CERTIFIED CUSTOMS SPECIALIST (CCS)

COURSE MATERIALS

Module 6

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Module 6: Licensing and Responsibilities of Customs Brokers

In this module, the role of customs brokers in the entry process will be examined. The information will also provide the requirements that customs brokers must meet in their business practice, outline the requirements to obtain a license or permit, and speak about the regulatory requirements that are outlined by CBP for representation of importers by customs brokers.

List of Lessons:

• Lesson 1: History of Customs Brokers • Lesson 2: Customs Business • Lesson 3: Licensing Process (19 CFR 111.11) • Lesson 4: Permits and Responsible Supervision and Control • Lesson 5: Broker Obligations • Lesson 6: Broker/Client Relationship • Lesson 7: Power of Attorney (19 CFR 141)

Lesson 1: History of Customs Brokers

Goods imported into the U.S. and its territories must comply with formalities required under statute. Specific documents and information are required for the formal entry of merchandise. In addition, other precise legal responsibilities must be met.

As early as 1799, laws were passed that compelled the actual consignee to enter the goods but it also left it open for a “known agent or factor” to make entry on the consignee’s behalf. By the mid-1850’s, it was common practice at many ports for the importer/consignee to endorse the bill of lading over to a customshouse broker, who then filed the entry documents. Brokers or agents for the importer/consignee were not regulated and illegal transactions were rampant. In spite of frequent government reminders that the importer remained legally responsible for the actions of its agents, the importer’s agents continued to operate in an unlawful manner.

As the trade industry grew and the importance of the services of these import agents became more and more obvious, the Department of Treasury recognized the necessity for tighter controls on the right to make entry. In 1857, the U.S. government began restricting entry of merchandise to “the owner or consignee, who alone is authorized, under our revenue system,

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to take the prescribed oath, give the requisite bond, and pay the duties”. Although Customs laws and regulations continued to restrict the right to make entry, the unregulated business of customs brokers continued to grow. Experienced brokers knew their way around the legal requirements and with a properly executed Power of Attorney, could act as the importer’s agent and file entries in the importer’s name. The importer, of course, remained legally responsible.

Another effort was made in 1894. The Treasury sought to control activity through a licensing process and began requiring the collector or chief officer of the port to issue a license to “any reputable and competent person desiring to transact business as a customs-house broker.”

Over the years the character language has been modified in the search for the correct balance of operational honesty and morality. Other licensing requirements exist and will be discussed later, but, in the beginning the primary concern was the honesty and morality of the import agent. The current statutory language permits the licensing of a person who “is of good moral character and qualified to render valuable service to others in the conduct of customs business.”

Lesson 2: Customs Business

A licensed customs broker has a wide range of duties and responsibilities. Primarily, a broker may conduct customs business on behalf of others. It is essential to understand what is meant by the term “customs business.” The specific language of 19 CFR 1641(a)(2) defines “customs business” as:

“those activities involving transactions with the Customs Service concerning

• The entry and admissibility of merchandise, • Its classification and valuation, • The payment of duties, taxes, or other charges assessed or collected by the Customs

Service upon merchandise by reason of its importation, or • The refund, rebate, or drawback thereof.

It also includes:

• The preparation of documents or forms in any format and

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• The electronic transmission of documents, invoices, bills, or parts thereof, intended to be

filed with the Customs Service in furtherance of such activities, whether or not signed or filed by the preparer, or

• Activities relating to such preparation, but • Does not include the mere electronic transmission of data received for transmission to

Customs.” To perform any of the above listed roles, a broker must either be acting on his own behalf or be licensed by U.S. Customs & Border Protection (CBP). Any person who intentionally conducts customs business on behalf of another, without holding a valid customs broker license shall be liable to the United States for a maximum monetary penalty not to exceed $10,000 for each prohibited transaction as well as any other statutory violations.

A valid customs broker license is not required in the following situations:

(1) An employee of an importer/exporter acting on behalf of the employer.

(2) An employee acting on behalf of a broker. The broker has supplied the port director with notification that employee is authorized to transact customs business on their behalf and/or executed a power of attorney for the employee to sign documents pertaining to customs business. In both these instances the broker must exercise sufficient supervision over the employee to ensure that all transactions are performed promptly and in accordance with regulations. In all circumstances, the broker is fully responsible for any errors and omissions committed by the employee.

(3) Acting in connection with the entry or clearance of vessels under navigation laws.

(4) A carrier making entry for transportation in bond.

(5) Entering noncommercial goods on behalf of someone else under a power of attorney (19 CFR 141.33)

(6) Admission into a foreign trade zone by the zone operator with a valid power of attorney.

(7) Importer Security Filing (ISF), also known as “10+2”, which is the electronic filing of ten key data to CBP for ocean freight shipments. ISF should be filed at least 24 hours prior to lading at on a vessel destined to the USA and must be secured by a bond.

Lesson 3: Licensing Process (19 CFR 111.11)

A license is a form of permission granted by authority permitting an individual or business to engage in an activity that would otherwise be unlawful. The basic requirements for a broker’s license require an individual, at the time the application is submitted:

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• Be a citizen of the United States; • Not an officer or employee of the U.S. Government; • Be at least 21 years of age; • Be of good moral character; and • Remit $200 examination fee and establish they have a satisfactory knowledge of

customs laws, regulations, procedures and related matters by making a 75 percent or higher grade on the written examination which is given in April and October every year

Licenses are also granted to partnerships, corporations, and associations. In order to qualify for a license, a partnership must have at least one member of the partnership who is a licensed broker. A corporation or association must be empowered under Articles of Incorporation or Articles of Association to transact Customs business as a broker; and have at least one corporate officer who is a licensed Customs broker.

Applications must be submitted within three years of passing the written examination to the port director in the port where the applicant intends to do business. The application must include a complete CBP Form 3124, $200 non-refundable application fee, and fingerprints on form FD 258 or electronically. The port director will post a notice for two weeks in the customhouse and on-line to invite comments or information regarding the issuance of the license.

After the application has been properly submitted, the applicant must undergo a background investigation which includes fingerprint analysis and review of arrest records. The investigation also includes exploring the business integrity, character and reputation of each applicant. These investigations include interviewing friends, neighbors, and co-workers. Criminal background and credit checks are also conducted.

An application may be denied for many reasons, but the most frequent grounds for denying a license are:

• Failure to meet CFR 111.11 requirements • Willful misstatements of pertinent facts • Failure to establish business integrity and the good character of the applicant • A reputation imputing to the applicant criminal, dishonest or unethical conduct

If an application is denied, the applicant has the right to apply for a review by the Assistant Commissioner with subsequent appeals leading all the way to the Court of International Trade.

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Once issued, a license or permit may be revoked or suspended. There are many reasons outlined under 19 CFR 111.53, including:

• In the case of partnerships, corporations or associations, employing a felon without written permission from the Assistant Commissioner, or defrauding, deceiving, misleading or threatening a client

• In the case of a permit, failing to employ within the district at least one licensed member or officer for a period of 120, or 180 days in the case of an additional district

• Making a false or misleading declaration, or omitting information from the license or permit application

• Violation of customs laws, rules or regulations enforced by CBP • Felony or misdemeanor convictions after applying for a license including but not limited

to the violation of trade or customs laws, fraud, larceny, theft, robbery, counterfeiting, forgery or extortion

• No longer meeting the requirements of 19 CFR 111.11 and 19

These matters are surrounded and supported by a series of disciplinary procedures including complaints, investigations, preliminary proceedings, hearings and appeals.

Every third year, in accordance with 19 CFR 111.30, each entity holding a broker’s license must file a written status report with the port that originally issued the license, and pay a processing fee of $100. This report, commonly known as the triennial report, was originally due on February 1, 1985. Subsequent reports are due by February 1 of each third year after 1985. Lesson 4: Permits and Responsible Supervision and Control

Successful applicants now take on the status of a licensed broker. The broker may be issued a permit to conduct customs business in the district through which the license application was made; subject to fee payments, and the Port Director’s satisfaction that the applicant will indeed do business in their district. A licensed broker may secure a permit to conduct business in another district port or a national permit is available, but the applicant must satisfy all the accompanying regulatory requirements. The most significant factor is the broker’s exercise of responsible supervision and control.

Responsible supervision and control is terminology every importing professional should commit to memory. This is the standard by which importing professionals will be measured.

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Reasonable supervision and control is defined in the Regulations as: “…that degree of supervision and control necessary to ensure the proper transaction of the customs business of a broker, including actions necessary to ensure that an employee of a broker provides substantially the same quality of service in handling customs transactions that the broker is required to provide.”

Every individual broker operating as a sole proprietor and every licensed member of a partnership that is a broker and every licensed officer of an association or corporation that is a broker must exercise responsible supervision and control over the customs business conducted in the district. The permitted broker is directly responsible for the acts or omissions of his employees within the scope of Customs business. While the determination of what comprises responsible supervision and control varies, it could include:

• Training of employees based on the volume and type of business they conduct • Issuance of written guidelines and instructions to their employees • Entry reject rate • Recordkeeping procedures • Frequency of audits and visits to offices that the broker supervises

As separate permit is generally required in each district in which a broker conducts Customs business. Some common exceptions are:

• Entries filed via Remote Location Filing (RLF) • Drawback claims can be manually filed in districts that have drawback offices, or may be

filed electronically • A broker may place an employee to consult on customs business in a client’s office in

another district and no permit is required unless entries are being filed in that port • Post-entry representation on behalf of a client where that broker did not file entry

If a broker does not hold a national permit or a district permit for an area where he wishes to conduct customs business, that broker may execute a sub-Power of Attorney to a licensed broker who holds a permit for that district, provided that the power of attorney from the importer to the first broker authorizes such action . The local broker may elect to conduct customs business as an agent of the broker holding the primary POA.

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Lesson 5: Broker Obligations

Licensed brokers provide a valuable service to the international trade community. The broker’s licensing examination is intended to determine an individual’s knowledge of Customs and related laws, regulations and procedures, all other appropriate matters necessary to render brokerage services. By being licensed, brokers accept explicit regulatory obligations.

First, a broker must maintain orderly records of all his financial transactions, correspondence and other records relating to his customs business. These transaction records must be kept confidential, stored for a period of at least five years from date of entry or longer, based on Regulations for the Customs transactions involved, i.e. when Drawback claims are filed, and must be made available to CBP upon valid request. These recordkeeping requirements are detailed in CBP Informed Compliance Publication (ICP) “What Every Member of the Trade Community Should Know About Recordkeeping” available on the CBP website, as well as in 19 CFR 111.21 and 23.

Second, brokers must submit up to date and detailed company and employee information, including employee names, social security numbers, home addresses, places and dates of birth. CBP must also be notified by the broker when there are changes in ownership or the termination of a qualifying officer of the broker’s corporation. Likewise, all changes to the name, address, as well as the location of business records, and organization of a broker’s business must be reported to CBP, including the termination of their brokerage business. This requirement is found in 19 CFR 111.28(b).

Third, a broker is mandated by regulation to operate in a professional manner toward his client and to CBP. These broad commitments are strengthened by various specific regulations concerning conflicts of interest, false information or documentation, abuse of one’s brokerage license and knowingly conducting business with parties who are “notoriously disreputable” or whose broker license was suspended, revoked, or cancelled “with prejudice”.

Finally, each broker must exercise due diligence in making financial settlements, in answering correspondence, and in preparing or assisting in the preparation and filing of records relating to any customs business matter handled by him as a broker. Payment of duty, tax, or obligations owing to Customs must be made by the responsible broker on behalf of the client on or before the date that payment is due. Payments received by a broker from a client after the due date must be transmitted to Customs within 5 working days from receipt by the broker.

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On occasion, monies may be received by the broker from CBP payable to the client. The broker must provide a written statement to a client accounting for such funds. Additionally, a detailed accounting of all client monies not actually paid to CBP must be made within 60 calendar days of receipt except no written statement is required if there is actual payment of the funds by a broker.

Furthermore, all brokers must provide their clients with the following written notification:

“If you are the importer of record, payment to the broker will not relieve you of liability for customs charges (duties, taxes, or other debts owed Customs) in the event the charges are not paid by the broker. Therefore, if you pay by check, customs charges may be paid with a separate check payable to the “U.S. Customs and Border Protection” which will be delivered to Customs by the broker.”

This notification must be given on or attached to every power of attorney provided by the broker to a client and to each active client every 12 months, in writing. In this way, CBP is working to ensure that importers become aware that their legal obligations are not discharged by using the services of a broker.

Lesson 6: Broker/Client Relationship

The key to a successful broker-client relationship is good communication. The broker should have a thorough knowledge of the needs of his client's business and the client should be made aware of the range of services the broker can provide.

The traditional role of the customs broker has been to affect the release and entry of his client's goods in a timely and cost-effective manner, to secure that the import has been processed in full compliance with ALL applicable Regulations, and to pay any applicable duties, taxes, and fees on the client’s behalf. However, the role of the customs broker is changing. The implementation of various trade agreements has resulted in fewer duties and taxes being applicable, and CBP has necessarily moved its emphasis from revenue collection to security and compliance issues. As well, the implementation of monthly duty payment (PMS – Periodic Monthly Statement) has further enabled the payment of duty directly to CBP by importers. Because of the emphasis on security and compliance issues, importers and exporters must be prepared for CBP audits. Customs brokers can assist their clients by helping them to prepare for audits, and ensuring that all records relating to import and export transactions, not just those under the broker’s care, are in order.

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To satisfy CBP requirements in accounting for imported goods, a significant amount of information must be made available to the customs broker. Among other things, this includes information found on commercial invoices; certificates of origin; manifests and cargo control documents; FDA, FCC, Lacey, F&W and other government agency forms; Anti-Dumping and Countervailing Duty Statements; and bills of lading. This information is translated into coded customs entry documents and submitted to CBP. The customs broker must have a thorough knowledge and understanding of the products and nature of the importer's business.

In addition, most customs brokers are qualified to perform other highly technical functions such as processing of duty refunds, requesting a re-determination of the tariff classification or the value for duty, applying for duty relief and providing consulting services.

Many customs brokers also have the expertise to work within the transportation community. The extent to which the customs broker becomes involved with such tasks as securing steamship releases, surrendering original bills of lading, accepting and delivering customs releases, preparing and issuing delivery orders, and advancing freight, handling, or delivery charges, depends on the regional and local practices of transportation companies and their cargo agents.

Lesson 7: Power of Attorney (19 CFR 141)

A critical compliance requirement of the broker-client relationship is an executed and valid power of attorney (POA). The person granting the authority is known as the principal or grantor, while the person being authorized to act is the agent or grantee. Brokers must obtain POA from their client before transacting customs business in that client’s’ name.

There are two instances when a POA is not required:

1. When the broker is acting as importer of record in the transaction

2. If the person signing customs documents on behalf of a resident corporation is known to the port director to be the president, vice president, treasurer, or secretary of that corporation

When POA is required of a resident corporation, it must be executed and signed by a duly authorized Corporate Officer (President, VP, Treasurer, Secretary, CEO, CFO). If the principal is a non-resident corporation, the POA must contain a clause authorizing the agent to accept

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service of process on behalf of the principal. Nonresident corporations are also required to support the POA with documentation establishing the authority of the grantor to execute the power of attorney for the corporation. This supplemental document is often called “Corporate Certification” and should be signed by a Managing Director. A POA issued by a partnership is limited to a period not to exceed two years from the date of execution and must be signed by one of the partners.

Brokers must keep POA's on file until revoked. Revoked POA's and any applicable letters of revocation must be retained for five years after the date of revocation or for five years after the date the client ceases to be an active client, whichever period is later. A broker may transact customs business for a client on the basis of the receipt of a faxed power of attorney. The broker may retain the faxed power in his records.

The POA should list the full legal name of the principal and of the broker as well as any authorized trade or fictitious names. A simple name change or the acquisition of a new trade or fictitious name by either the principal or the broker will not affect the validity of existing POA. However, any POA's executed in the future should list the new name. A broker must obtain new POA's from existing clients when a business restructuring results in the termination of the legal existence of either the principal or the broker.

Unless a power of attorney specifically authorizes the agent to act thereunder at all Customs ports, the name of each port where the agent is authorized to act thereunder shall be stated in the power of attorney.

For both commercial and security risk purposes, CBP strongly urges that brokers consider the following means to thoroughly validate powers of attorney:

• To the greatest extent possible, have POA's completed in person so the personal

identification (driver’s license, passport, etc.) can be reviewed.

• Check applicable Web sites to verify the POA grantor’s business and registration with state authorities. One example is to check the applicable Secretary of State’s site.

• If the principal uses a trade or fictitious name in doing business, confirm that the name appears on the POA.

• Verify that the importer’s name, importer number and Employer Identification Number (also known as the Federal Tax Identification Number) on the POA match what is in

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the Automated Commercial System (ACS) or Automated Commercial Environment (ACE).

• Check www.bis.doc.gov/complianceandenforcement/index.htm and other sites to confirm that the POA grantor is not a Denied or Restricted party on any published U.S. Government list.

Other types of POAs which brokers are required to secure and keep on file are:

Employee Powers of Attorney: Brokers are also required to keep employee Powers of Attorney permitting the broker’s employees to sign documents pertaining to Customs business under the broker’s license.

ISF Powers of Attorney: An ISF importer may designate an authorized agent to file the Importer Security Filing on the ISF importer’s behalf. The agent must have a valid Power of Attorney from the ISF importer. This can be covered under the importer Power of Attorney.

Sub-Powers of Attorney: Brokers may issue Power of Attorney to another broker if the importer Power of Attorney contains authority to “designate other brokers” or “authorize other Customs Brokers” to act as grantor’s (importer’s) agent.