B. COMMENT

1. Legislative background

In the House Ways and Means Committee report on H. R. 3321, 63d Congress, 1st session (H. Rept. No. 5), it is stated on page LII:

"Paragraph K [of sec. IV of the proposed act] is the reenactment of section XXI of the present law, allowing the privilege of purchasing supplies from public warehouses free of duty and from bonded warehouses free of duty from internalrevenue tax, as the case may be, to the vessels of war of any nation in the ports of the United States which may reciprocate such privileges toward vessels of war of the United States in its foreign ports."

EXCERPTS FROM TARIFF ACT OF 1922

A. TEXT OF LAW

The Tariff Act of 1922 states in part:

"SEC. 309. That the privilege of purchasing supplies from public warehouses, free of duty, and from bonded manufacturing warehouses, free of duty or of internal-revenue tax, as the case may be, shall be extended under such regulations as the Secretary of the Treasury shall prescribe, to the vessels of war of any nation in ports of the United States which may reciprocate such privileges toward the vessels of war of the United States in its ports" (act of September 21. 1922, 67th Cong., 1st sess., 42 Stat. 858).

HOW CONGRESS AND THE COURTS HAVE SUPPORTED THE VITAL FUNCTION OF CUSTOMS SUPERVISION AND INSPECTION AND REJECTED THE CALCULATED-RISK POLICY SET FORTH IN SECTION 24 OF H. R. 5106

I. EXISTING LAW REQUIRES INSPECTION AND SUPERVISION OF ACTIVITIES SUCH AS THOSE INVOLVED HERE AND CLEARLY DOES NOT SANCTION THE CALCULATED-RISK PRINCIPLE

A. LANGUAGE OF NUMEROUS PROVISIONS OF THE TARIFF ACT OF 1920, AS AMENDED, DIRECTLY OR BY IMPLICATION REQUIRES CUSTOMS SUPERVISION AND INDICATES THAT THERE IS NO STATUTORY SANCTION OF A GENERAL POLICY OF CALCULATED RISK

1. General

For

If anything is clear from reading the Tariff Act of 1930, as amended, as a whole, it is that the statute is replete with provisions which either specifically provide for or clearly contemplate the active supervision by customs officials of certain activities by importers or exporters. In general, these provisions are scattered throughout the act rather than embodied in any one section. that reason it is difficult to point to a single provision of the law and claim that it alone establishes the existence of the supervisory requirement. As a matter of fact, this allusion to the supervisory function of the customs service in many sections of the law serves to emphasize its overriding importance.

In similar fashion, there is no flat statement in the act that customs officers are or are not authorized generally to rely on their personal estimate of the integrity of importers or exporters as a basis for waiving any supervisory requirement. But an overall reading of the statute leaves no doubt on this score. The language of the act indicates that it was not drawn on the theory that customs officers should be free consistently to supervise or not to supervise, depending on their personal ideas of the reliability of the importer or exporter involved. No such policy of calculated risk was embodied in the statutory language. In fact, the whole tenor of the act is just the opposite. Where supervision is required it is usually required generally, with no allotment of special favors or exemptions to be granted on the basis of value judgments as to integrity by customs officers.

2. Extensive direct and indirect references to the supervisory requirement which likewise are inconsistent with the calculated-risk principle appear throughout the Tariff Act of 1930, as amended

A very wide range of statutory provisions refer explicitly or implicitly to the need for supervision by Customs officers. Rather than quote each of these in its entirety, allusion will be made to certain of those sections of the law which illus

trate this point. Although some may tie in directly with the problem of the supervision of the withdrawal of oil conditionally free of duty under a vessel-supply statute, most refer to other aspects of customs supervision.

(a) Vessel-supply statute.-Under section 309 of the law, the withdrawal of oil conditionally free of duty is authorized. Although it does not provide specifically for supervision, the need for supervision is reflected in one of the several customs regulations which serve to implement this portion of the law:

"10.61 Withdrawal permit; lading; stores log.-(a) Upon the filing of the withdrawal and the execution of the bond, when required, the collector shall issue a permit on customs Form 7506-A or 7512.

"(b) Upon the lading on a vessel of supplies withdrawn from bond for which an affidavit is required under section 10.64 of these regulations, they shall be entered by a representative of the vessel in a special bound stores logbook of the vessel in ink or indelible pencil. The stores log shall be kept on board available for customs inspection and use at any time and shall contain the following information with respect to each withdrawal: Port where laden; date of lading; withdrawal number; quantity and description. After the supplies have been so entered in the vessel's stores log, the customs officer who supervised the lading thereof shall place his name and title after the entry in the log (sec. 309 (a), 46 Stat. 690, as amended; 19 U. S. C. 1309 (a))." [Emphasis supplied.]

(b) Report, entry, and unlading of vessels and vehicles.-The necessity of supervision and the providing of detailed information to facilitate inspection and supervision is indicated in certain other sections of the law. Sections 431 (Manifest-Requirement, Form and Contents), 432 (Manifest to Specify Sea and Ship's Stores), 433 (Report of Arrival), 439 (Delivery of Manifest) provide for the furnishing of certain information to appropriate officers for checking.

On the other hand, section 446 (Supplies and Stores Retained on Board) permits, inter alia, the transfer of bunker oil from certain vessels delayed in United States ports to certain other vessels without the payment of duty provided the transfer is made "under a permit by the collector and under customs supervision." Similarly, section 447 (Place of Entry and Unlading) refers to the unlading of bulk cargo after entry in any place designated by the Secretary of the Treasury "under the supervision of customs officers."

Section 448 (Unlading) alludes to the delivery of the manifest "to the customs officer who boards such vessel."

Sections 449 (Unlading at Port of Entry) and 450 (Unlading on Sundays, Holidays, or at Night) would seem to reflect the desire to require unlading at a time and place which would make supervision feasible. Section 451 (Unlading on Sundays, Holidays, or at Night, Extra Compensation) deals with the payment of extra compensation to "customs officers and employees assigned to duty in connection with such unlading at night or on Sunday or a holiday." And section 452 (Lading on Sundays, Holidays, or at Night) refers to the lading on certain days of merchandise or baggage "required to be laden under customs supervision." One of the most explicit provisions is section 455 (Boarding and Discharging Inspectors), which emphasizes the congressional desire to protect the revenue: "SEC. 455. BOARDING AND DISCHARGING INSPECTORS.

"The collector for the district in which any vessel or vehicle arrives from a foreign port or place may put on board of such vessel or vehicle while within such district, and if necessary while going from one district to another, one or more inspectors or other customs officers to examine the cargo and contents of such vessel or vehicle and superintend the unlading thereof, and to perform such other duties as may be required by law or the customs regulations for the protection of the revenue. Such inspector or other customs officer may, if he shall deem the same necessary for the protection of the revenue, secure the hatches or other communications or outlets of such vessel or vehicle with customs seals or other proper fastenings while such vessel is not in the act of unlading and such fastenings shall not be removed without permission of the inspector or other customs officer. Such inspector or other customs officer may require any vessel or vehicle to discontinue or suspend unlading during the continuance of unfavorable weather or any conditions rendering the discharge of cargo dangerous or detrimental to the revenue. Any officer, owner, agent of the owner, or member of the crew of any such vessel who obstructs or hinders any such inspector or other customs officer in the performance of his duties, shall be liable to a penalty of not more than $500." [Êmphasis supplied.]

And section 457 (Time for Unlading) provides that, in certain circumstances where merchandise has remained on board a vessel more than 25 days after the

report of that vessel, the collector "may place one or more inspectors or other customs officers on board of said vessel or vehicle to protect the revenue."

Section 458 (Bulk Cargo, Time for Unlading), which permits additional time for unlading certain merchandise in bulk, refers to extra compensation for "the inspectors or other customs officers whose services are required in connection with the unlading."

And section 459 (Contiguous Countries-Inspection) is likewise quite specific in its provisions for the inspection of merchandise or baggage brought in from a contiguous country:

"SEC. 461. SAME-INSPECTION.

"All merchandise and baggage imported or brought in from any contiguous country, except as otherwise provided by law or by regulations of the Secretary of the Treasury, shall be unladen in the presence of and be inspected by a customs officer at the first port of entry at which the same shall arrive; and such officer may require the owner, or his agent, or other person having charge or possession of any trunk, traveling bag, sack, valise, or other container, or of any closed vehicle, to open the same for inspection, or to furnish a key or other means for opening the same.'

(c) Ascertainment, collection, and recovery of duties.-Section 481 (InvoiceContents) specifies the types of information required in invoices including "any other facts deemed necessary to a proper appraisement, examination, and classification of the merchandise that the Secretary of the Treasury may require.' Details regarding the inspection of merchandise are given in section 499 (Examination of Merchandise), which also underscores the congressional intent to protect the revenue:

"SEC. 499. EXAMINATION OF MERCHANDISE.

"Imported merchandise, required by law or regulations made in pursuance thereof to be inspected, examined, or appraised, shall not be delivered from customs custody, except as otherwise provided in this Act, until it has been inspected, examined, or appraised and is reported by the appraiser to have been truly and correctly invoiced and found to comply with the requirements of the laws of the United States. The collector shall designate the packages or quantities covered by any invoice or entry which are to be opened and examined for the purpose of appraisement or otherwise and shall order such packages or quantities to be sent to the public stores or other places for such purpose. Not less than one package of every invoice and not less than one package of every ten packages of merchandise, shall be so designated unless the Secretary of the Treasury, from the character and description of the merchandise, is of the opinion that the examination of a less proportion of packages will amply protect the revenue and by special regulation permit a less number of packages to be examined. The collector or the appraiser may require such additional packages or quantities as either of them may deem necessary. If any package is found by the appraiser to contain any article not specified in the invoice and he reports to the collector that in his opinion such article was omitted from the invoice with fraudulent intent on the part of the seller, shipper, owner, or agent, the contents of the entire package in which such article is found shall be liable to seizure, but if the appraiser reports that no such fraudulent intent is apparent then the value of said article shall be added to the entry and the duties thereon paid accordingly. If a deficiency is found in quantity, weight, or measure in the examination of any package, report thereof shall be made to the collector, who shall make allowance therefor in the liquidation of duties."

Section 508 (Commingling of Goods) deals with the rate of duty on dutiable merchandise and merchandise free of duty or merchandise subject to different rates of duty "so packed or mingled that the quantity or value of each class of such merchandise can not be readily ascertained by the customs officers" and the segregation by the importer or consignee of such merchandise "under customs supervision."

(d) Transportation in bond and warehousing of merchandise.-Section 555 (Bonded Warehouses) indicates the close degree of supervision which is to be maintained by customs officers over merchandise stored in buildings, parts of buildings or other enclosures designated as bonded warehouses. Presumably this would also apply to such things as oil storage facilities. The section is as follows: "SEC. 555. BONDED WAREHOUSES.

"Buildings or parts of buildings and other inclosures may be designated by the Secretary of the Treasury as bonded warehouses for the storage of imported

merchandise entered for warehousing, or taken possession of by the collector, or under seizure, or for the manufacture of merchandise in bond, or for the repacking, sorting, or cleaning of imported merchandise. Such warehouses may be bonded for the storing of such merchandise only as shall belong or be consigned to the owners or proprietors thereof and be known as private bonded warehouses, or for the storage of imported merchandise generally and be known as public bonded warehouses. Before any imported merchandise not finally released from customs custody shall be stored in any such premises, the owner or lessee thereof shall give a bond in such sum and with such sureties as may be approved by the Secretary of the Treasury to secure the Government against any loss or expense connected with or arising from the deposit, storage, or manipulation of merchandise in such warehouse. Except as otherwise provided in this Act, bonded warehouses shall be used solely for the storage of imported merchandise and shall be placed in charge of a proper officer of the customs, who, together with the proprietor thereof, shall have joint custody of all merchandise stored in the warehouse; and all labor on the merchandise so stored shall be performed by the owner or proprietor of the warehouse, under supervision of the officer of the customs in charge of the same, at the expense of the owner or proprietor. The compensation of such officer of the customs and other customs employees appointed to supervise the receipt of merchandise into any such warehouse and deliveries therefrom shall be reimbursed to the Government by the proprietor of such warehouse." [Emphasis supplied.] And section 556 (Bonded Warehouses-Regulations for Establishing) refers not only to regulations necessary for establishing bonded warehouses but also those needed "to protect the interests of the Government in the conduct, management, and operation of such warehouses and in the withdrawal of and accounting for merchandise deposited therein." This would appear to indicate that Congress was unusually concerned about the necessity for strict supervision of anything designated as a bonded warehouse, which presumably, as was suggested above, would include withdrawal from oil storage facilities treated as bonded warehouses. Section 557 (Entry for Warehouse-Warehouse Period-Drawback) refers to the storage and withdrawal of merchandise in bonded warehouses "or otherwise in the custody and under the control of customs officers" and to the destruction "under customs supervision" of certain merchandise entered under bond.

Moreover, section 562 (Manipulation in Warehouse) provides for the cleaning, sorting, repacking or changing of condition of merchandise in bonded warehouses "under customs supervision".

(e) Enforcement provisions.—In one sense, many of the enforcement provisions serve to underscore the supervision requirement and the lack of adherence to any calculated risk principle. However, reference will be made only to a few of these which seem most pertinent. Section 581 (Boarding Vessels), for example, indicates quite specifically some of the enforcement measures:

"SEC. 581. BOARDING VESSELS.

"Officers of the customs or of the Coast Guard, and agents or other persons authorized by the Secretary of the Treasury, or appointed for that purpose in writing by a collector, may at any time go on board of any vessel or vehicle at any place in the United States or within four leagues of the coast of the United States, without as well as within their respective districts, to examine the manifest and to inspect, search, and examine the vessel or vehicle, and every part thereof, and any person, trunk, or package on board, and to this end to hail and stop such vessel or vehicle, if under way, and use all necessary force to compel compliance, and if it shall appear that any breach or violation of the laws of the United States has been committed, whereby or in consequence of which such vessel or vehicle, or the merchandise, or any part thereof, on board of or imported by such vessel or vehicle is liable to forfeiture, it shall be the duty of such officer to make seizure of the same, and to arrest, or, in case of escape or attempted escape, to pursue and arrest any person engaged in such breach or violation.

"Officers of the Department of Commerce and other persons authorized by such department may go on board of any vessel at any place in the United States or within four leagues of the coast of the United States and hail, stop, and board such vessels in the enforcement of the navigation laws and arrest or, in case of escape or attempted escape, pursue and arrest any person engaged in the breach or violation of the navigation laws."

And section 582 (search of persons and baggage—Regulations) provides that: "The Secretary of the Treasury may prescribe regulations for the search of persons and baggage and he is authorized to employ female inspectors for the examination and search of persons of their own sex; and all persons coming into

the United States from foreign countries shall be liable to detention and search by authorized officers or agents of the Government under such regulations."

Similarly, sections 584 (Falsity or Lack of Manifest-Penalties) 585 (Departure Before Report or Entry), 586 (Unlawful Unlading-Exception), 589 (Unlawful Relanding), 591 (Fraud-Personal Penalties), 592 (Fraud-Penalty against Goods), 593 (Smuggling and Clandestine Importations), 595 (Searches and Seizures), 597 (Fraudulent Treatment of Goods in Warehouse), 598 (Offenses Relating to Seals-Unlawful Removal of Goods from Customs Custody), 619 (Award of Compensation to Informers), 623 (Security) and 624 (General Regulations) all seem to reflect the attitude of Congress as to the necessity of providing safeguards against frauds on the revenue, both by strict supervisory requirements and serious penalties.

B. REVIEW OF THE GENERAL BACKGROUND OF VARIOUS TARIFF ACTS INDICATES A CONSISTENT CONGRESSIONAL PURPOSE TO ASSURE ADEQUATE CUSTOMS SUPERVISION AND A DISINCLINATION GENERALLY то SANCTION ANY CALCULATED RISK PRINCIPLE

As was pointed out supra, the vessel supply provision (sec. 309) of the Tariff Act of 1930, as amended, which appears to authorize the withdrawal of oil conditionally free of duty, does not contain any specific reference to the necessity for customs supervision of such activity, although a Customs Regulation (C. R. 10.61) implementing that provision clearly contemplates such supervision. However, both the need for supervision generally, and the policy of non-reliance on any calculated risk principle are stressed in the language of many other sections of the Tariff Act of 1930. This was clear from the review of various of the statutory provisions, supra. By the same token, in order to ascertain the attitude of Congress regarding the supervisory requirement it is essential to examine the general background of both the Tariff Act of 1930 and that of other earlier related tariff legislation.

In this connection it should be noted that the first complete revision and codification of the customs administrative laws since 1799 occurred in the Tariff Act of 1922. Prior to that time the policy had been to add to the laws periodically to meet particular requirements rather than to revise and codify them. As a result, some of the statutes wholly or in part obsolete or superseded had not been expressly repealed, while others were redundant, ambiguous or ill-suited to meet present conditions.

After it was determined to undertake this revision and codification the Tariff Commission investigated the customs administrative laws and recommended a complete revision and codification during the 65th Congress, but no action was taken by that Congress. These recommendations were submitted to Congress in 1921, however, and after extensive hearings new legislation along these lines was incorporated in the Tariff Act of 1922. These customs administrative provisions were again reviewed prior to passage of the Tariff Act of 1930 and the Customs Administrative Act of 1938. Other hearings of a similar nature were conducted in connection with the proposed Customs Simplification Act of 1951, which was not passed by the last Congress.

In determining overall congressional intent as to the supervision requirement it might be helpful to study congressional debates and hearings reaching as far back as 1799, when the first of such legislation was passed dealing specifically with customs administration. Certainly the necessity of inspection and supervision is so fundamental to enforcement of the customs law that the earliest lawmakers could not have ignored it. Of course, the very nature of the supervision requirement is such that legislations usually are not particularly articulate on that subject. To many of them it probably would be underscoring the obvious to point out that adequate supervision of certain activities of importers and exporters is essential to protect the revenue.

Because the customs administrative laws were so thoroughly reexamined prior to passage of the Tariff Act of 1922, no attempt will be made at this juncture thoroughly to review the legislative background of all similar laws passed after 1799 to obtain specific congressional statements regarding the supervision requirement. However, there can be little doubt about the attitude of Congress on this score. As has been indicated supra, this is apparent from the statutory language itself. Moreover; throughout the various hearings and reports are a sufficient number of references to the need for customs supervision and the undesirability of relying on the alleged integrity of importers and exporters for enforcement of the customs laws to emphasize congressional concern over this matter. These