On June 5, 2020, the US Customs and Border Protection Agency (CBP) issued proposed rules to modernize the regulation of US customs brokers. CBP invites comments through the submission of written data, views, or arguments on all aspects of the proposed rule on or before August 4, 2020.
Customs brokers are private individuals and/or business entities that are licensed and regulated by CBP to assist importers in conducting customs business. Their responsibilities include – proper preparation of importation documentation; timely and accurate filing of import documents; proper classification and valuation of goods; paying clients’ duties, taxes, and fees; safeguarding their clients’ information; and protecting their licenses from misuse. Their conduct is regulated by Section 641 of the Tariff Act of 1930, as amended (19 U.S.C. 1641) and the Code of Federal Regulations (CFR), Title 19, Part 111. CBP has proposed amendments to 19 CFR, Part 111 to modernize the regulation of US customs brokers.
Key Proposed Amendments to Modernize the Regulation of US Customs Brokers
Replacement of District System with National Permit System
The current broker regulations are based on the district system which assumes that the required custom broker activities are all handled by the ports within a district. They require that customs brokers obtain a district permit which licenses them to conduct customs business on behalf of clients within that district. A broker must apply for a district permit for each broker district where the broker plans to conduct customs business. The broker must also maintain a physical presence within the district.
CBP’s proposed rules to modernize the regulation of US customs brokers recognizes that the electronic environment in which the trade community currently operates makes the district system antiquated and redundant. As of November 1, 2015, CBP’s Automated Commercial Environment (ACE) has functioned as the electronic single window system for imports and exports. Additionally, as of January 19, 2017, a number of the trade functions traditionally handled by port directors are being handled by national Centers of Excellence and Expertise, created based on subject matter expertise as opposed to geographic location and the district system. Consequently, the broker regulations which assume the need for brokers to be physically close to ports of entry no longer reflect how trade functions are being processed by CBP. Under the proposed amendments:
- The only permit available will be a national permit. Brokers will be transitioned to national permits which authorize the holders to conduct all customs business throughout the customs territory of the United States. CBP proposes to eliminate broker districts, district permits, district permit waivers, and the requirement for brokers to maintain district offices. Upon adoption of a final rule, CBP will provide guidance to those brokers with only a district permit(s) explaining the process to transition their district permit(s) to a national permit.
- The broker will have the freedom to determine where to establish the ‘‘broker’s office of record’’ within the customs territory of the United States. This office is designated by a customs broker and serves as the broker’s primary location to oversee the administration of all activities conducted under a national permit. In order to ensure reliable channels of communication between CBP and the broker, CBP proposes that the broker’s office of record must be provided in the application for a national permit and kept up to date.
- Brokers will submit an application for a broker’s license through a ‘‘designated Center’’ which will also become the broker’s primary point of contact. Upon adoption of a final rule, CBP will provide guidance informing licensed brokers of the designated Center for license and permit administration purposes.
- The customs broker license application fee will be raised from a flat $200 to $300 for individuals and $500 for business entities. CBP notes that this is significantly lower than the actual cost of processing the application (determined to be $463 for individuals and $815 for business entities) and that there will be cost savings because the need to apply for district or national permits and to pay annual user fees will be eliminated.
New Procedures to Obtain/Maintain License or Permit
- In addition to the fee changes, CBP has proposed to expand the grounds for denying a license application to include: (a) failure to establish financial responsibility; (b) the omission of pertinent facts in the application or interview; (c) detrimental commercial transactions; and (d) any other relevant information uncovered over the course of the background investigation.
- The national permit for an entity will be revoked for failure to employ a licensed customs broker who qualifies for the national permit for any continuous period of 180 days.
- Updated procedures are also proposed to reflect current practices and provide for electronic submissions. Convictions for committing or conspiring to commit an act of terrorism will be additional grounds for revoking an existing license.
Updated Duties and Responsibilities of Customs Brokers
CBP has proposed several updates to the requirements for broker records:
- Each broker must provide notification to the designated Center of any known breach of electronic or physical records relating to the broker’s customs business. Notification to CBP must be provided within 72 hours of the discovery of the breach with a list of all compromised importer identification numbers.
- Each broker must identify a knowledgeable employee to serve as designated recordkeeping contact, responsible for broker-wide financial and recordkeeping requirements. Accurate and current contact information for the designated recordkeeping contact must be maintained within ACE or made by written submission to the designated Center. CBP views this proposed change as an essential element to facilitate efficient processing of entries and entry summaries under the national permit framework.
- All records, including electronic records, must be maintained within US customs territory.
- As an exception to broker confidentiality requirements, CBP proposes to allow the broker to share information that is available from a source open to the public.
Changes to “Responsible Supervision & Control” Factors
CBP proposes the following changes to the list of factors the agency will consider when determining whether a customs broker is exercising “responsible supervision and control”:
- The factors currently in use by CBP are moved to paragraph (a) of § 111.28 with some modifications to reflect the proposed transition to a national permit framework and, along with five new factors are to be considered on a case-by-case basis.
- The five new factors that may be considered are: (a) timeliness in processing entries, payments, other obligations; (b) communication with CBP; (c) the broker’s responsiveness to CBP directives and communications; (d) communications between the broker and its officer(s); and (e) the broker’s responsiveness and action to communications and direction from its officer(s). CBP considers that a broker not communicating well with CBP or failure of the broker’s officer(s) to return calls or emails indicate a failure of responsible supervision and control.
- The information to be provided on the broker’s employees has been reduced and may be submitted electronically, with some additional time to make required updates to CBP on organizational changes.
- A new provision on ‘‘Due diligence’’ stipulates that a broker must practice due diligence in providing advice on the proper payment of any duty, tax, or other debt or obligation owing to the U.S. Government.
- New provisions governing broker relations with unlicensed persons, including freight forwarders set forth conditions under which a broker may compensate a freight forwarder for referring brokerage business, one of which forbids the freight forwarder from preventing direct communication between the importer and the broker. The broker must obtain a customs power of attorney directly from the importer of record or drawback claimant. This proposed amendment is intended to clarify that the freight forwarder cannot serve as a barrier to communications between the broker and the importer of record or drawback claimant as well as to address security concerns.
- New requirements place an affirmative duty on a broker to: (a) advise the client on the proper corrective actions required and retain a record of the broker’s communication with the client; and (b) document and report to CBP when the broker separates or terminates the broker’s representation of a client as a result of the broker determining that the client is intentionally attempting to defraud or otherwise commit any criminal act against the U.S. Government. These proposed amendments represent a significant change from current CBP regulations which require only that the broker advise the client of noncompliance and, where the client fails to comply, to terminate the relationship. CBP considers that these proposed changes will allow the broker to act as ‘‘force multipliers’’ in combating fraud and other schemes against the government.
While supportive of the overall purpose and general direction of these proposals to modernize the regulation of US customs brokers, many persons in the trade are concerned about the provisions outlined in (6) above. What are your thoughts? Contact us or share below. Provide your comments to CBP by August 4, 2020 via the Federal eRulemaking Portal and follow the instructions for submitting comments on Docket No. USCBP-2020-0009.