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JUDICIAL REVIEW

The first point relates to concern that the present jurisdiction of the l'uited States Customs Court to review decisions made in the administration of the customs laws will be lost under Reorganization Plan No. 3 of 1952. There is attached an opinion of the General Counsel for the Treasury Department which analyzes this suggestion and concludes that there is no foundation for concern in this regard.

In brief, the jurisdiction of the ('ustoms Court arises from statutes which provide that protested decisions of collectors and appraisers shall, if affirmed administratively, be transmitted to the Customs Court for determination. The concern that has been expressed appears to be based upon the theory that abolition of the statutory offices of collector and appraiser affords an opportunity to abolish the right of review by the Customs Court. This, of course, is not the (ase.

All functions of collectors and appraisers were transíerred to the Secretary of the Treasury almost 2 years ago by Reorganization Plan No. 26 of 1950. Every function performed by a collector or appraiser today, including the making of the decisions which are reviewed by the Customs Court, is performed solely by virtue of a delegation from the Secretary. This circumstance has in no way affected the jurisdiction of the Customs Court, nor would it affect the jurisdiction of the court if the Secretary made the decisions himself or if they were made by any other officer to whom he had delegated that function. It is the making of the decision that gives the Customs Court jurisdiction, not the use of the word "collector" or the word "appraiser" in the statute, and the Secretary now has the authority to transfer at will the duty of making the decision.

The Reorganization Act of 1949 contains savings provisions which expressly cover this situation, specifically providing for transfer of functions from one officer to another without upsetting statutory rights and duties prescribed by law. Those who are concerned lest the plan deprive the Customs Court of jurisdiction have apparently either overlooked or misunderstood section 9 of the act, which the committee report explains as a saving provision with respect to the status, after a reorganization, of statutory provisions relating to any agency or function affected by the reorganization.

The transfer of functions under a reorganization plan binds the public as well as the officials involved. A case cited in the General Counsel's opinion makes it clear that even criminal liability continues through changes by reorganization of officials specified in the statutes involved.

Surely if criminal liability continues, the right to a judicial review provided by the Congress will not be dissipated by a simple change of officials under a reorganization plan which contains no suggestion of such a consequence, and as to which the President has in his transmittal message stated precisely the contrary intent.

INTERNAL AUDIT

The second point relates to concern that the plan will weaken controls over customs revenues. This concern apparently arises because of a lack of understanding of the system of internal audit proposed for the Bureau of Customs as a result of studies under the GAO-Treasury-Budget joint accounting improvement program.

One of the objectives of the Budget and Accounting Procedures Act of 1950 and of the joint accounting improvement program is to assure in every agency a system of internal audit designed and operated according to modern concepts. Internal audit, properly conceived and carried out, is an indispensable part of an adequate system of internal control over financial operations. It is now generally recognized in business management that internal audit is a safeguard of the greatest importance with respect to the proper conduct of financial transactions, the protection of funds and other assets, and the full and fair disclosure of the results of financial activities. Properly performed, it is also a fertile source of information, to be explored by those with management, operating, and accounting responsibilities, for doing things in better ways.

The modern concept of internal auditing, although it is widely accepted in business, is fairly new in the Federal Government. The functions comptrollers of customs are required to perform today is a form of internal audit, but not an internal audit in the most enlightened and economical sense. The present system of poring over a great volume of papers and establishing duplicate records makes no allowance whatsoever for the considerations which a modern system takes into account. Consequently, time and effort are now required to be devoted to checking many relatively unimportant papers when they could be devoted to far more useful auditing activities and money would be saved in the bargain.

The system of internal audit proposed for customs, for which the plan will pave the way by eliminating existing inflexible requirements, is designed according to modern concepts and is directly in furtherance of the objectives of the Budget and Accounting Procedures Act of 1950 and the joint accounting improve. ment program. Examination and audit work under it will be fully as independent as the work of the comptrollers is today and none of the present safeguards will be relaxed in any real sense. The important point, however, as indicated before, is that the new system will strengthen financial controls in respects not heretofore covered.

It appears that a misconception with respect to the term "spot check” as used in auditing may have given rise to the concern expressed to your committee. A much better term is "selective examination,” selective because in determining auditing procedures attention is given to the degree of importance of transactions under review, the efficiency of the internal checks under review, and the number and seriousness of deficiencies found during examination. The extent of the internal auditor's examination of liquidated customs entries and other transactions should depend on these factors. As a matter of fact, the system proposed to be installed in customs recognizes that there should be a 100 percent review of certain types of customs transactions because of their importance.

In summary the system of internal audit proposed for customs will not only preserve all necessary present safeguards, but it will also strengthen financial control in customs in other respects.

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It is hoped that this information will be useful to your committee in its consideration of Reorganization Plan No. 3 of 1952. Very truly yours,

JOHN S. GRAHAM, Acting Secretary of the Treasury,

THE GENERAL COUNSEL OF THE TREASURY,

Washington, June 9, 1952.

MEMORANDUM FOR THE SECRETARY OF THE TREASURY The view was expressed in testimony before the Senate Committee on Government Operations on June 4, 1952, that Reorganization Plan No. 3 of 1952 would seriously jeopardize the existing rights of importers and American manufacturers to obtain review in the United States Customs Court of decisions made in the administration of the customs laws. On June 5, 1952, Senator George introduced Senate Resolution 331, a resolution which would disapprove Reorganization Plan No. 3 of 1952. Senator George explained that by submitting the resolution he did not intend to convey the thought that he necessarily opposes the Plan, but that he thought the committee should be able to inform the Senate whether judicial review is preserved.

The statutory right to review by the Customs Court derives from the provisions of sections 501, 514, 515, and 516 of the Tariff Act of 1930, as amended (19 U. S. C. 1501, 1514, 1515, and 1516). Section 501 provides for notice by the collector to the importer if the appraiser has set a value upon imported merchandise likely to be adverse to the importer; and the section also authorizes an appeal for reappraisement by the Customs Court to be filed within a specified period after the collector's notice. Section 514 provides that decisions of collectors of customs shall be final unless the importer files a protest in writing. Section 515 provides that upon the filing of a protest the collector shall review his decision, and if he affirms it then the matter shall be transmitted to the United States Customs Court for determination. Section 516 provides that American producers who believe the appraisement of competitive merchandise is too low or the classification improper may similarly be heard in the Customs Court after the appropriate protests have been filed.

The concern that has been expressed appears to be based upon the theory that, because the foregoing sections specifically mention "collector" and "appraiser," abolition of the statutory offices of collector and appraiser will abolish with it the right of review by the Customs Court.

It would seem to be an answer to this concern that sections 401 (h) and (j) of the Tariff Act of 1930 (19 U. S. C. 401 (h) and (j)) provide that the words “collector" and "appraiser" means any person authorized by law or regulations of the Secretary of the Treasury to perform the duties of collector or appraiser. It does not appear to be contended, for example, that abolition of certain offices of appraiser in 1932 deprive the Customs Court of jurisdiction under sections 501 or 516 of cases arising through the officers who replace those appraisers. It is not suggested that the decisions of the Customs Court in those cases over the last twenty years are null and void or that the Customs Court acted improperly in hearing them.

But if those who express concern over the effect of Reorganization Plan No. 3 are not convinced by this history, additional conclusive evidence is not hard to find.

As a basic fact it must be remembered that the present collectors and appraisers have no functions by virtura of any statute. All of their functions were transferred to the Secretary of the Treasury by Reorganization Plan No. 26 of 1950 almost 2 years ago. Every function that a collector or an appraiser performs today, including the making of the decisions which the Customs Court reviews, is performed solely by virtue of a delegation from the Secretary. This circumstance has in no way affected the jurisdiction of the Customs Court, nor would it affect the jurisdiction of the court if the Secretary made the decisions himself or if they were made by any other officer to whom he had delegated that function. To hold otherwise would be to hold that every review by the court of a decision made since Reorganization Plan No. 26 of 1950 went into effect is null and void because the court had no jurisdiction.

It is of course the making of the decision that gives the court jurisdiction, not the use of the word "collector” or the word “appraiser” in a statute enacted before a reorganization went into effect. As a matter of fact, if the Secretary should delegate the making of these decisions to officers with other titles, the codifiers of the statutory law would promptly substitute those titles in sections 501, 514, 515, and 516 just as they have done in many instances in the past.

The Reorganization Act of 1949 expressly sets out savings provisions which cover this situation fully, providing specifically for transfer of functions from one officer to another without upsetting rights and duties prescribed by law. Those who express concern that the plan may deprive the Customs Court of jurisdiction have apparently either overlooked or misunderstood section 9 of the act, which provides in part as follows: “Any statute enacted

before the effective date of such reorganization, shall, except to the extent rescinded, modified, superseded, or made inapplicable by or under authority of law or by the abolition of a function, have the same effect as if such reorganization had not been made; but where any such statute, regulation, or other action has vested the function in the agency [by definition "agency” includes “oflicer''] from which it is removed under the plan, such function shall

be considered as vested in the agency under which the function is placed by the plan."

The report of the House Committee on Expenditures in the Executive Departments (H. Rept. No. 23, 81st Cong.) said in explaining this section that it "contains saving provisions with respect to the status, after a reorganization, of statutory provisions, regulations and other actions, and suits and other proceedings, having a relation to any agency or function affected by such reorganization." It is difficult to understand how the reorganization authority could have any usefulness or efficacy at all if what the critics of Reorganization Plan No. 3 of 1952 suggest, rather than what the House Expenditures Committee said above, is the true criterion.

There are court decisions which make it very clear that the transfer of functions under a reorganization plan is not only binding on the officials involved but is also binding on the public with respect to duties required to be performed by the public. One of these decisions is Czarnecki v. United States (95 F. (20) 32), which upheld the conviction of two individuals for possessing an unregistered still. The provision of law under which these individuals were convicted had originally required registration of stills with the Collector of Internal Revenue for the taxpayer's district. By an Executive order and Treasury decision issued pursuant to a reorganization act, it was provided that stills should be registered with the district supervisor of the Alcohol Tax Unit. In holding that the transfer of functions under the reorganization was binding on the public, the court had this to say:

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“The effect of the changes worked in respect to section 3258 consists of nothing more than a substitution of another officer for registration in lieu of the collector of the district as originally designated by statute. The change so worked is binding on the public and fulfills the requirement of law. If the appellants had in their possession and custody a still set-up and had not registered it with the officer designated, they committed a violation of the law.”

This was a case involving a criminal statute, which would be construed most strictly. The court said that liability did not vanish simply because the official with respect to whom the statute gave a function had been replaced by an official to whom the function was delegated under a reorganization.

On the other hand, the question presented to us here involves statutes providing rights, remedial statutes which would be construed most liberally. The plan contains not a single word to indicate any intent to abolish the system of judicial review set up in detail by the Congress, and in fact the Presdent specifically states the contrary in his transmittal message. In this situation it is difficult to find any basis for concern that a conclusion might be reached contrary to that in the Czarnecki case.

The answer to the concern expressed is clear. In short, any fear that Reorganization Plan No. 3 of 1952 could be used to deprive the United States Customs Court of jurisdiction or jeopardize the system of judicial review set up by the Congress is wholly without foundation,

THOMAS J. LYNCH, General Counsel. (Representative communications addressed to the committee bearing on the subject matter of Albert MacC. Barnes' testimony follow :)

NATIONAL COUNCIL OF AMERICAN IMPORTERS, INC.,

New York 3, N. Y., May 28, 1952.
Hon. John L. MCCLELLAN,
Chairman, Committee on Government Operations,
United States Senate, Senate Office Building,

Washington, D. C.
MY DEAR SENATOR MCCLELLAN: Reference is made to Reorganization Plan No. 3
of 1952, pertaining to the Bureau of Customs which was transmitted to the
Congress by the President on April 10, 1952.

Section 1 of this reorganization plan proposes to abolish all offices in the Bureau of Customs of the Treasury Department, of collector of customs, comptroller of customs, surveyor of customs, and appraiser of merchandise, to which appointments are required to be made by the President, by and with the advice and consent of the Senate.

The National Council of American Importers, as the representative national organization of United States importers, is not particularly concerned as to whether these officials should be specially appointed by the President or required to be civil-service employees. Our organization is, however, deeply concerned over the proposal to abolish the position of the collector of customs because under the Tariff Act of 1930, as amended, the word "collector" is defined in section 104 (h) to mean collector of customs and includes assistant collector of customs, deputy collector of customs, and any person authorized by law or by regulation of the Secretary of the Treasury to perform the duties of a collector of customs. The tariff act further sets forth specific duties to be performed by the collector in connection with the importation of merchandise including the requirement in section 501 of the act to give a written notice of appraisement to importers under certain conditions.

We respectfully submit that Reorganization Plan No. 3 of 1952 should be
clarified with respect to the abolition of the position of collectors of customs,
as we consider it vitai that such office, whether filled by civil-service employees
or political appointments, be preserved.
Respectfully yours,

NATIONAL COUNCIL OF AMERICAN IMPORTERS, INC.,
By HARRY S. RADCLIFFE, Executive Vice President.

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BROOKS & BROOKS,

New York, May 28, 1952, COMMITTEE ON GOVERNMENT OPERATIONS,

United States Senate, Washington, D. C. GENTLEMEN : Reorganization Plan No. 3 of 1952 provides for reorganization of the Bureau of Customs of the Treasury Department and abolishment of the offices of the collectors of customs and appraisers of merchandise.

Section 501, Tariff Act of 1930, provides for notice of appraisement to be given to importers of merchandise by customs officials and grants the right of appeal to the United States customs court from the action of the appraisers; section 514 gives the importer the right of protest against collector's decisions, which protests are forwarded to the United States customs court.

This system of judicial review has been perfected by various statutes from 1890 to the present date.

If the offices of collector and appraiser are abolished, it would make it possible for the Secretary of the Treasury or anyone designated by him to, in effect, deny the right of judicial review by changing the method or place of making such notices public to some headquarters port instead of the place of original entry of each importation or by other means.

The President's letter of transmittal of this plan to the Congress disavows any such intention, but we submit that there should be a positive declaration in the plan before it becomes effective that nothing in the plan shall be so construed as to take away the right of judicial review of decisions of the collector, the appraiser, and other customs officials granted by the provisions of the Tariff Act of 1930 and other statutes of the United States relating thereto. Respectfully,

BROOKS & BROOKS.

[Telegram]

NEW YORK, N. Y., May 28, 1952. Hon. John L. MCCLELLAN, Committee on Government Operations,

Senate Office Building, Washington, D. C. Although we endorse Reorganization Plan 3, we urge your approval clearly specify understanding that existing rights of importers and others to review administrative decisions in customs courts and the means of obtaining such review will continue unimpaired. Unlimited discretion given Secretary Treasury under plan creates uncertainty for future as to continuation of such review by customs courts.

JOSEPH A. SINCLAIR, Secretary, Commerce and Industry Association of New York, Inc.

STATEMENT OF ALFRED F. BEITER, NATIONAL PRESIDENT,

NATIONAL CUSTOMS SERVICE ASSOCIATION, NEW YORK, N. Y.

RORGANIZATION PLAN No. 3 OF 1952

The CHAIRMAN. Our next witness is Mr. Alfred F. Beiter. Will you come forward, Mr. Beiter, please.

I take it Mr. Maher is not here?
Mr. BEITER. He is not here, Mr. Chairman.

The CHAIRMAN. Which plan do you wish to address your remarks to ?

Mr. BEITER. Plan No. 3.
The CHAIRMAN. The same one that we have just been discussing?
Mr. BEITER. That is right, sir.
The CHAIRMAN. Do you have a prepared statement?
Mr. BEITER. Yes, sir.

The CHAIRMAN. If you wish to submit it for the record, it will be printed in full. I will ask you to expedite your testimony as much as you can.

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