BRO-3-05-CO:R:C:E 225507 AJS

District Director of Customs
U.S. Customs Service
Key Tower Bldg. #2200
1000 2nd Avenue
Seattle WA 98104-1049

RE: Billing for brokerage services through freight forwarder; HQ 225023; 19 CFR 111.36(a); HQ 221330; 19 CFR 111.36(b)(2); HQ 718233; HQ 225155.

Dear Sir:

This is in reply to your request of June 16, 1994, for clarification of an internal advice request issued under HQ 225023 (February 23, 1994).

FACTS:

Blaiklock (USA) Inc. (BLUS) is a subsidiary of the Blaiklock Group (BLC), a Canadian customhouse broker and freight forwarder. BLC is not licensed nor permitted to conduct any U.S. customs business.

Your request consists of two scenarios. In scenario 1, BLC refers a transaction from a Canadian shipper (CS). A power of attorney is secured from the CS by BLC and transmitted to BLUS but BLC is not mentioned in the power of attorney. BLUS files an entry with U.S. Customs to cover the CS's transaction. BLUS pays charges to U.S. Customs, then bills these charges to BLC. BLC pays BLUS's bill and then bills the CS for these charges. No direct billing pathway exists between BLUS and the CS.

In scenario II, BLC refers a transaction from a CS to BLUS. A power of attorney is secured by BLUS from the CS. BLUS files entry with U.S. Customs to cover the CS's transaction. BLUS pays charges to U.S. Customs, then bills the CS directly for these charges. The result is a direct billing pathway between BLUS and the CS with no pathway through BLC.

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ISSUE:

Whether the subject methods of billing are permissible under 19 CFR 111.36.

LAW AND ANALYSIS:

19 CFR 111.36(a) provides that "[a] broker shall not enter into any agreement with an unlicensed person to transact Customs business for others in such manner that the fees or other benefits resulting from the services rendered for others inure to the benefit of the unlicensed person except as provided in paragraph (b) of this section." In HQ 225023, Customs determined that BLUS billed and was paid by BLC for entries filed by BLUS naming other persons as the importer. Based on the described transaction, we stated that BLUS appeared to worked for BLC rather than the parties in interest to the import transaction for which BLUS filed entries with Customs. Customs concluded that the described arrangement is contrary to section 111.36(a). This determination likewise precludes the billing arrangement described in scenario I for the same reasons.

In HQ 221330 (May 20, 1991), Customs addressed a situation similar to scenario I in an information letter. That case involved a customs consultant who would forward drawback information and documentation to a Customs broker for preparation and filing. The broker did not deal with the importer but only the consultant. The consultant would bill the importer and the broker would bill the consultant for brokerage services rendered. HQ 221330 involved the application of 19 CFR 111.36(a). Customs concluded that this arrangement would violate section 111.36(a) in view of the fact that the consultant would receive fees for the work or Customs business performed by the broker for the importer. In addition, we stated that this violation of section 111.36(a) would not be remedied by the broker submitting to the importer a copy of its bill for services rendered. Accordingly, we also find HQ 221330 instructive for determining that scenario I is a violation of section 111.36(a) and that this violation may not be remedied by BLUS submitting to the CS a copy of its bill for services rendered.

19 CFR 111.36(b) provides, in part, that a broker may compensate a freight forwarder for services rendered in obtaining brokerage business, providing:

(2) the broker transmits directly to the importer:

(i) a true copy of his brokerage charges if the fees and charges are to be collected by or through the forwarder, or

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(ii) a statement of his brokerage charges and an itemized list of any charges to be collected for the account of the freight forwarder if the fees and charges are to be collected by or through the broker.

In scenario I, the freight forwarder pays the brokerage charges to the broker and then bills the shipper. The broker does not transmit directly to the importer a copy or statement of his charges. Therefore, the broker is also in violation of section 111.36(b)(2) as well as section 111.36(a) in scenario I.

In scenario II, the broker bills the importer directly for its charges. This manner of billing would satisfy section 111.36(b)(2)(ii). We note that the broker must also transmit an itemized list of any charges to be collected for the account of the freight forwarder to the importer. Your request also cites to HQ 718233 (April 27, 1982) and HQ 255155 (May 20, 1994). Both of these cases concern the billing practice when two customhouse brokers are involved in a transaction. This case does not involve that type of situation. Therefore, neither of these cases is applicable in this instance.

HOLDING:

The billing procedure described in scenario I is not permissible. The billing procedure described in scenario II is permissible.

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


Sincerely,


John Durant, Director
Commercial Rulings Division