CBP Field Instructions On Form 28 And Form 29 Notice Of A Formal Investigation Of A Section 1592 Violation

June 3, 2011

Pending before Customs Headquarters is a request for clarification as to whether an import specialist can foreclose a prior disclosure of a violation of 19 U.S.C. 1592 by issuing a Form 28 Request for Information or a Form 29 Notice of Action. 

Our evaluation is that a response to Form 28 request which may establish an incorrect classification, valuation, or other violation is now more likely to result in the issuance of a Section 1592 penalty and preclude the filing of a valid prior disclosure.

By way of background, under 19 U.S.C. 1484, importers, through their Customhouse brokers acting as an agent, are required to exercise reasonable care in filing documents for CBP to verify the admissibility of merchandise and to declare the correct classification, value, and compliance with all other laws and regulations. Section 1592 provides that a party files a “false” entry when the required information is incorrect and enables CBP to collect past duties and civil penalties for shipments over the past five years.  The filing of a valid prior disclosure before the initiation by CBP of an investigation of the violation will preclude the assessment of these penalties.

CBP Headquarters Guidance to the Field

On May 24, 2011 the Executive Director, Trade, Policy & Programs Office of International Trade, issued guidance to the ports regarding the appropriateness of using a Form 28 or Form 29 to notify an importer of a pending investigation.  CBP stated the goal is to act uniformly in providing legal notification to the appropriate party when proposed or taking actions.  (Click to view of copy of the memorandum.)

A Form 28 is issued where there is insufficient information on the entry summary package to determine admissibility, the appraised value, or the correct classification of the merchandise.  Brochures, descriptive literature, blueprint samples, proof of payment and affidavits may be requested.

The CBP field offices are to limit the use of the Form 28 for these purposes and not to extend its use to advise an importer that a formal investigation has been commenced.

As a matter of enforcement policy the preferred mechanism is to inform the importer of the commencement of an investigation by correspondence on CBP letterhead or on the Form 29.

The Form 29.5, provided for in 19 C.F.R. 152.2, is used where the value of the merchandise is low or the import quantity exceeds that of the entered quantity and the estimated aggregate increase in duties exceeds $15.  CBP will notify the importer of the specific nature of the differences.

If a rate advance is the proposed action, the importer is afforded 20 days from the date of CBP mailing the Form 29 to furnish specific reasons why the rate advance should not be issued.

Finally, the ports are to avoid using language on these forms such as “failure to provide information could lead to penalties under 19 U.S.C. 1592” or “this office is investigating the classification of, if in fact an investigation is not already in progress.”  Such language defeats the goal of informed compliance and may dissuade importers from filing valid prior disclosures.

Comments of Alan Cohen in the CBP Penalties Branch

As a separate matter, Alan Cohen, an attorney with substantial experience in the CBP Penalties Branch over the past years, provided to the trade a memorandum which reviews the legal basis for an import specialist or other Customs officer to initiate notice of a 1592 investigation of an importer. (Click to view the memorandum.)  The following comments are summarized from Mr. Cohen’s memorandum.

When the prior disclosure law was enacted in 1978, investigations were initiated by the Office of Investigations.  Under the Customs Modernization Act of 1993, an amendment was added to 19 U.S.C. 1592(c)(4) providing that a formal investigation of a violation was commenced on the date when CBP recorded in writing the date “on which facts and circumstances were discovered or information received which caused the Customs service to believe the possibility of a violation of subsection (a) of this section existed”.

The House Ways & Means Committee report to this amendment provided further clarifying comments to the effect that there should be an objective standard or evidence within Customs by which to measure when a formal investigation has considered to be commenced.  Further, a copy of the written document or electronic document should be enclosed when a Prepenalty Notice is issued under Section 592(b)(1).  The substance of the Ways & Means report was incorporated into the current section 19 C.F.R. 162.74(g) which provides for a presumption that the parties had notice of a formal investigation where "if before the claimed prior disclosure of the violation exists and Customs with reasonable cause to believe there has been a violation so informs the person of the type of, or circumstances of, the disclosed violation.”

Finally, Mr. Cohen stated that CBP should ask the following questions in analyzing a prior disclosure:

  1. Did the party fully and accurately disclose the circumstances of the violation and tender the full actual loss of duties caused by the violation?
  2. Had CBP or ICE commenced a formal investigation prior to the claimed disclosure?
  3. Did the party have knowledge that CBP or ICE had commenced a formal investigation of the particular violation?

Mr. Cohn concludes that whether a particular prior disclosure is valid or not valid because CBP commenced a formal investigation and if the disclosing party has knowledge of this fact will be determined on a case-by-case basis.

Importers Must Carefully Review Form 28 Responses

Responses to Form 28s should be carefully reviewed for completeness and accuracy, taking into account all of the facts surrounding the issue on which information is requested.  Specifically, it is recommended that parties responding to Form 28s:

  1. Determine whether there are any facts that might indicate that an incorrect (“false”) entry was filed, such as a misclassification or omission from the entered value, an incorrect price paid or the existence of an assist.  Answers to these questions may require significant investigation and analysis of whether other classifications are applicable to the product.
  2. Accurately evaluate all of the facts to ensure that a full and accurate disclosure of the circumstances of the violation is set forth in the prior disclosure.  Should these facts not be properly identified, CBP may disallow the prior disclosure.
  3. Evaluate whether the company has exercised reasonable care in declaring the value, classification, admissibility, and compliance with the Customs regulations and laws in filing its entries.  Even if the prior disclosure is disallowed, reasonable care is a defense against a violation of section 1592 for the filing of false entries.
  4. Evaluate whether there are any other potential violations which may be investigated as a result of the response, even if not elicited in the questions asked by CBP.

Establishing Reasonable Care

Exercising reasonable care is a defense against a Section 1592 civil penalty and precludes the assessment of past duties on liquidated entries and past penalties.  CBP’s position is that an importer exercises reasonable care by seeking advice from a customs expert, such as a licensed Customhouse broker, a Customs attorney, or other qualified person.  The company should be able to demonstrate that the advice of this Customs expert was requested on this issue by the importer, provided by the expert to the importer, and the company relied upon this advice in filing the customs entries.  We recommend that companies undertake a review of their compliance procedures to avoid being confronted with these issues. 

If you have questions about these or other Customs matters, please contact us at info@tuttlelaw.com or (415) 986-8780.

The information in this article is general in nature, and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

Copyright © 2011 by Tuttle Law Offices. 

All rights reserved.  Information has been obtained from sources believed to be reliable.  However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.

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