these differences in more detail, and I shall be happy to focus on them more thoroughly during your questioning period. However, we are confident that this legislation, with some adjustments, will give customs the necessary flexibility to respond to future changes. Mr. JONES. Thank you, Ms. Anderson.

Mr. Chasen!

STATEMENT OF HON. ROBERT E. CHASEN

Mr. CHASEN. Thank you, Mr. Chairman.

I am Robert E. Chasen, the new Commissioner of Customs. I appreciate the opportunity to appear before this committee on a matter of such fundamental importance to the Customs Service. As requested by the committee, I am summarizing my testimony. I ask that my full statement be included in the record.

It is readily apparent even to a newcomer to the Customs Service that customs procedural reform and customs simplification are long overdue. The hearings held by this committee last August on H.R. 9220, the Customs Modernization and Simplification Act, marked the start of an intensive effort to identify the needs and concerns of all persons affected by customs procedures.

We appreciate the effort expended by this committee, particularly by Chairman Vanik, Congressman James R. Jones, the chairman of the task force on customs administration, Congressman Frenzel, and the task force staff in familiarizing themselves with the intricacies of customs operations and administration in a very short period of time. We sincerely believe that the customs procedural reform legislation you are considering now reflects the interests of both the Government and the importing community and will provide the authority for improving Customs Service procedures while insuring that the rights of importers are protected, and that complete and accurate import statistics are collected.

Much of the testimony received at last year's hearings was devoted to section 592 problems. The bills under consideration today contain proposed amendments to section 592 which would provide the necessary relief.

The administration-sponsored bill retains the substance of the existing provision which has gained clarity through long continued use and interpretation.

However, we are prepared to work with this committee to arrive at a section 592 which is both equitable and retains the needed deterrent effect.

The versions of the Customs Procedural Reform Act under consideration by the committee are very similar. However, each contains a number of provisions which are not found in the other.

H.R. 8149. omits three provisions that are a part of H.R. 8367 and which we consider vital to the goals sought to be achieved by the proposed legislation.

The first of these is section 212 of H.R. 8367 which would amend section 499 of the Tariff Act of 1930 to eliminate the requirement that at least one package of every invoice and 1 package out of every 10 be physically inspected. We cannot overemphasize how archaic this requirement is nor can we overstate how fundamental it is opposed to the entire concept of customs modernization.

The key to this concept is the idea of selectivity in the inspection pocess. Many importations are repetitive and customs personnel need not inspect the requisite number of packages to insure compliance with customs laws and regulations.

Oftentimes, a known importer purchases from a known exporter and if any inspection at all is necessary, a random sampling will suffice. If relieved of the present burdensome statutory requirement, inspectors, and import specialists can utilize their time more selectively in more productive areas.

We strongly urge, therefore, that this provision be adopted as part of a bill that is ultimately reported out of this committee.

The second provision of H.R. 8367, not included in H.R. 8149, which we feel is essential to effective enforcement of the customs laws, is section 215 which would add a new section 593 to the Tariff Act of 1930 to provide a general civil sanction of forfeiture for importations into the United States or the Virgin Islands contrary to law.

Finally, the most significant omission from H.R. 8149 is section 221 of H.R. 8367 which would add a new section 489 to the Tariff Act resulting in additional arrest authority for the customs officers. The additional authority would provide customs officers with authority similar to that already granted to IRS and Secret Service agents. This amendment is necessary to raise the arrest authority to a level more in keeping with the scope of the functions performed by customs officers on a day-to-day basis. The range of tasks assigned to the officers frequently lead them into situations where they witness violations for which their present arrest authority is inadequate. Access to data from the National Crime Information Center at border stations brings inspectors into frequent contact with known violators they are helpless to apprehend unless other law enforcement officers happen to be nearby. In remote border areas and late at night such law enforcement officers may be unavailable.

Finally, in a recent district court case, an arrest made by customs officers under the Munitions Control Act-22 U.S.C. 1934-was held to be illegal because the officers lacked authority to make the arrest. These three provisions, sections 212, 215, and 221 of H.R. 8367, are as vital to customs reform as any of the other provisions presently before you. Each permits more effective and efficient resource utilization and enforcement of the Federal laws. We feel confident that the customs procedural reform legislation before you will permit the Customs Service to keep pace with international commerce and business procedures in a technological age and allow for the processing of ever-increasing numbers of carriers, cargo and passengers without an undue expansion of customs work force.

Mr. Chairman, this is my first day on the job and if there are any questions, Bob Dickerson and other people here will be happy to try to answer your questions.

[The prepared statement and attachments follow:]

PREPARED STATEMENT OF ROBERT E. CHASEN, COMMISSIONER OF CUSTOMS

I am Robert E. Chasen, Commissioner of Customs. I appreciate the opportunity to appear before this Committee on a matter of such fundamental importance to the Customs Service. It is readily apparent, even to a newcomer to the Customs Service, that Customs procedural reform and Customs simplification are long overdue.

The hearings held by this Committee last August on H.R. 9220, the Customs Modernization and Simplification Act, marked the start of an intensive effort to identify the needs and concerns of all persons affected by Customs procedures. Everybody interested in this legislation has labored hard and long since the August hearings. We appreciate the effort expended by this Committee, and particularly by Chairman Vanik, Congressman James R. Jones, the Chairman of the Task Force on Customs Administration, Congressman Frenzel, and the Task Force staff, in familiarizing themselves in the intricacies of Customs operations and administration in a very short period of time. The Treasury Department and the Customs Service has been busy, too, reviewing and revising the prior bill. The importing community was critical of some of the proposals contained in H.R. 9220; particularly, the provision which would have granted discretionary authority to the Secretary of the Treasury to establish where and when entry documentation could be filed; the recordkeeping provision; and the administrative summons and enforcement provision. The Customs brokerage industry was critical of amendments which would have revised the provision in the Tariff Act which authorizes the Secretary of the Treasury to license and regulate Customs brokers.

In February and March of this year, Customs representatives met with representatives of most of the groups and associations that had testified before this Committee on H.R. 9220. Their respective criticisms, objections and proposals were considered and discussed. Thereafter, each group was given the opportunity to comment on various drafts of the legislation as it was revised. We knew, of course, that it would not be possible to satisfy all competing interests that exist among the various groups. Moreover, the overriding responsibilities of the Customs Service to collect and protect the revenue and other interests of the United States were always considered paramount. Nevertheless, we sincerely believe that the Customs procedural reform legislation you are considering reflects the interests of the Government, the importing community, and the public and will provide the authority for improving Customs Service procedures while insuring that the rights of importers are protected and that complete and accurate import statistics are collected.

This Committee in announcing last year's hearings had indicated that it was also interested in obtaining testimony on the administration of section 592 of the Tariff Act, the so-called "fraud and penalty provision." Much of the testimony received at the hearings was devoted to 592 problems. All who testified conceded that the Customs Service in its recent administration of section 592 had attempted to ameliorate its undue harshness, but it was apparent that only a change in the basic statute could totally remedy the problems. The bills under consideration today contain proposed amendments to section 592 which would provide the necessary relief. However, the Administration sponsored bill retains the substance of the existing provision which has gained clarity through long continued use and interpretation.

H.R. 8367 does not, however, contain the amendments to the statutory provision governing Customs brokers which comprised Title III of H.R. 9220. These amendments are not critical to Customs procedural reform. This omission, however, should not be interpreted as a lack of interest or concern by us in the Customs brokerage business. To the contrary, the many critical comments by representatives of the brokers of the proposed amendments in H.R. 9220, together with a proposal for self-regulation by the brokers convinced us that the proposed amendments were premature and further study and consideration were required.

As Under Secretary Anderson indicated, the last major piece of legislation to improve Customs procedures was the Customs Simplification Act of 1956. In the ensuing 20 years, the value of U. S. importations and amount of duties collected have increased fivefold, the total number of people entering the country has doubled.

In addition to the rapid increase in the incoming number of persons and volume of cargo, the Customs task has been further complicated by greater enforcement and security requirements, demands that clearance of cargo and passengers by Customs be facilitated, the need for accurate, detailed trade statistics, anti-terrorism programs, and technological advances in methods of moving cargo and people. For example, international travelers now arrive at our airports in jumbo aircraft and cargo arrives in containers, which are difficult to process efficiently and effectively.

To assist us in meeting these challenges, we have adopted new methods and equipment for implementing a screening approach designed to provide for "selectivity," rather than 100 percent inspection. Consistent with this approach, our screening attempts to focus upon the high pay off, high risk items in cargo processing.

Our ability to accomplish this goal is of course dependent upon providing the Customs officer on-the-line with the appropriate information and equipment at the time of decision. To provide information rapidly and accurately to our inspectors processing passengers arriving in the United States, Customs has developed the Treasury Enforcement Communication System (TECS), an automated lookout system with message switching capability. To fully utilize this "selectivity" approach, the Customs Accelerated Passenger Inspection System has been developed which expedites the processing of passengers and reduces delay at our busiest airports.

Application of the "selectivity" concept has not moved ahead as rapidly in the cargo processing area, although we have no doubt that it can be applied with equal success. Much of the delay must be layed at the doorstep of outdated laws which prevent adoption of business-like cargo processing and duty collection techniques. The legislation before you today will allow Customs to be more in step with the business and accounting advances made in the past quarter of a century and permit full development of the automated processing of cargo and its accompanying documentation.

Over the past several years, the Customs Service has had under development the automated merchandise processing system, known by the acronym AMPS, which takes advantage of modern business technology. An automated system such as AMPS is a major developmental project involving importers, Customs brokers, carriers, industry associations, the customs services of other nations, and other agencies of the Federal Government. Because the implementation of the full system envisions separation of the documentation requirement from the duty payment requirement and depends upon a legislative change, the the system was designed and is being installed nationwide in a modular fashion.

AMPS will perform many clerical checks faster and more efficiently than they can now be performed manually and will automatically identify routine importations and highlight complex entries for intensfied examination. Let me emphasize this last benefit. The capability of the system to identify routine importations using complex criteria established by import specialists permits import specialists to assign routine work to the computer for complete processing and to concentrate their time and attention on the more complex problems they face.

The concept of "selectivity" is also the backbone of our regulatory audit program. This approach is in contrast to physically examining and individually processing each importation. Under the regulatory audit program, our resources are concentrated on the high pay-off, high-risk transactions, and depends largely on voluntary compliance with import requirements. As we expand our audit capability, accurate records of import transactions become essential. We are pleased to note that both versions of the Customs Procedural Reform Act contain a revised recordkeeping requirement which balances the needs of the Government and the genuine concerns of the importing community over the creation of expensive, new, burdensome systems of records. To eliminate this concern, one of the factors included in the revised statutory provision is that the records shall be those normally kept in the ordinary course of business.

The regulatory audit program is founded on an amicable and cooperative relationship between importers and the Customs Service. There are instances, however, when an importer for whatever reason is reluctant to cooperate with an audit or investigation. It is then necessary to rely on the administrative subpoena power contained in section 106 of the bill and judicial enforcement of the subpoena as provided in section 107. These sections also have been revised to conform to other administrative subpoena provisions found throughout the United States Code.

H.R. 8149 and H.R. 8367 also contain an amendment to section 592 of the Tariff Act of 1930. As I mentioned before, public witnesses at the hearings last August testified extensively about the inherent defects of this penalty provision. Analysis of the testimony reveals two separate and distinct criticisms. The first is that the initial penalty assessment equal to the forfeiture value

of the imported merchandise is too large and has no relationship to any loss of revenue suffered by the Government. Although the initial penalty is only a contingent liability, it can often result in injury to a company's credit rating, adversely affect possible mergers or the opportunity to gain Government contracts, or depress the value of its shares on the stock market.

The other criticism is that judicial review of the alleged violation resulting in the penalty is for all intents and purposes precluded. To obtain judicial review the alleged violator need only refuse to seek mitigation, or if sought, refuse to pay the mitigated penalty. The Government then must sue for the full amount of the initial penalty. Generally, when the risk of losing the litigation and having to pay the onerous initial penalty is weighed against closing the matter by paying the mitigated amount, a businessman will opt for a settlement and forfeit judicial review.

Under our proposed amendment both problems would be remedied by reducing the size of the initial penalty assessment. We propose that the Secretary of the Treasury be authorized to assess an initial penalty in an amount up to the forfeiture value of the merchandise, commensurate with the degree of culpability of the violator. We urge that the Secretary continue to be allowed to assess a penalty equal to the forfeiture value for violations involving intentional acts.

Various penalty formulas have been discussed involving multiples of the loss of revenue to the Government or a percentage of the value of the merchandise where there is no loss of revenue. The Treasury Department has always, in the mitigation process under section 618 of the Tariff Act, considered the degree of culpability of the violator and used the loss of revenue as a mitigation guide. Under our proposed amendment of section 592, the appropriate degree of culpability-ordinary negligence, gross negligence or intentional acts-would be matched with an appropriate initial penalty pursuant to guidelines published in the Customs Regulations. H.R. 8149 would fix such penalties in statutory schedules. We believe the flexibility afforded through regulations is desirable, and would permit consideration of aggravating factors such as the number of previous violations committed by the alleged violator in assessing the initial penalty, as well as mitigating factors.

We firmly believe that by reducing the initial penalty assessment to a multiple of the loss of revenue or a percentage of the value of the imported merchandise, the unintentional damage to business will be eliminated and access to the courts for review of the penalty assessment will again be available.

The amendments to section 592 contained in H.R. 8149 would achieve the same objective by a slightly different route. I would like to submit for the record a technical analysis of section 112 of H.R. 8149.

The provisions of Title II would result in measurable savings to the public and the Government. This title contains many amendments which would facilitate the processing of international travelers and low value importations. These amendments have already been discussed by Under Secretary Anderson.

Both the flat rate of duty proposal and a proposal to raise the informal entry monetary limit contained in both versions of the bill have been introduced separately in this session of Congress as H.R. 421 and H.R. 6922 by Congressman Frank Horton, as Chairman, and on behalf of the Federal Paperwork Commission.

The raising of the informal entry monetary limit has been urged by small businessmen who wish to import small quantities of commercial goods utilizing simplified entry procedures which do not add to the cost of importing the product. Congressman Horton's proposal would raise the limit from $250 to $500; we propose to raise the limit to $600. The additional $100 would result in an additional reduction of 30,000 formal entries a year with a total reduction of 230,000 formal entries.

Mr. Chairman, let me reassure the Committee that our efforts to automate, to reform and simplify procedures, and to reduce costs, in no way impairs our capability to collect and validate the statistical trade data on importations required by the law. In fact, as resubmitted, our proposal to raise the informal entry limit from $250 to $600 contains a proviso which would insure that adequate trade statistics are collected.

The versions of the Customs Procedural Reform Act under consideration by the Committee are very similar; however, each contains a number of provisions which are not found in the other. I ask that our technical analysis of sections