Appendix D to Part 171 - Guidelines for the Imposition and Mitigation of Penalties for Violations of 19 U.S.C. 1593a
19:2.0.1.1.18.9.2.1.8 : Appendix D
Appendix D to Part 171 - Guidelines for the Imposition and
Mitigation of Penalties for Violations of 19 U.S.C. 1593a
A monetary penalty incurred under section 593A, Tariff Act of
1930, as amended (19 U.S.C. 1593a; hereinafter referred to as
section 593A), may be remitted or mitigated under section 618,
Tariff Act of 1930, as amended (19 U.S.C. 1618; hereinafter
referred to as section 618), if it is determined that there exist
such mitigating circumstances as to justify remission or
mitigation. The guidelines below will be used by Customs in
arriving at a just and reasonable assessment and disposition of
liabilities arising under section 593A within the stated
limitations. It is intended that these guidelines will be applied
by Customs officers in prepenalty proceedings, in determining the
monetary penalty assessed in the penalty notice, and in arriving at
a final penalty disposition. The assessed or mitigated penalty
amount set forth in Customs administrative disposition determined
in accordance with these guidelines does not limit the penalty
amount which the Government may seek in bringing a civil
enforcement action pursuant to 19 U.S.C. 1593a(i).
(A) Violations of Section 593A
A violation of section 593A occurs when a person, through fraud
or negligence, seeks, induces, or affects, or attempts to seek,
induce, or affect, the payment or credit to that person or others
of any drawback claim by means of any document, written or oral
statement, or electronically transmitted data or information, or
act which is material and false, or any omission which is material,
or aids or abets any other person in the foregoing violation. There
is no violation if the falsity is due solely to clerical error or
mistake of fact unless the error or mistake is part of a pattern of
negligent conduct. Also, the mere nonintentional repetition by an
electronic system of an initial clerical error will not constitute
a pattern of negligent conduct. Nevertheless, if Customs has drawn
the person's attention to the nonintentional repetition by an
electronic system of an initial clerical error, subsequent failure
to correct the error could constitute a violation of section
593A.
(B) Degrees of Culpability
There are two degrees of culpability under section 593A:
negligence and fraud.
(1) Negligence. A violation is determined to be negligent
if it results from an act or acts (of commission or omission) done
with actual knowledge of, or wanton disregard for, the relevant
facts and with indifference to, or disregard for, the offender's
obligations under the statute or done through the failure to
exercise the degree of reasonable care and competence expected from
a person in the same circumstances in ascertaining the facts or in
drawing inferences from those facts, in ascertaining the offender's
obligations under the statute, or in communicating information so
that it may be understood by the recipient. As a general rule, a
violation is determined to be negligent if it results from the
offender's failure to exercise reasonable care and competence to
ensure that a statement made is correct.
(2) Fraud. A violation is determined to be fraudulent if
the material false statement, omission or act in connection with
the transaction was committed (or omitted) knowingly, i.e.,
was done voluntarily and intentionally, as established by clear and
convincing evidence.
(C) Assessment of Penalties
(1) Issuance of Prepenalty Notice. As provided in §
162.77a of the Customs Regulations (19 CFR 162.77a), if Customs has
reasonable cause to believe that a violation of section 593A has
occurred and determines that further proceedings are warranted, a
notice of intent to issue a claim for a monetary penalty will be
issued to the person concerned. In issuing such prepenalty notice,
the appropriate Customs field officer will make a tentative
determination of the degree of culpability and the amount of the
proposed claim. A prepenalty notice will not be issued if the claim
does not exceed $1,000.
(2) Issuance of Penalty Notice. After considering
representations, if any, made by the person concerned pursuant to
the notice issued under paragraph (C)(1), the appropriate Customs
field officer will determine whether any violation described in
section (A) has occurred. If a notice was issued under paragraph
(C)(1) and the appropriate Customs field officer determines that
there was no violation, Customs will promptly issue a written
statement of the determination to the person to whom the notice was
sent. If the appropriate Customs field officer determines that
there was a violation, Customs will issue a written penalty claim
to the person concerned. The written penalty claim will specify all
changes in the information provided in the prepenalty notice issued
under paragraph (C)(1). The person to whom the penalty notice is
issued will have a reasonable opportunity under section 618 to make
representations, both oral and written, seeking remission or
mitigation of the monetary penalty. At the conclusion of any
proceeding under section 618, Customs will provide to the person
concerned a written statement which sets forth the final
determination and the findings of fact and conclusions of law on
which such determination is based.
(D) Maximum Penalties
(1) Fraud. In the case of a fraudulent violation of
section 593A, the monetary penalty will be in an amount not to
exceed 3 times the actual or potential loss of revenue.
(2) Negligence.
(a) In General. In the case of a negligent violation of
section 593A, the monetary penalty will be in an amount not to
exceed 20 percent of the actual or potential loss of revenue for
the first violation.
(b) Repetitive Violations. For the first negligent
violation that is repetitive (i.e., involves the same issue
and the same violator), the penalty will be in an amount not to
exceed 50 percent of the actual or potential loss of revenue. The
penalty for a second and each subsequent repetitive negligent
violation will be in an amount not to exceed the actual or
potential loss of revenue.
(3) Prior Disclosure.
(a) In General. Subject to paragraph (D)(3)(b), if the
person concerned discloses the circumstances of a violation of
section 593A before, or without knowledge of the commencement of, a
formal investigation of such violation, the monetary penalty
assessed under this Appendix will not exceed:
(i) In the case of fraud, an amount equal to the actual or
potential revenue of which the United States is or may be deprived
as a result of overpayment of the claim; or
(ii) If the violation resulted from negligence, an amount equal
to the interest computed on the basis of the prevailing rate of
interest applied under 26 U.S.C. 6621 on the amount of actual
revenue of which the United States is or may be deprived during the
period that begins on the date of overpayment of the claim and ends
on the date on which the person concerned tenders the amount of the
overpayment.
(b) Condition Affecting Penalty Limitations. The
limitations in paragraph (D)(3)(a) on the amount of the monetary
penalty to be assessed apply only if the person concerned tenders
the amount of the overpayment made on the claim either at the time
of the disclosure or within 30 days (or such longer period as
Customs may provide) from the date of notice by Customs of its
calculation of the amount of overpayment.
(c) Burden of Proof. The person asserting lack of
knowledge of the commencement of a formal investigation has the
burden of proof in establishing such lack of knowledge.
(d) Commencement of Investigation. For purposes of this
Appendix, a formal investigation of a violation is considered to be
commenced with regard to the disclosing party, and with regard to
the disclosed information, on the date recorded in writing by
Customs as the date on which facts and circumstances were
discovered which caused Customs to believe that a possibility of a
violation of section 593A existed.
(e) Exclusivity. Penalty claims under section D will be
the exclusive civil remedy for any drawback-related violation of
section 593A.
(E) Deprivation of Lawful Revenue
Notwithstanding section 514, Tariff Act of 1930, as amended (19
U.S.C. 1514), if the United States has been deprived of lawful
duties and taxes resulting from a violation of section 593A,
Customs will require that such duties and taxes be restored whether
or not a monetary penalty is assessed.
(F) Final Disposition of Penalty Cases When the Drawback Claimant
Is Not a Certified Participant in the Drawback Compliance Program
(1) In General. Customs will consider all information in
the petition and all available evidence, taking into account any
mitigating, aggravating, and extraordinary factors, in determining
the final assessed penalty. All factors considered should be stated
in the decision.
(2) Penalty Disposition When There Has Been No Prior
Disclosure.
(a) Nonrepetitive Negligent Violation. The final penalty
disposition will be in an amount ranging from a minimum of 10
percent of the actual or potential loss of revenue to a maximum of
20 percent of the actual or potential loss of revenue.
(b) Repetitive Negligent Violation.
(i) First Repetitive Negligent Violation. The final
penalty disposition will be in an amount ranging from a minimum of
25 percent of the actual or potential loss of revenue to a maximum
of 50 percent of the actual or potential loss of revenue.
(ii) Second and Each Subsequent Repetitive Negligent
Violation. The final penalty disposition will be in an amount
ranging from a minimum of 50 percent of the actual or potential
loss of revenue to a maximum of 100 percent of the actual or
potential loss of revenue.
(c) Fraudulent Violation. The final penalty disposition
will be in an amount ranging from a minimum of 1.5 times the actual
or potential loss of revenue to a maximum of 3 times the actual or
potential loss of revenue.
(3) Penalty Disposition When There Has Been a Prior
Disclosure.
(a) Negligent Violation. The final penalty disposition
will be in an amount equal to the interest determined in accordance
with paragraph (D)(3)(a)(ii).
(b) Fraudulent Violation. The final penalty disposition
will be in an amount equal to 100 percent of the actual or
potential loss of revenue.
(4) Mitigating Factors. The following factors will be
considered in mitigation of the proposed or assessed penalty claim
or final penalty amount, provided that the case record sufficiently
establishes their existence. The list is not exclusive.
(a) Contributory Customs Error. This factor includes
misleading or erroneous advice given by a Customs official in
writing to the alleged violator, but this factor may be applied in
such a case only if it appears that the alleged violator reasonably
relied upon the written information and the alleged violator fully
and accurately informed Customs of all relevant facts. The concept
of comparative negligence may be utilized in determining the weight
to be assigned to this factor. If the Customs error contributed to
the violation, but the alleged violator is also culpable, the
Customs error is to be considered as a mitigating factor. If it is
determined that the Customs error was the sole cause of the
violation, the proposed or assessed penalty is to be cancelled.
(b) Cooperation With the Investigation. To obtain the
benefits of this factor, the alleged violator must exhibit
cooperation beyond that expected from a person under investigation
for a Customs violation. An example of the cooperation contemplated
includes assisting Customs officers to an unusual degree in
auditing the books and records of the alleged violator (e.g.,
incurring extraordinary expenses in providing computer runs solely
for submission to Customs to assist the agency in cases involving
an unusually large number of entries and/or complex issues).
Another example consists of assisting Customs in obtaining
additional information relating to the subject violation or other
violations. Merely providing the books and records of the alleged
violator may not be considered cooperation justifying mitigation
inasmuch as Customs has the right to examine an importer's books
and records pursuant to 19 U.S.C. 1508-1509.
(c) Immediate Remedial Action. This factor includes the
payment of the actual loss of revenue prior to the issuance of a
penalty notice and within 30 days after Customs notifies the
alleged violator of the actual loss of revenue attributable to the
violation. In appropriate cases, where the alleged violator
provides evidence that, immediately after learning of the
violation, substantial remedial action was taken to correct
organizational or procedural defects, immediate remedial action may
be granted as a mitigating factor. Customs encourages immediate
remedial action to ensure against future incidents of
non-compliance.
(d) Prior Good Record. Prior good record is a factor only
if the alleged violator is able to demonstrate a consistent pattern
of filing drawback claims without violation of section 593A, or any
other statute prohibiting the making or filing of a false statement
or document in connection with a drawback claim. This factor will
not be considered in alleged fraudulent violations of section
593A.
(e) Inability to Pay the Customs Penalty. The party
claiming the existence of this factor must present documentary
evidence in support thereof, including copies of income tax returns
for the previous 3 years and an audited financial statement for the
most recent fiscal quarter. In certain cases, Customs may waive the
production of an audited financial statement or may request
alternative or additional financial data in order to facilitate an
analysis of a claim of inability to pay (e.g., examination of the
financial records of a foreign entity related to the U.S. company
claiming inability to pay). In addition, the alleged violator must
present information reflecting ownership and related domestic and
foreign parties and must provide information reflecting its current
financial condition, including books and records of account, bank
statements, other tax records (for example, sales tax returns) and
a list of assets with current values; if the alleged violator is a
closely held corporation, similar current financial information
must be provided on the shareholders, wherever they are
located.
(f) Customs Knowledge. This factor may be used in
non-fraud cases (which also are not the subject of a criminal
investigation) if it is determined that Customs had actual
knowledge of a violation and failed, without justification, to
inform the violator so that it could have taken earlier remedial
action. This factor is not applicable when a substantial delay in
the investigation is attributable to the alleged violator.
(5) Aggravating Factors. Certain factors may be
determined to be aggravating factors in calculating the amount of
the proposed or assessed penalty claim or the amount of the final
administrative penalty. The presence of one or more aggravating
factors may not be used to raise the level of culpability
attributable to the alleged violations, but may be used to offset
the presence of mitigating factors. The following factors will be
considered “aggravating factors”, provided that the case record
sufficiently establishes their existence. The list is not
exclusive.
(a) Obstructing an investigation or audit.
(b) Withholding evidence.
(c) Providing misleading information concerning the
violation.
(d) Prior substantive violations of section 593A for which a
final administrative finding of culpability has been made.
(e) Failure to comply with a Customs summons or lawful demand
for records.
(G) Drawback Compliance Program Participants
(1) In General. Special alternative procedures and
penalty assessment standards apply in the case of negligent
violations of section 593A committed by persons who are certified
as participants in the Customs drawback compliance program and who
are generally in compliance with the procedures and requirements of
that program. Provisions regarding the operation of the drawback
compliance program are set forth in part 191 of the Customs
Regulations (19 CFR part 191).
(2) Alternatives to Penalties. When a participant
described in paragraph (G)(1) commits a violation of section 593A,
in the absence of fraud or repeated violations and in lieu of a
monetary penalty, Customs will issue a written notice of the
violation (warning letter).
(a) Contents of Notice. The notice will:
(i) State that the person has violated section 593A;
(ii) Explain the nature of the violation; and
(iii) Warn the person that future violations of section 593A may
result in the imposition of monetary penalties and that repetitive
violations may result in removal of certification under the
drawback compliance program until the person takes corrective
action that is satisfactory to Customs.
(b) Response to Notice. Within 30 days from the date of
mailing of the written notice, the person must notify Customs in
writing of the steps that have been taken to prevent a recurrence
of the violation unless the person establishes to the satisfaction
of Customs that no violation took place (see § 162.73a(b)(2)(ii) of
the Customs Regulations, 19 CFR 162.73a(b)(2)(ii)). If the person
fails to provide the required notification in a timely manner, any
penalty assessed for a repetitive violation under paragraph (G)(3)
will not be subject to mitigation under this Appendix.
(3) Repetitive Violations.
(a) In General. A person who has been issued a written
notice under paragraph (G)(2) and who subsequently commits a
negligent violation that is repetitive (i.e., involves the
same issue), and any other person who is a participant described in
paragraph (G)(1) and who commits a repetitive negligent violation,
is subject to one of the following monetary penalties:
(i) An amount not to exceed 20 percent of the loss of revenue
for the first repetitive violation that occurs within three years
from the date of the violation of which it is repetitive;
(ii) An amount not to exceed 50 percent of the loss of revenue
for the second repetitive violation that occurs within three years
from the date of the first of two violations of which it is
repetitive ; and
(iii) An amount not to exceed 100 percent of the loss of revenue
for the third and each subsequent repetitive violation that occurs
within three years from the date of the first of three or more
violations of which it is repetitive.
(b) Repetitive Violations Outside 3-Year Period. If a
participant described in paragraph (G)(1) commits a negligent
violation that is repetitive but that did not occur within 3 years
of the violation of which it is repetitive, the new violation will
be treated as a first violation for which a written notice will be
issued in accordance with paragraph (G)(2), and each repetitive
violation subsequent to that violation that occurs within any
3-year period described in paragraph (G)(3)(a) will result in the
assessment of the applicable monetary penalty prescribed in that
paragraph.
(4) Final Penalty Disposition When There Has Been No Prior
Disclosure.
(a) In General. Customs will consider all information in
the petition and all available evidence, taking into account any
mitigating factors (see paragraph (F)(4)), aggravating factors (see
paragraph (F)(5)), and extraordinary factors in determining the
final assessed penalty. All factors considered should be stated in
the decision.
(b) First Repetitive Negligent Violation Within 3 Years of
Violation Handled Under Paragraph (G)(2). The final penalty
disposition will be in an amount ranging from a minimum of 10
percent of the loss of revenue to a maximum of 20 percent of the
loss of revenue.
(c) Second Repetitive Negligent Violation Within 3 Years of
Violation Handled Under Paragraph (G)(2) or (G)(3). The final
penalty disposition will be in an amount ranging from a minimum of
25 percent of the loss of revenue to a maximum of 50 percent of the
loss of revenue.
(d) Third and Each Subsequent Repetitive Negligent Violation
Within 3 Years of Violation Handled Under Paragraph (G)(2) or
(G)(3). The final penalty disposition will be in an amount
ranging from a minimum of 50 percent of the loss of revenue to a
maximum of 100 percent of the loss of revenue.
(e) Fraudulent Violations. The final penalty disposition
will be determined in the same manner as in the case of fraudulent
violations committed by persons who are not participants in the
drawback compliance program (see paragraph (F)(2)(c)).
(5) Final Penalty Disposition When There Has Been A Prior
Disclosure. The final penalty disposition will be determined in
the same manner as in the case of persons who are not participants
in the drawback compliance program (see paragraph (F)(3)).
(H) Violations by Small Entities
In compliance with the mandate of the Small Business Regulatory
Enforcement Fairness Act of 1996, under appropriate circumstances,
the issuance of a penalty under section 593A may be waived for
businesses qualifying as small business entities. Procedures that
were established for small business entities regarding violations
of 19 U.S.C. 1592 in Treasury Decision 97-46 published in the
Federal Register (62 FR 30378) are also applicable for small
entities regarding violations of section 593A.
[T.D. 00-5, 65 FR 3809, Jan. 25, 2000]