BRO-1
OT:RR:CTF:ER
H258556 ECG
George R. Tuttle
One Embarcadero Center, Suite 730
San Francisco, CA 94111
Re: Freight Forwarder Activities; “Customs Business.”
Dear Mr. Tuttle:
This is in response to your letter dated October 13, 2014, requesting a ruling regarding whether it is considered customs business for a freight forwarder to collect funds from an importer and deliver them to a licensed customs broker for remittance to CBP for the payment of duties. We have also addressed your additional request submitted on May 11, 2016, whether a general power of attorney (POA) issued by an importer to a broker provides authority for that broker to send a bill for duties to a freight forwarder. We regret the delay in our response.
FACTS:
You state that Terra Nova Trade Services, Inc. (“Terra Nova”) is a licensed customs broker. Terra Nova issues bills for duties owed by importers to unlicensed freight forwarders to collect from the importers. The freight forwarders receive funds from importers and then transfer the funds to Terra Nova, who then pays those funds to U.S. Customs and Border Protection (“CBP”) on behalf of the importers. The freight forwarders do not calculate the duties owed; Terra Nova calculates the amount of duties owed. Terra Nova states that all necessary communication regarding a particular entry takes place between the importer and Terra Nova.
Terra Nova also obtains a single customs power of attorney signed by the importer of record that authorizes Terra Nova to transact customs business on the importer’s behalf. Terra Nova does not believe that it is required to obtain two other power of attorneys – one issued from the freight forwarder to the importer and a sub-power of attorney from the freight forwarder to the broker. Terra Nova does not believe the freight forwarders’ collection of funds from importers and transmission to a customs broker to pay CBP the duties owed by importers constitutes custom business.
ISSUE:
I. Whether a freight forwarder’s intermediary collection of funds from an importer for delivery to the importer’s customs broker for payment to CBP constitutes customs business.
II. Whether a general POA issued by an importer to a broker provides the authority for that broker to send a bill for duties to the freight forwarder.
LAW AND ANALYSIS:
I. Whether a freight forwarder’s intermediary collection of funds from an importer for delivery to the importer’s customs broker for payment to CBP constitutes customs business.
Section 641(b)(1) of the Tariff Act of 1930, as amended (19 U.S.C. § 1641(b)(1)), provides that no person may conduct customs business (other than solely on behalf of that person) unless that person holds a valid customs broker’s license. The regulatory definition of “customs business,” which closely follows the language set forth in 19 U.S.C. § 1641(a), is provided in 19 C.F.R. § 111.1 as:
those activities involving transactions with CBP concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges assessed or collected by CBP on merchandise by reason of its importation, and the refund, rebate, or drawback of those duties, taxes, or other charges. “Customs business” also includes the preparation, and activities relating to the preparation, of documents intended to be filed with CBP in furtherance of any other customs business activity, whether or not signed or filed by the preparer. However, “customs business” does not include the mere electronic transmission of data received for transmission to CBP and does not include a corporate compliance activity.
Thus, if the intermediary collection of money from an importer for delivery to a customs broker to remit payment to CBP on the importer’s behalf falls within those activities described, then it constitutes customs business.
To comply with the statutory definition of customs business, a transaction with CBP to pay customs duties must be structured in such a manner that only a licensed broker or the importer of record tenders the payment to CBP. In HQ 115248, dated August 28, 2001, CBP analyzed whether a company could make payments to CBP and vendors on behalf of its sister corporations. First, CBP found that the company could not make payments to CBP on behalf of its sister corporations because the payments were transactions with CBP concerning the payment of duties, taxes, and other charges collected by CBP by reason of the merchandise’s importation, and therefore, constituted customs business. However, CBP noted that a person may assume the liability for duties owed by another person in accordance with Customs Service Decision 81-40, but that such a transaction must still be structured in a manner where the customs broker or importer of record tenders the payment to CBP. Second, CBP found that the company could make payments to vendors on behalf of its sister companies. In reaching that conclusion, CBP stated that it does not regulate such private financial arrangements.
Similarly, in HQ H261011, dated June 3, 2016, CBP found that the internal management of a single bank account between two companies used to fund each company’s ACH account to pay duties to CBP did not constitute customs business. There, the arrangement included an internal reconciliation between Company A and Company B that consisted of an intercompany transfer of funds from Company B to Company A to cover the amount withdrawn by Company B’s ACH account from the single bank account. CBP noted that Company A and B each maintained its own ACH account, where each ACH account paid CBP duties as they were owed. With that structure, each company continued to individually transact with CBP to pay its respective duties. Rather than change the payment structure between the two companies and CBP, CBP found that the proposed use of a single bank account with consolidated management only changed the companies’ internal organization of money, and thus was not customs business. Furthermore, CBP provided that the reconciliation of funds between the two companies was a private financial arrangement that CBP would not regulate.
In the instant case, the payment structure is a permissible structuring of customs because Terra Nova pays duties, taxes, and fees to CBP on the importer’s behalf. As discussed in HQ 115248, payments to CBP must be structured so that only a licensed broker or the importer of record tenders payment to CBP. Such restrictions are met in the instant case because Terra Nova as the customs broker tenders payment to CBP on behalf of the importers. Additionally, similar to HQ H261011, where Company A and Company B retained their respective ACH accounts with CBP, the instant payment structure has Terra Nova, as the customs broker, make payments to CBP for the importers. Accordingly, we find the instant structure is permissible because it ensures that the customs business activity, the payment of duties, taxes, and fees to CBP, is only performed by the customs broker.
However, an unlicensed party may not interface with a broker on behalf of another when it amounts to active participation in activities related to customs business. In HQ 115248, Customs stated that such prohibition “would extend to serving in an intermediary role if such role required active participation in decisions and activities relating to the preparation or filing of Customs documents for imported merchandise, or relating to any other action amounting to customs business on behalf of the [unlicensed entity].” Accordingly, as the payment of duties to CBP amounts to customs business per 19 C.F.R. § 111.1, if the freight forwarder’s intermediary role in the importer’s payments of duties to CBP amounted to “active participation in decisions and activities” relating to these payments, then Terra Nova will be impermissibly interfacing with an unlicensed party. Conversely, if the interfacing amounts to mere transmission between parties without the unlicensed freight forwarder’s active participation in the decisions and activities related to the payments to CBP, then Terra Nova’s interfacing would be permissible.
In the instant case, we find Terra Nova’s interfacing with the freight forwarder is a permissible interaction with an unlicensed entity because the unlicensed freight forwarder does not actively participate in the decisions and activities related to the customs business. Here, Terra Nova collects duties from an unlicensed freight forwarder who collects those duties from an importer for Terra Nova’s submission to CBP. The freight forwarder does not calculate the amount of duty owed by the importer. Rather, Terra Nova determines the amount of duty based on classification, valuation, country of origin, and country of export determinations. The freight forwarder provides the importer with a single bill, including the charges for duty owed to CBP. The freight forwarder then forwards this amount to Terra Nova for payment to CBP. Without active involvement in the provision of information for duty calculation or its actual calculation, the freight forwarder acts in a passive intermediary role when forwarding the amount owed by CBP to Terra Nova for transmission to CBP. Accordingly, we find the payment structure between the importer, unlicensed freight forwarder, and Terra Nova is a permissible structure that ensures only a licensed customs broker conducts customs business.
II. Whether a general POA issued by an importer to a broker provides the authority for that broker to send a bill for duties to the freight forwarder.
CBP’s general POA permits the agent to generally transact any and all CBP business on behalf of the principal “which may be properly transacted or performed by an agent or attorney.” See CBP Form 5291. As applied to the issuance of bills for duties, CBP regulations require that brokers maintain the confidentiality of client records. See 19 C.F.R. § 111.24. Specifically, 19 C.F.R. § 111.24 provides that:
The records referred to in this part and pertaining to the business of the clients serviced by the broker are to be considered confidential, and the broker must not disclose their contents or any information connected with the records to any persons other than those clients, their surety on a particular entry, and the Field Director, Office of International Trade, Regulatory Audit, the special agent in charge, the port director, or other duly accredited officers or agents of the United States, except on subpoena by a court of competent jurisdiction.
Furthermore, CBP defines "records" in 19 C.F.R. § 111.1 as follows:
"Records" means documents, data and information referred to in, and required to be made or maintained under, this part and any other records, as defined in § 163.1(a) of this chapter, that are required to be maintained by a broker under part 163 of this chapter.
Additionally, as provided in 19 C.F.R. § 163.1(a), the term "records" can include any information made or normally kept in the ordinary course of business that pertains to certain activities, including information required in connection with any collection or payment to CBP of duties, fees and taxes.
In the present case, Terra Nova is required to maintain the confidentiality of its importer client’s duty billing information from the third-party freight forwarder. Although certain entities are exempted from this confidentiality requirement, the freight forwarder in Terra Nova’s billing scenario does not fall into one of these exemptions; the freight forwarder is neither the surety, nor an officer or agent of the United States, nor the client or an agent of the client. Specifically, without a POA between the importer and the freight forwarder there is no agency relationship established between the two entities, and therefore, the freight forwarder is not an agent for Terra Nova’s importer client. Accordingly, Terra Nova must keep its client’s records confidential from the freight forwarder as a third-party covered by 19 C.F.R. § 111.24. Moreover, Terra Nova must keep its client’s duty payment information confidential because the total amount of duties owed by the broker’s clients is information included in the range of records described in 19 C.F.R. §§ 111.1 and 163.1(a). Thus the POA between Terra Nova and the importer is not sufficient to permit Terra Nova to disclose its client’s confidential billing information and total duty amounts to the third-party freight forwarder. To avoid this issue, the importer client needs to provide its specific written consent for the disclosure. Without specific written consent by the importer to allow the sharing of its confidential information with the freight forwarder, Terra Nova cannot disclose its client’s billing information to the freight forwarder.
We also note that Terra Nova must abide by the requirements set forth in 19 C.F.R. § 111.29, diligence in correspondence and paying monies. This requires that Terra Nova provide its client with a written statement to that client that accounts for the payment of funds in certain circumstances described in § 111.29(a) and a notice to the client of the method of payment as required in § 111.29(b). Additionally, should Terra Nova compensate the freight forwarder for referring brokerage business, Terra Nova is required to follow the requirements set forth in 19 C.F.R. § 111.36(c). However, as the importer employs Terra Nova’s services and the fees and other benefits of Terra Nova’s services benefit the importer, 19 C.F.R. § 111.36(a) and (b) do not apply.
HOLDING:
Based on the above, a freight forwarder’s intermediary collection of funds from an importer for delivery to Terra Nova for payment to CBP is a permissible structuring of customs business. However, a general POA between Terra Nova and the importer is insufficient.
Please note that 19 C.F.R. § 177.9(b) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service field office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
Sincerely,
Monika R. Brenner, Acting Chief
Entry Process and Duty Refunds Branch