Opinion ID: 211089
Heading Depth: 2
Heading Rank: 3

Heading: Prior Disclosures

Text: Section 1592(c)(4) of title 19 provides a safe harbor for prior disclosures— disclosing import law violations before, or without knowledge of, the commencement of a formal investigation of the violation. Making such a prior disclosure limits the available penalty to interest on the amount of duties, taxes, and fees of which the government was deprived by the violation. 19 U.S.C. § 1592(c)(4)(B). A formal investigation is considered to have commenced with regard to the disclosing party and the disclosed information on the date recorded in writing by the Customs Service as the date on which facts and circumstances were discovered or information was received which caused the Customs Service to believe that a possibility of a violation existed. 19 U.S.C. § 1592(c)(4). The importer has the burden of proof in establishing lack of knowledge of commencement of the investigation. Ford claims that it made valid prior disclosures of all of Ford's post-entry direct payments to foreign vendors, because direct payments were not part of Operation Hat Trick. It points out that the report of investigation (ROI) commencing the operation stated that it was a special operation targeted at undeclared assists and indirect payments; that internal Customs correspondence announcing the start of the investigation described it as targeted at undeclared assists and indirect payments; that Customs' initial notice of investigation to Ford referred only to assists and indirect payments; that four of the five attendees at a meeting scheduled to clarify the meaning of indirect payments testified that the parties left the meeting without a clearer understanding of how the investigation used the term; and that the other witness's contrary testimony is contradicted by the ROI he wrote to memorialize the meeting. 05-1584 19 The Court of International Trade, faced with these same arguments, concluded that 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, whether direct or indirect. Negligence Decision, 395 F. Supp. 2d at 1216. In so concluding the court relied primarily on testimony about a meeting that occurred on June 7, 1991, between representatives of both Customs and Ford to clarify the scope of the term indirect payments as used in the investigation. Gibson, a Ford witness, testified that at the meeting, when asked to clarify their understanding of what indirect payments meant, Customs employees Turner and Neckel provided Ford with a summons regarding entries relating to the Mercury Capri and said Here, this is what it means. Gibson also stated that the Capri summons asked for records relating to all payments, and that this defined Customs' understanding of what indirect payments meant. Neckel testified that at the meeting Customs advised Ford that [the investigation] included the entire full scope of their importations relative to certain vehicles and vehicle components. Based on this evidence, one could reasonably conclude that, at the meeting, Ford's representatives asked Customs to define the scope of payments included in the category indirect payments, and that Customs responded by indicating that the payments referred to in the Capri summons—which, it is undisputed, sought information with respect to assists and payments, rather than to indirect payments—were the kinds of payments at issue in the investigation. One could also reasonably conclude that Ford's representative Gibson left the meeting with knowledge of Customs' interpretation. Thus, the trial court's conclusion that after that meeting Ford knew or 05-1584 20 should have known that the investigation included all payments was not clearly erroneous. The question, then, is whether the scope of an investigation which, by its terms, is limited to assists and indirect payments, may be broadened by such informal communications to include direct payments. Ford argues that it may not, because under applicable regulations, if Customs wished to expand the scope of its investigation beyond the topics identified in the May 23, 1991 letter to Ford, it had to do so expressly. It points to applicable regulations that, it claims, require that in order to commence a formal investigation, the circumstances and facts about a possible violation had to be recorded in the investigatory record or the importer under investigation had to be informed about the specific type or circumstances of the suspected violation. The information provided to Ford, the company argues, lacked the level of specificity required by the regulations to put Ford on notice that Customs' investigation also encompassed direct payments. There is no question that, under the 1991 regulations, a formal investigation relating to assists and indirect payments was commenced no later than May 23, 1991. See 19 C.F.R. § 162.74(d) (1991). It also seems clear that, as of that date, Ford must be presumed to have knowledge of that investigation. 19 C.F.R. § 162.74(f) (1991). The question is thus whether the meeting of June 7, 1991, or other events served to expand the scope of the investigation to include direct payments under 19 C.F.R. § 162.74(e), which in 1991 provided that: A formal investigation is deemed to have commenced as to additional violations (outside the scope of the original investigation but committed by the same party) on the earliest of the following: 05-1584 21 (1) The date recorded in writing by the Office of Investigations in the investigatory record (including contemporaneous notes) as the date on which facts and circumstances were discovered or information was received which caused an investigating agent to believe that the possibility of a violation of 19 U.S.C. 1592 existed with respect to the additional violations; (2) The date on which an investigation agent, having property identified himself and the nature of his inquiry, had, either in person or in writing, made an inquiry of the person concerning the type of or circumstances of additional violations; or (3) The date on which an investigating agent, having properly identified himself and the nature of his inquiry, requested specific books and records of the person relating to the additional violations. 19 C.F.R. § 162.74(e) (1991). The trial court performed no analysis under § 162.74(e) to determine whether an enlargement had taken place, concluding instead that Ford had notice of the full scope of the investigation when it received Customs' letter—referring only to assists and indirect payments—on May 23, 1991. Negligence Decision, 395 F. Supp. 2d at 121617. This was error. The trial court's own analysis states that Ford did not understand, as of May 23, 1991, what indirect payments included, and came to that understanding only after the meeting of June 7, 1991. Id. at 1216. We agree with Ford that the evidence does not support a conclusion that, as of May 23, 1991, the investigation applied to direct payments. As we have discussed, however, the evidence does support the conclusion that the June 7, 1991 meeting served to expand the scope of the investigation under § 162.74(e)(2) (1991), which states that the expanded investigation commences when an investigating agent makes an inquiry of the importer concerning the type of or 05-1584 22 circumstances of additional violations. The same meeting served to create a presumption of Ford's knowledge of the investigation under § 162.74(f)(2) and 19 U.S.C. § 1592(c)(4). Ford has presented no evidence sufficient to rebut that presumption. We conclude, therefore, that as of June 7, 1991, Customs' investigation had been broadened to include not only assists and indirect payments but also direct payments, and that Ford had knowledge of the broadened investigative scope. Any violations disclosed after that date cannot constitute prior disclosures under § 1592(c)(4). We therefore affirm the Court of International Trade's conclusion that none of the tenders cited by Ford constituted prior disclosures.