HQ 226017 - Automated Surety Interface; Bonds; Privacy; Disclosure; Freedom of Information Act; Trade Secrets Act; 5 U.S.C. 552(b)(4); 18 U.S.C. 1905 - United States International Trade Commision Rulings

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HQ 226017

March 31, 1995

BON-1-CO:R:C:E 226017 PH

CATEGORY: BONDS

Mr. Michael M. Davenport
Chairman, Customs Bond Committee
The American Surety Association
120 Falcon Drive, Unit #3
Fredericksburg, Virginia 22408

RE: Automated Surety Interface; Bonds; Privacy; Disclosure; Freedom of Information Act; Trade Secrets Act; 5 U.S.C. 552(b)(4); 18 U.S.C. 1905

Dear Mr. Davenport:

Your letter of June 2, 1994, concerns the notice of proposed rulemaking published in the Federal Register concerning the Automated Surety Interface (ASI) (58 FR 5680, January 22, 1993). Your letter of April 29, 1994, also concerned this matter. In the latter letter it is stated that it is understood that Customs has reached a conclusion that disclosure to sureties of certain information under the ASI proposal is illegal but that there is no legal opinion which can be made available to you in this regard. The following ruling is issued in response to your letters.

FACTS:

The inquirer is an association of United States sureties. The inquirer was given the opportunity to review and comment on certain objections raised regarding the issue of whether, under its proposed ASI regulations, Customs may make available to sureties certain information relative to importation and entry bonds prior to the time that the surety is bound.

According to the Federal Register document cited above, sureties participating in ASI would be provided certain data elements for verification by the surety that it is responsible for a bond. The data elements to be provided to sureties are specifically listed in the Federal Register document and, for single entry verification requests prior to release of cargo, include, among other data elements, the entry filer code, number, and type; importer number; filer reference number; estimated total entered value; and all available tariff numbers. Data elements to be provided to sureties for verification on a continuous bond application verification include, among other data elements, principal and co-principal identifying information, merchandise description, value, duty, and taxes and fees.

The Federal Register document describes how the system would work for single entry bonds and for continuous bonds. In the case of the former, Customs would transmit electronically through the interface the listed information (see above) to the surety identified by the broker or importer for the entry. The surety would have a maximum of 15 minutes to provide an affirmative or negative response. If the bond was not verified or no response was received from the surety within 15 minutes, the entry filer would be advised and the cargo would not be released. In the case of continuous bond verifications, Customs would transmit the described information to the surety for verification. The surety would have to provide an affirmative response (as to verification) before the continuous bond would be approved by Customs.

In the Federal Register notice, Customs explicitly recognized that some of the information that it proposed to provide to sureties may be considered confidential business information. Accordingly, Customs stated that it was particularly interested in receiving comments from brokers, importers, or other affected individuals on whether the disclosure of any of this information would cause competitive harm.

ISSUE:

May Customs disclose to sureties the information described in the FACTS portion of this ruling when that information is disclosed prior to the time that the surety is bound, as described in the FACTS portion of this ruling?

LAW AND ANALYSIS:

The Customs Service has taken the position, and the Courts have upheld Customs position in this regard, that information relating to the value of imported merchandise is exempt from disclosure under the Freedom of Information Act (5 U.S.C. 552) (FOIA), pursuant to subsection (b)(4) of that Act. See Timken Co. v. United States, 491 F. Supp. 557 (D.D.C. 1980), and Timken Co. v. U.S. Customs Service, 531 F. Supp. 194 (D.D.C. 1981). In the latter of these decisions, the Court found "... that the release of current information would be likely to cause substantial competitive harm if released and is likely to impair the ability of USCS to obtain such information in the future" (531 F. Supp. at 198).

Subsection (b)(4) of the Freedom of Information Act (5 U.S.C. 552(b)(4)), provides that the Act does not apply to matters that are "trade secrets and commercial or financial information obtained from a person and privileged or confidential[.]" The exemptions from disclosure set forth in section 552(b) do not prohibit disclosure, they demarcate a Government agency's obligation to disclose. See Chrysler Corp. v. Brown, 441 U.S. 281, 293, 99 S. Ct. 1705, 1712 (1979): "[s]ubsection (b), 5 U.S.C. § 552(b), which lists the exemptions, simply states that the specified material is not subject to the disclosure obligations set out in subsection (a). By its terms, subsection (b) demarcates the agency's obligation to disclose; it does not foreclose disclosure."

The latter case (i.e., Chrysler Corp. v. Brown) also casts light on the applicability of the Trade Secrets Act, as amended (18 U.S.C. 1905) to the matter under consideration. Under section 1905:

Whoever, being an officer or employee of the United States or of any department or agency thereof ... publishes, divulges, discloses, or makes known in any manner or to any extent not authorized by law any information coming to him in the course of his employment or official duties or by reason of any examination or investigation made by, or return, report or record made to or filed with, such department or agency or officer or employee thereof, which information concerns or relates to the trade secrets ... or to the identity, confidential statistical data, amount or source of any income, profits, losses, or expenditures of any person, firm, partnership, corporation, or association ... shall be fined ... or imprisoned ... or both ...."

In the Chrysler case, Chrysler sought to enjoin the Agency disclosure of the information there under consideration on the basis of the FOIA (see above) and section 1905. The Court reviewed the legislative history of section 1905 and concluded that it "... does address formal agency action ...." (441 U.S. at 302, 99 S. Ct. 1717.) The Court then stated that "... the appropriate inquiry is whether [the Agency's] regulations provide the 'authoriz[ation] by law' required by the statute." (id.) In order for a regulation to have the "force and effect of law", the Court held that it must be "substantive" and it "must be rooted in a grant of such power by the Congress and subject to limitations which that body imposes." (441 U.S. at 303, 99 S. Ct. at 1718.) The Court stated that "[s]ince materials that are exempt from disclosure under the FOIA are by virtue of ... this opinion outside the ambit of that Act, the Government cannot rely on the FOIA as congressional authorization for disclosure regulations that permit the release of information within the Act's nine exemptions." (441 U.S. at 303, 304, 99 St. Ct. at 1718.)

The Court went on to state:

The pertinent inquiry is whether under any of the arguable statutory grants of authority the [Agency] disclosure regulations relied on by the respondents are reasonably within the contemplation of that grant of authority. We think that it is clear than when it enacted these statues, Congress was not concerned with public disclosure of trade secrets or confidential business information, and, unless we were to hold that any federal statute that implies some authority to collect information must grant legislative authority to disclose that information to the public, it is simply not possible to find in these statutes a delegation of the disclosure authority asserted by the respondents.

This is not to say that any grant of legislative authority to a federal agency by Congress must be specific before regulations promulgated pursuant to it can be binding on courts in a manner akin to statutes. What is important is that the reviewing court reasonably be able to conclude that the grant of authority contemplates the regulations issued. [441 U.S. at 307, 309, 99 S.Ct. at 1720, 1721; emphasis in original.]

As stated above, the regulations proposed in the January 22, 1993, Federal Register notice (cited above) would authorize the transmittal of the described information to sureties before they are bound as sureties on the entry or entries. That is, the information would be provided electronically to the surety identified by the broker or importer and the surety would have up to 15 minutes to affirm or deny that it was accepting liability; if it did not accept liability or if it did not timely respond, the information would have been disclosed to the surety without the surety being bound or being a party to the entry transaction. Thus, the proposed regulations could result in the transmittal of the information to unrelated third parties. As stated above, the described information includes information which is subject to the exemption in 5 U.S.C. 552(b)(4) (see first paragraph in LAW AND ANALYSIS, above).

We are unable to find in the authorizing statutes (see 19 U.S.C. 66, 1623, and 1624) a grant of authority for the disclosure of the information under consideration in the situation before the surety is bound. As the Court stated in the Chrysler case, as quoted above, "[w]e think that it is clear that when it enacted these statutes, Congress was not concerned with public disclosure of trade secrets or confidential business information ...." We see no evidence of any such concern in the recent amendments to section 1623 by the NAFTA Implementation Act (section 647, Public Law 103-182), or in the legislative history thereto (see H. Report 103-361, part I, p. 142, 103d Cong., 1st Sess.; S. Report 103-189, p. 92, 103d Cong., 1st Sess.). We are unable to, again in the words of the Court quoted above, "reasonably ... conclude that the grant of authority contemplates the regulations issued." Therefore, we conclude that disclosure of information which is subject to the exemption in 5 U.S.C. 552(b)(4) to sureties relative to importation and entry bonds before the sureties are bound is not authorized by law and is, accordingly, prohibited by 18 U.S.C. 1905. We note that this is consistent with Customs long-standing position in this regard, supported by the good reasons therefore as set forth in the two Timken Co. cases, discussed above.

We understand that you may also be interested in whether Customs could release such information prior to the time that the surety is bound pursuant to a waiver. At this time, Customs takes no position on the legality or advisability of such a waiver system. As we are sure you will recognize, the implementation of such a system would be dependent on the resolution of questions involving policy and administration. The identification of the specific information to be disclosed is also significant to Customs consideration of such a system. In summary, Customs is not ready or willing to commit to the implementation of a waiver system at this time.

HOLDING:

Customs may not disclose to sureties the information described in the FACTS portion of this ruling when that information is disclosed before the surety is bound, as described in the FACTS portion of this ruling.

Sincerely,

John Durant, Director

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