4410-008 Recovery of Lost Revenue Pursuant to 19 USC 1592(D)

Published CBP guidance; operative status and applicability must be assessed from the retained publisher edition.

CUSTOMS DIRECTIVE
ORIGINATING OFFICE: CO:RDISTRIBUTION: G-25
CUSTOMS DIRECTIVE NO. 4410-008
OLD NUMBER: 4400-009
DATE: FEBRUARY 6, 1989
REVIEW DATE: FEBRUARY 2004
SUBJECT:RECOVERY OF LOST REVENUE PURSUANT TO 19 USC 1592(D)
REFERENCES:Title 19, United States Code, Section 1592
Title 19, Code of Federal Regulations, 162.79b
Fines, Penalties and Forfeitures Handbook, Chapter FRD
Customs Service Decision (C.S.D.) 81-223
1.PURPOSE
This Directive clarifies and establishes procedures regarding the initiation of a
demand for restoration of lawful duties, when a violation of section 1592, is
discovered and reported.
2.BACKGROUND
Title 19, United States Code, Section 1592(a), essentially prohibits any person as
a result of fraud, gross negligence, or negligence from entering, introducing, or
attempting to enter or introduce merchandise into the United States by means of
any false statement, act or omission which is material or from aiding and abetting
another person to commit the foregoing acts. Section 1592(b), provides for the
assessment of monetary penalties against any person found to have committed a
violation of subsection (a) of the statute.
In addition, Subsection (d), provides as follows:
"Notwithstanding section 1514 of this title, if the United States has been deprived
of lawful duties as a result of a violation of subsection (a) of this section, the
appropriate Customs officer shall require that such lawful duties be restored,
whether or not a monetary penalty is assessed."
Thus, if a violation of Section 1592 has been committed, duties not paid as a
result of such violation may be collected without issuing a claim for monetary
penalty. It is Customs long-standing position, recently upheld in the Blum
decision described below, that Section 1592(d) demands for duties may be made
to anyone legally or contractually liable for duties owed on the entries subject to
the Section 1592 violation, even if such person was not a violator of Section
1592. In C.S.D. 81-223, Customs Headquarters further ruled that a surety on a

Customs entry bond is liable for payment of duties that are determined to be due
under Section 1592. Thus, in practice, Section 1592(d) demands have been
issued against importers of record, sureties, as well as, violators of Section
1592(a).
As a result of the recent decision by the Court of Appeals for the Federal Circuit
in United States v. Blum, et al., No. 87-1436 (Fed. Cir. September 30, 1988),
Customs practice with regard to the issuance of Section 1592(d) demands has
been affirmed. In this case, the Government had sued for collection of duties
demanded under Section 1592(d) from a broker/importer of record and a surety,
neither of whom were alleged violators of Section 1592(a). The lower court had
held that there was no independent cause of action for recovery of lost duties
under Section 1592(d), and that such demands, in any case, could not be made
against a person who was not guilty of a violation of Section 1592. In reversing
the lower court, the Court of Appeals for the Federal Circuit held:
--Section 1592(d) provides an independent cause of action for duties lost as
a result of a violation of section 1592.
--Section 1592(d) is not a penalty provision and thus, recovery of lawful
duties is allowed not only from persons who violated section 1592(a),
but also from "those parties traditionally liable for such duties, e.g., the
importer of record and its surety." Id. Slip op. at 10.
Although Customs authority to proceed with an independent cause of action
under Section 1592(d), has been clarified by the recent decision, it remains
important that claims for lost duties under this provision are based upon a
demonstrable violation of Section 1592(a). A violation of Section 1592, is
established by evidence of a material falsity or omission (e.g., the misdescription
or undervaluation), which is associated with an entry, introduction, or attempted
entry or introduction of merchandise into the commerce of the United States, and
there must exist some level of culpability on the part of the person who has
committed these acts.
To ensure that the basis for a section 1592(d) demand for duties exists, the
prerequisite for issuing such demands should be the same as for the issuance of
prepenalty notices under Section 1592.
3.ACTION
To assist in the development of legally enforceable claims for lost duties under
Section 1592(d), the following procedural guidelines have been adopted.
A.Reports Relating To Section 1592(d) Demands For Duties

Any report of violations of Section 1592, which have resulted in a loss of
duties shall be submitted promptly to the Area or District Director. These
reports shall include the following items of Information:
1)A Description of the merchandise involved in the transaction
relating to the lost duties (e.g., for Item 807.00 (TSUS) entries, the
identity of the articles being imported after the foreign assembly
operation).
2)A list of the Customs entries, if possible. Otherwise, the period of
time that the importations were made and any identification of the
Customs ports involved in such importations. "Requests For Data
Retrieval" (C.F. 83L) reports should be attached if the demand
involves all importations by a given person during a specified time
period.
3)Identification of the false statements, material omissions, or false
acts made in connection with the importation of the merchandise,
which caused the loss of duties.
4)Any facts which indicate culpability. At a minimum, the facts must
show a failure to exercise reasonable care and competence by
the person who committed the false statement, act, or omission
resulting in the lost duties.
B.Action Upon Receipt of A Report of Section 1592 Violation Involving
Actual Duty Loss
1)All reports of violations of section 1592, resulting in a loss of duties
shall be reviewed by the Fines, Penalties, and Forfeitures (FPF)
Office. As is the case in a section 1592 penalty proceeding, the
FPF Office shall make or recommend a determination as to
whether or not the report establishes that a section 1592 violation
has been committed. The FPF Office, however, shall consult with
other field and Headquarters personnel, as necessary, in making
this determination.
2)If it is determined that the report does not establish reasonable
cause to believe that a violation of Section 1592, has been
committed, the case file shall be annotated to reflect this
determination and the report shall be returned to the initiating office
with a notation of this determination. If the report included entries
on which liquidation has not become final, these entries, however,
shall be rate or value advanced as appropriate.

3)If it is determined that the report does establish reasonable cause
to believe that a Section 1592 violation has been committed and
it is determined that a penalty claim is warranted, a prepenalty
notice, (or penalty notice, if prepenalty is not required) shall be
issued in accordance with the procedures set forth in 19 CFR
162.77-78. See also Chapter FRD of the FPF Handbook.
In these cases, the demand for payment of the lost duties shall be
stated in the penalty notice, when issued, in accordance with
19 CFR 162.79.
4)If it is determined that the report establishes reasonable cause to
believe that a violation was committed, but other circumstances
indicate that a penalty proceeding is not warranted, a separate
demand for restoration of duties owed as a result of the violation
shall be issued pursuant to section 1592(d), in accordance with the
guidelines set forth herein.
C.Contents of Section 1592(d) Demands For Duties
Demands for duties under Section 1592(d), shall be issued in writing by
the Area and District Directors and shall include the following items of
information set forth in the same format as the prepenalty notices issued
under Section 1592:
1)Identification of the merchandise and list of the entries, if possible.
If entry numbers are not available, statement of the period of
time importations were made and identification of the ports
involved.
2)Citation of the laws violated and statement of the material facts
establishing the violation of Section 1592(a), and the culpability of
the person committing the violative acts.
3)Statement of the amount demanded and that such amount shall be
due within thirty (30) days from the date of the notice. An appraisal
work-sheet shall be included whenever possible.
4)Notification of the opportunity to make an oral and written
presentation to the Area/District Director as to why the alleged
violation did not take place or that the loss of duties is less than the
amount demanded.
Notification also shall be made of the opportunity to obtain Headquarters
review of the loss of duty determination in accordance with 19 CFR
162.79b.

D.Persons to Whom Section 1592(d) Demands Shall Be Issued
In all cases, demands for actual loss of duties resulting from violations of
Section 1592, shall be issued to the following persons and in the
following order:
1)The person who violated section 1592(a). (If a penalty claim is
assessed against this person, the written demand prescribed under
section 3.C., supra, would not be required since the actual loss of
duties shall be demanded in the written penalty notice to this
person.)
2)The importer of record on the entries involved in the violation of
Section 1592(a), when this person is not also the violator.
3)The surety on the Customs entry bond covering the entries involved
in the violation, when the importer of record does not pay the lost
duties within the time period specified in the Section 1592(d)
demand. The surety shall be granted an additional period of thirty
(30) days to respond to the demand.
E.Time For Issuance of Section 1592(d) Demands
1)It remains the Government's position that there is no statute of
limitations applicable to the assessment or collection of duties
under Section 1592(d). Accordingly, demands for duties may be
issued in accordance with 19 CFR 162.79b and the procedures set
forth in this Directive, even after the termination of the statute of
limitations period set forth in 19 USC 1621, that would be
applicable to the section 1592 penalty action relating to the same
entries.
2)In order to protect the revenue against the possibility that the
foregoing position is not upheld by the Courts, it is Customs
policy that demands for duties shall be issued, whenever possible,
within the statute of limitations period applicable to a penalty
action on the same entries.
4.EFFECT OF THIS ISSUANCE
This Directive rescinds and supersedes Manual Supplement 4400-09, issued on
September 17, 1982, and amended by Change No. 1, on April 18, 1985.
5.RESPONSIBILITIES

Regional Commissioners will be responsible for ensuring that the provisions of
this Directive are implemented uniformly within their local jurisdictions.
Guidance concerning the application of this Directive may be requested from the
Chief, Penalties Branch, Headquarters (FTS 566-8317) or the appropriate
Regional Counsel.
The statements made herein are not intended to create or confer any rights
privileges or benefits for any private person, but are intended merely for internal
guidance.
Commissioner of Customs