4410-013 Clarification of the Revised Definition of "Fraud" Under 19 USC 1592

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

CUSTOMS DIRECTIVE
ORIGINATING OFFICE: CO:R:T:PDISTRIBUTION: See signature page
CUSTOMS DIRECTIVE NO. 4410-013
OLD NUMBER: 4400-13
DATE: DECEMBER 5, 1989
REVIEW DATE: DECEMBER 2004
SUBJECT:CLARIFICATION OF THE REVISED DEFINITION OF "FRAUD"
UNDER 19 USC 1592
1.REFERENCES:
Title 19, United States Code, Section 1592
Title 19, Code of Federal Regulations, Part 171,
App. B Fines, Penalties & Forfeitures Handbook, Chap. FRD
Federal Register, Vol. 54, Pg.36906 (Sept. 6,1989)
Customs Bulletin, Vol. 23, No.38 (Sept. 20,1989)
2.PURPOSE
To clarify the use of the new definitions of "fraud" and "gross negligence" in the
mitigation guidelines for violations of 19 USC 1592 which are contained in
Appendix B to Part 171 of the Customs Regulations.
3.BACKGROUND
On September 6, 1989, Customs published an amendment to its mitigation
guidelines for violations of 19 USC 1592 which revised the definitions for "fraud"
and "gross negligence." The new definitions became effective on October 6,
1989. Previously, the mitigation guidelines provided that:
A violation is determined to be fraudulent if it results from an act or acts (of
commission or omission) deliberately done with intent to defraud the revenue or
to otherwise violate the laws of the United States, as established by clear and
convincing evidence.
The Department of Justice requested Customs to consider changing its definition
to one which Justice believed was the correct court test. Justice believed that
Customs internal mitigation definitions impaired its ability to argue a broader
definition in the Court of International Trade, where all elements of the alleged
violation, including the degree of culpability were subject to the court's de novo
review. In 1986, after considering Justice's request and researching the
issue, the Customs Service published a proposed definition in the Federal
Register for public comment, even though such proposal and comment are
normally not required for internal mitigation guidelines.

After considering the comments received, a revision to the definition of fraud was
published which provides:
A violation is determined to be fraudulent if the material false statement 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.
Although the definition of fraud was revised, Customs did not intend major
changes in the handling of 19 USC 1592 cases by Customs officers. As
Customs stated in the Federal Register, Customs officers will still be required to
show that the violator knew that the material statement or act was false or that a
material omission had occurred. The Customs Service will also be required to
show that an act was done with an intent to deceive, to mislead, or to convey a
false impression. The Customs Service will not be required a show that the
violator specifically intended to defraud the revenue or violate U.S. laws.
In addition to revising the definition of fraud, the Customs Service revised the
definition of gross negligence to conform to the new fraud definition. The
revised definition provides:
A violation is determined 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.
The major difference between the knowledge requirements of the two standards
is that gross negligence does not require that a violator knew that there was a
falsity. In addition, gross negligence does not require an intent to deceive,
mislead or convey a false impression.
4.ACTION
The Customs Service did not intend to make any major changes in the manner in
which the prepenalty or penalty notices or mitigator, decisions are handled in the
field. Customs officers should not allege a fraudulent violation unless a material
false statement or act in connection with a transaction was committed (or
omitted) knowingly, i.e., was done voluntarily and intentionally, as established by
clear and convincing evidence. Customs officers will be required to show that
the violator knew that the material statement or act was false or that a material
omission had occurred, and that there was an intent to deceive, mislead or
convey a false impression.
5.RESPONSIBILITIES

Area and District Directors will be responsible for ensuring that the revised
definitions are properly applied to penalty cases within their jurisdictions.
Guidance concerning the application of this Directive may be requested from the
Chief, Penalties Branch, Headquarters (FTS) 566-8317 or the local
Regional/District Counsel.
District Directors, FP&F officers, regional fraud coordinators, Regional/District
Counsel, and headquarters OR&R employees may release copies of this
document to the public upon request without a Freedom of Information Act
request.
The statements made herein are not intended to create or confer any rights,
privileges or benefits for any private person, but are intended merely for internal
guidance.
Commissioner of Customs
Distribution:
R-01 Regional Commissioners
R-02 Regional Counsels
F-01 District/Area Directors
F-02 Port Directors
F-10 District FP&F Officers
G-03 All SACs/RACs
G-07 All Entry Personnel