persons for contempt of court. It ties the hand of the Court and requires imposition of a most serious penalty without regard to the nature or extent of the "adjudicated" contempt.

Section 107 of H.R. 8149 should be revised as follows: (1) Section 510(a) should be amended to conclude with the following clause:

"as a contempt thereof and, where the Court finds it appropriate, by prohibiting such person from importing merchandise into the United States directly or indirectly or for his account."

(2) Section 510(b) should be deleted.

REVISION OF CUSTOMS PENALTY STATUTE (SECTION 592)

The proposed amendments to Section 592 represent a highly commendable effort to alleviate the obvious and well-publicized problems under the existing law. We are pleased that the proposed bill attacks the four special problems which have existed under Section 592:

(1) The initial penalty notice would reasonably reflect the alleged culpability of the violators and the alleged loss of revenue, rather than arbitrarily demand payment of the astronomically high amounts which often constitute the "forfeiture value" of the merchandise.

(2) The alleged violator would be permitted an opportunity to seek meaningful judicial review of the Customs Service decision in the Federal District Court.

(3) The Statute of Limitations would require the government to commence an action within five years of the act or omission (rather than from discovery of the act or omission) where the violation was not the result of intentional or fraudulent conduct.

(4) The provision on Clerical Errors (Section 592 (f) of H.R. 8149) has long been needed. Far too often, the Customs Service has penalized obvious clerical errors which were easily correctable in the routine classification process. Such actions by the Customs Service violate federal law as established under a variety of international treaties. For example, the Treaty of Friendship, Commerce and Navigation entered into between the U.S. and Japan on April 2, 1953, provides as follows:

"Penalties imposed for infractions of the customs and shipping laws and regulations concerning documentation shall, in cases resulting from clerical errors or when good faith can be demonstrated, be no greater than necessary to serve merely as a warning."

Similarly, the Treaty of Friendship, Commerce, and Navigation entered into between the U.S. and the Federal Republic of Germany on October 29, 1954, provides as follows:

"Penalties imposed for infractions of the customs and shipping laws and regulations concerning documentation shall be merely nominal in cases resulting from clerical errors or when good faith can be demonstrated."

Nonetheless, there are several aspects of the proposed bill which we believe require revision.

(1) H.R. 8149 provides in Section 592 (h) (1) (D) that the government has the burden of proof in court to establish its case against the fraudulent or grossly negligent violator, but that the government determination of a penalty is presumptively correct in cases of negligence. We are at a complete loss to understand why a court of law should presume that any penalty demand is presumptively correct. If the government believes it has evidence warranting assessment of a penalty, it should be required to present that evidence in a court of law. The initial burden should not rest upon the person accused of the violation. We recommend that 592 (h) (1) (D) be deleted and 592 (h)(1)(C) be amended to apply to penalties "based on negligence or gross negligence".

(2) Section 114 of H.R. 8149, amending the statute of limitations should be deleted. The statute is properly and successfully amended by Section 112(d) which provides for a five-year period from commission of the alleged violation in cases based on negligence or gross negligence.

In the event that the Subcommittee retains Section 114, we recommend that it be amended to substitute "fraudulent" for "intentional" in the phrase "intentional act or omission". "Intentional" acts or omissions may include negligent conduct which should have been discovered by the Customs Service, or could

have been discovered, during the routine liquidation process. It is this type of violation which should be subject to a five-year limitation running from the date of violation rather than from the date of discovery.

(3) H.R. 8149 provides that the amendments to Section 592 will not become effective until the 90th day following the date of enactment. We understand the rationale for not applying new pre-penalty procedures or substantive provisions in penalty proceedings already commenced. However, we do not understand why there should be any delay in permitting persons assessed with penalties to have immediate access to the Federal District Courts under the liberalized provisions for judicial review. We strongly recommend that the provisions of Section 592 (h) as amended by H.R. 8149, Section 112(a), should be made immediately effective upon enactment of the Statute with respect to all 592 proceedings pending on that date.

(4) The Prior Disclosure provision (Section 592 (g) of H.R. 8149) departs in two significant ways from the established policy of the Customs Service to encourage importers to voluntarily disclose violations. The bill should be amended to fully reflect the current practice because the omission of any existing practice may invite the conclusion that Congress has rejected that practice.

First, H.R. 8149 provides that "the person asserting lack of knowledge of the commencement of a formal investigation has the burden of proof in establishing such lack of knowledge". The proposed provision represents a step backward from the current policy of the Customs Service to treat as "voluntary" any disclosure made prior to the commencement of a formal investigation. Section 171.1 (a) of the Customs Regulations (T.D. 75-234, of September 24, 1975). This so-called "objective test" strongly and successfully serves the policy of encouraging disclosures by providing a basis for importers to ascertain with certainty that a disclosure will be treated as voluntary.

The language in H.R. 8149 is appropriate for situations in which the formal investigation has actually commenced prior to the disclosure. In fact, the proposed legislation closely adheres to the existing policy of the Customs Service in such situations, as stated in a letter of January 8, 1976 from Commissioner of Customs Acree to Executive Vice President Gerald O'Brien of the American Importers Association (reference ENF4-02.2 R: E: P; 605650 R) :

"If, in a given case, the evidence establishes that the disclosure was truly voluntary; that is, not prompted by a previously-initiated investigation, we will continue to confer the benefit of limited liability. However, the claimant will have to establish that it was not prompted by the investigation with clear and convincing evidence."

Second, the proposed legislation omits reference to the current Customs policy on "undisclosed violations" discovered during the course of an investigation following the disclosure.

The current policy of the Customs Service is set forth in Section 171.1(a) (2) of the Customs Regulations, which provides as follows:

"Detection of undisclosed violations resulting from a voluntary disclosure. Un'disclosed violations discovered by Customs as the result of the investigation of a voluntary disclosure and tender will be treated in the same manner as set forth above unless it is determined that such other violations were intentional when committed."

We recommend that this regulation be incorporated into the Statute verbatim.

REVISION OF VESSEL PENALTY STATUTES

Section 111 of H.R. 8149 would extend the liability for false or non-manifested goods under Section 584 of the Tariff Act to any person responsible for such false statements or omissions. Presently, it is only the master of such vessel (or the owner of the vessel or person in charge of the vehicle) who is liable for such violations.

We have no objection to an amendment which reasonably extends liability to persons other than the masters of the vessels. However, we strongly object to overly broad language extending the severe penalties of Section 584 to those who have only the vaguest and most tangential relation to the violation.

The proposed amendment would extend the penalties to "any person directly or indirectly responsible" for any discrepancy; for heroin, morphine, cocaine, et al.; or for smoking opium, opium prepared for smoking or

marijuana. We recommend that the proposed language be revised to merely refer to "any other person responsible for ***.”

Section 208 of H.R. 8149 would extend the seizure and forfeiture provisions under Section 466 (a) of the Tariff Act of 1930 to cover situations in which the violations of the reporting requirement arose out of ordinary negligence, and it would create an alternative penalty of a "monetary amount up to the "value" of the vessel. The present law provides for seizure and forfeiture as the sole penalties and limits thes sanctions to situations in which the violator "willfully and knowingly neglect[ed] or failed to report, make entry and pay duties ***"

We object to Section 208 because it fails to incorporate any of the enlightened penalty provisions which H.R. 8149 adopts in Section 112 with respect to penalties under Section 592. The proposed amendment to Section 466 (a) represents a step backward into the age of overly broad discretionary penalty authority which brought Section 592 into such notoriety and disrepute. We urge that these problems be eliminated from Section 466 (a) by adopting a penalty scheme parallel to that proposed for Section 592 in Section 112 of H.R. 8149.

NEW STATUTE OF LIMITATIONS ON LIQUIDATIONS

We are gratified that Congress, and apparently the Department of Treasury, favor creation of a Statute of Limitations on the liquidation of entries. The absence of a statutory period has placed an enormously unreasonable burden on importers who often must remain uncertain of the extent of their duty liabilities to the U.S. government for unconscionably long periods of time. In the past, it has been far too common to find importations unliquidated for as long as ten years after the date of entry.

The proposed amendment sets reasonable time limits for action by the government. The proposal would make the burden of importers reasonable, and would permit the government sufficient time to complete its decision-making process. However, as presently drafted, the armendment would seriously impair a fundamental right of importers: the right to protest the liquidation of an entry. If adopted, the law would require importers to file a protest within 90 days after the passage of one or four years from the date of entry. Failure to file a protest during that period would make the liquidation become final by operation of law. The amendment imposes no obligation upon the government to notify the importer that this important right will soon expire. Importers should not be required to develop and maintain their own information systems to track the status of all entries which the government might not liquidate during the statutory period. The government should have an affirmative statutory obligation to give actual notice that the period for filing a protest has, or is about to

commence.

There should be no mistake made about the significance of this issue. The 'fact that the Statute provides that the estimated duties will automatically become the liquidated duties, by operation of law, does not protect the right of an importer to dispute Customs decisions. The Customs Service often instructs importers that it will not accept entries unless the merchandise is entered at values or rates which the importer believes are too high. but the importer may be powerless to contest the Customs Service decision until an entry is liquidated. On the other hand, an importer may learn of an issue of fact or law which could result in a reduction of dutiable value, or a change in tariff classification, after filing the entry and before the liquidation of the entry. The importer's right to protest such decisions would be seriously prejudiced if the importer is not provided with actual notice of "automatic" liquidation and a ninety-day period thereafter in which to file a protest.

NEW PUBLICATION REQUIREMENTS

H.R. 8149 contains two very new and ambitious provisions designed to provide the public with information concerning important decisions by the Customs Service and challenges to those decisions. Section 109 of the bill requires publication in the Federal Register of notice of all protests filed by importers and all petitions filed by domestic manufacturers, producers and wholesalers. It also requires publication of notice for all suspensions of liquidation authorized by Customs officers throughout the country. Section 115 provides for publi

cation in the weekly Customs Bulletins of all rulings issued by the Customs Service. Publication must take place within 120 days after issuance of such rulings.

We applaud the purpose of these provisions. Far too often, Customs officials made decisions which, upon inquiry, are justified solely on the ground of unpublished rulings, not shown to the importer or broker and lost somewhere in the labyrinthian Headquarters offices at the Customs Service in Washington, D.C. Far too often, importers permit liquidations of entries to become final only to learn that similar merchandise was the subject of protests or litigation arising out of other ports of entry. The right to seek a refund of duty on that merchandise may be forever extinguished for lack of information concerning issues being pursued at other ports. These problems are very real and a legislative effort to solve them is needed and welcome.

However, we have serious reservations about the practicality of the publication provisions as contained in H.R. 8149. A huge volume of protests are filed at our nation's ports and orders suspending liquidation are incredibly commonplace. It would impose an enormous burden on the government to publish notice of each of these events in the Federal Register.

The proposed requirement for publication of all rulings (Section 115 of H.R. 8149) does not take into account two substantial problems:

(1) There is no need to publish the text of all rulings. Many rulings issued by the Customs Service do not contain information which is of use to other importers.

(2) The mandatory language of Section 115 should be amended to provide the authority of the Customs Service to delete confidential and privileged information included in any ruling. The proposed language of that provision would impose upon the government a mandatory obligation to publish the complete text of a ruling without regard to the overriding provisions of the Privacy Act, exemptions under the Freedom of Information Act or the privileged status of business information submitted on a confidential basis (except for the identity of the concerned persons.)

Furthermore, with respect to rulings, we suggest that it would be more practical to require the Customs Service to publish abstracts describing the nature of the rulings issued from Customs Service Headquarters. This limited requirement would avoid the needless publication of lengthy rulings which concern no one but the recipient of that ruling, and would reduce the potential for publication of confidential or privileged information.

INFORMAL ENTRIES

Section 211 of H.R. 8149 would raise the value permitted for informal entries from $250 to $600. The proposed amendment would make no distinction whatsoever between commercial and non-commercial importations.

We urge this Subcommittee to reconsider the text of this amendment. We believe that a $600 limitation may be appropriate for non-commercial importations, but not for commercial importations. The purpose of the informal entry provision is to permit individuals shipping gifts or commercially insignificant merchandise into the United States to make entry without unnecessary and burdensome formal documents. We certainly have no objection to an amendment which preserves those purposes, but increases the value limitation so as to take into account the changing commercial realities.

However, an amendment permitting commercial importations valued up to $600 would radically change the purpose and effect of the informal entry provision. Informal entires could be routinely used by commercial enterprises to bring goods into the country in commercial quantities without formal examination or accurate reporting of statistical data compiled by the Department of Commerce. The substantial disadvantages far outweigh any benefits which might be sought by raising the limit for informal entries to $600 on commercial importations.

Thank you Mr. Chairman for the opportunity to appear today.
Respectfully submitted,

THOMAS C. JAMES,
A. A. TORO,

GILBERT LEE SANDLER,

Of Counsel.

THOMAS G. TRAVIS,

Of Counsel.

Mr. JONES. Thank you, sir.

Who is next?

Mr. SANDLER. Mr. James has completed the prepared oral statement for the Southern Brokerage Associations. Mr. Travis and I are accompanying him today. We are prepared to answer any questions which the committee members or the staff might have.

Mr. JONES. Are there other statements?

Mr. SANDLER. No.

Mr. JONES. All right. Does counsel have any questions-either counsel?

I regret that I did miss part of it.
All right. Thank you all very much.
Mr. JAMES. Thank you.

Mr. JONES. Our next witness is from the Roanoke Agency, Mr. Bruce Wilson, president, Mr. William Gustafson, miscellaneous bond manager, St. Paul Fire & Marine Insurance Co.

I hope you all won't think you are getting short shrift, because that is not the intention, because we have met with all of you and I think we have an agreement.

What we would hope you would do is focus on the legislation. I hope you appreciate the time constraints on us.

STATEMENT OF BRUCE A. WILSON, PRESIDENT, ROANOKE AGENCY, INC., ACCOMPANIED BY WILLIAM GUSTAFSON, MISCELLANEOUS BOND MANAGER, ST. PAUL FIRE & MARINE INSURANCE CO.

Mr. WILSON. We will not exceed 3 minutes, Mr. Chairman. Mr. GUSTAFSON. I would like to make a few remarks. I am William Gustafson, and I am with St. Paul Fire & Marine Insurance, in the home office, as a miscellaneous surety bond manager. This area includes customs surety bonds as required by the Tariff Act.

Since Mr. Wilson and his organization provide us with about 99 percent of our total premium volume, and also handle all of our claims in this area, I am here to support the testimony which he is about to give. I would also like to thank the committee members and staff for the work they have done on this bill.

Thank you.

Mr. JONES. Thank you very much.

Mr. WILSON. We have submitted written testimony. I think this is probably the first time a surety bond representative has ever presented themselves with oral testimony, regarding the surety's position in protecting the revenue for customs transactions.

We transact daily business with about 800 customs brokers in the United States, from 6 offices around the country, and in virtually every port of entry in the customs territory of the United States. Probably the only other organization that is directly involved with more customs transactions than our organization is the U.S. Customs Service itself.

We are very pleased with the bill as it is, but we think there are small areas of perfectability. I would like to comment on a couple of clauses.

Under section 104, we believe, and it is in our written testimonythe clause says payment is not to exceed 30 days from the time of