B-241592.3, Dec 13, 1991, Office of General Counsel

B-241592.3, Dec 13, 1991, Office of General Counsel

DIGEST: In response to various claims of the Virgin Islands, the Advisory Services of the Virgin Islands is advised that there is no authority to pay interest on funds held by Customs on behalf of the Virgin Islands absent an agreement or statute, nor is there any legal authority to cover over to the Virgin Islands customs duties collected through preclearance operations on goods entering the mainland from the Virgin Islands. Virgin Islands v. Blumenthal, 642 F.2d 641 (Ct. App. D.C. Cir. 1980), reh'g denied, Dec. 18, 1980, cert. denied, 451 U.S. 983 (1981). Virgin Islands account is a deposit fund and various provisions in title 31 U.S.C. which refer to trust funds do not apply. Attorney General of the Virgin Islands is also advised that the transfer of funds on behalf of the Virgin Islands is within the jurisdiction of Customs and not GAO.

Attorneys

John A. Babb:

Advisory Services of the Virgin Islands:

We refer to your letter of August 19, 1991, and additional correspondence, requesting review of various claims submitted on behalf of the Virgin Islands, including a claim for $5.2 million for customs duty collections which you assert have been improperly withheld by the United States Customs Service.

These claims have previously been considered by our Office in connection with a report we issued to the House Subcommittee on Insular and International Affairs in December 1989, entitled Unresolved Audit Issues Between Customs and the Virgin Islands, GAO/GGD-90-21, Dec. 8, 1989 (B-236775). We have also considered and denied your claim for the $5.2 million in our decision of Mar. 13, 1991, B-241592, which we affirmed in our letters to you of May 16 and July 23, 1991.

The $5.2 million claim arose in 1987 when, in connection with its review of a draft audit report prepared by the Virgin Islands's auditor, Customs discovered that the official deposit account maintained by the United States Treasury for the Virgin Islands had a balance of approximately $5.2 million more than the amounts paid by Customs in prior years to the Islands for its duty collections. Customs concluded that the money did not belong in the Virgin Islands fund, but instead represented administrative expenses which it had incurred and which it had properly deducted from the duty collections paid to the Island. Customs attributed the $5.2 million balance to a reporting problem in that it had neglected to report that amount of expenses to Treasury so that Treasury could transfer the funds to Customs' account.

You disputed Customs' determination, alleging that the balance arose from Customs failure to pay Virgin Islands the correct amount of duty collections for fiscal years prior to 1981. In support of your claim, you submitted your calculations of receipts, expenditures and balances from fiscal years 1977 thru 1980.

Our Office then reviewed the matter. We concluded, both in our 1989 audit report and in our subsequent decisions, that because the records for these years were no longer available, we could not verify your calculations. For this reason we denied your claim.

In your latest submissions you argue that, even in the absence of records to establish whether the $5.2 million belongs to the Virgin Islands or to Customs, the presumption should favor the Islands. You cite 31 U.S.C. Sec. 1501, which provides that an amount shall be recorded as an obligation of the United States only when supported by documentary evidence. It is your position that unless there is documentary evidence to show that the money in the account belongs to the United States, it should be paid to the Virgin Islands.

The provision you cite simply deals with how government obligations are to be recorded. It has nothing to do with resolving the question of whether the disputed $5.2 million balance resulted from past underpayments to the Virgin Islands, as you assert, or from Customs' failure to report all of its collection expenses to Treasury, as it asserts.

On this question, the Comptroller of the Customs by letter dated September 17, 1991, states that Customs has located records which substantiates its position. Its records, the Comptroller reports, show that during fiscal year 1982 about $7 million was deducted from the Virgin Islands account to cover the Customs costs of collection, but only $5.3 million was included on the reports to Treasury as reimbursements to Customs. The Comptroller states that although Customs has been unable to locate any other such discrepancies for the period involved, "we are reasonably certain that the Virgin Islands received all of the duties that they are entitled to during this period."

Along with the letter, the Comptroller has enclosed a schedule showing the amounts reported on its Statement of Transactions (SF 224s) to Treasury for fiscal year 1982, and the actual disbursements posted to the Customs Service accounts. This schedule shows that Customs disbursements were underreported to Treasury in the amount of $1,667,611. While Customs does not have documentation to show how the remaining $3.5 million discrepancy arose, it has provided partial substantiation for its position that the $5.2 million balance arose because of its failure to report the full extent of its expenses to Treasury. On the other hand, there is no evidence to support your claim to the $5.2 million balance. Accordingly, we again deny this claim.

You next claim that interest is due on all duties collected by Customs for the Virgin Islands, citing 31 U.S.C. Secs. 1321, 1323, and 9702 in support. Section 1321(a) contains a list of trust funds (which list does not include Virgin Islands duty collections); section 1323(c) provides in part that "unearned amounts shall be deposited in the Treasury as trust funds ...;" and section 9702 of title 31 provides that amounts held in trust shall be invested in government obligations. Although the Virgin Islands Treasury account is not listed in section 1321(a), you argue that it is analogous to those that are listed, and hence is also a trust fund under 31 U.S.C. Sec. 1323(b), which states that amounts that are analogous to the funds listed in subsection (a) shall be treated as trust funds.

We dealt with this issue in our audit report, and concluded that there was no legal basis to pay interest on these collections. GAO/GGD 90-21, supra, at p. 10 and 11. We agreed with Customs that the funds it collects for the account of the Virgin Islands are held by Treasury as a deposit account, which is an account established to account for collections that are held temporarily and later refunded. Moreover, we pointed out that in United States v. Mescalero Apache Tribe, 518 F.2d 1309 (CT.CL. 1975), the Court of Claims ruled that section 9702 does not provide an independent basis for paying interest] rather, the provision is merely a direction to government officials holding trust funds that are otherwise required by statute, treaty or contract, to be invested, to invest them in United States obligations. Thus, even assuming Virgin Islands duty collections are considered to be analogous to some of the funds listed in section 1321(a), interest would only be due on these funds if expressly authorized by statute or contract. Since interest is not expressly provided for in the case of Virgin Islands duty collections, the claim is denied.

Your final claim concerns preclearance customs, that is, duties collected on articles bought by travelers in the Virgin Islands and paid prior to their leaving the Islands purely as a matter of convenience. It is your contention that by statute these collections are required to be credited to the Virgin Islands.

This issue was also discussed in our audit report at pages 8, 9 and 10, where we concluded that preclearance collections do not belong to the Virgin Islands. The relevant statute is 48 U.S.C. Sec. 1642(a), which provides that:

"Notwithstanding any other provision of law, the proceeds of customs duties collected in the Virgin Islands less the cost of collecting all said duties shall ... be covered into the Treasury of the Virgin Islands.

As you know, the United States has long taken the position that only duties collected on articles arriving in the Virgin Islands, not leaving, are required to be deposited into the Virgin Islands treasury. See 23 Dec.Comp. 574 (1917). In Virgin Islands v. Blumenthal, 642 F.2d 641 (Ct. App. D.C. Cir. 1980), reh'g denied, Dec. 18, 1980, cert. denied, 451 U.S. 983 (1981), the court affirmed the government's longstanding position by ruling that the United States was not required to deposit into the Virgin Islands Treasury customs duties collected on goods transported into the United States from the Virgin Islands.

In summary, we see no basis to allow the claims you have presented. appears to us that you have exhausted the administrative processes available to you for asserting these claims. If you wish to pursue them further, you may wish to consider filing a lawsuit to collect the amounts you believe are owed the Virgin Islands.