BRO-1-RR:IT:EC 114654 GG

Mr. Joseph Wilson
Port Director
U.S. Customs Service
111 W. Huron Street
Buffalo, NY 14202

RE: Request for Internal Advice; Right to Make Entry; Customs Business; Entry Requirements of Non-Resident Principal

Dear Mr. Wilson:

This is in response to a memorandum, dated March 25, 1999, received from Supervisory Entry Specialist Lori Kwiatkowski. It concerns the right of a Canadian company, Customs Support Services Inc. (“CSS”), to install ABI-compatable software in the computer systems of Canadian clients, for eventual transmission of entry information to Customs.

FACTS:

CSS installs customs self-clearance software in private Canadian companies to enable them to provide Revenue Canada with all necessary import documentation. CSS trains the private companies’ personnel not only on the software but also on all aspects of Canadian customs policies and procedures. CSS would like to provide ABI software to the same clients so that those clients could file their own entry information on southbound shipments into the United States. CSS indicates that those clients would use “sub brokers” or “sub filers” at the border to handle border cargo selectivity, seizures, etc.

Under the proposal, data transmissions from the Canadian clients would be sent via the Internet to a service bureau in Illinois. The service bureau would then relay the information to U.S. Customs over their ABI line, listing the Canadian companies as the filer. CSS would also train the Canadian exporters in all U.S. Customs policies and procedures and would take steps to ensure a high compliance rate. It would also “work with” U.S. Customs to facilitate clearance of its Canadian clients’ merchandise.

CSS currently has on staff a consultant who is a licensed U.S. customs broker. This person will become a full-time employee of CSS upon approval of this proposal.

ISSUE:

1) Whether the Canadian companies have the right to make entry?; and

2) Whether CSS’s proposed activities constitute “customs business”?

LAW AND ANALYSIS:

Section 484(a)(1) of the Tariff Act of 1930, as amended (19 U.S.C. §1484(a)(1)), provides that one of the persons qualifying as the “importer of record”, shall, using reasonable care, make entry of imported merchandise. Section 484(a)(2)(B) lists the qualifying persons as the owner or purchaser of the merchandise, or alternatively, a licensed customs broker who has been appropriately designated by the owner, purchaser or consignee. At the outset, we note that the Canadian companies may file entries in their own name only if they meet the definition of “importer of record”. Since presumably the companies are not licensed U.S. brokers, they would have to be owners or purchasers of the merchandise. Customs Directive 3530-02 further explains the meaning of the term “owner or purchaser” as used in the right to make entry context. Specifically, an “owner or purchaser” is:

[A]ny party with a financial interest in a transaction, including, but not limited to, the actual owner of the goods, the actual purchaser of the goods, a buying or selling agent, a person or firm who imports on consignment, a person or firm who imports under loan or lease, a person or firm who imports for exhibition at a trade fair, a person or firm who imports goods for repair or alteration or further fabrication, etc. Any such owner or purchaser may make entry on his own behalf or may designate a licensed customhouse broker to make entry on his behalf and may be shown as the importer of record on the CF 7501. The terms “owner” or “purchaser” would not include a “nominal consignee” who effectively, possesses no other right, title, or interest in the goods except as he possessed under a bill of lading, air waybill, or other shipping document.

Examples of nominal consignees not authorized to file Customs entries are courier services, freight consolidators who handle consolidated shipments ... and customhouse brokers who are not licensed to transact Customs business in Customs districts where a shipment is being entered.

Applied here, the Canadian companies would be precluded from being the entry filer if they were no longer the owner of the merchandise at the time of making entry. This may depend on how their sales transactions are arranged, i.e., the terms of sale would dictate when title passes from seller to buyer. Of course, they could also make entry if they possessed any of the other types of financial interest listed in the directive.

Canadian companies eligible to file entries as the importer of record would have to comply with the special entry requirements that attach to nonresident corporations. Section 141.18 of the Customs Regulations (19 CFR §141.18) requires a nonresident corporation to have a resident agent in the State where the port of entry is located to accept service of process against such corporation; it also mandates that the nonresident corporation have a basic importation bond on file with Customs that is issued by a resident corporate surety.

The second issue which we will now address is whether CSS’s proposed activities constitute “customs business”. Section 641(b)(1) of the Tariff Act of 1930, as amended (19 U.S.C. §1641(b)(1)) provides that “[n]o person may conduct customs business (other than solely on behalf of that person) unless that person holds a valid customs broker’s license ...”. The term “customs business” is defined in Section 641(a)(2) of the statute as:

[T]hose 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 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.

The performance by an unlicensed person of an activity amounting to “customs business” may subject that person to a penalty of up to $10,000 for each violation. (19 U.S.C. §1641(b)(6).) Corporations are considered to be persons for customs broker licensing purposes. (19 CFR §111.1.) CSS is an unlicensed corporation. The fact that it will have a person on staff who has an individual broker’s license is immaterial for purposes of avoiding sanction under Section 641(b)(6), because any customs business activities performed by an employee in their capacity as an employee of CSS would be attributed to CSS, not to the employee. Therefore, it is imperative that CSS avoid engaging in any “customs business” transaction.

To recap, CSS, in addition to installing software, will also: 1) advise Canadian clients on U.S. Customs policies and procedures; 2) “work with” U.S. Customs personnel “to make clearance easier for U.S. Customs in this paperless society”; and 3) perform entry compliance and post entry reviews and audits. We find these descriptions of proposed CSS activities to be rather vague. However, as a general rule, unlicensed persons may instruct others on customs laws, regulations, policies and procedures. For example, they may explain the use of the Harmonized Tariff Schedules, the General Rules of Interpretation, and the Explanatory Notes, or provide an overview of the different methods of valuation. They may not, however, advise a client on how to classify, appraise, or mark merchandise that is going to be the subject of an entry. This is

because the Section 641 definition specifically encompasses “activities involving transactions with the Customs Service concerning the entry and admissibility of merchandise, its classification and valuation, etc. ...” See Headquarters Ruling Letter (HRL) 114404, dated March 16, 1999. Therefore, CSS may advise its Canadian clients on U.S. Customs policies and procedures, provided such advice is general and does not include specifics on how to classify, value, or mark an item which is going to be the subject of a particular import entry.

The scope of CSS’s proposal to work with U.S. Customs personnel to facilitate clearances is unclear. However, there would be a violation of Section 641 if CSS were to discuss a client’s entry with Customs without the client being present. This is because although an importer is free to bring any person to a meeting, or to include any person in a conference call between the importer and Customs, only licensed Customs brokers, and in some instances attorneys, may represent an importer before Customs on customs business matters in the client’s absence. Similarly, only licensed brokers may prepare Customs documents and forms for others. Therefore, CSS cannot “facilitate” the entry or clearance of a client’s merchandise by holding discussions with Customs personnel or by preparing and/or filing appropriate entry forms. See HRL 114404, supra.

CSS also plans to perform reviews of entry compliance procedures and to conduct post entry audits for clients. Once again, the exact extent of these services is unclear. However, it is Customs’ view that a general review of a client’s entry procedures would not violate Section 641, provided such review does not evolve into the actual classification, appraisement, or marking, etc., of merchandise to be imported. Similarly, an unlicensed person may perform a post-entry audit of an importer’s records for the purpose of providing feedback to the client on the accuracy of completed entry transactions.

HOLDING:

1) The Canadian companies may file entries if they have a sufficient financial interest in the merchandise to qualify as the owner or purchaser. Eligible entry filers would have to comply with the special requirements that attach to entry by nonresident corporations, i.e., they would have to have a resident agent to accept service of process, and they would have to have a basic importation bond on file issued by a resident corporate surety.

2) CSS may dispense general advice on Customs policies and procedures to the Canadian companies; however, CSS would be precluded from providing specific guidance on how to classify, appraise and mark merchandise that is going to be the subject of an import entry. CSS may not discuss entry transactions with Customs without the client being present, nor may it prepare and file Customs documentation on behalf of a client. CSS may review a client’s entry compliance procedures and perform post entry audits, provided such review does not evolve into the actual transaction of customs business.

Sincerely,

Jerry Laderberg
Chief
Entry Procedures and Carriers Branch