The issue in question is whether Customs and Border Protection can use the common Request for Information (CF28) or Notice of Action (CF29) as the record of the commencement of an investigation and evidence proving that an importer has received notice of the commencement of an investigation.
This matters for several reasons. Most important, importers who discover violations of certain customs laws may protect themselves from civil penalties (in excess of interest on unpaid duties) by completing a voluntary prior disclosure. In the disclosure, the importer sets out the incorrect and the corrected information, tenders duties owed and probably the interest, and walks away with, we hope, an improved compliance system. But, if the importer is on notice that Customs has already commenced an investigation into the same issue, the importer is stuck and cannot fully benefit from a disclosure. [As an aside, that does not necessarily mean that a disclosure is of no value, but that is a conversation about strategy for another post.]
There are lots of threads of conversation concerning this issue. One is a question of policy: Is it good for trade facilitation and compliance for Customs and Border Protection to attempt to preclude disclosures while publicly saying that it encourages disclosures? The second question is why is this happening? Is it a top-down policy or a strategy developed at the port level by personnel who are removed from the broader policy questions? Third, is it legally correct that a CF28 or CF29 can be the record of and provide notice of the commencement of an investigation? And, finally, even if the notice is proper, has the investigation actually be commenced properly.
I can't spend too much time on all these questions. The first two require only a brief comment, which will not be backed up with any empirical evidence. Just based on experience and conversations with importers, this seems to be bad policy. Whether or not it was intended as such, the use of the very common CF28 and CF29 looks as if the agency is playing a game of "gotcha." Importers are very used to seeing these communications as a routine means of Customs either collecting basic compliance information or informing the importer of Customs' decision regarding already submitted information. In other words, these documents have been viewed as a non-threatening, cooperative channel of communications. Assuming this practice continues, that will rapidly no longer be the case. Also, because the CF28 and CF29 are generally communications from an Import Specialist and not from Fines, Penalties, and Forfeitures, using it as notice of an investigation seems on its face to be inherently questionable. It kind of like having the waiter at a fancy restaurant deliver the bill (a routine task) while flashing a badge and a gun (an implied threat). That does not encourage good customer relations.
As to why? I have no idea. My guess is that this started with a clever and overly zealous Import Specialist who was worried that an importer might be on the verge of exercising its right to make a disclosure. I suspect, but don't really know, that enforcement minded Customs personnel have never liked the disclosure process anyway. It really is a get-out-of-jail-free card (unless you count the time, administrative costs, and legal fees). Maybe the notion spread among port personnel that this was a good tool to increase the collection of revenue through penalties and to strengthen enforcement. I don't know that to be the case, but it makes sense to me.
On the third question, the regulations (19 CFR 162.74) are quite clear on what constitutes evidence that the importer is on notice of the commencement of an investigation.
(i) Knowledge of the commencement of a formal investigation —(1) A disclosing party who claims lack of knowledge of the commencement of a formal investigation has the burden to prove that lack of knowledge. A person shall be presumed to have had knowledge of the commencement of a formal investigation of a violation if before the claimed prior disclosure of the violation a formal investigation has been commenced and:
(i) Customs, having reasonable cause to believe that there has been a violation of 19 U.S.C. 1592 or 19 U.S.C. 1593a, so informed the person of the type of or circumstances of the disclosed violation; or
(ii) A Customs Special Agent, having properly identified himself or herself and the nature of his or her inquiry, had, either orally or in writing, made an inquiry of the person concerning the type of or circumstances of the disclosed violation; or
(iii) A Customs Special Agent, having properly identified himself or herself and the nature of his or her inquiry, requested specific books and/or records of the person relating to the disclosed violation; or
(iv) Customs issues a prepenalty or penalty notice to the disclosing party pursuant to 19 U.S.C. 1592 or 19 U.S.C. 1593a relating to the type of or circumstances of the disclosed violation; or
(v) The merchandise that is the subject of the disclosure was seized; or
(vi) In the case of violations involving merchandise accompanying persons entering the United States or commercial merchandise inspected in connection with entry, the person has received oral or written notification of Customs finding of a violation.
It should be clear that options (ii) through (vi) are not involved here. That means the question is whether a CF28 or CF29 informs the importer of the type of or circumstances of the disclosed violation. I hate to say it, but maybe. The CF29 Notice of Action is usually issued to an importer after an Import Specialist has taken the time to review the entry documentation and often after requesting additional information. In that case, it seems possible that the Import Specialist might have, as is required, "reasonable cause" to believe that a violation has occurred. So, if the CF29 comes after reasonable cause and in fact notifies the importer of the type or circumstances of the violation, it might very well provide sufficient notice. [Keep in mind that I still think it is bad policy.]
The CF28 is a different animal. This is a request for information. To me, that means that the Import Specialist is effectively saying to the importer, "I am not sure what is going on here. I need more information to determine whether you are right." That strikes me as a really poor basis on which to later argue that the Import Specialist had reasonable cause to believe anything about that particular importation. I can imagine a circumstance in which the Import Specialist includes very specific language in the CF28 designed to indicate the commencement of an investigation. But there has to be more than a question to be asked for there to be an investigation. That goes to my last question.
According to 19 CFR 162.74:
A formal investigation is deemed to have commenced as to additional violations not included or specified by the disclosing party in the party's original prior disclosure on the date recorded in writing by the Customs Service as the date on which facts and circumstances were discovered or information was received that caused the Customs Service to believe that a possibility of such additional violations existed. Additional violations not disclosed or covered within the scope of the party's prior disclosure that are discovered by Customs as a result of an investigation and/or verification of the prior disclosure shall not be entitled to treatment under the prior disclosure provisions.
For example, the House Committee on Ways and Means said that the commencement of an investigation should result in the "creation of a formal document or electronic transmission that will serve as evidence, if so required, of the formal opening of an investigation. That document or transmission must be maintained by Customs Office of Enforcement or other central unit to be designated with Customs." The report goes on to state that when Customs has "reasonable cause to believe" that a violation has occurred, the Office of Enforcement or other central unit shall consider the facts that have been recorded and make a determination as to whether the facts merit the opening of a formal investigation. See S. Rept. 103-361, 103d Cong., 1st Sess. 122. According to the Senate Report, the Finance Committee expected hat these requirements for the creation of a record and centralized review would "allay the trade community's concerns that the benefits of prior disclosure will be denied in the absence of tangible evidence."
To me, without the benefit of the circumstances in any particular case, an Import Specialist acting alone is not via a CF28 or CF29 is not consistent with Congressional intent regarding the formal opening of an investigation. There needs to be some higher-level review and some centralized record. Without that, this has the feel of the denial of prior disclosure without tangible evidence. But, we must keep in mind, whether that is the case will depend on the facts of each particular case.
Recently, AAEI raised the issue with Customs and Border Protection. Customs' response is on the AAEI web site. Basically, Customs says they have the legal authority to use the CF28 and CF29 as notice of the commencement of an investigation as well as the written record thereof. But, they say that the CF28 should not be routinely used for that purpose. The CF29, on the other hand, will be used for that purpose. Despite that conclusion, Customs promises to issue guidelines clarifying the use of the CF28.
In the end, this practice strikes me as based on bad policy. As I said, it seems inconsistent with an effort to foster cooperation and collect revenue via disclosures. It seems punitive and hyper technical. Despite that, it might be perfectly legal. It is, however, going to lead to much more complicated disputes over when and how the alleged investigation was opened. Suddenly, customs lawyers (who are more often on the receiving end of discovery requests) are going to brushing up on our discovery techniques because there is now going to be a fight about the paper trail.