligations was willful, wanton or reckless or that the evidence before the Court illustrates For d’s ut ter lack of care. See Mach. Corp. of Am. v. Gullfiber AB , 774 F.2d 467, 473 (Fed. Cir. 1985) (citation omitted). Gross negligence involves a type of intent which is a question of fact and not law. See United States

v. Hitachi Am., Ltd. , 172 F.3d 1319, 1326 (Fed. Cir. 1999); see also Allen Organ Co. v. Kimb all Int’l, Inc. , 839 F.2d 1556, 1567Case No. 02-00116 Page 39

(Fed. Cir. 1988) (stating that “intent is a factual determination particularly within the province of the trier of fact”). Customs bears the burden of establishing all the elements of the alleged violation. See 19 U.S.C. § 1592(e)(3). Customs must establish such elements by a preponderance of the evidence, which

“ is the general burden assigned in civil cases for f actua l matters.” St. Paul Fire & Marine Ins. Co. v. United States , 6 F.3d 763, 769 (Fed. Cir. 1993). Preponderance of the evidence is “the greater weight of evidence, evidence which is more convincing than the evidence which is offered in opposition to it.” Id. (quoting Hale v. FAA , 772 F.2d 882, 885 (Fed. Cir. 1985)). Based on the testimony and documents submitted during trial, the Court finds that Customs has failed to meet its burden of proof.

2. Discussion Customs has not established that Ford acted with a wanton di sregardfor the relevant facts and with indifference to o r disregard for its obligations under 19 U.S.C. § 1592. During the relevant time period, Ford had a customs compliance manual setting forth the duties of its employees for reporting dutiable values to Customs. See TT at 422; Joint Ex. 2 at G. Customs reviewed Ford’s manual and made several comme nts and recommendations, see Def.’s Ex. H, which Ford subsequently incorporated into its compliance manual. See TT at 423 & 425. Moreover, Ford produced trainingCase No. 02-00116 Page 40

v ideos , see Def.’s Ex. J, K & L, maintained a compliance hotline and held seminars and meetings relating to Ford’s compliance with Customs’ rules and regulations. See TT at 381 & 421-28. The evidence showed that Ford had mechanisms in place which enabled it to comply with its st atut ory obligations to properly enter merchandise. See Joint Ex. 2 at R, Z, CC, DD, EE, II, JJ, KK.

The mere existence of such mechanisms, however, does not completely prevent Customs from establishing that Ford was grossly negligent. Customs may meet its burden by demonstrating that Ford disregardedor was indifferent to the internal compliance measures it put into place. Ford’s compliance measures relieve Ford from gross negligence liability onl y if ( a) such mechanisms set forth procedures and guidelines th at, if followed, ensured Ford’s fulfillment of its statutory duties, and (b) Ford made a good faith effort to follow its internal compliance measures. Ford satisfied the first requirement. Customs’ positive revi ew o f Ford’s compliance manual established that Ford’s compliance mechanisms wouldallow Ford to meet its statutory obligations. See TT at 423 & 425, Def’s Ex. H. The Court, therefore, must determine whether Fordmade a good faith attempt to implement and follow its internal compliance measures.

Basedon the testimony and documentary evidence produced, the Court finds that Customs failed to establish by a preponderance ofCase No. 02-00116 Page 41

the evidence that Ford did not make a good faith effort to follow its internal compliance measures or statutory obligations. Ford’s submission of reconciliation reports illustrates Ford’s understanding of its duty to report additional transaction values incurredafter entry. See e.g. , Pl.’s Ex. 8, 12, 19. Ford actively tried to fulfill its duty under 19 U.S.C. § 1485 to inform Customs of changes to the value declared on its entry documents. Credible evidence was admittedat trial showing that Ford attempted to reconcile the difference between the prices reportedto Customs at the time of entry and the final price paid. See e.g. , Pl.’s Ex. 8, 12, 14, 15, 16, 17, 19, 30, 31, 32, 33, 35, 36, 37. In October 1988, Ford proposed the Reconciliation Agreement as a means of increasing the efficiency of reporting lump sum payments to C ustoms. See Pl.’s Ex. 55. Ford indicated that the propose d changes would aid both Customs and Ford by reducing paperwork and the amount of time needed to report lump sum payments. See id. Fordundertook to report lump sum payments on an annual basis. See id. From about 1990 through 1993, Ford had an employee, Ms. Monro, who was responsible for implementing Ford’s lump sum reconciliation program. See TT at 381. Ford submitted reconciliation reports to Customs when it failed to capture certain lump sum payments or assists. See TT at 381-82, 47 1, 474-75; Joint Ex. 2 at Z; See e.g. , Pl.’s Ex. 8, 12, 14, 15, 16, 17, 19, 23, 24, 25, 28, 29, 30, 31, 32, 33, 35, 36, 37. Accordingly, Ford’s attempt to reconcileCase No. 02-00116 Page 42

the price paid with the price reported at entry demonstrates that Forddid not act with wanton disregard or indifference to its statutory obligations, which were set forth in its compliance manual.

Ashowing of utter lack of care would have required Customs to establish that Ford made no attempt to mee t i ts statutory obligations. To meet its burden of proof, Customs had to demons trat e Ford’s failure to act upon relevant facts indicating that Ford’s entry pro cedures were deficient. Ford’s attempt to reconcile the price actually paid and the price declared at entry along with the training videos, customs compliance hotline, and seminars relating to customs compliance illustrates that Ford did not ac t with wanton disregard or indifference to its internal compliance program. The testimony and documentary evidence simply does not establish Ford’s grossly negligent conduct. The evidence failedto establish Ford’s indifference to make material omissions fromthe entry documents. The evidence also failed to establish that Ford exhibited an utter lack of care. Accordingly, the Court concludes that Customs failed to carry its burden to show that Ford’s violati on of 19 U.S.C. § 1592 was a result of grossly negligent conduct.Case No. 02-00116 Page 43

B. Customs Established Ford’s Negligence by a Preponderance of the Evidence and Ford Failed to Demonstrate it Exercised Reasonable Care 1. Statutory Background Negligence arises out of “an act or acts (of commission or omission) done through either the failure to exercise the degree of reasonable care and competence expected from a person in the same circumstances in ascertaining the facts or i n drawing inferences therefrom. . . .” 19 C.F.R. pt. 171, App. B(B)(1). Consequently, negligence does not require the trier of fact to determine intent. Section 1592(e)(4) of Title 19 of the United States Code derogates from common law negligence ( i.e. , duty, breach, causation, and injury) by shifting the burden of persuasion to the defendant to show lack of negligence. See Hitachi I , 21 CIT at 380, 964 F. Supp. at 355. The statute removes the breach element from Customs’ prima facie negligence case. See id. Accordingly, Customs must establish by a preponderance of the evidence that the materially false act or omission occurred. See 19 U .S.C . § 1592(e)(3). Once Customs has met its burden, Ford bears t he burden to establish that it exercised reasonable care under the circumstances and that the alleged violation was not causedby its negligence. See 19 U.S.C. 1592(e)(3); 19 C.F.R. pt. 171, App. B; see al so Hitac hi I , 21 CIT at 381, 964 F. Supp. at 355-56.Case No. 02-00116 Page 44

Customs is directed to appraise imported merchandise based on the transaction value. See 19 U.S.C. § 1401 a(a)(1) (1988). The stat ute defines transaction value as “the price actually paido r payable for the merchandise when sold for exportation to the United States, plus amounts equal to . . . the va lue, apportioned as appropriate, of any assist . . . .” 19 U.S.C. § 1401a(b)(1). Under 19 U.S.C. § 148 1(a), all invoices for imported merchandise are required to set forth, inter alia , the purchase price of each item. See 19 U.S.C. § 1481(a)(5) (1988). The statute also states that the in voices must contain any facts required to properly appraise the merchandise. See 19 U. S.C . § 1481(a)(10). An importer must file at the time of entry appropriate documentation enabling Customs to properly assess duties. See 19 U.S.C. § 1484(a)(1)(B); see also United States v. Thorso n Chem . Corp. , 16 CIT 441, 448, 795 F. Supp. 1190, 1195 (1992) (noting that defendant hada “legal obligation pursuant to the statute to file appropriate documentation permi tting Customs to properly assess duties and determine whether any other applicable requirement of law is met”) (citation omitted). Furthermore, an importer making an entry must file a declaration under oath stating that “the prices set forth in the invoice are true, in the case of merchandise purchased or agreedto be purchased . . . [and that] all other statements in the invoice or other documents filed with the entry, or i n the entry itself, are true and correct . . . .” 19 U.S.C. § 1485(a) (2) &Case No. 02-00116 Page 45

(3). The importer must also declare “[t]h at he will produce at

once to the appropriate customs officer any invoice, paper, letter, document, or information received showing that any such prices or statements are not true or correct.” 19 U.S.C. § 1485(a)(4).

2. Discussion The Court finds that Customs established, by a preponderance of the evidence, that Ford failed to ex ercise reasonable care expectedfrom a person in the same circumstances. See 19 C.F.R pt. 171, App. B (C)(1). Testimonial anddocumentary evidence presented at t ria l established that Ford had made assists between 1987 through 1992, which it failed to declare on its entry documents or “at once” thereafter. See e.g. , Pl.’s Ex. 23, 24, 25, 28, 29; see also TT at 493. Ford also failed to declare on its entry documents that the values stated therein were not final because Ford was obligatedto make lump sum payments to its vendors after entry. Furthermore, Ford failed to report these lump sum payments “at once” pursuant to 19 U.S.C. § 1485 or the Reconciliation Agreement. See e.g. , Pl.’s Ex. 12, 14, 15, 16, 17, 19, 30, 31, 33, 35, 36, 37; see also TT at 402-03; 435-36, 488.Case No. 02-00116 Page 46

a. Ford’s Failure to Declare Assists at Entry Violated 19 U.S.C. §§ 1484 & 1485 1. Customs Satisfied its Burden of Proof The Court finds that Customs met its burden of proof and establishedthat Ford made materially false statements or omissions in its entry documents related to tooling assists provided for certain vehicles and vehicle components thereby violating 19 U.S.C. § 1484. See Pl.’s Ex. 22, 23, 24, 25, 27, 28. Based on testimony and documentary evidence, the Court finds that Ford’s omission of assists on the entry documents had a material impact on Customs’ ability to properly determine the dut iable value of the relevant merchandise. See Rockwell , 10 CIT at 42, 628 F. Supp. at 210. Basedon uncontroverted evidence, the Court further concludes that Fordknew or should have known that it had i ncurred expenses for assists prior to importation, see TT at 493, but failed to report such assists as part of the transaction value in its entry documents. See 22, 23, 24, 25, 27, 28.

Customs also established that Ford violated 19 U.S.C. § 1485 by fa iling to advise Customs “at once” that it had provided such tooling assists. Fordadvised Customs, on several occasions, that it had failed to capture additional duties a nd fe es on its entry documents relating to tooling assists provided by Ford. See Pl.’s Ex. 22, 23, 25, 27, 28. On one occasion, Ford indicated that itCase No. 02-00116 Page 47

hadfailed to include tooling assists “from the dutiable values of the related parts because of inadequate instructions to certain Fordforeign suppliers.” Pl.’s Ex. 22. Ford, on a different occasion, indicated that it had failed to include certain tooling assists in the dutiable values “because the country of origin for

some tool orders was not coded correctly in the Ford payment records.” Pl.’s Ex. 27. Ford’s lack of reasonable care to report the assists in the entry documents and invoices constitutes materially false statements or omissions ar isin g out of Ford’s negligence. See 19 C.F.R. pt. 171, App. B(B)(1).

Moreover, the evidence established that Ford failed to “at once” notify Customs that the entry values included assists. The documentary evidence demonstrates that Ford advised Customs of the assists well after entry. For example, in a letter dated April 6, 1993, Ford advised Customs that it had provided $1,327,455 of value to the Essex Plant free of charge for the 1990, 1991, and 1992 calendar years. See Pl.’s Ex. 25. Ford’s discl osu re of the assists came almost three years after the first assists had been incurred. See id. Ford’s failure to capture assists at entry or when they were incurred is unreasonable and violated the plain language of 19 U.S.C. § 1485, which requires an importer to report changes in value declared at enrty “at once.”Case No. 02-00116 Page 48

2. Ford Failed to Satisfy its Burden of Proof Customs satisfie d it s burden of proof, thereby shifting the burden to Ford to establish that it exercised reasonable care under the circumstances and that the violations were not the result of its negligence. See 19 U.S.C. § 1592(e)(4). From all the evidence presentedon the reporting of assists by Ford, the Court concludes that Ford failed to meet its burden. There was uncontroverted evidence that Ford knew that assists “start to occur in Ford’s major programs sometimes two, three years prior to the good actually being imported into the United States.” TT at 493. Ford hada compliance program in place to report assists. See TT at 421, 442, 493-94. If Ford learned of additional assists after the first importation, then Ford would report such assists to Customs in a subsequent reconciliation. See TT at 494.

The evidence established, however, that Ford failed to follow its own policies. Ford argues that “throughout the periodat issue in this action Ford had procedures in place that satisfied Customs’ reporting requirements which were ignored by the Customs Agents.” Def.’s Pos t-T rial Br. at 23. There was documentary evidence presentedat trial that Ford reported to Customs its failure to initially capture assists upon entry of the merchandise. See e.g. , Pl.’s Ex. 22, 23, 24, 25. Ford, however, did not establish that it exercisedreasonable ca re to report such assists which, in someCase No. 02-00116 Page 49

cases, related to merchandise imported over five years before Ford’s notification of Customs. See e.g. , Pl.’s Ex. 28. Ford did not present corroborating evidence that it reported such assists in a timely fashion and therefore met the requirement of 19 U.S.C. § 1485. Moreover, Ford failed to establish through testimony or documentary evidence that its assist reporting program, if followed, would have sati sfied Ford’s statutory obligations with respect to making entries in accordance with law.

Fordasserts that “it was common practice for Customs to issue CF 28’s requesting information about assists and to accept the resulting tenders without further action.” Def.’s Post-Trial Br. at 22. While Customs may have used CF 28s to gather relevant info rmat ion regarding assists, the burden to report such assists remains with the importer. See 19 U.S.C. §§ 1401a(b)(1) & 1481(a)(5). Ford’s customs compliance manual explains that the basis for Customs’ collection of duty is the value of the entered merchandise, which includes assist s provided by Ford. See Joint Ex. 2. Nonetheless, Ford failed to advise Customs at the time of entry that it had provided assists. See Pl.’s Ex. 22, 23, 24, 25, 27, 28.

Fordwas required to fil e a declaration under oath stating t hat the prices set forth in the entry documents were true and correct. See 19 U.S.C. § 1485(a)(2) & (3). Ford, however, did notCase No. 02-00116 Page 50

present the Court with evidence that it provided Customs with true

an d accu rate information. See United States v. Nippon Miniature Bearings, Corp. , 25 CIT 638, 641, 155 F. Supp. 2d 701, 705 (2001) (stating that “the burden is on the importer t o pro vide true and accurate information to Customs; the burden is not on Customs to ‘findout’ non -complying importers”). Based on the evidence submitted, the Court finds that Ford’s failure to report assists at the time of importation, in accordance with 19 U.S.C. § 1484, had

a material impac t o n Customs’ ability to properly determine the dutiable value of the relevant mer chan dise. Furthermore, Ford failedto report changes in the entry values “at once,” in accordance with 19 U.S.C. § 1485. Accordingly, the Court holds that Ford’s failure to report assists in its entry documents or “at once” resulted from Ford’s negligent conduct. Ford, therefore, violated 19 U.S.C. § 1592.

b. Ford’s Failure to Declare Lump Sum Payments 1. Ford’s Material Omissions Violated 19 U.S.C. § 1484 and was the Result of Ford’s Negligence Customs met its burden of proof and established that Ford made materially false statements or omissions in its entry documents relating to lump sum payments it made in connection with certain vehicles and vehicle components. The court in Hitachi held that “importers are required to disclose escalation clauses in entry documents . . . .” Id. 21 CIT at 387-88, 964 F. Supp. at 360-61Case No. 02-00116 Page 51

(stating that the importer’s omission on entry documents of escalation clauses affecting price “had a potential impact on the correct duty and thus perpetrated a material omission”). In the

ca se at bar, Ford presented no evidence that it disclose d escalation clauses on its entry documents in accordance with 19 U.S.C. § 1484.

The evidence demonstr ated that Ford violated the statute by failing to notify Customs of potential post-entry lum p su m payment s. Cu stoms offered unrebutted evidence that Ford knew at the time of importation that the cost of certain vehicles and vehicle components were subject to change. See TT at 492 & 512. Ford had supply agreements with many of its foreign vendors which containedpost-importation price adjustments. See Pretrial Order, Schedule C ¶ 1. These supply agreements were negotiated prior to the shipment of the merchandise. See TT at 512. Under the terms of the supply agreements, however, Ford did not know the amount of the payments required. See TT at 382. While Ford became aware of the amount of these payments subsequent to the entry of the merchandise, Ford failed to notify Customs on the entry documents that it anticipated making lump sumpayments. See e.g. , Pl.’s Ex. 81 & 82.

The evidence established that Ford’s omissions deprived Customs of information required to determine whether or not toCase No. 02-00116 Page 52

extendthe statutory period for liquidation. See 19 C.F.R. § 159.2 (1992) (stating that “[a]ll entries covering imported merchandise

. . . shall be liquidated”). Under Customs’ regulations, “an entry [that is] not liquidated within 1 year from the date of entry of the merch andise . . . shall be deemed liquidated by operation of law at the rate of duty, value, quantity, and amou nt of duties assertedat the time of filing an entry summary for consumption in proper form with estimated d uties att ached. . . .” 19 C.F.R. § 159.11. However, Customs may extend liqu ida tion for an additional period of time if “[i]nformation needed by Customs for the proper appraisement . . . is not available.” 19 C.F.R. § 159.12. Accordingly, Ford’s omissions in its entry documents imping ed on Customs’ ability to properly assess duties on the subject merchandise or to withhold liquidation unt i l the transaction values on the entry summaries became final. See 19 U. S.C. § 148 4(a)(1)(B) ; see also Thorson , 16 CIT at 448, 795 F. Supp. at 1196. Although Customs established Ford’s material omissions from entry documents, Ford is afforded an opportunity to rebut Customs allegations by establishing that it exercised reasonable care. See 19 U.S.C. § 1592(e). The Court, however, concludes that Ford has failed to meet its burden. There is no evidence before the Court that Ford took action to notify Customs that the transaction valuesCase No. 02-00116 Page 53

containedin the entry documents were subject to change. Ford argues that it was not required under the applicable law to disclose that the transaction values were subject to change due to post-entry price adj ustments. See Def.’s Post-Trial Br. at 17. Fordasserts that, pursuant to 19 U.S.C. § 1484(a)(1)(b), it was merely required to file documentation “necessary for the assessment of duties and collection of statistics on the merchandise.” Id. Fordfurther argue s that the Reconciliation Agreement placed Customs on notice that it would have post-entry price adjustments. See id. at 19-20. Accord ingly, F ord argues that it met its statutory obligations or alternatively that it exercised reasonable care under the circumstances.

The evidence presented and facts found by the Court demonstrate that Ford failed to exercise reasonable care and, therefore, acted with ne gligence. Ford failed to alert Customs that the values declared at entry were not final values. See TT at 410 & 491, See e.g. , Pl.’s Ex. 81 & 82. Furthermore, i n letter s Fordsent to Customs between Augu st 1991 through December 1993, Fordrepeatedly advised Customs that lump sum payments had not been declaredon the entry documents. See Pl.’s Ex. 8, 12, 14, 15, 17, 19, 20, 29, 30, 31, 32, 33, 35, 36, 37, 38, 42, 43. Ford also failedto indicate on the entry documents that its transaction values were not final. See e.g. , Pl.’s Ex. 81 & 82. Ford may notCase No. 02-00116 Page 54

5 The court in Hitachi , determined that the importer could “not be held liable [for violating 19 U.S.C. §1484] because Customs confused the obligation by virtue of its own published rulings.” Hitachi , 21 CIT at 388, 964 F. Supp at 361. Customs had issued a ruling in which it stated that if a n im porter has an agreement whereby the price actually paid or payable may change, than the importer should preferably advise Customs of such an agreement at shirk its statutory obligations under 19 U.S.C. § 1484 and place the blame for its failure to meet those obligations with Customs. Ford did not offer evidence to suggest that its failure to comply with the statute was not due to its failure to exercise reasonable

care. On the contrary, there was uncontro ver ted testimony that Fordknew that the prices paid to its vendors for vehicles and vehicle components were subject to change. See TT at 492. While it was reasonable for Ford to enter the merchandise with the transaction values known at the time of entry, the Court finds that Ford’s failure to place Customs on notice that such values were not final is unreasonable. If Ford had exercised reasonable care under the circumstances, then Ford would have followed its own internal procedures and alertedCustoms at entry that the transaction values were provisional. See Joint Ex. 2 at G.

The lump sum payments Ford made to its vendors after entry are analogous to the escalation payments mad e by the importer in Hitachi . While the importer in Hitachi escaped liability because

a Customs ruling clouded the importer’s duties, Ford has failed to establish that its duties were nebulous in the present case. 5 WithCase No. 02-00116 Page 55

the time of entry. See id. The Court held that Customs’ ruling, in the absence of a subsequent ruling, “clouded the existence and exigency of the requirement [to report escalat ion clauses at entry], and a nebulous duty is a legal oxymoron.” Id. respect to Ford’s argument that the Reconciliation Agreement placed Customs on notice that its entry values were provisional, the Court finds this contention, at best, tenuous. If Ford’s argument were to be adopted, then every single entry Ford ma de wo uld have been provisional and n ot final. Furthermore, the Reconciliation Agreement did not identify specific entries, if any, to which it appl ied. Consequently, Customs would never know when to h ol d liquidation open or liquidate entries. Ford’s logic is inapposite to the plain language of the statute because it would require Customs to guess which entry documents contain fin al t ransaction values and which entry values were subject to change because of contract provisions Ford had with its vendors. The statute encumbers the importer with the responsibility of ensuring that information contained in entry documents is true and correct. See 19 U.S.C. § 1485(a)(2) & (3). The statute required Ford to put Customs on notice for each entry made. See id. It is unreasonable for Ford to have relied on the Reconciliation Agreement to place Customs on notice for every entry Ford made. Customs does not allege that Ford declared inaccurate values on its entry documents. Rather, Customs alleges that Ford failedCase No. 02-00116 Page 56

to fu lfi ll its statutory obligations to place Customs on notice that such prices were provisional. There was uncontro vert ed evidence that Ford failed to place Customs on notice that the transaction values set forth in the entry documents were subject to change, and, therefore, not final transaction values. See TT at 410 & 4 91; See e.g. , Pl.’s Ex. 81 & 82. Accordingly, the Court concludes that Ford’s omissio n o f material facts from its entry documents was a result of its negligent conduct. The Court holds that 19 U.S.C. § 1484 required Ford to indicate on t he entry documents that transaction values were not final because, under pre-existing contracts Ford had with its vendors, the price actually paid or payable was subject to change. Accordingly, the Court holds that Ford violated 19 U.S.C. § 1592.

2. Ford Violated 19 U.S.C. § 1485 The Court finds that the testimony and documents submitted at trial established that Ford violated the “at once” requirement of 19 U.S.C. § 1485. As the court noted in Hitachi , an importer may escape liability for failing to meet the requirements of 19 U.S.C. § 1485 by implementing one of two statutory mechanisms available. See Hit achi , 21 CIT at 389, 964 F. Supp. at 361-62. An importer “may arrange to hold open liquidation under 19 U.S.C. § 1504(b),” or “deposit estimated duties” pursuant to 19 U.S.C. § 1505. Id.Case No. 02-00116 Page 57

Unde r 19 U.S.C. § 1485, lump sum payments must be repor ted t o Customs at once unless other arrangements have been made.

Fordcontends that, in order to prove that it acted with reasonable care, Ford need only show that it met its “obligation to notify Customs after entry if it received information that entered prices had c hanged.” Def.’s Post-Trial Br. at 19. Ford also argues that the Reconciliation Agreement placed Customs on notice, thereby satisfied the requirements of advance timely notice set forth in Hitachi . See id. Ford maintains that it had created procedures to tender duties a fter post-entry payments were made. See id. Lastly, Ford asserts that it consistently filed reconciliations with Customs and that its “program was more proactive than the type of post entr y notice to Customs than the Hitachi court contemplated.” Id. at 20.

The evidence established that the Reconciliation Agreement constitutes an arrangement between Customs and Ford, which modified Ford’s duty under 19 U.S.C. § 1485. Pursuant to the arrangement, Fordwas allowed to report lump sum payments made after entry in an annual reconciliation report to Customs. See Pl.’s Ex. 55. Ford proposedthe Reconciliation Agre emen t to capture and report to Customs lump sum payments made after vehicles and vehicle components had been entered. See id. Under the plain language of the Reconciliation Agreement, Ford was required to sub mit suchCase No. 02-00116 Page 58

reports within 60 days after the close of each model year, July 30. See Pl.’s Ex. 55 (stating that “[a]n annual reconciliation report will be prepared for each import programand filed with the Detroit customs”). Mr. Kruzich, the Ford employee who proposed the 60-day time frame, chose the time frame because he “thought it was reasonable at the time.” Joint Ex. 2 at 114.

Forddid not rebut with credible evidence the specific language of the agreement which set the 60-day time-frame as a fixedd eadl ine. Ford presented several witnesses that indicated that they believed the 60-day time-frame was a target date rather than a fixed deadline. See Joint Ex. 2 at 11 4-15; TT at 541. Basedon th e wi tnesses demeanor and inability to independently recollect events and facts, the Court finds their testimony incredible. Moreover, the testimony of these witnesses is directly controvertedby the plain language of the Reconciliation Agreement, which states that reconciliation reports were to be filed “ within 60 days after the close of each model year (July 3 0) . . . .” Pl.’s Ex. 55. Furthermore, there was no evidence presented by Ford of any other agreemen t mod ifying the Reconciliation Agreement. Customs’ response to Ford’s pr opo sal for the Reconciliation Agreement did not modify the proposed time-frame. See Pl.’s Ex. 55. The testimony and documentary ev idence established that the 60-day time frame was a deadline and not a “target” date. TheCase No. 02-00116 Page 59

evidence demonstrated that the Reconciliation Agreement absolved Fordfrom liability of reporting changes in value “at once”, if Fordreported such changes before the 60-day deadline. The ag ree ment, however, did not absolve Ford from liability for submissions made after the 60-day deadline had lapsed.

Customs establishedthat Ford failed to meet the requirements of 19 U.S.C. § 1485 or the Recon ciliation Agreement. Except for

one of the duty tenders at issue, Ford failed to submit it s reconciliation reports to Customs within the 60-day deadline. See e.g. Pl’s. Ex. 12 , 14, 15, 17 , 19, 20, 29, 30, 33, 35. Ford’s failure to timely file the reconciliation repor ts was in direct contraven tion to the plain text of the Reconciliation Agreement. In failing to meet the deadline, Ford waived its immunity from liability for violating the “at once” provision of 19 U.S.C. § 1485. Moreover, the evidence established that Ford f ailed to exercise reasonable care to comply with the terms of the Reconciliation Agreement or 19 U.S.C. § 1485. Although Ford may have escaped liability if it had submitted its reconciliation reports within the 60-day deadline, Ford failed to comply with the explicit terms of the agreement and consistently filed reconciliation reports well after the 60-day deadline. See e.g. , Pl.’s Ex. 12, 14, 15, 17, 19, 20, 29, 30, 33, 35 . The reconciliation process “could take any where from a few months toCase No. 02-00116 Page 60

six months to eight months.” TT at 391. Ford, however, only began the reconciliation process at the end of the model year. See TT at 387-88. The testimony of Ms. Monro, the Ford employee responsible for creating the bulk of the reconciliation reports at issue, see TT at 381, established that Ford knew or should have known that the reconciliation process cou ld not be completed within the 60 days after the mo del year. Ford failed to present evidence that it notifiedCustoms that its reconciliation reports would not be submittedbefore the 60-day deadline lapsed. Ford also did not seek permission from Customs to extend the 60-day deadline. See TT at 344; Joint Ex. 2 at 117. Furthermore, in compiling the reconciliation reports, Ford did not contemplate reporting any expens es paid after the model year closed until the following year’s reconciliation report. See TT at 386, 402-03, 435-36. Ford’s lack of r eas onable care is further illustrated by its inability to accurately capture all lump sum payme nts in the untimely reconciliation reports. On several occasions Ford advised Customs that it had failed to capture ceratin lump sumpayments in the reconcilia tio n reports it had already submitted. See e.g. , Pl.s’ Ex. 19 & 34. Ford also submitted letters to Customs which it labeled“prior disclosures” to advise Customs that it had failed to report lump sum payments made after entry. See e.g. , Pl.s’ Ex. 33 & 34. Ford’s failure to begin the reconciliation process before the model year ended, even though it knew that it was a lengthyCase No. 02-00116 Page 61

process, and its failure to notify Customs that the reconciliation reports would be submitted after the deadline demonstrated Ford’s lack of reasonable care. The evidence presented at trial established that Ford had an agreement with Customs to submit reconciliation reports within 60 days after the model year closed. Ford argues that it understood the deadline of the Reconciliation Agreement to be a target date. See Def.’s Post-Trial Br. at 20-21. Ford, however, failed to present persu asive evidence to support its claim. Ford violated the Reconciliation Agreement and filed its reconciliation reports after the Reconciliation Agreement deadline. In some instances Ford disclosed such information a year or more after the close of the model year. See e.g. , 15, 20, 32, 36, 38. For d failed to produce any evidence that a reasonable person acting with reasonable care would have understood the agreement to mean anything other than imposing a 60-day deadline. Moreover, Ford did not present evidence that it took reasonable measures to meet the deadline. Based on the testimony an d documentary evidence, the Court concludes that Ford violated the terms of the Reconciliation Agreement and the “at once” requirement 19 U.S.C. § 1485 because it failed to exercise reasonable care.Case No. 02-00116 Page 62

6 A violator “discloses the circumstances of a violation” by providing Customs with a written statement which: (1) identifies the class or kind of merchandise involved; (2) identifies the entry includedin the disclosure; (3) specifies the material omission or false statement made at entry; and (4) sets forth the true and accurate information or data which should have been provided in the original entry documents. See 19 C.F.R. § 162.71(e). C. Ford Failed to Make Prior Disclosures of its Violations The maximum penalty an importer may be assessed is significantly reduced if th e im porter discloses facts and circumstance relating to a violation. See 19 U.S.C. § 1592(c)(4). To make a prior disclosure, the person concerned must disclose the circumstances of a violation before, or without knowledge of, the commencement of a formal investigation and make a tender of any actual loss of duties. 6 See id. ; 19 C.F.R. § 162.74(a) (1992). A formal investigation is considered to be commenced on the earliest of the following: (1) the date recorded in writing in the investigatory record as the date the investigating agent believed the possibility of a violation existed; (2) the d ate an in vestig ating agent inquired, in writing or in person, about the disclosedviolation; or (3) the date an investigating agent

re ques tedspecific books and records relating to the disclosed violation. See 19 C.F.R. § 162.74(d)(4). Furthermore, if before the claimed prior disclosure a person is informed of “the type of circumstances of the disclosedviolation,” then she is “presumed to have hadknowledge of the commencement of a formal investigation.”Case No. 02-00116 Page 63

19 C.F.R. § 162.74(f). This presumption, however, may be defeated with evidence that the person did not know an investigation had commenced with respect to the disclosed information. See id.

Fordcontends that the maximum penalty that may be assessed is limitedbecause Ford’s disclosures and duty tenders relating to lump sum payments constituted valid prior disclosures. See Def.’s Post-Tr ial Br. at 23-26. Ford asserts that the documents describing Customs’ Operation Hat Trick limit the scope of the investigation to assists and indirect payments. See id. at 24. Customs’ regul at ions define the terms “assists” and “indirect payments” and, ther efor e, the terms used to describe the investigation are precise and unambiguous. See id. Ford maintains that, at the June 1991 Meeting, Mr. Gibson asked for a definition of the term “indirect payments” and he was simply presented with two summonses fromMr. Turner. See id. Consequently, Ford argues that it “relied o n Cust oms published regulation to define the terms” and, therefore, the scope of Customs’ investigation. Id. at 25. Ford fur ther contends that the summonses did not expand the scope of the investigation beyond the description set forth in Customs’ May 23, 199 1, notific ation letter. See id. Ford also argues that the submission and tenders it filed between 1991 through 1993 were outside the scope of the investigation. Ford asserts that the payments Ford made directly to its vendors did notCase No. 02-00116 Page 64

constitute either assists or indirect payments and are consequently outside the scope of the investigation.

The evidence established, howev er, that the assists and indirect payments Ford made in connection with the entries at issue

were within the scope of Customs’ Operation Hat Trick investigation. See TT at 37-39, 47-48, 283-84, 511-12; Pl.’s Ex. 70 & 71. Operation Hat Trick was initiated by Mr. Turner, based on personal observations, and information from import specialists indicating that Ford and other car manufacturers were not declaring the full valu e, or price paid or to be paid, for merchandise enteredinto the United States. See TT at 37-38, 283. The evidence established that Operation Hat Trick “included all the components surrounding value, material omissions, undervaluations, payments that may not have been reflected on the invoice that was submitted with the entry summary . . . .” TT at 283; see also TT 37-38. Ford requested the June 1991 Meeting because neither Mr. Gibson nor Mr. Cohen knew what Customs meant by an indirect payment in its May 23, 1991, notification letter. See TT at 496-97; see also TT at 45-46. Ford did not “make indirect payments in terms of the general definition that [Ford] knew; that is, a payment to A, Amakes a payment to B for the benefit of C. That is what we thought was an indirect payment, and Ford did not do that.” TT at 498; see also TT at 508.Case No. 02-00116 Page 65

The testimony and documentary evidence demonstrated that Customs explained to Ford the scope of its investigation. Customs notifiedFord that “the investigation was going to look at the full scope of their imports of automobiles and auto mobile parts; that [Customs] would be looking programatically one programat a time.” TT at 47; see also TT at 51-52; Pl.’s Ex. 71. Ford was advised at the June 199 1 Me eting that Customs’ investigation included the entire scope of Ford’s importation of certain vehicles and vehicle components. See TT at 286-88; Pl.’s Ex. 71. Ford knew or should have known that the term “indirect payment,” as used by Customs in its notification to Ford of the investigation, included all payments that impacted the final price paid for the merchandise in question. See TT at 511-12. Based on the evidence, the Court concludes that the payments For d made directly to its vendors between 1987 through 1992 constitute either assists or indirect payments and, therefore, were within the scope of the Operation Hat Trick investigation.

Moreover, the evidence e stabl ished that Customs began its investigation of Ford on or before May 23, 1991. See Pl.’s Ex. 70. Fordwas notified of Customs’ investigation by letter dated May 23, 1991. See Pl.’s Ex. 5. Ford’s request of a meeting with Customs to discuss the notification letter illustrates Ford’s knowledge of Customs’ investigation. See 19 C.F.R. § 162.74(f). Accordingly,Case No. 02-00116 Page 66

to make a valid prior disclosure, Ford would have had to disclose the circumstances of its violations and make tenders of any actual loss of duties before May 23, 1991, the date Customs notified Ford, in writing, of the nature of its investigation. See 19 C.F.R. § 162. 74(a) & (d)(4). Ford failed to present any evidence that it made such disclosures prior to this date. Rather, Ford’s letters advising Customs of its violations all came after the May 23, 1991, notification letter. See e.g. , Pl.’s 8, 12, 14, 15, 16, 17, 19, 20, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 42, 43. The Court concludes that Ford failed to meet its burden of establishing that it lacked knowledge of Customs’ investigation prior to or at the time Ford made its disclosures. See 19 U.S.C. § 1592(c)(4). The evidence established that Ford knew of Customs’ investigation and that the scope of such investigation covered the entries for which Fordtendered undeclared duties a fte r the investigation was commenced.

D. Ford’s Payments Relating to the Festiva In 1988, Ford and Mazda Motor Corporation (“Mazda”), a Japanese corporation, executed a Passenger Vehicle Program Agreeme nt ( “Festiva Agreement”) pursuant to which Ford agreed to purchase Festiva vehicles from Mazda for importation to the United States. See Pl.’s Ex. 58. Ford argues that the Festiva Agreement established a minimum annual volume commitment of 85,000 and thatCase No. 02-00116 Page 67

Ford’s failure to purchase such an amount of Festivas would result in a shortfall penalty. See Def.’s Post-Trial Br. at 28-29. Ford asserts that the “shortfall penalty provisions were distinct in both form and substance from any other price adjustment.” Id. at 28. Ford argues that the case at bar is i ndistingui shable from Chrysler Corp. v. United States , 17 CIT 1049 ( 1993), where production shortfall payments were held to be no n-duti able. See Def.’s Post-Trial Br. at 29. Ford maintains that the shortfall payments were booked to diff eren t accounts, which were different fromthe purchased vehicles accounts and, therefor e, not part of the price for imported vehicles. See id. Additionally, the shortfall payments were calcul ated a fter the close of the period specifiedin the agreement and were made in lump sum. See id. Similar to the agreement at issue in Chrysler , under the Festiva Agreement, Ford would have had to pay a substantial penalty if it did not purchase any vehicles. See id. Ford argues that because no duties were due on Ford’s shortfall payments, Ford is entitled to recoup the duty tendered for lump sum payments made pursuant to the Festiva Agreement. See id. at 31. Ford argues that it should receive the amount of duties it paid on such lump sum payments as

a credit to offset any potential penalties that may be assessed. See id.Case No. 02-00116 Page 68

Pursuant to 19 C.F.R. § 152.103(a)(1) (1992), the me thod of deriving the price actually paid or payable will not be considered in determining the transaction value. Rather, the regulation instructs that the price actually paid or payable may be “the result of discounts, increases, or negotiations, or may be arrived at by the application of a formula.” Accordingly, a payment that represents something other than the per se value of the good may be properly included in the transaction value. See Chrysler , 17 CIT at 1054 (citation omitted). The Court must determine whether the payment by the buyer to the seller was in exchange for merchandise sold for export. See id. If the payment was not in exchange for merchandise, then such payment constitutes a penalty which may not be included in transaction value. See id. at 1054-55.

In Chrysler , the agreement did not contain a formul a for changing the base price depending upon the numb er of vehicles purchased. See id. Rather, the court in Chrysler held that the terms of the agree ment at issue obligated the importer to pay a penalty for e ach engi ne that it did not purchase. See id. Such penalty payments were not part of the transaction value be cau se nothing was received in exchange for the penalty payments. See id. The court, in VWP of Am., Inc. v. United States , 25 CIT 1056, 163 F. Supp. 2d 645 (2001), noted that “[ c]once ptually, the economic ‘value’ of merchandise in its state as imported would include allCase No. 02-00116 Page 69

matters which accrue in advance and are incidental to placing it into the international stream of commerce.” Id. at 1063, 163 F. Supp. 2d at 653. The court observed that the shortfall payments at issue in Chrysler were non-dutiable because they were triggered by non-performance on a contract, rather than importation. See id.

The Cou rt f inds that contrary to Ford’s contention, the Festiva Agreement is not similar to the agreement in Chrysler and therefore, the lump sum payments made by Ford pursuant to the Festiva Agreement are dutiable. The Festiva Agreement established various mechanism s fo r adjusting the initial purchase price of Festivas. Depending on the adjustments, Ford was either obligated to make additional payments to, or be entitled to receive payments from, Mazda. Under the agreement, Ford was either obligated to make payments pursuant to market basket crit eri a provisions (sections 3.3 and 3.4 of the Festiva Agreement) or the annual volume commitment and volume price adjustment provisions (sections 2.1 and 2.3 of the Festiva Agreement, respectively). See Pl.’s Ex. 58. Under section 3.3, Ford agreed to purchase Festiva s fo r a specified base price per vehicle, according to an initial pricing schedule described in the agreement. See id. In an effort to keep the purchase price of the imported vehicles competitive within the UnitedStates and Canadian markets, however, the parties agreed to adjust the initial purchase price on a semi-annual basis pursuantCase No. 02-00116 Page 70

to the terms of section 3.4. See id. Section 3.4 incorporates a formula that compares the i mpor ted automobiles to similar automobiles competing in the same market to deri ve p rice adjustments for the imported automobiles. See id. Those price adjustments would be reconciled on a semi- ann ual basis, and any difference between the preliminary purchase price would be paid in a lump sum. See id.

Pursuant to section 2.1 of the Festiva Agreement, For d w as obligated to purchase 85,000 Festivas in a model year. See Pl.’s Ex. 58. Section 2.3 sp ecifies formulas for determining an “AdjustedPurchase Price” in the event that Ford’s purchase of Festivas exceed ed or fell short of the annual volume commitment. See id. Under Section 2.3A, if the number of orders for Festivas

was between 50 and90 percent of 85,000 vehicles, then the purchase price for each vehicle would increase. See id. If the number of orders was less than 50 percent of 85,000 vehicles, then the parties were obligated to engage in good faith discussions and either (1) the purchase price would increase, or (2) the parties wouldrenegotiate the terms of the contract to the extent possible,

or terminate the agr eement. S ee id. Finally, if Ford’s bought

more than 93,500 vehicles, then the purchase price per vehicle would decrease. See id.Case No. 02-00116 Page 71

The evidence demonstrated that, based on the number of vehicles purchased, the purchase price for each vehicle changed according to the formulas set forth in the Festiva Agreement. See Pl.’s Ex. 58; see al so TT at 77-79. In contrast to the penalty payments in Chrysler , Ford’s payments under the Festiva Agreement were not triggered by or based on a purchase commitment or quota. See id. Rather, the purchase price or transacti on va lue of each vehicle was adjusted depending on changing market conditions. The Court notes that the Festiva Agreement’s cancellatio n clau se providedfor the recovery of fixed costs by Mazda if Ford failed to perform. See Pl.’s Ex. 58. In contrast, the agreement in Chrysler required the importer to pay a penalty for each engine it did not purchase so that the producer could recoup fixed cos ts exp ended. See Chrysler , 25 CIT at 1054-55 . Conse quently, the lump sum payments Ford ma de in connection with the Festiva did not constitute a penalty. Rather, these payments were related to the price actually paid or payable and, therefore, were dutiable. Consequently, Ford’s request for a credi t for overpaid duties is not warranted because Ford owed Customs the duties it tendered.

E. Customs Failed to Prove $68,178 For Duties Remains Unpaid Fordasserts that Customs’ demand for duties in the amount of $68,178 with respect to undeclared development costs for the Yamaha 3.2 liter SHO engines should be dismissed. See Def.’s Post-TrialCase No. 02-00116 Page 72

Br. at 30. Ford contends that Customs did not satisfy its burden of proof because it presented “no evidence to explain to what the amount alleged in the Complaint relates, how the amount was calculated, or evidence showing that Customs made a demand for payment prior to this action.” Id. Alternatively, Ford argues that Customs’ demand for $ 68,17 8 was not the subject of any prepenalty or penalty notice. See id. Therefore, Fordwas prevented fromexhausting its administrative remedies. See id. Ford also asserts that Customs did not follow its own admi nistrative procedures, as illustrated by Customs failure to make a proper demandpursuant to 19 C.F.R. § 162.79b. See id. Consequently, Ford argues that the Court lacks jurisdiction over this claim. See id.

Customs asserts, however, that Ford failed to produce evidence establishing that Ford’s waiver of the statute of limitations related to Yamaha SHO engines did not encompass development costs for non-importedprototype engines. See Customs’ Post-Trial Br. at 31. Customs asserts that the statute of limitations is an affirmative defense to an action seeking unpaiddut ies and penalties and, therefore, may be waived. See id. Moreover, Customs argues that Ford bears the burden of proof concerning the application of the statute of limitations defense because it raised the aff irmative d efense. See id. Ford, however, did not prove t hat the general waiver included the duty claim for $68,178 . I nCase No. 02-00116 Page 73

addition, Customs maintains that 19 U.S.C. § 1592 does not require that the duty claim be addressed in an administrative proceeding. See id. at n.21. Accordingly, Customs argues that it is entitled to $68,178 for unpaid duties related to development costs for the Yamaha 3.2 liter SHO engine.

The Court agrees with Ford that Customs failed to present evidence to satisfy its burden of proof with respect to its demand for $68,178 for unpaid duties. Pursuant to 19 U. S.C. § 1592(d), Customs, may collect any lawful duties owed resulting from a 19 U.S.C. § 1592(a) violation notwithstanding 19 U.S.C. § 1514 (finality of liquidations) whether or not a mon eta ry penalty is assessed. See 19 U.S.C. § 15 92(d). In the present matter, however, Customs failed to present any evidence at trial to support its claim that Ford deprived Customs of $68,178 in unpaid duties andfees related to developmental costs for the 3.2 liter SHO engines. The only evidence Customs presented was ROI #27, which is

a penalty case referral to the district director. See Pl.’s Ex. 59. As afore menti oned, the Court does not place great weight in the veracity of this document because i t was created in contemplation of penalty proceedings against Ford. Additionally, Customs failed to introduce int o evidence the pre-penalty or penalty notices.Case No. 02-00116 Page 74

Customs failed to present any corroborating evidence suggesting that Ford failed to tender correct duties. Accordingly, the only evidence the Court has before it to evaluate the validity of the claim is the complaint itself. Without supporting evidence movedand admitted into evidence during trial, there is insufficient evidence demo nstr ating that Customs was deprived of duties. Accordingly, the Court concludes that Customs has failed to carry its burden of proof and, therefore, Customs request for $68,178 for unpaid duties and fees is denied.

F. Assessment of Penalties For negligent violations of 19 U.S.C. § 1592(a), the maximum penalty is the lesser of the domestic value of the merchandise or twice the loss of duties. See 19 U.S.C. § 1592(c)(3); 19 C.F.R. § 162.73(a)(3). The plain language of the statute only sets maximum penalties and does not establish minimum penalties. See 19 U.S.C. § 1592(c)(3). Moreover, the statute does not require the court to begin with the maximum possible penalty and reduce that amount in light of mitigating factors. See United States v. Modes, Inc. , 17 CIT 627, 635, 826 F. Supp. 504, 512 (1993). The Court has discretion to impose a penalty within the maximum establ ished by the statute. A num ber of factors, however, may be considered in assessing a penalty. See id. at 636, 826 F. Supp. at 513; United States v. Complex Mach. Works Co. , 23 CIT 942, 949-50, 83 F. Supp.Case No. 02-00116 Page 75

2d 1307, 1315 (1999). These factors are: 1. The defendant’s good faith effort to comply with the statute. 2. The defendant’s degree of culpability. 3. The defendant’s history of previous violations. 4. The nature of the public interest in ensuring compliance with the regulations involved. 5. The nature and circumstances of the violation at issue. 6. The gravity of the violation. 7. The defendant’s ability to pay. 8. T he appropriateness of the size of the penalty to the defendant’s business and the effect of a penalty on the defendant’s ability to continue doing business. 9. That the penalty not otherwise be shocking to the conscience of the Court. 10. The economic benefit gained by the defendant through the violation. 11. The degree of harm to the public. 12. The value of vindicating the agency authority. 13. Whether the party sought to be protected by the statute had been adequately compensated for the harm. 14. And such other matters as justice may require. See Complex Mach. , 23 CIT at 949-50, 83 F. Supp. 2d 1315 (citations omitted). The first ten factors relate to deterring future violations, which was Congress’ primar y focus when it enacted 19 U.S.C . § 1592. See id. at 950, 83 F. Supp. 2d at 1316. Consequently, in determinin g t he size of the penalty, these ten factors are accorded greater weight. See id.

Pursuant 19 U.S.C. § 1592(c)(3), the maximum penalty that can be assessed against Ford for negligence is $17,151,923.60 , tw ice the loss of revenue, $8,575,961 .80, to the United States establishedby Customs. In Count II of its complaint, Customs claims that the loss of revenue to the United States wasCase No. 02-00116 Page 76

$8,644,139.80, of which $68,178 remains unpaid. See Compl. Based

on its alleged loss of revenue, Customs seeks a penalty of $17,288,279. See id. The Court, however, concludes that Customs failedto meets its burden and establish that Ford owes $68,178 for unpaid duties. Accordingly, the Court finds that the actual loss of revenue to the United States was $8,575,961.80.

Fordar gues that any penalty assessed should be mitigated because there is significant evidence demonstrating Ford’s consistent efforts to comply with its statutory obligations. See Def.’s Post-Trial Br. at 32. Ford asserts that it made consistent efforts to fully and properly account for its transactions. See id. Ford maintains that Customs “was fully aware of [Ford’s] reconciliations and never told Ford of any deficiency i n i ts filings.” Id. Finally, Ford asserts that the interests of justice require the Court to assess a relatively lenient penalty because Ford did not gain anything from its failure to abide by the deadline set forth in the Reconciliation Agreement. See id. at 33. After carefully considering the mitigating factors set forth in Complex Machine and the evidence presented at trial, the Court has determined that the penalty assessed must be a substantial one. The evidence before the Court established, by a preponderanc e , Ford’s failure to comply with 19 U.S.C. §§ 1481, 14 84, 1485 a nd 1592. The Court takes into account, inter alia , the degree of harmCase No. 02-00116 Page 77

to Cu sto ms, the duration of Ford’s violations, and whether Ford made a good faith effort to fulfill its statutory obligations. There was overwhelming evidence presented that Ford failed to declare the correct transaction value at entry for more than $350 million of merchandise entered between 1987 through 1992. See Pl.’s Ex. 8, 12, 14, 15, 16, 17, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 42, 43, 57. In an effort to c omply with 19 U.S.C. § 1485, the evidence showed that Fordfailed to m ake a good faith effort to meet its obligations pursuant to the Reconcilia tion Agreement. The majority of reconciliation reports submitted in connection with the entries at issue were well after the 60-day deadline imposed by the Reconciliation Agreement. Furthermore, the evidence demonstrated that Ford on several occasions had to file additional reconciliation reports because it had failed to adequately capture

ce rta in lump sum payments in its previous submissions. Customs establishedby a preponderance of the evidence that Ford failed to declare assists and lump sum payments made between 1 987 through 1992 because of Ford’s failure to exercise reasonable care. Ford’s failure to properly declare such payments over the course of five years further illustrates Ford’s lack of good effort to correct its violations.Case No. 02-00116 Page 78

The evidence also established that Ford failed to exercise reasonable care in carrying out its own customs compliance measure. The manual instructed Ford employees to place a “provisional” disclaimer on invoices when the value of the merchandise is not completely or corr ectl y shown. See Joint Ex. 2. The evidence establishedthat Ford employees did not follow the compliance manual. The transaction values for the entries at issue were not known at the time of entry because Ford had supply agreements with its vendors subj ect ing the prices of the merchandise to further adjustments. See Pretrial Order, Schedule C ¶ 1. Ford, however, didnot presen t any evidence that a “provisional” disclaimer was placedon any of the invoices relating to the merchandise at issue. The Court concludes that Ford’s inexplicable failure to follow its

own compliance measures and its statutory obligations was the result of Ford’s negligence.

The Court, after weighing the evidence and the various mitigating factors, concludes that Ford’s penalty does not warrant mitigation. The severity of Ford’s culpability and the resulting violation of its statutory obligations were substantial. The significant public interest in the enforcement of Customs’ regulations also weigh in favor of the imposition of a heavy penalty. See Complex Mach. , 23 CIT at 952, 83 F. Supp. 2d at 1317. Here, the evidence established by a preponderance that Ford’sCase No. 02-00116 Page 79

negligent conduct le d t o its failure to meet its statutorily mandatedobligations. C ons equently, the Court assesses the statutory maximum penalt y for negligence pursuant to 19 U.S.C. § 1592(c)(3). Ford is assessed a penalty of $17,151,923.60.

CONCLUSION Fordnegligently violated 19 U.S.C. §§ 1481, 1 484, 1 485 and 1592 by failing to advise Customs that the transaction values in the entry documents were not final. Ford violated 19 U.S.C. § 1485 by failing to adhere to the requirements of the Reconciliation Agreement of reporting lump sum payments. Pursuant to 19 U.S.C. § 1592, the Court grants judgment for plaintiff and assess a civil penalty against defendant in the amount of $17,151,923.60, plus interest from the date of judgment. Plaintiff’s request fo r $68,178 for unpaid duties is denied. Defendant’s counterclaim for

a cr edit for duty tenders made with respect to lump sum payments for the Festiva is also dismissed. Judgment shall be entered accordingly.

/s/ Nicholas Tsoucalas NICHOLAS TSOUCALAS SENIOR JUDGE Dated: July 21, 2005 New York, New York