BRO-3-05-CO:R:C:E 225010 JRS

Ms. Mary A. Rasmussen
Assistant District Director
U.S. Customs Service
300 South Ferry Street
Terminal Island
San Pedro, CA 90731

RE: Broker Employer-Employee Relationship; Independent contractor versus employee; responsible supervision and control; billing practice; validity of power of attorney to create a subagency relationship for billing purposes; 19 U.S.C. 1641; 19 CFR 111.11(d); 19 CFR 111.22 and 23;19 CFR 141.43.

Dear Ms. Rasmussen:

This is in response to your request for internal advice dated October 8, 1993 (Your file: BRO-1-LA:E:BC MJB/mjb) regarding several issues raised by Angela Soo Hoo, a Customs broker. ~'

FACTS:

Ms. Angela M. Soo Hoo is a licensed Customs broker for the sole proprietorship, Soo Hoo Customs Broker. Soo Hoo Customs Broker maintains two offices, the main office is in Oxnard, California, and the branch office is in Los Angeles' Chinatown.

Your request discloses that Mr. Jose De La Sierra is the President and licensed individual qualifying the corporate license and permit for H.H. Elder& Co., a Customs broker in the Los Angeles district. Your request also indicates that Mr. De La Sierra has a working relationship with Ms. Soo Moo for the past 10 years. for her airline entries at LAX. He picks up the documents from the airlines, classifies the merchandise, prepares the CF 3461 and faxes the information to Ms. Soo Hoo for her ABI transmission to Customs. He performs his work in his own office and devotes unspecified hours to Ms. Soo Hoo's clients. He is included on Ms. Soo Hoo's employee list submitted to Customs; however, she files a 1099 form, and not a W-2 form with the IRS. Mr. De La Sierra bills Ms. Soo Hoo directly for his services rather than the clients. On the power of attorney form which

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Ms. Soo Hoo provides to her clients with airport entries, Ms. Soo Hoo has power of attorney to appoint "other brokers and their employees who has [sic] specific authorization to act for such broker. [Note: H.H. Elder& Co. does our LAX runs]".

You state that Ms. Soo Hoo is attempting to provide supervision and control over her branch office in Los Angeles from her main office in Oxnard (approximately 62 miles apart) by using phone calls, faxes and an appearance in that office "whenever". You indicate that her reject rate on the August 4, 1993 ACS Monthly Entry Filer Activity Report is 3.14% while the district reject rate is .73%. Her personnel in this office includes her son, Brian Soo Hoo, and Pamela Jo Waddell, whom you state have numerous responsibilities' and conduct a great deal of Customs business with little supervision. You also disclose that Ms. Waddell has since resigned but that you anticipate that the individual replacing her will have a similar arrangement with Ms. Soo Hoo. You reveal that both individuals share the position and each receive a monthly salary (rather than an hourly wage) with no consideration given for any sick or annual leave taken. They are issued an IRS form 1099 rather than a W-2.

ISSUES:

(1) Whether a licensed Customs broker who qualifies the permit and the license of a corporation, may also work for another Customs broker as an employee-broker.

(2) If the entries are filed by Ms. Soo Hoo is the status of Mr. De La Sierra as an employee or independent contractor relevant for Ms. Soo Hoo's obligation under 19 U.S.C. 1641 and for 19 CFR Part 111?

(3) Whether the relationship between Ms. Soo Hoo and Mr. De La Sierra constitute a prohibited subagency for purposes of 19 U.S.C. 1641 and 19 CFR Part 111?

(4) Whether there is sufficient evidence to support a finding of inadequate supervision and control under 19 U.S.C. 1641(d) and 19 CFR 111.(d) if the rejection rate for entries filed by her is three times greater than the average rejection rate for all filers?

LAW AND ANALYSIS:

Issue (1)

There is no prohibition against a licensed Customs broker who qualifies the permit and the license of a corporation to also

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work for another Customs broker as a supervised employee-broker, provided that responsible supervision and control is exercised over the employee-broker and that the hours of employment of the licensed individual for the corporation and the other brokerage are prescribed and non-concurrent. See Customs Service's Position Statement on Relationships Between Customs Brokers, 54 FR 13136, March 30, 1989; HQ 222573, March 8, 1991 (also published as C.S.D. 91-12); HQ 221724, dated June 4, 1991, Internal Advice Request on Broker Subagency Practices, which modified Holding #3 of HQ 222573.

Moreover, there is nothing in the statute or regulations which prohibits a licensed Customs broker from obtaining powers of attorney from his clients to empower that broker from farming out his importer's Customs business to other licensed brokers in other Customs districts. See C.S.D. 79-111. In C.S.D. 79-111, the other brokers, once appointed by the initial broker, would act solely on account of the importer and bear no agency relationship to the initial broker.

Issue (2)

You state that information prepared by Mr. De La Sierra is sent to Ms. Soo Hoo. Ms. Soo Hoo files the electronic entry information with Customs. Consequently, the potential difficulty for Customs in assigning responsibility if one broker files or transmits entry information to Customs on behalf of another broker is not present here. In this situation, Ms. Soo Hoo cannot avoid responsibility if the transmitted entry information is erroneous. To the extent that it can be shown that Mr. De La Sierra was at fault, the Customs Service could take appropriate action against him too because that preparation of entry information would constitute Customs business under 19 U.S.C. 1641 as amended by the North American Free Trade Agreement Implementation Act.

Because the filing with or transmission to Customs is done by Ms. Soo Hoo, the issue whether Ms. Soo Hoo could or did exercise responsible supervision and control over Mr. De La Sierra is irrelevant for the purpose of 19 U.S.C. 1641(d) and 19 CFR 111.28(a). Under the stated facts, it makes no difference whether Mr. De La Sierra is an employee of Ms. Soo Hoo or an independent contractor because Ms. Soo Hoo in all circumstances cannot avoid responsibility for the accuracy of the data sent to Customs.

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Issue (3)

The prohibition against use of a subagent licensed broker by another broker to perform the latter broker's work was intended to implement the requirement in 19 U.S.C. 1641(d) that a broker exercise responsible control over the entry of merchandise or claim for a duty refund on behalf of a client. The amendment of 19 U.S.C. 1641 by the North American Free Trade Agreement Implementation Act to provide for the use of subagents in certain circumstances does not affect the underlying purpose. Under the amendment, the principal broker remains absolutely responsible for any fault of commission or omission by the subagent. The principal broker is precluded from delegating any such liability to a subagent.

The facts must be analyzed against that underlying purpose. Here, Ms. Soo Hoo alone pays Mr. De La Sierra. Ms. Soo Moo files or transmits the entry information on behalf of her client to Customs. In this situation, any act or omission by Mr. De La Sierra in preparing that data cannot serve to excuse Ms. Soo Hoo since she alone will be shown as the broker responsible for the entry. Consequently, under the stated facts the relationship between Ms. Soo Hoo and Mr. De La Sierra is not a prohibited subagency.

Issue (4)

The fourth issue is whether Ms. Soo Hoo is providing adequate supervision and control over the Customs business that she handles. The statutory provision in 19 U.S.C. 1641(d) has been implemented, in part, by 19 CFR 111.11(d). Under that regulation the factors that must be considered by your office are listed. In reaching a determination, each of the listed factors must be considered. Of the nine listed factors, you have provided information on one factor alone. That is, the reject rate on entries filed by Ms. Soo Hoo is more than three times greater than the average reject rate for all other filers. No information was provided as to the basis for the rejections. Unless each of the listed criteria in 19 CFR 111.11(d) was considered and where appropriate, the apparent failure to meet a specific criterion such as an abnormally high rejection rate was analyzed, it would be improper for Customs to make a determination whether responsible supervision and control was being exercised.

HOLDING:

(1) A licensed Customs broker who qualifies the permit and the license of a corporation, may also work for another Customs broker as a supervised employee-broker.

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(2) Because Ms. Soo Hoo files the entry information and is responsible for its accuracy, the status of Mr. De La Sierra is not relevant for Customs purposes under 19 CFR Part 111.

(3) Because Ms. Soo Hoo files the entry, she alone pays Mr. De La Sierra, and the Customs transaction occurs within the same Customs district where both brokers are-permitted, the relationship is not a prohibited broker subagency.

(4) In order to determine whether Ms. Soo Hoo has exercised responsible supervision and control under 19 U.S.C. 1641(d) and 19 CFR 111.(d) each factor listed in 19 CFR 111.11(d) must be considered.

The Office of Regulations and Rulings will take steps to make this decision available to Customs personnel via the Customs Rulings Module in ACS and the public via the Diskette Subscription Service, Freedom of Information Act and other public access channels within 60 days from the date of this decision.

Sincerely,

John Durant, Director
Commercial Rulings Division