[Code of Federal Regulations] [Title 19, Volume 2] [Revised as of April 1, 2006] From the U.S. Government Printing Office via GPO Access [CITE: 19CFR171.64] [Page 295-314] TITLE 19--CUSTOMS DUTIES CHAPTER I--BUREAU OF CUSTOMS AND BORDER PROTECTION, DEPARTMENT OF HOMELAND SECURITY; DEPARTMENT OF THE TREASURY (CONTINUED) PART 171_FINES, PENALTIES, AND FORFEITURES--Table of Contents Subpart G_Supplemental Petitions for Relief Sec. 171.64 Waiver of statute of limitations. The deciding Customs official always reserves the right to require a waiver of the statute of limitations executed by the claimants to the property or charged party or parties as a condition precedent before accepting a supplemental petition in any case in which less than one year remains before the statute will be available as a defense to all or part of that case. Appendix A to Part 171--Guidelines for Disposition of Violations of 19 U.S.C. 1497 Liabilities incurred under section 497, Tariff Act of 1930 (19 U.S.C. 1497), shall be mitigated or remitted in accordance with the following guidelines (see also part 148, Customs Regulations): I. Violations Involving Dutiable Articles. For violations involving articles subject to duty and for which there is no applicable exemption from duty, the following rules apply: 1. Mitigated Penalty for First Offense. For violations which are the first offense, where there is knowledge of the declaration requirements, and where the undeclared articles are discovered by the Customs officers, the liabilities shall be remitted upon payment of Three Times the Duty (but not less than $50), or the domestic value, whichever is lower. 2. Mitigating Factors. When one or more of the following mitigating factors are present, the deciding officer may, within his discretion, remit the liabilities upon payment of Between One and One-Half and Three Times the Duty or the domestic value, whichever is lower: a. Communications with the violator are impaired because of language barrier, mental condition, or physical ailment; b. Violator cooperates with Customs officers after discovery of the violation by providing additional information which facilitates conclusion of the case; c. Violator is an inexperienced traveler; d. There is contributory Customs error (for example, violator demonstrates he was given incorrect advice by a Customs officer). 3. Aggravating Factors. When one or more of the following aggravating factors are present, the deciding officer may, within his discretion, remit the liabilities upon payment of Between Three and Six Times the Duty (but not less than $100), or the domestic value, whichever is lower: a. Documentary or other evidence discovered establishes violator's intent; b. Informant provides information which tends to establish violator's intent and leads to discovery of the violation after the violator has been given an opportunity to properly declare; c. Violator is an experienced traveler; d. Undeclared articles are concealed to evade U.S. law; e. There is behavior, including extreme lack of cooperation, verbal or physical abuse, or attempted escape, which tends to demonstrate a lack of respect for law and authority. 4. Commercial Articles. When the undeclared articles are brought in for commercial purposes, the liabilities shall be remitted upon the payment of Six Times the Duty (but not less than $100), or the domestic value, whichever is lower. Mitigating factors may be used to lower this amount to as little as Three Times the Duty; aggravating factors may be used to increase this amount up to Eight Times the Duty. 5. Extraordinary Mitigating Factor. a. When an individual who has been cleared through Customs without discovery of any undeclared article returns to the examination area and declares that article, the deciding officer may, within his discretion, remit the liabilities upon payment of One Times the Duty. b. An individual who declares articles some time later (hours, days, weeks, etc.) may be treated similarly. 6. Extraordinary Aggravating Factors. [[Page 296]] a. When the offense is a second or subsequent violation, the deciding officer may, within his discretion, remit the liabilities upon payment of Between Six and Eight Times the Duty (but not less than $250), or the domestic value, whichever is lower. b. When the offense is a second or subsequent violation, and there are aggravating factors present, generally there shall either be a denial of relief or mitigation to No Less Than Eight Times the Duty or the domestic value, whichever is lower. c. When there is evidence of an ongoing scheme to defraud the revenue involving multiple entries without declaration of articles subject to declaration, the deciding officer shall act in accordance with the preceding paragraph. II. Violations Involving Absolutely or Conditionally Free Articles. For violations involving articles either entitled to entry free of duty absolutely (classifiable under a duty-free provision in Chapters 1-97, Harmonized Tariff Schedule of the United States (HTSUS); (19 U.S.C. 1202)), or entry free of duty conditionally (entitled to treatment under the Generalized System of Preferences (see Sec. Sec. 10.171-10.178, Customs Regulations) or Chapter 98, HTSUS), the following rules apply: 1. Mitigated Penalty for First Offense. a. For violations which are first offense, and involve articles entitled to the benefit of GSP or Chapter 98, HTSUS, the liabilities shall be remitted upon payment of One Times the Duty which would have been due if the articles had not been entitled to the benefit. b. For violations which are first offense, and involve absolutely duty-free articles, the liabilities shall be remitted upon payment of Between One and Five Percent of the Domestic Value, but not less than $50 (or the domestic value, whichever is less) nor more than $1,000. 2. Mitigating Factors. When mitigating factors such as those outlined above are present, the deciding officer may, in his discretion, reduce the mitigated amount to a lower figure. 3. Aggravating Factors. a. When aggravating factors such as those outlined above are present, the deciding officer may, in his discretion, remit the liabilities for conditionally free articles upon the payment of Between One and Two Times the Duty (but not less than $100), or the domestic value, whichever is lower. b. For absolutely free articles, the deciding officer may remit the liabilities upon payment of Between Five and Ten Percent of the Domestic Value, but not less than $100. 4. Commercial Merchandise. The fact that undeclared duty-free articles are imported for commercial purposes may be considered an aggravating factor under section II.3. of these guidelines. III. Other Applicable Rules. 1. These guidelines provide a framework and procedure by which violations of 19 U.S.C. 1497 are to be analyzed. They are not mandatory in the sense that they must be absolutely applied. Customs officers varying from these guidelines must provide reasons for doing so in the case record. 2. Customs officers shall document mitigating and aggravating factors found in each case in the case file. There must be a basis shown for mitigated amounts. 3. It is intended that mitigating and aggravating factors shall be considered together and used to offset each other where appropriate. 4. The rate of duty to be used in calculating the mitigated penalty shall be the appropriate rate from Chapters 1-97, HTSUS, and not the flat rate from Chapter 98, HTSUS. 5. ``Duty'' means Customs duties and any internal revenue taxes which would have attached upon importation (see section 101.1(i), Customs Regulations). Therefore, multiples will also be applied to internal revenue taxes which would have been due. 6. Customs officers may, within their discretion, consider other factors not here delineated as aggravating or mitigating and apply the guidelines accordingly. These additional factors must also be documented in the case file. 7. These guidelines are not authority for admitting into the commerce of the United States articles which are conditionally or absolutely prohibited from entry. 8. The presence of one or more extraordinary aggravating factors, including but not limited to those set forth in section I.6. of these guidelines, may within the discretion of the deciding officer be a basis for denial of relief. 9. If the violator is being prosecuted criminally, the civil (19 U.S.C. 1497) liability generally is administratively settled only after completion of the prosecution or with the express approval of the appropriate U.S. attorney. Criminal prosecution of the violator, however, is insufficient grounds to delay indefinitely determination of the civil liability. The Fines, Penalties, and Forfeitures Officer should contact the Chief Counsel representative in the field to determine the best course of action to follow with respect to the civil liability. Chief Counsel representative will consult with the U.S. attorney and the Penalties Branch at Customs Headquarters. Because of time delay problems, all seizures involving criminal prosecutions must be promptly coordinated in this manner, and consideration should be given to immediate referral of the forfeiture action to the U.S. [[Page 297]] attorney for the institution of a judicial proceeding. [T.D. 83-145, 48 FR 30100, June 30, 1983, as amended by T.D. 89-1, 53 FR 51271, Dec. 21, 1988; T.D. 99-27, 64 FR 13676, Mar. 22, 1999] Appendix B to Part 171--Customs Regulations, Guidelines for the Imposition and Mitigation of Penalties for Violations of 19 U.S.C. 1592 A monetary penalty incurred under section 592 of the Tariff Act of 1930, as amended (19 U.S.C. 1592; hereinafter referred to as section 592) may be remitted or mitigated under section 618 of the Tariff Act of 1930, as amended (19 U.S.C. 1618), if it is determined that there are mitigating circumstances to justify remission or mitigation. The guidelines below will be used by the Customs Service in arriving at a just and reasonable assessment and disposition of liabilities arising under section 592 within the stated limitations. It is intended that these guidelines shall be applied by Customs officers in pre-penalty proceedings and in determining the monetary penalty assessed in any penalty notice. The assessed penalty or 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 section 592(e). It should be understood that any mitigated penalty is conditioned upon payment of any actual loss of duty as well as a release by the party that indicates that the mitigation decision constitutes full accord and satisfaction. Further, mitigation decisions are not rulings within the meaning of part 177 of the Customs Regulations (19 CFR part 177). Lastly, these guidelines may supplement, and are not intended to preclude application of, any other special guidelines promulgated by Customs. (A) Violations of Section 592 Without regard to whether the United States is or may be deprived of all or a portion of any lawful duty, tax or fee thereby, a violation of section 592 occurs when a person, through fraud, gross negligence, or negligence, enters, introduces, or attempts to enter or introduce any merchandise into the commerce of the United States by means of any document, electronic transmission of data or information, written or oral statement, or act that is material and false, or any omission that is material; or when a person aids or abets any other person in the entry, introduction, or attempted entry or introduction of merchandise by such means. It should be noted that the language ``entry, introduction, or attempted entry or introduction'' encompasses placing merchandise in-bond (e.g., filing an immediate transportation application). There is no violation if the falsity or omission 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 unintentional repetition by an electronic system of an initial clerical error generally will not constitute a pattern of negligent conduct. Nevertheless, if Customs has drawn the party's attention to the unintentional repetition by an electronic system of an initial clerical error, subsequent failure to correct the error could constitute a violation of section 592. Also, the unintentional repetition of a clerical mistake over a significant period of time or involving many entries could indicate a pattern of negligent conduct and a failure to exercise reasonable care. (B) Definition of Materiality Under Section 592 A document, statement, act, or omission is material if it has the natural tendency to influence or is capable of influencing agency action including, but not limited to a Customs action regarding: (1) Determination of the classification, appraisement, or admissibility of merchandise (e.g., whether merchandise is prohibited or restricted); (2) determination of an importer's liability for duty (including marking, antidumping, and/or countervailing duty); (3) collection and reporting of accurate trade statistics; (4) determination as to the source, origin, or quality of merchandise; (5) determination of whether an unfair trade practice has been committed under the anti-dumping or countervailing duty laws or a similar statute; (6) determination of whether an unfair act has been committed involving patent, trademark, or copyright infringement; or (7) the determination of whether any other unfair trade practice has been committed in violation of federal law. The ``but for'' test of materiality is inapplicable under section 592. (C) Degrees of Culpability Under Section 592 The three degrees of culpability under section 592 for the purposes of administrative proceedings are: (1) Negligence. A violation is determined to be negligent if it results from 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 either: (a) in ascertaining the facts or in drawing inferences therefrom, in ascertaining the offender's obligations under the statute; or (b) in communicating information in a manner so that it may be understood by the recipient. As a general rule, a violation is negligent if it results from failure to exercise reasonable care and competence: (a) to ensure that statements made and information provided in connection with the importation [[Page 298]] of merchandise are complete and accurate; or (b) to perform any material act required by statute or regulation. (2) Gross Negligence. A violation is deemed to be grossly 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. (3) Fraud. A violation is determined to be fraudulent if a 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. (D) Discussion of Additional Terms (1) Duty Loss Violations. A section 592 duty loss violation involves those cases where there has been a loss of duty including any marking, anti-dumping, or countervailing duties, or any tax and fee (e.g., merchandise processing and/or harbor maintenance fees) attributable to an alleged violation. (2) Non-duty Loss Violations. A section 592 non-duty loss violation involves cases where the record indicates that an alleged violation is principally attributable to, for example, evasion of a prohibition, restriction, or other non-duty related consideration involving the importation of the merchandise. (3) Actual Loss of Duties. An actual loss of duty occurs where there is a loss of duty including any marking, anti-dumping, or countervailing duties, or any tax and fee (e.g., merchandise processing and/or harbor maintenance fees) attributable to a liquidated Customs entry, and the merchandise covered by the entry has been entered or introduced (or attempted to be entered or introduced) in violation of section 592. (4) Potential Loss of Duties. A potential loss of duty occurs where an entry remains unliquidated and there is a loss of duty, including any marking, anti-dumping or countervailing duties or any tax and fee (e.g., merchandise processing and/or harbor maintenance fees) attributable to a violation of section 592, but the violation was discovered prior to liquidation. In addition, a potential loss of duty exists where Customs discovers the violation and corrects the entry to reflect liquidation at the proper classification and value. In other words, the potential loss in such cases equals the amount of duty, tax and fee that would have occurred had Customs not discovered the violation prior to liquidation and taken steps to correct the entry. (5) Total Loss of Duty. The total loss of duty is the sum of any actual and potential loss of duty attributable to alleged violations of section 592 in a particular case. Payment of any actual and/or potential loss of duty shall not affect or reduce the total loss of duty used for assessing penalties as set forth in these guidelines. The ``multiples'' set forth below in paragraph (F)(2) involving assessment and disposition of cases shall utilize the ``total loss of duty'' amount in arriving at the appropriate assessment or disposition. (6) Reasonable Care. General Standard: All parties, including importers of record or their agents, are required to exercise reasonable care in fulfilling their responsibilities involving entry of merchandise. These responsibilities include, but are not limited to: providing a classification and value for the merchandise; furnishing information sufficient to permit Customs to determine the final classification and valuation of merchandise; taking measures that will lead to and assure the preparation of accurate documentation, and determining whether any applicable requirements of law with respect to these issues are met. In addition, all parties, including the importer, must use reasonable care to provide accurate information or documentation to enable Customs to determine if the merchandise may be released. Customs may consider an importer's failure to follow a binding Customs ruling a lack of reasonable care. In addition, unreasonable classification will be considered a lack of reasonable care (e.g., imported snow skis are classified as water skis). Failure to exercise reasonable care in connection with the importation of merchandise may result in imposition of a section 592 penalty for fraud, gross negligence or negligence. (7) Clerical Error. A clerical error is an error in the preparation, assembly or submission of import documentation or information provided to Customs that results from a mistake in arithmetic or transcription that is not part of a pattern of negligence. The mere non-intentional repetition by an electronic system of an initial clerical error does not constitute a pattern of negligence. Nevertheless, as stated earlier, if Customs has drawn a party's attention to the non-intentional repetition by an electronic system of an initial clerical error, subsequent failure to correct the error could constitute a violation of section 592. Also, the unintentional repetition of a clerical mistake over a significant period of time or involving many entries could indicate a pattern of negligent conduct and a failure to exercise reasonable care. (8) Mistake of Fact. A mistake of fact is a false statement or omission that is based on a bona fide erroneous belief as to the facts, so long as the belief itself did not result from negligence in ascertaining the accuracy of the facts. (E) Penalty Assessment (1) Case Initiation--Pre-penalty Notice. [[Page 299]] (a) Generally. As provided in Sec. 162.77, Customs Regulations (19 CFR 162.77), if the appropriate Customs field officer has reasonable cause to believe that a violation of section 592 has occurred and determines that further proceedings are warranted, the Customs field officer will issue to each person concerned a notice of intent to issue a claim for a monetary penalty (i.e., the ``pre-penalty notice''). In issuing such a pre-penalty notice, the Customs field officer will make a tentative determination of the degree of culpability and the amount of the proposed claim. Payment of any actual and/or potential loss of duty will not affect or reduce the total loss of duty used for assessing penalties as set forth in these guidelines. The ``multiples'' set forth in paragraphs (F)(2)(a)(i), (b)(i) and (c)(i) involving assessment and disposition of duty loss violation cases will use the amount of total loss of duty in arriving at the appropriate assessment or disposition. Further, where separate duty loss and non-duty loss violations occur on the same entry, it is within the Customs field officer's discretion to assess both duty loss and non-duty loss penalties, or only one of them. Where only one of the penalties is assessed, the Customs field officer has the discretion to select which penalty (duty loss or non-duty loss) shall be assessed. Also, where there is a violation accompanied by an incidental or nominal loss of duties, the Customs field officer may assess a non-duty loss penalty where the incidental or nominal duty loss resulted from a separate non-duty loss violation. The Customs field officer will propose a level of culpability in the pre-penalty notice that conforms to the level of culpability suggested by the evidence at the time of issuance. Moreover, the pre-penalty notice will include a statement that it is Customs practice to base its actions on the earliest point in time that the statute of limitations may be asserted (i.e., the date of occurrence of the alleged violation) inasmuch as the final resolution of a case in court may be less than a finding of fraud. A pre-penalty notice that is issued to a party in a case where Customs determines a claimed prior disclosure is not valid--owing to the disclosing party's knowledge of the commencement of a formal investigation of a disclosed violation--will include a copy of a written document that evidences the commencement of a formal investigation. In addition, a pre-penalty notice is not required if a violation involves a non-commercial importation or if the proposed claim does not exceed $1,000. Special guidelines relating to penalty assessment and dispositions involving ``Arriving Travelers,'' are set forth in section (L) below. (b) Pre-penalty Notice--Proposed Claim Amount (i) Fraud. In general, if a violation is determined to be the result of fraud, the proposed claim ordinarily will be assessed in an amount equal to the domestic value of the merchandise. Exceptions to assessing the penalty at the domestic value may be warranted in unusual circumstances such as a case where the domestic value of the merchandise is disproportionately high in comparison to the loss of duty attributable to an alleged violation (e.g., a total loss of duty of $10,000 involving 10 entries with a total domestic value of $2,000,000). Also, it is incumbent upon the appropriate Customs field officer to consider whether mitigating factors are present warranting a reduction in the customary domestic value assessment. In all section 592 cases of this nature regardless of the dollar amount of the proposed claim, the Customs field officer will obtain the approval of the Penalties Branch at Headquarters prior to issuance of a pre-penalty notice at an amount less than domestic value. (ii) Gross Negligence and Negligence. In determining the amount of the proposed claim in cases involving gross negligence and negligence, the appropriate Customs field officer will take into account the gravity of the offense, the amount of loss of duty, the extent of wrongdoing, mitigating or aggravating factors, and other factors bearing upon the seriousness of a violation, but in no case will the assessed penalty exceed the statutory ceilings prescribed in section 592. In cases involving gross negligence and negligence, penalties equivalent to the ceilings stated in paragraphs (F)(2)(b) and (c) regarding disposition of cases may be appropriate in cases involving serious violations, e.g., violations involving a high loss of duty or significant evasion of import prohibitions or restrictions. A ``serious'' violation need not result in a loss of duty. The violation may be serious because it affects the admissibility of merchandise or the enforcement of other laws, as in the case of quota evasions, false statements made to conceal the dumping of merchandise, or violations of exclusionary orders of the International Trade Commission. (c) Technical Violations. Violations where the loss of duty is nonexistent or minimal and/or that have an insignificant impact on enforcement of the laws of the United States may justify a proposed penalty in a fixed amount not related to the value of merchandise, but an amount believed sufficient to have a deterrent effect: e.g., violations involving the subsequent sale of merchandise or vehicles entered for personal use; violations involving failure to comply with declaration or entry requirements that do not change the admissibility or entry status of merchandise or its appraised value or classification; violations involving the illegal diversion to domestic use of instruments of international traffic; and local point-to-point traffic violations. Generally, a penalty [[Page 300]] in a fixed amount ranging from $1,000 to $2,000 is appropriate in cases where there are no prior violations of the same kind. However, fixed sums ranging from $2,000 to $10,000 may be appropriate in the case of multiple or repeated violations. Fixed sum penalty amounts are not subject to further mitigation and may not exceed the maximum amounts stated in section 592 and in these guidelines. (d) Statute of Limitations Considerations--Waivers. Prior to issuance of any section 592 pre-penalty notice, the appropriate Customs field officer will calculate the statute of limitations attributable to an alleged violation. Inasmuch as section 592 cases are reviewed de novo by the Court of International Trade, the statute of limitations calculation in cases alleging fraud should assume a level of culpability of gross negligence or negligence, i.e., ordinarily applying a shorter period of time for statute of limitations purposes. In accordance with section 162.78 of the Customs Regulations (19 CFR 162.78), if less than 1 year remains before the statute of limitations may be raised as a defense, a shortened response time may be specified in the notice--but in no case, less than 7 business days from the date of mailing. In cases of shortened response times, the Customs field officer should notify alleged violators by telephone and use all reasonable means (e.g., facsimile transmission of a copy of the notice) to expedite receipt of the notice by the alleged violators. Also in such cases, the appropriate Customs field officer should advise the alleged violator that additional time to respond to the pre-penalty notice will be granted only if an acceptable waiver of the statute of limitations is submitted to Customs. With regard to waivers of the statute of limitations, it is Customs practice to request waivers concurrently both from all potential alleged violators and their sureties. (2) Closure of Case or Issuance of Penalty Notice. (a) Case Closure. The appropriate Customs field officer may find, after consideration of the record in the case, including any pre-penalty response/oral presentation, that issuance of a penalty notice is not warranted. In such cases, the Customs field officer will provide written notification to the alleged violator who received the subject pre- penalty notice that the case is closed. (b) Issuance of Penalty Notice. In the event that circumstances warrant issuance of a notice of penalty pursuant to Sec. 162.79 of the Customs Regulations (19 CFR 162.79), the appropriate Customs field officer will give consideration to all available evidence with respect to the existence of material false statements or omissions (including evidence presented by an alleged violator), the degree of culpability, the existence of a prior disclosure, the seriousness of the violation, and the existence of mitigating or aggravating factors. In cases involving fraud, the penalty notice will be in the amount of the domestic value of the merchandise unless a lesser amount is warranted as described in paragraph (E)(1)(b)(i). In general, the degree of culpability or proposed penalty amount stated in a pre-penalty notice will not be increased in the penalty notice. If, subsequent to the issuance of a pre-penalty notice and upon further review of the record, the appropriate Customs field officer determines that a higher degree of culpability exists, the original pre-penalty notice should be rescinded and a new pre-penalty notice issued that indicates the higher degree of culpability and increased proposed penalty amount. However, if less than 9 months remain before expiration of the statute of limitations or any waiver thereof by the party named in the pre-penalty notice, the higher degree of culpability and higher penalty amount may be indicated in the notice of penalty without rescinding the earlier pre-penalty notice. In such cases, the Customs field officer will consider whether a lower degree of culpability is appropriate or whether to change the information contained in the pre-penalty notice. (c) Statute of Limitations Considerations. Prior to issuance of any section 592 penalty notice, the appropriate Customs field officer again shall calculate the statute of limitations attributable to the alleged violation and request a waiver(s) of the statute, if necessary. In accordance with part 171 of the Customs Regulations (19 CFR part 171), if less than 180 days remain before the statute of limitations may be raised as a defense, a shortened response time may be specified in the notice--but in no case less than 7 business days from the date of mailing. In such cases, the Customs field officer should notify an alleged violator by telephone and use all reasonable means (e.g., facsimile transmission of a copy) to expedite receipt of the penalty notice by the alleged violator. Also, in such cases, the Customs field officer should advise an alleged violator that, if an acceptable waiver of the statute of limitations is provided, additional time to respond to the penalty notice may be granted. (F) Administrative Penalty Disposition (1) Generally. It is the policy of the Department of the Treasury and the Customs Service to grant mitigation in appropriate circumstances. In certain cases, based upon criteria to be developed by Customs, mitigation may take an alternative form, whereby a violator may eliminate or reduce his or her section 592 penalty liability by taking action(s) to correct problems that caused the violation. In any case, in determining the administrative section 592 penalty disposition, the appropriate Customs field officer will consider the entire case record-- taking into [[Page 301]] account the presence of any mitigating or aggravating factors. All such factors should be set forth in the written administrative section 592 penalty decision. Once again, Customs emphasizes that any penalty liability which is mitigated is conditioned upon payment of any actual loss of duty in addition to that penalty as well as a release by the party that indicates that the mitigation decision constitutes full accord and satisfaction. Finally, section 592 penalty dispositions in duty-loss and non-duty-loss cases will proceed in the manner set forth below. (2) Dispositions. (a) Fraudulent Violation. Penalty dispositions for a fraudulent violation will be calculated as follows: (i) Duty Loss Violation. An amount ranging from a minimum of 5 times the total loss of duty to a maximum of 8 times the total loss of duty-- but in any such case the amount may not exceed the domestic value of the merchandise. A penalty disposition greater than 8 times the total loss of duty may be imposed in a case involving an egregious violation, or a public health and safety violation, or due to the presence of aggravating factors, but again, the amount may not exceed the domestic value of the merchandise. (ii) Non-Duty Loss Violation. An amount ranging from a minimum of 50 percent of the dutiable value to a maximum of 80 percent of the dutiable value of the merchandise. A penalty disposition greater than 80 percent of the dutiable value may be imposed in a case involving an egregious violation, or a public health and safety violation, or due to the presence of aggravating factors, but the amount may not exceed the domestic value of the merchandise. (b) Grossly Negligent Violation. Penalty dispositions for a grossly negligent violation shall be calculated as follows: (i) Duty Loss Violation. An amount ranging from a minimum of 2.5 times the total loss of duty to a maximum of 4 times the total loss of duty--but in any such case, the amount may not exceed the domestic value of the merchandise. (ii) Non-Duty Loss Violation. An amount ranging from a minimum of 25 percent of the dutiable value to a maximum of 40 percent of the dutiable value of the merchandise--but in any such case, the amount may not exceed the domestic value of the merchandise. (c) Negligent Violation. Penalty dispositions for a negligent violation shall be calculated as follows: (i) Duty Loss Violation. An amount ranging from a minimum of 0.5 times the total loss of duty to a maximum of 2 times the total loss of duty but, in any such case, the amount may not exceed the domestic value of the merchandise. (ii) Non-Duty Loss Violation. An amount ranging from a minimum of 5 percent of the dutiable value to a maximum of 20 percent of the dutiable value of the merchandise, but, in any such case, the amount may not exceed the domestic value of the merchandise. (d) Authority to Cancel Claim. Upon issuance of a penalty notice, Customs has set forth its formal monetary penalty claim. Except as provided in 19 CFR part 171, in those section 592 cases within the administrative jurisdiction of the concerned Customs field office, the appropriate Customs field officer will cancel any such formal claim whenever it is determined that an essential element of the alleged violation is not established by the agency record, including pre-penalty and penalty responses provided by the alleged violator. Except as provided in 19 CFR part 171, in those section 592 cases within Customs Headquarters jurisdiction, the appropriate Customs field officer will cancel any such formal claim whenever it is determined that an essential element of the alleged violation is not established by the agency record, and such cancellation action precedes the date of the Customs field officer's receipt of the alleged violator's petition responding to the penalty notice. On and after the date of Customs receipt of the petition responding to the penalty notice, jurisdiction over the action rests with Customs Headquarters including the authority to cancel the claim. (e) Remission of Claim. If the Customs field officer believes that a claim for monetary penalty should be remitted for a reason not set forth in these guidelines, the Customs field officer should first seek approval from the Chief, Penalties Branch, Customs Service Headquarters. (f) Prior Disclosure Dispositions. It is the policy of the Department of the Treasury and the Customs Service to encourage the submission of valid prior disclosures that comport with the laws, regulations, and policies governing this provision of section 592. Customs will determine the validity of the prior disclosure including whether or not the prior disclosure sets forth all the required elements of a violation of section 592. A valid prior disclosure warrants the imposition of the reduced Customs civil penalties set forth below: (1) Fraudulent Violation. (a) Duty Loss Violation. The claim for monetary penalty shall be equal to 100 percent of the total loss of duty (i.e., actual + potential) resulting from the violation. No mitigation will be afforded. (b) Non-Duty Loss Violation. The claim for monetary penalty shall be equal to 10 percent of the dutiable value of the merchandise in question. No mitigation will be afforded. (2) Gross Negligence and Negligence Violation. (a) Duty Loss Violation. The claim for monetary penalty shall be equal to the interest on the actual loss of duty computed from the date of liquidation to the date of the party's tender of the actual loss of duty resulting from the violation. Customs notes that there [[Page 302]] is no monetary penalty in these cases if the duty loss is potential in nature. Absent extraordinary circumstances, no mitigation will be afforded. (b) Non-Duty Loss Violation. There is no monetary penalty in such cases and any claim for monetary penalty which had been issued prior to the decision granting prior disclosure will be remitted in full. (G) Mitigating Factors The following factors will be considered in mitigation of the proposed or assessed penalty claim or the amount of the administrative penalty decision, provided that the case record sufficiently establishes their existence. The list is not all-inclusive. (1) Contributory Customs Error. This factor includes misleading or erroneous advice given by a Customs official in writing to the alleged violator, or established by a contemporaneously created written Customs record, only if it appears that the alleged violator reasonably relied upon the 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 it is determined that the Customs error was the sole cause of the violation, the proposed or assessed penalty claim shall be canceled. If the Customs error contributed to the violation, but the violator also is culpable, the Customs error will be considered as a mitigating factor. (2) Cooperation with the Investigation. To obtain the benefits of this factor, the violator must exhibit extraordinary cooperation beyond that expected from a person under investigation for a Customs violation. Some examples of the cooperation contemplated include assisting Customs officers to an unusual degree in auditing the books and records of the 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 violator should 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. (3) Immediate Remedial Action. This factor includes the payment of the actual loss of duty prior to the issuance of a penalty notice and within 30 days after Customs notifies the alleged violator of the actual loss of duties attributable to the alleged violation. In appropriate cases, where the 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. (4) Inexperience in Importing. Inexperience is a factor only if it contributes to the violation and the violation is not due to fraud or gross negligence. (5) Prior Good Record. Prior good record is a factor only if the alleged violator is able to demonstrate a consistent pattern of importations without violation of section 592, or any other statute prohibiting false or fraudulent importation practices. This factor will not be considered in alleged fraudulent violations of section 592. (6) 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). (7) Customs Knowledge. Additional relief in non-fraud cases (which also are not the subject of a criminal investigation) will be granted if it is determined that Customs had actual knowledge of a violation and, without justification, failed to inform the violator so that it could have taken earlier corrective action. In such cases, if a penalty is to be assessed involving repeated violations of the same kind, the maximum penalty amount for violations occurring after the date on which actual knowledge was obtained by Customs will be limited to two times the loss of duty in duty-loss cases or twenty percent of the dutiable value in non-duty-loss cases if the continuing violations were the result of gross negligence, or the lesser of one time the loss of duty in duty- loss cases or ten percent of dutiable value in non-duty-loss cases if the violations were the result of negligence. This factor will not be applicable when a substantial delay in the investigation is attributable to the alleged violator. (H) 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 administrative penalty decision. 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 utilized to offset the presence of mitigating factors. The following factors will be considered ``aggravating factors,'' provided that the case [[Page 303]] record sufficiently establishes their existence. The list is not exclusive. (1) Obstructing an investigation or audit, (2) Withholding evidence, (3) Providing misleading information concerning the violation, (4) Prior substantive violations of section 592 for which a final administrative finding of culpability has been made, (5) Textile imports that have been the subject of illegal transshipment (i.e., false country of origin declaration), whether or not the merchandise bears false country of origin markings, (6) Evidence of a motive to evade a prohibition or restriction on the admissibility of the merchandise (e.g., evading a quota restriction), (7) Failure to comply with a lawful demand for records or a Customs summons. (I) Offers in Compromise (``Settlement Offers'') Parties who wish to submit a civil offer in compromise pursuant to 19 U.S.C. 1617 (also known as a ``settlement offer'' ) in connection with any section 592 claim or potential section 592 claim should follow the procedures outlined in Sec. 161.5 of the Customs Regulations (19 CFR 161.5). Settlement offers do not involve ``mitigation'' of a claim or potential claim, but rather ``compromise'' an action or potential action where Customs evaluation of potential litigation risks, or the alleged violator's financial position, justifies such a disposition. In any case where a portion of the offered amount represents a tender of unpaid duties, taxes and fees, Customs letter of acceptance may identify the portion representing any such duty, tax and fee. The offered amount should be deposited at the Customs field office responsible for handling the section 592 claim or potential section 592 claim. The offered amount will be held in a suspense account pending acceptance or rejection of the offer in compromise. In the event the offer is rejected, the concerned Customs field office will promptly initiate a refund of the money deposited in the suspense account to the offeror. (J) Section 592(d) Demands Section 592(d) demands for actual losses of duty ordinarily are issued in connection with a penalty action, or as a separate demand without an associated penalty action. In either case, information must be present establishing a violation of section 592(a). In those cases where the appropriate Customs field officer determines that issuance of a penalty under section 592 is not warranted (notwithstanding the presence of information establishing a violation of section 592(a)), but that circumstances do warrant issuance of a demand for payment of an actual loss of duty pursuant to section 592(d), the Customs field officer shall follow the procedures set forth in section 162.79b of the Customs Regulations (19 CFR 162.79b). Except in cases where less than one year remains before the statute of limitations may be raised as a defense, information copies of all section 592(d) demands should be sent to all concerned sureties and the importer of record if such party is not an alleged violator. Also, except in cases where less than one year remains before the statute of limitations may be raised as a defense, Customs will endeavor to issue all section 592(d) demands to concerned sureties and non-violator importers of record only after default by principals. (K) Customs Brokers If a customs broker commits a section 592 violation and the violation involves fraud, or the broker commits a grossly negligent or negligent violation and shares in the benefits of the violation to an extent over and above customary brokerage fees, the customs broker will be subject to these guidelines. However, if the customs broker commits either a grossly negligent or negligent violation of section 592 (without sharing in the benefits of the violation as described above), the concerned Customs field officer may proceed against the customs broker pursuant to the remedies provided under 19 U.S.C. 1641. (L) Arriving Travelers (1) Liability. Except as set forth below, proposed and assessed penalties for violations by an arriving traveler must be determined in accordance with these guidelines. (2) Limitations on Liability on Non-commercial Violations. In the absence of a referral for criminal prosecution, monetary penalties assessed in the case of an alleged first-offense, non-commercial, fraudulent violation by an arriving traveler will generally be limited as follows: (a) Fraud--Duty Loss Violation. An amount ranging from a minimum of three times the loss of duty to a maximum of five times the loss of duty, provided the loss of duty is also paid; (b) Fraud--Non-duty Loss Violation. An amount ranging from a minimum of 30 percent of the dutiable value of the merchandise to a maximum of 50 percent of its dutiable value; (c) Gross Negligence--Duty Loss Violation. An amount ranging from a minimum of 1.5 times the loss of duty to a maximum of 2.5 times the loss of duty provided the loss of duty is also paid; (d) Gross Negligence--Non-duty Loss Violation. An amount ranging from a minimum of 15 percent of the dutiable value of the merchandise to a maximum of 25 percent of its dutiable value; (e) Negligence--Duty Loss Violation. An amount ranging from a minimum of .25 [[Page 304]] times the loss of duty to a maximum of 1.25 times the loss of duty provided that the loss of duty is also paid; (f) Negligence--Non-duty Loss Violation. An amount ranging from a minimum of 2.5 percent of the dutiable value of the merchandise to a maximum of 12.5 percent of its dutiable value; (g) Special Assessments/Dispositions. No penalty action under section 592 will be initiated against an arriving traveler if the violation is not fraudulent or commercial, the loss of duty is $100.00 or less, and there are no other concurrent or prior violations of section 592 or other statutes prohibiting false or fraudulent importation practices. However, all lawful duties, taxes and fees will be collected. Also, no penalty under section 592 will be initiated against an arriving traveler if the violation is not fraudulent or commercial, there are no other concurrent or prior violations of section 592, and a penalty is not believed necessary to deter future violations or to serve a law enforcement purpose. (M) Violations of Laws Administered by Other Federal Agencies. Violations of laws administered by other federal agencies (such as the Food and Drug Administration, Consumer Product Safety Commission, Office of Foreign Assets Control, Department of Agriculture, Fish and Wildlife Service) should be referred to the appropriate agency for its recommendation. Such recommendation, if promptly tendered, will be given due consideration, and may be followed provided the recommendation would not result in a disposition inconsistent with these guidelines. (N) Section 592 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 592 may be waived for businesses qualifying as small business entities. Procedures established for small business entities regarding violations of 19 U.S.C. 1592 were published as Treasury Decision 97-46 in the Federal Register (62 FR 30378) on June 3, 1997. [T.D. 00-41, 65 FR 39093, June 23, 2000] Appendix C to Part 171--Customs Regulations Guidelines for the Imposition and Mitigation of Penalties for Violations of 19 U.S.C. 1641 The Trade and Tariff Act of 1984 promulgated numerous changes to the current statute relating to Customs brokers. The following document attempts to define that conduct which is to be proscribed and to suggest penalty amounts to be assessed for such violations. It also chronicles procedures to be followed in assessment and mitigation of penalties. Note: Assessment of a monetary penalty is an alternative sanction to revocation or suspension of the broker's license or permit. I. Penalty Assessment Procedures--19 CFR Part 111, Subpart E A. When a penalty against a broker is contemplated, the ``appropriate Customs officer'', (i.e., the Fines, Penalties, and Forfeitures Officer) shall issue a written notice which advises the violator of the allegations which would warrant imposition of a penalty. The written notice shall be in a format similar to a prepenalty notice that would be issued in contemplation of assessment of a penalty under section 1592 or 1584. B. The written notice shall inform the violator that he has 30 days to respond as to why a penalty should not be issued. See 19 CFR 111.92. C. If no response is received from the violator, or, if after receipt of the response, it is determined that the penalty should be issued as stated in the prepenalty notice, a notice of penalty CF-5955A shall be issued formally assessing a monetary penalty against the broker. D. The Fines, Penalties, and Forfeitures Officer may reduce the amount of the contemplated penalty or cancel its issuance altogether if, after review of the violator's submission in response to the prepenalty notice, he is satisfied that the acts which are the basis for the penalty did not occur as charged or occurred in a manner that would permit a reduction in the contemplated penalty. E. After issuance of a penalty notice, the petitioning provisions of part 171 of the Customs Regulations are in effect. F. If the broker does not comply with a final mitigation decision within 60 days, the matter shall be referred to the Department of Justice for commencement of judicial action. II. Penalty Assessment--Conducting Customs Business Without a License (19 U.S.C. 1641(b)(6)) A. No person may conduct Customs business, other than solely on behalf of that person, without a broker's license. B. Penalty amount: 1. The maximum penalty for any one incident of conducting Customs business without a license is $10,000. 2. Total aggregate penalties for violation of this or any other section of the broker penalty statute is $30,000. As a general rule, $10,000 will be the maximum assessment for a [[Page 305]] violation solely involving conducting Customs business without a license, without regard to the frequency of violations. In particularly aggravated circumstances, this rule shall be suspended. C. Customs business includes: 1. Classification and valuation. 2. Payment of duties, taxes or other charges. 3. Drawback or refund of duties. 4. Filing of entries or other documents relating to issues covered by 1-3. D. Customs business does not include: 1. Marine transactions. 2. In-bond movement or transportation of merchandise. 3. Foreign Trade Zone admissions. See C.S.D. 84-23. E. Penalty amounts to be imposed for transacting Customs business without a license are as follows: 1. No penalty action when importation is conducted on behalf of a family member. For purposes of this subsection, ``family member'' is defined as a parent, child, spouse, sibling, grandparent or grandchild. 2. No penalty action against an individual who has a power of attorney to act as an unpaid agent on a non-commercial shipment. See 19 CFR 141.33. 3. A $250 penalty for: a. First violation when transaction is non-commercial but is conducted on behalf of any business entity, or b. First violation where the importation is commercial in nature (i.e., imported merchandise is for resale) or where the violator is compensated for his action, e.g., an importation of raw material or parts of merchandise that is to be manufactured, refined or assembled here before resale would be a commercial entry because the merchandise eventually would be resold, albeit in another form than that which it was entered. 4. A $1,000 penalty for repeat violation involving: a. Commercial importation. b. Non-commercial importation made on behalf of a business entity. c. Non-commercial importation for which compensation is received by the violator. 5. A $10,000 penalty when: a. Violator falsely holds himself out as being a licensed Customs broker. b. A continuing course of conduct can be shown (determined by frequency of violations or number of entries involved) which would indicate that the violator is entering merchandise for others on a regular commercial basis, e.g., if the violator has incurred numerous penalties under subsections (3) and (4) above, but the smaller penalties have had no deterrent effect, the $10,000 penalty under this subsection should be assessed in an action separate from those smaller penalties. F. Mitigation--No mitigation will be afforded for any violation involving conducting Customs business without a license unless the violator can show an inability to pay such penalty. G. IMPORTANT: As a general rule, a separate penalty should not be imposed for each unlawful Customs business transaction if numerous transactions occur contemporaneously. For example: 1. If an unlicensed individual files six commercial entries at one time, that should be treated as one violation. It should not be treated as six violations because the entries were presented contemporaneously. 2. If Customs discovers that an individual has conducted Customs business without a license on numerous occasions, but such individual acted without knowledge of the prohibition on such conduct, those numerous transactions should be treated as one violation for purposes of imposition of any penalty. H. Note: Conducting Customs business without a license is not the same violation as conducting Customs business without a permit. The latter violation is discussed later in this appendix in the section involving Violation of Other Laws or Regulations Enforced by Customs. I. Intent to violate the law is not an element of this violation. Reference to ``intentionally transacts Customs business'' in subsection 1641(b)(6) relates to the intentional transaction of the business itself, not to any intentional attempt to violate the terms of the statute. III. Section 1641(d)(1)(A)--Making a False or Misleading Statement or an Omission as to Material Fact Which Was Required To Be Stated in Any Application for a License or Permit A. If the license would not have been issued but for the false statement, the proper sanction would be suspension or revocation of the license. If the false or misleading statement would not have absolutely resulted in the denial, revocation or suspension of a license, then penalty sanctions are proper. B. Material facts include but are not limited to: 1. Facts as to identity. 2. Facts as to citizenship status of an individual. 3. Facts as to moral character of an individual which relate to his fitness to conduct Customs business. 4. The organization of any corporation, association or partnership. 5. The status of the license of a license holder who is a corporate officer or partner. C. Penalty Amount--$5,000 for each false statement, to a maximum of $30,000. D. Examples of situations where revocation of the license is appropriate. 1. An applicant states that he is 21 years old (as required by 19 CFR 111.11) and he is [[Page 306]] not. But for the false statement, the applicant could not meet the age requirement for a license. 2. An applicant provides an alias in the application which is a material false statement as to identity. E. Mitigation guidelines. 1. Violation due to clerical error (clerical error as defined by 19 U.S.C. 1520(c)(1)), mitigated without payment. 2. Violation due to negligence. a. This is defined as more than clerical error, but not an intentional violation. Examples include: i. Failing to list a new corporate office because corporate records have not been kept current. ii. Listing an incorrect address for a reference because applicant has failed to update his records. b. Mitigate to $500 for each $5,000 penalty assessed. c. This category excludes cases of harmless error, i.e., a mistake which could not possibly harm the government's interests. Cases falling in this category should be mitigated in full. 3. Intentional violations--Revocation of a license which has been granted is the preferred sanction. If no license has been granted, no mitigation. IV. Section 1641(d)(1)(B)--Broker Convicted of Certain Felonies or Misdemeanors Subsequent To Filing License Application A. As a general rule, license revocation is the standard sanction for these violations. If the conviction occurs subsequent to the filing of an application, monetary penalties may be assessed according to the following criteria. B. Unlawful conduct must relate to: 1. Importation or exportation of merchandise. 2. Conduct of Customs business (this shall include violations relating to taxes and duties and documents required to be filed with regard to such taxes and duties). 3. Relevant convictions would include: a. 18 U.S.C. 1001--making a false statement to Customs or any other agency with regard to any relevant transaction. b. 18 U.S.C. 545--unlawful importation of merchandise. c. 18 U.S.C. 542--unlawful importation by means of a fraudulent act or omission. d. 22 U.S.C. 2778--illegal exportation of munitions. C. Monetary penalties may not be imposed in connection with convictions relating to conduct described in subsection 1641(d)(1)(B)(iii) including larceny, theft, robbery, extortion, counterfeiting, fraudulent concealment or conversion, embezzlement or misappropriation of funds. Either suspension or revocation is the appropriate penalty for these infractions. D. Penalty amounts. 1. $15,000 for a misdemeanor conviction. 2. $30,000 for a felony conviction. E. Mitigation. 1. For a misdemeanor conviction, mitigation to a lesser amount is permitted if the conviction related to Customs business and the domestic value of the merchandise involved is less than $15,000. In such case, mitigation to an amount equal to the domestic value of the merchandise is appropriate. 2. For other misdemeanor convictions, no relief. 3. Felony convictions, no relief. V. Section 1641(d)(1)(C)--Violation of Any Law Enforced by the Customs Service or the Rules or Regulations Issued Under Any Such Provision A. Penalties under this section may be imposed in addition to any penalty provided for under the law enforced by Customs. Exception: Penalties imposed against a broker under 19 U.S.C. 1592 at a culpability level of less than fraud or under 19 U.S.C. 1595a(b) shall not be imposed in addition to a broker's penalty. B. Additional penalties under this section shall also be imposed against any broker where the other statute violated only moves against property, or the violator has demonstrated a continuing course of illegal conduct or evidence exists which indicates repeated violations of other statutes or regulations. C. Conducting Customs business without a permit penalties should be assessed under this section. 1. The penalty notice should also cite 19 CFR 111.19 as the regulation violated. A party operating without a permit is required to apply for one under the above-noted regulation. 2. Assessment amount--$1,000 per transaction conducted without a permit. 3. Mitigation. a. Negligence, mitigate to $250-$500 per transaction depending on the presence of mitigating factors (lack of knowledge of permit requirement). b. Intentional, grant no relief. c. No mitigation if permit revoked by operation of law. 4. Generally, a separate penalty should not be assessed for each non-permitted transaction if numerous transactions occurred contemporaneously. For example, if a broker files 30 entries the day after a permit expires, the 30 filings should be treated as one violation, not 30 separate violations. D. Penalties for failure to exercise due diligence in payment, refund or deposit of monies received from clients in connection with [[Page 307]] clients' Customs business also should be assessed under this section. This includes failure to pay over to a client, or file a written statement to a client accounting for, funds received. 1. The penalty notice should also cite 19 CFR 111.29 as the regulation violated. 2. Assessment amount--an amount equal to the value of any monies up to a maximum of $30,000, to be deposited with Customs or refunded or accounted for to a client. 3. No mitigation shall be afforded until the monies are properly paid to Customs or refunded or accounted for to the clients. 4. If any claims for liquidated damages result against the client's bond from the failure to pay monies to Customs, no mitigation from the penalty shall be granted until the claim for liquidated damages is settled by the violating broker either through payment of the full claim or a mitigated amount. 5. After monies are paid or accounted for and/or liquidated damages claims are settled as stated in 3. and 4. above, mitigation may be afforded. If the violator is found to be negligent, the penalty may be mitigated to an amount between 25 and 50 percent of the assessed amount, but no lower than $250. No mitigation from an intentional violation. E. Penalties for failure to retain powers of attorney from clients to act in their names. 1. The penalty notice should also cite 19 CFR 141.46 as the regulation violated. 2. Assessment amount--$1,000 for each power of attorney not on file. 3. Mitigation--for a first offense, mitigate to an amount between $250 and $500 unless extraordinary mitigating factors are present, in which case full mitigation should be afforded. An extraordinary mitigating factor would be a fire, theft or other destruction of records beyond broker control. Subsequent offenses--no mitigation unless extraordinary mitigating factors are present. 4. Penalty should be mitigated in full if it can be established that a valid power of attorney had been issued to the broker, but it was misplaced or destroyed through clerical error or mistake. F. If the other statute violated moves only against property, the violator shall incur a monetary penalty equal to the domestic value of such property or $30,000, whichever is less. e.g., Violation of 22 U.S.C. 401 for unlawful exportation of merchandise results in seizure and forfeiture of the violative merchandise. There are no penalty provisions which Customs enforces against parties responsible for the seizable offense. If brokers are recalcitrant and are constantly responsible for offenses which result in seizure of merchandise, a penalty equal to the domestic value of such merchandise (in no case to exceed $30,000) should be imposed. G. Use of a broker's importation bond to aid an importer who has had his immediate delivery privileges revoked. 1. The broker has aided his client in avoiding the immediate delivery sanctions. The penalty notice should cite 19 CFR 142.25(c) as the regulation violated. Before assessment of this penalty, the broker should be shown to have known or been negligent in not knowing of the client's sanction. 2. A penalty equal to the value of the merchandise, not to exceed $30,000, should be assessed. 3. Mitigation--The penalty shall be mitigated to an amount between 25 and 50 percent of that assessed for a first violation where negligence is shown. Any knowing violation or a subsequent negligent violation (not necessarily involving the same client) will result in no mitigation. H. If the other statute violated provides for a personal penalty, the violator shall incur an additional monetary penalty under this section equal to such personal penalty or $30,000, whichever is less. I. Penalties assessed under this provision are not limited to violations just involving Customs business as defined in the statute. J. Mitigation guidelines. 1. If the other law violated moves only against property, mitigate the penalty using guidelines in effect for the other statute violated. For example, if the broker is responsible for a 401 seizure of merchandise valued at $45,000, he incurs a penalty of $30,000. The guidelines for remission of the 401 forfeiture are applicable to mitigation of the broker penalty. Thus, if the forfeiture is remitted upon payment of 5 percent of the merchandise's value, the penalty will be mitigated upon payment of a like amount. 2. If the other law violated provides for a personal penalty, mitigate the broker penalty using guidelines in effect for the other statute violated. For example, a broker incurs a $40,000 penalty under 1592. The penalty amount represents eight times the loss of revenue because a preliminary finding of fraud is made (see section V.A. of this appendix). A penalty of $30,000, in addition to the $40,000 penalty issued under 1592, may be assessed. The 1592 penalty is later mitigated to $25,000, an amount equal to five times the loss of revenue, as the finding of fraud is upheld and it is also determined that the broker shared in the financial benefits of the violation. The broker penalty also should be mitigated to that $25,000 figure, for a total collection of $50,000. [[Page 308]] VI. Section 1641(d)(1)(D)--Counseling, Commanding, Inducing, Procuring or Knowingly Aiding and Abetting Violations by Any Other Person of Any Law Enforced by the Customs Service A. If the law violated by another moves only against property, a monetary penalty equal to the domestic value of such property or $30,000 whichever is less, may be imposed against the broker who counsels, commands or knowingly aids and abets such violation. B. If the law violated provides for only a personal penalty against the actual violator, a penalty may be imposed against the broker in an amount equal to that assessed against the violator, but in no case can the penalty exceed $30,000. C. If the broker is assessed a penalty under the statute violated by the other person, he may be assessed a penalty under this section in addition to any other penalties. D. Examples of violations of this subsection: 1. A broker counsels a client that certain gemstones are absolutely free of duty and need not be declared upon entry into the United States. The client arrives in the United States and fails to declare a quantity of gemstones worth $45,000. A penalty of $30,000 may be imposed against the broker for such counseling. The client would incur a personal penalty of $45,000 under the provisions of title 19, United States Code, section 1497, but the penalty against the broker cannot exceed $30,000. 2. A client imports $15,000 worth of merchandise by vessel. The merchandise is unladen at the wharf but Customs has not appraised or released it. Customs informs the broker that the shipment must be held for an intensive examination. The broker informs the client that the merchandise can be moved and delivered to the consignee. The broker assures his client that he will handle all the necessary paperwork. The merchandise is moved from the wharf. The broker is subject to a $15,000 penalty for counseling and inducing his client to violate the provisions of title 19, United States Code, section 1448 and title 19, United States Code, section 1595a(b). E. Mitigation--Follow guidelines applicable to the other penalty or forfeiture statute involved. VII. Section 1641(d)(1)(E)--Knowingly Employing or Continuing To Employ Any Person Who Has Been Convicted of a Felony, Without Written Approval of Such Employment From the Secretary of the Treasury A. A broker has 30 days to seek approval of the Secretary for such employment. If he seeks the approval within such time, no penalty will be assessed. B. A $5,000 penalty for knowingly employing any convicted felon and failing to make application with the Secretary approving such employment within 30 days of the date of discovery of the felony conviction. C. A $25,000 penalty for knowingly employing any convicted felon without seeking approval for employment. D. A $30,000 penalty for knowingly employing any convicted felon and continuing to employ same after approval has been denied (generally revocation or suspension of the license would be appropriate under this circumstance). E. Example: If a broker unknowingly employs a convicted felon and 1 year after employment discovers the existence of such a conviction, the following actions would dictate imposition of a penalty: 1. If he seeks approval of the Secretary within 30 days after discovery of the existence of the conviction, no penalty will be assessed. 2. If he seeks approval at some time after 30 days from the date of discovery, a $5,000 penalty would lie. 3. If he does not seek approval until after Customs becomes aware of the violation, a $25,000 penalty would lie. 4. If he seeks approval, but is denied, and continues to employ the convicted felon, a $30,000 penalty would lie. F. Customs discovery of a felony conviction. If Customs discovers the felony conviction and there is no indication that the employer is aware of same, Customs may inform the employer of such conviction. Discretion should be used in divulging this information. G. Mitigation will only be permitted from the $5,000 penalty as follows: 1. If the application for approval is submitted within 60 days, but after 30 days, mitigate to $2,000. 2. If there is no application beyond the 60-day period, no mitigation shall be granted. Continued employment will result in further penalties as described above in sections E.3 and E.4. VIII. Section 1641(d)(1)(F)--In the Course of Customs Business, With Intent To Defraud, Knowingly Deceiving, Misleading or Threatening Any Client or Prospective Client A. An unsubstantiated accusation by a client is inadequate basis to assess any penalty under this section of law. B. A $30,000 penalty should be imposed for any violation of this section. C. Mitigation--Inasmuch as evidence of intent must be shown before a penalty can be imposed, no mitigation should be permitted if a violation is found to lie. A petition for mitigation could be entertained only on the issue of whether such violation did, in fact, occur. [[Page 309]] IX. Section 1641(b)(5)--The Failure of a Customs Broker That is Licensed as a Corporation, Association or Partnership To Have, For Any Continuous Period of 120 Days, at Least One Officer of the Corporation or Association or One Member of the Partnership Validly Licensed A. Important: Violation of this section results in the revocation of the broker's license by operation of law. B. A $10,000 penalty may be imposed pursuant to section 1641(b)(6) because the revocation by operation of law results in the broker conducting Customs business without a license. No penalty liability would be incurred specifically under section 1641(b)(5). C. Mitigation--Grant no mitigation from any penalty incurred by a broker for conducting Customs business without a license as a result of revocation of that license by operation of law. X. Section 1641(c)(3)--Failure of a Customs Broker Granted a Permit To Conduct Business in a Certain District to Employ, for a Continuous Period of 180 Days, at Least One Individual Who is Licensed Within the District or Region A. Important: Violation of this section results in the revocation of a permit by operation of law. B. Penalties may be imposed for violation of the provisions of 1641(d)(1)(C), violation of other laws enforced by Customs. Guidelines for imposition of penalties for conducting Customs business without a permit should be followed. C. Mitigation--No mitigation should be permitted from any penalty imposed for failure to have a permit when the permit lapses by operation of law. XI. Section 1641(b)(4)--Failure of a Licensed Broker To Exercise Responsible Supervision and Control Over the Customs Business That it Conducts A. Standards of responsible supervision and control shall be issued by the Commissioner of Customs. Statutory authority to set such standards is provided by section 1641(f). Note: All penalties assessed for violation of 1641(b)(4) shall also cite section 1641(d)(1)(C) as the statute violated in all notices issued to the alleged violator. B. The following penalty amounts shall be assessed against brokers who fail to exercise responsible supervision and control over business conducted at district level. 1. A penalty of $1,000 against any broker who: a. Continuously makes the same errors on a particular type of entry; b. Fails to properly instruct employees about Customs business, thereby resulting in the filing of incorrect entries or the mishandling of transactions relating to Customs business; c. Knowingly allows his entry bond to be used to effect release of merchandise in districts where he does not have a license or permit (this is imposed in addition to any penalty for conducting Customs business without a license); d. Fails to comply with regulations or procedures but does not commit violations that would warrant any higher penalty amount as described below. 2. A penalty of $5,000 against any broker who, when requested, is unable to produce documents relating to specific Customs business which are material to that business (e.g., if the business regards an entry he should have the invoice, packing list, etc.). This requirement excludes documents not required to be kept by a broker. 3. A penalty of $5,000 against any broker who is unable to satisfy the deciding Customs official that he has a working knowledge of any operation material to his ability to render valuable service to others in the conduct of Customs business. Examples include: a. A working knowledge of all automated systems in use in the district; b. A knowledge of the cash flow procedures in each district of operation; c. Retention of copies of all surety bonds in proper form and in sufficient dollar amount; d. Knowledge of filing systems and document record storage in each district; e. Continuous monitoring to ensure timely payment of all obligations including duties, taxes and refunds. 4. A penalty of $5,000 against any broker who fails to exercise responsible supervision and control over the Customs business that it conducts as defined in section XI.C. of this appendix. 5. A penalty of $10,000 against any broker who is found to have failed to maintain satisfactory accounting records or records of documents filed with Customs on any matter. C. The following factors shall be indicative of a lack of supervision or lack of working knowledge of Customs procedures (the list is not conclusive): 1. A high rate of entry rejections when compared with other brokers in the permitted district. 2. A high rate of late filing liquidated damages cases when compared with other brokers in the permitted district. 3. In the case of entry summaries filed in the broker's name, a high number of missing document cases when compared with other brokers in the permitted district. [[Page 310]] 4. An inordinate number of entries for which free entry is claimed, but no documentation supporting such claim is submitted, resulting in liquidation of the entries as dutiable. 5. Inability to assist or failure to cooperate with an audit, including failure to provide all records and any other necessary information pertaining to a broker's Customs business to assist auditors. 6. Failure to settle (including petitioning) liquidated damages claims in a timely manner. 7. Evidence to indicate that timely duty refunds to clients are not made or accounted for and adequate records of same are not kept (usually will result in penalty assessed in accordance with section B.5. above). 8. Employing a licensed individual for a minimal number of days each 120- or 180-day period (see sections 1641(b)(5) and 1641(c)(3) so as to avoid violation of the statute. a. For purposes of imposition of penalties under this subsection, a minimal number of days shall be 10 working days for each 120-day period or 15 working days for each 180-day period. b. It shall be presumed that temporary employment of such a licensed individual is undertaken solely to avoid revocation of a license or permit. Such minimal employment shall be prima facie evidence of lack of supervision. D. Mitigation. 1. $1,000 penalties shall not be mitigated unless the broker can show that extraordinary mitigating factors are present. 2. $5,000 penalties for failure to produce documents may be mitigated to an amount between $2,000 and $3,500 if the documents are produced but not in a timely fashion. No mitigation shall be afforded if the documents are not produced, unless the broker can satisfactorily demonstrate that such failure to produce was caused by circumstances beyond the control of the broker or his client (e.g., a rupture of relations with the party responsible for generating the documents). Full mitigation shall be afforded in the case of destruction of records by events beyond a broker's control, such as theft, flood, fire or other acts of God. 3. $5,000 penalty for failure to have a working knowledge of any operation for which a broker is licensed to do business may be mitigated to a lesser amount upon a showing by the broker that steps have been taken to improve instruction and supervision of employees and an improvement in the knowledge of his operation occurs. 4. $5,000 penalty for failure to exercise responsible supervision and control may be mitigated to a lesser amount if the broker immediately corrects the problem which was the basis for the assessment and sufficiently monitors the situation to avoid recurrence. 5. $10,000 penalty for failure to maintain satisfactory accounting records will only be subject to mitigation in full if the broker can prove that satisfactory accounting records and documents records are being kept. Mitigation in a lesser degree may be afforded upon a showing by the broker that a bona fide attempt was made to establish a satisfactory accounting and/or recordkeeping system, or upgrade a deficient system, but such efforts proved unsuccessful or only partially effective. 6. Penalty equal to the value of monies not properly paid or accounted for. a. If the broker shows that the monies were paid or accounted for and requisite notifications were made, albeit in an untimely fashion not to exceed 30 days after any due date, the penalty may be mitigated upon payment of 25 percent of the assessed amount, but no less than $250. b. If the monies were paid and notifications made more than 30 days after any due date, the penalty may be mitigated upon payment of 50 percent of the assessed amount, but not less than $1,000. c. If there is no proof of proper payment of duties, refunds, etc., no mitigation shall be granted. XII. Limits of Penalty Assessments A. A broker shall be penalized a maximum of $30,000 for any violation or violations of the statute in any one penalty notice. B. If a broker is penalized to the maximum the statue will allow and continues to commit the same violation or violations, revocation or suspension of his license would be the appropriate sanction. Barring such revocation or suspension action, he may again be penalized to the maximum the statute will allow. C. From any one audit, the maximum aggregate penalty for all violations discovered is $30,000. XIII. Consolidation of Cases Whenever multiple penalties arising from a particular fact situation or pattern are contemplated against brokers or individuals operating in different districts, the cases may be consolidated in one district. Approval for consolidation must be sought from the Brokers Compliance Branch, Office of Trade Compliance at Headquarters. [T.D. 90-20, 55 FR 10056, Mar. 19, 1990, as amended by T.D. 97-82, 62 FR 51771, Oct. 3, 1997; T.D. 99-27, 64 FR 13676, Mar. 22, 1999; T.D. 00-57, 65 FR 53578, Sept. 5, 2000; 65 FR 65770, Nov. 2, 2000] [[Page 311]] 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 Sec. 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. [[Page 312]] (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 [[Page 313]] 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 [[Page 314]] 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 Sec. 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] [[Page 315]]