references are not confined to the necessity of supervision with respect to any particular section of the customs laws. Rather, they deal with a large number of otherwise unrelated sections of the law, thus indicating the extent to which the general requirement of supervision and nonreliance on shippers' integrity for customs enforcement permeate the law. They include allusions to such matters as undervaluation, compensation for overtime, drawbacks, foreign-trade zones, and appraisal.

As far back as 1849, Hon. A. M. Meredith, Secretary of the Treasury, in his Annual Report on Finance calls attention to fraudulent undervalution. In part the Secretary said:

"The facilities afforded to frauds upon the revenue are very great; and it is apprehended that such frauds have been and are habitually and extensively practiced." (H. Rept. 248, 69th Cong., 1st sess., on general tariff revision, p. 21.)

In his second message President Fillmore urged modifications in the tariff laws to avoid the assessment of ad valorem duties on foreign valuation and refers to flagrant frauds by false invoice and undervaluation (id., p. 21).

And in another message, President Fillmore called attention to frauds upon the Government perpetrated through the assessment of ad valorem duties on foreign valuations and recommends remedial legislation. In part he said:

“Legislation should never encourage dishonesty or crime. It is impossible that the revenue officers at the port when the goods are entered and the duties paid' should know with certainty what they cost in the foreign country. Yet the law requires that they should levy the duty according to such cost. They are therefore compelled to resort to very unsatisfactory evidence to ascertain what the cost was. They take the invoice of the importer attested by his oath as the best evidence of which the nature of the case admits. But everyone must see that the invoice may be fabricated and the oath by which it is supported, false, by reason of which the dishonest importer pays a part only of the duties which are paid by the honest one, and thus indirectly receives from the Treasury of the United States a reward for his fraud and perjury. The reports of the Secretary of the Treasury heretofore made on this subject show conclusively that these frauds have been practiced to a great extent. The tendency is to destroy that high moral character for which our merchants have long been distinguished, to defraud the Government of its revenue, to break down the honest importer by a dishonest competition, and finally to transfer the business of importation to foreign and irresponsible agents to the great detriment of our own citizens. I therefore again must earnestly recommend the adoption of specific duties whenever it is practicable, or a home valuation to prevent these frauds" (id., pp. 21-22).

In 1912 an Appraisement Commission appointed by Secretary MacVeagh,. after visiting most of the principal ports of the country and taking a large amount of testimony, made an exhaustive report on the principles and practices of the Government. The report deals at length with innumerable frauds on the customs by reason of undervaluation.

On page 64 of the report the following statement is found:

"So far as it relates to the value of merchandise stated in the body of the invoice, the examiners are practically unanimous in stating that they give it no consideration whatsoever. We are convinced that it is absolutely without valueso far as its purposes are indicated in the certificate itself" (id., pp. 23-24).

In the course of its report on revision of the customs administrative laws the Tariff Commission discussed the problem of undervaluation and said:

"The greatest cause of dissatisfaction in the administration of the customs laws as they now stand is the provision imposing additional duties in cases of undervaluation. * * *

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"The need of some amendment to remedy such conditions has long been universally recognized; the only doubt has been how far the amendment should go.. One suggestion has been to abolish the additional duties altogether, leaving importers guilty of actual fraud to be punished according to the statutory provisions for such cases-by fine or imprisonment, or loss of their merchandise or its value. The view of the majority of those consulted is that the provision for additional duties should be retained, because of its deterrent effect on slack and fraudulent importers, but should be modified so as to permit relief in all cases of proved good faith. This method has been adopted in the draft (report of United States Tariff Commission upon the revision of the customs administrative laws (1918), pp. 18-19).

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In connection with a discussion of a proposed change in the customs administrative laws prior to passage of the 1922 act, William Burgess, representing the United States Potters Association, said in part:

"Mr. Levett [prior witness] made a statement that there is no possibility of fraud in undervaluation except by conspiracy. Did time permit I would be glad to show you the extent of such conspiracy along certain lines of importation." (Hearings before House Ways and Means Committee on general tariff revision, 66th Cong., 3d sess.).

Various Members of Congress likewise commented along the same lines. example, Congressman Nott observed:

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"At present customs officials have relied largely on invoice prices. These are often intentionally undervalued. The United States loses annually millions of dollars ***" (61 Congressional Record 3811).

And Congressman Fordney, one of the sponsors of the Tariff Bill of 1922, noted in part that:

**** It has been repeatedly stated in an offhand way, by representatives of the importing interests, that claims for undervaluation were grossly exaggerated and that the records showed undervaluation of but one-tenth of 1 percent of the total importations. As a matter of fact, this statement is without foundation; but even if this statement were true it only goes to prove how very small the actual conviction for this crime is compared with what is commonly known to exist. In the year 1920 there were more than 5,000 cases of undervaluation reported at the port of New York alone, and 450 of such cases in the month of January this year. If it is true that but 1 percent of these cases has been caught, and made to pay the penalty, it can readily be seen that existing law is defective."

"In the evasion of the payment of full taxes of any character it is a matter of common knowledge that where the incentive to undervalue exists that opportunity will be taken advantage of. This is true also of our ordinary taxes with some of the people. It is true of our income taxes with some of the people ***” (61st Congressional Record 3476)

The Senate Report on the proposed Tariff Act of 1922 also stated:

"*** In regard to undervaluation, your committee believes that its prevention is more a matter of efficient customs administration than one to be corrected by any valuation plan. The adequate force of foreign investigators appears to be the simple and direct way to meet this situation." (S Rept. No. 595 on H. R. 7456, 67th Cong., 2d sess., p. 8).

In connection with the Tariff Act of 1929 similar hearings were held before the House Ways and Means Committee and the Senate Finance Committee. Again the question of supervision by customs officials and the extent to which reliance ought to be placed on the integrity of importers and exporters was raised both directly and indirectly in conjunction with such diverse subjects as overtime compensation, drawbacks, foreign trade zones, appraisal and valuation.

Of the statements made before both the House Ways and Means Committee and the Senate Finance Committee one of the most significant was that by A. P. Thorn, representing the Association of Railway Executives. In discussing the provision for overtime compensation of customs officials and employees he stated: "Inspection is necessary to protect the revenue of the United States by preventing smuggling" (hearing before Senate Finance Committee, 71st Cong., 1st sess., on the Tariff Act of 1929, p. 509).

In other testimony regarding overtime compensation of customs officials and employees it was pointed out by W. H. Bond, representing the National Association of Customs Inspectors that:

"Operation under customs supervision and under overtime conditions has been going on for more than a century, and, in 1873, 56 years ago, Congress, after an extended investigation, enacted the first law prescribing an orderly, systematic procedure ***" [Emphasis supplied.] (Hearings before House Ways and Means Committee on Tariff Act of 1921, 70th Cong., 2d sess., pp. 10276-10277.) And the brief of the National Association of Customs Inspectors stressed that the policy of the Government had always been to discourage the inspection and appraisal of merchandise and passengers at night, so that it had only been allowed under special license or bond in order to protect the revenue. Reference was made to the act of March 2, 1799, which forbade the discharge of cargo at night except in emergency; the act of March 3, 1873, which standardized practices, provided special licenses and required extra compensation by accommodated parties; and the acts of June 30, 1906, February 13, 1911, February 7, 1920, and September 21, 1922, which followed that same principle.

In opposing a section in the proposed bill which would have permitted the refund of duties on export of merchandise where those duties had been paid on the basis of sample or specifications and the exported merchandise did not conform to those specifications, John G. Lerch, representing the American Tariff League, said in part:

"That amends a provision of the Revised Statutes which has been carried right down to date which says that once merchandise has been withdrawn from custody you cannot get any drawback or refund on it except through the proper procedure in court. You cannot get any refund of duty or drawback. It is a safeguard of the Government revenue that has been found necessary for a century.

"The Revised Statutes, in the customs penal provision, provide for the prevention of fraud. It was found necessary by Government officials almost a hundred years ago, and it has come down to date without modification, although there have been various attempts such as this to sort of soften it over the period of time" (hearings before Senate Finance Committee, 71st Cong., 1st sess., on the Tariff Act of 1929, p. 43).

In discussing the foreign trade zone provision in the proposed bill in connection with the testimony of W. B. Hedden, representing the Port of New York Authority, the following remarks were made:

"Senator BINGHAM. If this foreign trade zone is going to be such a big zone as to include smelters, sugar refineries, and factories of all kinds, there would be no end to smuggling unless you knew exactly what went in and what came out. "The CHAIRMAN. Who is going to be responsible?

"Mr. HEDDEN. The customs officials would have to be responsible for all entries into the country for consumption.

"The CHAIRMAN. But handled by someone else.

"Mr. HEDDEN. No. I do not see that they would be delegated.

"Mr. CHAIRMAN. The Government would not handle it.

"Mr. HEDDEN. Everything would be done to enter through a particular gate. The policing of that zone would have to be done under regulations of the Secretary of the Treasury which he would promulgate and enforce, and I presume he would take care of the situation" (id., p. 190).

And the tenor of a statement by Hon. Ogden L. Mills, Undersecertary of the Treasury, and Hon. E. W. Camp, Commissioner of Customs, Treasury Department, before the House Ways and Means Committee was that appraising officers were under a congressional mandate not to rely completely on documents or statements furnished by importers or exporters:

"Accuracy in the determination of value is essential to the protection of the revenue."

"Section 500 of the tariff act imposes on the appraiser the duty of appraising the merchandise 'in the unit of quantity in which the merchandise is usually bought and sold by ascertaining or estimating the value thereof by all reasonable ways and means in his power, any statement of cost or cost of production in any invoice, affidavit, declaration, or other document to the contrary notwithstanding.' The mandate of Congress that the appraising officer shall affirmatively determine a value and not rely on unverified statements or statements not susceptible of verification is plain" (hearings before House Ways and Means Committee, 70th Cong., 2d sess., on Tariff Act of 1929, p. 9746).

Moreover, in the brief of Chester H. Gray, in behalf of the American Farm Bureau Federation it was noted:

"One of the major difficulties of proper administration for the foreign value lies in the fact that our Government cannot properly check back upon the records of unscrupulous American importers and foreign manufacturers. On the face of statements it must be considered in the usual legal practices that the importer and the foreign manufacturer have both told the truth. The burden of proof lies upon the United States to demonstrate that the figures given by the importer or the manufacturer, which are supposed to be the foreign value, are not correct. In case it goes before the Customs Court, the Government, having this burden of proof upon its shoulders, has been unable to collect the proper payments of duties" (id., p. 9781).

C. JUDICIAL DECISIONS WHICH HAVE CONSIDERED SUPERVISION AND INSPECTION REQUIREMENTS INVARIABLY HAVE INTERPRETED THOSE REQUIREMENTS STRICTLY

In general, the number of judicial decisions dealing specifically with the degree of inspection or supervision required of customs officials appears to be limited. No case was discovered which treated directly this problem in respect of the unlading of oil under a vessel supply statute. But the courts have considered various related provisions of the customs administration law in sufficient instances to justify the conclusion that the supervision and inspection requirements are to be interpreted strictly rather than leniently.

In the case of International Rwy. Co. v. Davidson (273 Fed. 153 (2d Cir., 1921)) the court considered, inter alia, the effect to be given certain Treasury regulations related to customs inspection at night and on Sundays and holidays, together with the payment of compensation for such services. The court stressed the important function of inspection and rejected arguments which, if adopted, would have had the effect of relaxing the inspection requirement. In its opinion, the court said in part:

"*** We are not at all persuaded by the argument that because nondutiable goods may be imported into the United States no inspection can be enforced in respect to them before entry. Government inspection is an essential prerequisite to entry. Only so can it be determined whether goods in point of fact are dutiable (U. S. v. Fifty Waltham Watch Movements (D. C.) 139 Fed. 291). Carriages, automobiles, and other conveyances and personal baggage.may be reasonably detained to await such inspection. Otherwise a holiday would be afforded for smuggling ***” (id., p. 156).

In George S. Bush & Co., Inc. v. United States (19 Cust. Ct. 37 (1947), the United States Customs Court had an opportunity to interpret the supervision requirement embodied in section 304 (c) of the Tariff Act of 1930, as amended, which deals with the marking of imported articles to indicate the country of origin. Although the watches involved there apparently were marked and exhibited later to customs officials for their inspection, the court did not deem that there had been sufficient compliance with the provision in section 304 requiring that the marking of the name of the country of origin be done under customs supervision. In its opinion, the court said in part:

"It is apparent from the record that the watches were not marked in the presence or under the direction of any customs official, but that a representative portion was thereafter inspected and found to have been marked with the name of the country of origin. Since the merchandise was released to the importer, it may be inferred that the articles were marked in conformity with the requirements of paragraph 367.

"Plaintiff claims, however, that the marking was done under 'customs supervision,' since the customs officials inspected the articles to see if they were properly marked ***

"Plaintiff argues that inspection of the article after marking is sufficient compliance with the statute. However, section 304 (c) provides that such marking is to be accomplished under customs supervision, indicating that there must be oversight or inspection of the marking process itself, not merely the results. This is borne out further by the provision that the compensation of customs employees assigned to supervise the marking of articles shall be reimbursed to the Government by the importer ***

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"What is contemplated by the term 'customs supervision' is oversight of an action-exportation, destruction, or marking-which may require an employee to be absent from his regular post of duty for some time, not an inspection which could take place in a comparatively short time at the appraiser's stores.

"In the instant case, therefore, the marking was not done under customs supervision as provided for in section 304 (c) of the Tariff Act of 1930, as amended” (id., pp. 40-41).

The United States Customs Court also considered the question of supervision of the marking of merchandise in the case of R. Haber Linen Import Co. v. United States (20 Cust. Ct. 268 (1948)). There certain cotton napkins and handkerchiefs imported from Mexico had not been legally marked at the time of importation. Subsequently, the merchandise was marked, but the marking was not done in the presence of any customs inspector. In its opinion, the court observed in part:

*** The evidence is conflicting *** as to whether a customs inspector called and examined the goods. There is no official record of this having been 34882-53--7

done. But whether or not an inspection was made, it is clear that the marking was not done under customs supervision. The term 'customs supervision' as used in section 304 (c) of the Tariff act, supra, contemplates the oversight of the marking process by a customs employee, not merely the inspection of the merchandise after it has been marked. See Geo. S. Bush & Co., Înc. v. United States (19 Cust. Ct. 37, C. D. 1064)." (id., p. 270).

The Court of Customs and Patent Appeals in the case of U. S. v. William Heyer (31 Ct. Cust. and Pat. App. 11 (1943)) was confronted with the question of the proper inspection by customs officials in connection with the appraisal of two circus horses. The horses were not viewed in person by either an examiner or an appraiser but were seen only by an examiner's clerk, who reported the results of his inspection to the examiner, who in turn reported them to the assistant appraiser, and the appraisement was based upon such findings and reports. It was held that the appraisement, based, as it was, upon the report of an examiner who failed to examine and inspect the merchandise, was illegal and void. The opinion of the court again reflected the attitude of the judiciary that inspection and supervisory requirements should be strictly interpreted when it said in part: "It is evident from the provisions of sections 500 and 502, supra, and the customs regulations, herein before referred to, that an examiner is not required to examine and inspect all imported merchandise. However, when an examiner, who, as is well known, is an expert in his line, is called upon to examine and inspect imported merchandise and report the value of such merchandise and such other facts appertaining thereto as may be necessary for a proper appraisement, we think it is clear from the provisions of section 500 (e), supra, that it is the mandatory duty of such examiner to make a personal examination and inspection of such merchandise. We hold, therefore, that, to that extent, section 500 (e), supra, is not merely directory but is mandatory.

"In the instant case, the appraisement was based upon the report of the examiner. The examiner did not examine or inspect the horses in question, but, in making his report, relied upon the report of an examination and inspection of the horses made by his assistant or clerk.

"We are of opinion, therefore, as was the trial court, that the appraisement in the instant case, based, as it was, upon the report of an examiner who failed to examine and inspect the merchandise, is illegal and void, and that the liquidation of the entry by the collector upon such an appraisement is likewise illegal and void" (id., pp. 115-116).

II. ON PRINCIPLE THERE SHOULD BE NO ABANDONMENT OF THE HISTORIC SUPERVISORY FUNCTION OF CUSTOMS OFFICIALS OR ADOPTION OF THE CALCULATED RISK POLICY

A. BASIC PHILOSOPHY BEHIND CUSTOMS SERVICE RUNS COUNTER TO ABANDONMENT OF SUPERVISORY FUNCTION OF CUSTOMS OR ADHERENCE TO A CALCULATED RISK POLICY

Nothing is more fundamental than that the customs service was established to supervise the activities of importers and exporters and to inspect the merchandise which enters and leaves this country. Enactment of tariff laws to regulate the inflow and outflow of goods would, of course, be futile unless adequate provision were made adequately to enforce those laws. In fact, as has frequently been observed, the chief objects of the customs service have been to protect the revenue and to safeguard domestic industry against foreign competition to the extent decreed by Congress in current tariff legislation. Anything which substantially undercuts the essential function of supervision and inspection by customs thus would jeopardize enforcement of the tariff laws.

Certainly in the past the customs service itself recognized the importance of guarding against any whittling away of its supervising and inspecting activities. For example, in Collecting the Customs, a publication prepared by the United States Bureau of Customs, which consists of a summary history of the development of the tariff in the United States and its administration, dated August 1, 1939, the 150th anniversary of the first Federal tariff and the organization of a customs service it is stated in part:

"It is the function of the customs service to prevent smuggling, whether it be of persons, permissible merchandise or prohibited merchandise. Customs officers do not deceive themselves into thinking that they detect and seize all merchandise