BRO 3-05
OT:RR:CTF:ER
H272798 ABH
Neville Peterson
One Exchange Plaza
55 Broadway, Suite 2602
New York, NY 10006
Re: Request for a Ruling as to Whether Certain Consulting Activities Constitute “Customs Business” for Purposes of 19 U.S.C. § 1641, and Whether Reliance on the Work Product of Such Consulting Activities Constitutes the Exercise of “Reasonable Care” by United States Importers
Dear Mr. Peterson:
This is in response to your ruling request dated June 23, 2015, on behalf of [ ], regarding whether certain consulting activities constitute “customs business” for purposes of 19 U.S.C. § 1641 and whether reliance on those consulting activities constitutes the exercise of “reasonable care” by Unites States importers.
You have asked that Customs grant confidential treatment to identity information pursuant to 19 C.F.R. § 103.12(c). You assert that disclosure of your client’s name in the issuance of this ruling could render public certain information “concerning the company’s business and marketing practices, internal structure and capabilities, client strategies, and other information which could place the company at a competitive disadvantage and result in significant economic damage to the company.”
Inasmuch as this request conforms to the requirements of 19 C.F.R. §§ 103.12(c) and 177.2(b)(7), the request for confidentiality is approved. The information contained within brackets and all attachments to this ruling request, forwarded to our office, will not be released to the public and will be withheld from published versions of this ruling. The company name has been replaced in the public version of the document.
FACTS:
You state that [ ] (“Company A”) is a Canadian company without a customs broker license that has been asked by a multinational chemical company in Europe (“client”) to conduct certain activities relating to the importation of goods into the United States. Specifically, Company A has been engaged by the client to conduct a study that would, “inter alia, prepare a tariff classification database” for the client’s products regardless of whether the particular product is ever actually imported into the United States. You have not described the other activities that might be included in the concept of “inter alia.” The client is expected to use the database to perform pricing and cost analysis and to use the database as a resource for its customhouse brokers for assistance in handling the company’s import entries.
You assert that the study, and particularly the tariff classification databases included therein, will feature a disclaimer providing substantially as follows:
Disclaimer and Notice: The information contained in this report is for general, educational and planning purposes only. The specific tariff classification to be applied to a specific entry of merchandise is to be determined by the licensed Customhouse broker or other agent engaged to file the entry. In the event the broker or agent handling the entry expresses an opinion different from that set out in this study, the opinion of the broker or agent should be followed, subject to post-entry verification.
You state that Company A will not provide anything directly to Customs (such as file entries or drawback claims) or directly to a customs broker. Rather, Company A will provide its analysis to the client and the client may provide the information to its customs broker for consideration. By way of example, you state that a licensed broker would submit the actual classification of merchandise on a specific entry to Customs.
Company A also anticipates that the client may request other certain consulting services in the future such as: preparing and submitting ruling requests to CBP in order to seek validation of some of the advice provided in the study; preparing and filing of protests with CBP; assisting in the preparation of corporate import manuals and desk procedures; conducting post-entry audit reviews of United States import activities; and preparing and filing prior disclosures.
With regard to the compliance manuals and desk procedures, you state that the “manuals will contain general educational information regarding United States Customs legal and regulatory requirements for importers,” and would include other publicly available information such as materials made available by Customs as well as “Customs rulings, directives, guides, and Informed Compliance Publications.”
With regard to the post-entry audits you state that Company A “will assist clients with post-entry audits and compliance reviews . . . designed to ensure that the clients have paid the correct amount of duties, have complied with applicable laws and regulations, and to identify duty recovery opportunities.” You indicate that such work would only be done after entries are liquidated by Customs. Company A foresees that such post-liquidation audit reports may be communicated to Customs in the form of a prior disclosure pursuant to 19 U.S.C. § 1592(c)(4).
You also request a ruling with regard to whether Customs would determine that the client (or U.S. importers in general) exercised “reasonable care” pursuant to 19 U.S.C. § 1484(a)(1) if the client engaged Company A’s services and relied on Company A’s advice in the above-mentioned activities.
ISSUES:
I. Whether Company A, a company without a customs broker license, would be unlawfully engaged in the conduct of “customs business” by reason of conducting certain activities on behalf of a client that may import goods into the United States.
II. Whether a U.S. importer would be considered to have exercised reasonable care for purposes of 19 U.S.C. § 1484(a)(1) by reason of having relied on Company A’s advice with regard to customs matters.
LAW AND ANALYSIS:
I. Whether Company A, a company without a customs broker license, would be unlawfully engaged in the conduct of “customs business” by reason of conducting certain activities on behalf of a client that may import goods into the United States.
You inquire whether Company A, a Canadian company without a customs broker license, would be unlawfully engaged in the conduct of “customs business” by reason of performing certain activities on behalf of a client that may import goods into the United States. As discussed above you specifically inquire about the conduct of the following activities:
Preparing a study that would, inter alia, create a tariff classification database;
Preparing ruling requests and protests;
Assisting in the preparation of corporate import manuals and desk procedures;
Conducting post-entry audit reviews; and
Filing prior disclosures.
Pursuant to 19 U.S.C. § 1641(b)(1), “{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 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 of 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.
19 U.S.C. § 1641(a)(2). The regulatory definition of “customs business” provided in 19 C.F.R. § 111.1, mirrors the language set forth in 19 U.S.C. § 1641(a)(2).
The Customs regulations further indicate that “{a}ny person who intentionally transacts customs business . . . without holding a valid broker’s license, will be liable for a monetary penalty for each such transaction as well as for each violation of any other provision of 19 U.S.C. § 1641.” 19 C.F.R. § 111.4. Corporations are considered to be persons for purposes of customs broker licensing. See 19 C.F.R. § 111.1 (“‘Person’ includes individuals, partnerships, associations, and corporations.”). 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).
As noted by the U.S. Court of International Trade, the “definition of ‘Customs business’ is very broad.” Delgado v. United States, 581 F. Supp. 2d 1326, 1331 (Ct. Int’l Trade 2008). The statute indicates that even the “preparation of documents” constitutes “customs business.” 19 U.S.C. § 1641(a)(2). The “preparation of documents” includes the gathering of information which will appear on entry documents and “{g}iving advice on how to classify is a necessary part of the ‘gathering process.’” HQ 115278 (November 13, 2001). In HQ 114404 (March 16, 1999), Customs distinguished between permitted unlicensed activities such as “the giving of general advice on how to classify . . . {by} explain{ing} to a third party the use of the Harmonized Tariff Schedules,” and precluded unlicensed activities such as “classifying a client’s merchandise that is going to be the subject of an entry filed with Customs.” Accordingly, an unlicensed person may advise 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.” HQ 114654 (May 28, 1999).
Study – Classification Database
You inquire as to whether a study conducted by Company A that would, “inter alia, prepare a tariff classification database for use in connection with the {client’s} imports into North America (Canada, the United States, and Mexico),” would be considered the conduct of “customs business” such that it would be unlawful to do so on behalf of a client without a customs broker license.
As an initial matter, “Customs does not regulate the providing of advice on the Customs requirements of foreign countries.” HQ 227186 (January 13, 1999). Accordingly, the discussion herein pertains to imports into the United States. Additionally, we are unable to comment on whether other unspecified aspects of the study (as indicated by the use of “inter alia”) constitutes “customs business” because the nature of those aspects of the study have not been divulged. Company A may seek guidance on the other undescribed aspects of the study by referring to rulings previously published by Customs which address the boundaries of 19 U.S.C. § 1641(a)(2), or may write in with more specific information once that information is known.
As stated above, the definition of “customs business” includes activities “concerning the entry and admissibility of merchandise” and the “preparation of documents” in furtherance of such activities. 19 U.S.C. § 1641(a)(2). “Customs business” does not include giving “general advice on how to classify, value or mark merchandise,” such as explaining the use of the Harmonized Tariff Schedule, the General Rules of Interpretation, and the Explanatory Notes. HQ 114404 (March 16, 1999). The actual classification of merchandise that is going to be the subject of an import entry filed with Customs, however, is a precluded unlicensed activity. Id.; HQ 115278 (November 13, 2001); HQ 114654 (May 28, 1999). In HQ 115248 (August 28, 2001), Customs indicated that even when there is a “possibility” that classification information will end up on an entry, a broker’s license is required “to gather classification data which will be reflected on the entry.” Indeed, in HQ H068278 (September 28, 2009), Customs determined that an unlicensed entity would have been conducting “customs business” if it provided software to clients that determined classification and other entry-related information even though the entry forms were ultimately filed by a U.S. customs broker. Under the facts of that ruling, the database was going to “direct the U.S. customs broker in the preparation of the entry” and there would be no other action by the U.S. customs broker “other than the act of filing itself.” HQ H068278 (September 28, 2009).
The activities proposed by Company A navigate a fine line with regard to the conduct of “customs business.” Because the client will likely import into the United States some of the merchandise in the classification database, there is a genuine issue as to whether the activity enters the realm of “customs business.” You indicate that the database would be used “as a resource which will be provided to Customhouse brokers for assistance in handling the {client’s} import entries.” Thus, it is anticipated that Company A’s classification database will be used for purposes of filing entries for the client.
You also indicate, however, that the customs broker will ultimately file the entry and the broker will conduct its own determination with regard to proper classification of the merchandise and may (or may not) advise the client to use the classification suggested by Company A. As quoted above, Company A will include a “Disclaimer and Notice” to that effect in the tariff classification database. Pursuant to the disclaimer, “{t}he specific tariff classification to be applied to a specific entry of merchandise is to be determined by the licensed Customhouse broker or other agent engaged to file the entry.” The disclaimer will also note that to the extent the broker or agent disagrees with the suggested classification, “the opinion of the broker or agent should be followed.”
To the extent that Company A’s database is used as a “resource” and the disclaimer is meaningfully implemented by Company A and the client, the classification database activities proposed by Company A does not cross the line and would not violate 19 U.S.C. § 1641(b)(1). Under the facts as presented by Company A, the distinction in this case is that the proposed tariff classification database will be provided to a customs broker “as a resource” and will not “direct” the client or the customs broker in the preparation of the entry. To ensure that the tariff classification database does not become an activity constituting “customs business,” it is important that this disclaimer be meaningfully implemented by both Company A and the client.
Preparing Ruling Requests and Protests
You inquire as to whether requesting a ruling or filing a protest for a client is considered to be the conduct of “customs business” such that it would be unlawful to do so on behalf of a client without a customs broker license. Under current regulations, any authorized agent of the importer of record may file ruling requests and protest.
With regard to rulings, pursuant to 19 C.F.R. § 177.1(c), a ruling can be requested
by any person who, as an importer or exporter of merchandise, or otherwise, has a direct and demonstrable interest in the question or questions presented in the ruling request, or by the authorized agent of such person. A “person” in this context includes an individual, corporation, partnership, association, or other entity or group.
The exception to this provision regarding NAFTA advance rulings requests, see 19 C.F.R. § 177.1(c), is not at issue given that Company A indicates it would be making a ruling request on behalf of a chemical company based in Europe.
With regard to protests, pursuant to 19 C.F.R. § 174.3, an unlicensed consultant can prepare, sign, and file a protest if a properly executed power of attorney has been obtained. Specifically, § 174.3(a) states that,
{w}hen a protest is filed by a person acting as agent or attorney in fact for the principal, other than an attorney at law or a custom-house broker or his authorized employee acting in his behalf, there shall have been filed or shall be filed with the protest a power of attorney which either specifically authorizes such agent to make, sign, and file the protest or grants unlimited authority to such agent.
19 C.F.R. § 174.3(a); see also 19 C.F.R. § 174.12(a)(6) (stating that a protest may be filed by “{a}ny authorized agent”); HQ 114119 (February 26, 1998) (noting that preparing, signing, and filing protests under proper authority from the importer “is an exception to the rule that prohibits the involvement of unlicensed consultants in actual transactions with Customs”).
In HQ 115248 (August 28, 2001), we determined that “any authorized agent of the importer of record may file protests and ruling requests.” “The definition of ‘agent’ in these two circumstances is not limited to customs brokers and may be performed by any agent duly empowered to represent the importer for such purposes.” HQ 114404 (March 16, 1999). Therefore, Company A, if duly authorized as an agent, may file ruling requests and protests on behalf of the client without violating 19 U.S.C. § 1641(b)(1).
Import Manuals and Desk Procedures
You inquire as to whether preparing compliance manuals and desk procedures for companies engaged in importing into the United States constitutes “customs business” such that it would be unlawful to do so on behalf of a U.S. client without being licensed as a customs broker. You indicate that the “manuals will contain general educational information regarding United States Customs legal and regulatory requirements for importers,” and would include other publicly available information such as materials made available by Customs as well as Customs rulings, directives, guides, and Informed Compliance Publications.
In HQ 114199 (February 26, 1998), we have stated that “a license is not required to give instruction and general advice on various Customs topics. . . . We permit these types of educational activities because they have no direct relationship to actual transactions with Customs.” See also HQ 114404 (March 16, 1999) (“A license is not required to give instruction and general advice on various Customs topics.”). Accordingly, Company A could prepare manuals and desk procedures for companies engaged in importing into the United States.
Post-Entry Audit Reviews
You inquire as to whether conducting post-entry audits and compliance reviews would be considered the conduct of “customs business” such that it would be unlawful to do so on behalf of a U.S. client without being licensed as a customs broker. As a general rule, “{u}nlicensed entities may give general advice on customs-related issues, and conduct post-entry audits provided the services rendered do not amount to the transaction of customs business.” HQ H175280 (September 24, 2012). In HQ 114654 (May 29, 1999), we determined that
a general review of client’s entry procedures would not violate {19 U.S.C. § 1641}, 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.
See also HQ H175280 (September 24, 2012) (stating that “CBP’s position on this issue remains the same as that articulated in HRL 114654”).
For example, in HQ H175280 (September 24, 2012), Customs ruled that the unlicensed entity was not conducting “customs business” through its post-entry audit activities when the entity reviewed company information against the original source entry documents filed with CBP to determine if there were discrepancies with regard to value, classification, and quantity entered. If discrepancies were found, the unlicensed entity would forward the errors to licensed brokers who would then determine if the errors were actually made and advise companies on ways to rectify any inaccuracies. Id. Under those specific facts, Customs found that such activities did not constitute “customs business” and, therefore were not subject to the laws and regulations applicable to customs brokers transacting customs business. Id.; see also HQ H167815 (June 28, 2013) (determining that review of a bill of lading, commercial invoice, and a bill to process a billing discrepancy issue is not included within the definition of “customs business” because the employee did not see the entry or entry summary and “{o}nly after the discrepancy was referred back to a broker would the broker be able to confirm whether erroneous information was submitted to CBP”).
Activities that “could result in a correction submitted to CBP must be conducted by a licensed customs broker.” HQ H167815 (June 28, 2013). For example, in HQ 115248 (August 28, 2001), Customs found that activities such as verification of duty amounts constituted customs business when “the possibility exist{ed} that corrected duty information derived from the duty verification process {would} ultimately appear on the entry” filed with Customs.
Your description of Company A’s post-entry audits and compliance reviews is sufficiently vague that a definitive ruling is not possible. You indicate that Company A “will assist {U.S.} clients with post-entry audits and compliance reviews . . . designed to ensure that the clients have paid the correct amount of duties, have complied with applicable laws and regulations, and to identify duty recovery opportunities.” You indicate that Company A will review the client’s import transactions, using software tools, and will review entry summaries, liquidation records, and duty payments. You state that such work would only be done after entries are liquidated by Customs and that any correspondence with Customs including Post-Entry Amendments or Post-Summary Corrections would be performed by a licensed customs broker.
To the extent that Company A’s post-entry audits and compliance reviews will not lead to the preparation of Customs documents or engage in activities leading to the filing of such documents, the reviews are not “customs business” and can be carried out by an unlicensed entity. To be clear, Post-Entry Amendments and Post-Summary Corrections are considered “customs business” and must be performed by a licensed customs broker. See https://www.cbp.gov/sites/default/files/documents/postsummarycorrection_3.pdf; 45 Cust. B. & Dec. No. 29; 2011 CUSBUL LEXIS 135 (July 13, 2011) (stating that “the act of filing a PSC will constitute ‘customs business’ as defined in 19 C.F.R. § 111.1”). If, however, “identifying duty recovery opportunities” requires Company A to make decisions with regard to value, classification, and quantity entered, or resolving discrepancies or irregularities in CBP transactions, such activities constitute “customs business” and would not be permissible activities for an unlicensed entity.
Once more specific information is known with regard to the scope of such post-entry audits, Company A may seek further guidance on this issue by referring to rulings previously published by Customs which address the boundaries of 19 U.S.C. § 1641(a)(2), or may write in with more specific information.
Prior Disclosures
You inquire as to whether Company A could submit a prior disclosure to Customs on behalf of a United States importer. Pursuant to 19 C.F.R. § 162.74(a)(1), {a} prior disclosure is made if the person concerned discloses the circumstances of a violation . . . of 19 U.S.C. § 1592 . . . .” While the relevant statutory provision, 19 U.S.C. § 1592, and regulation 19 C.F.R. § 162.74(a)(1), are silent with regard to who may file a prior disclosure, Customs has noted its general practice in its Informed Compliance Publication, “ABC’s of Prior Disclosures.” In that publication, Customs noted that a prior disclosure can be filed by “ANY party involved in the business of importing into the United States. This includes, but is not limited to, importers, accounts, Customs brokers, exporters, shippers, foreign suppliers/ manufacturers, etc.” Accordingly, there is nothing that precludes Company A from filing a prior disclosure on behalf of a client if given proper authorization by that client to do so.
Further, by statutory definition, prior disclosures are not “customs business.” As detailed above, “customs business” is defined as “concerning the entry and admissibility of merchandise” and “preparation of documents” thereof. 19 U.S.C. § 1641(a)(2). Prior disclosures necessarily relate to entries already occurred and the disclosure of a violation of 19 U.S.C. § 1592, which states that “no person, by fraud, gross negligence, or negligence – (A) may enter, introduce, or attempt to enter or introduce any merchandise into the commerce of the United States . . . .” As such, prior disclosures relate to transactions that are already completed and do not constitute “customs business” pursuant to 19 U.S.C. § 1641(a)(2).
II. Whether a U.S. importer would be considered to have exercised reasonable care for purposes of 19 U.S.C. § 1484(a)(1) by reason of having relied on Company A’s advice with regard to customs matters.
You inquire about whether a client that relies on Company A’s advice as “an expert Canadian consultant with knowledge of tariff classification matters” would be determined by Customs to have exercised “reasonable care” pursuant to 19 U.S.C. § 1484(a)(1).
Pursuant to 19 U.S.C. § 1484, all parties “shall, using reasonable care . . . make entry . . . .” See also 19 C.F.R. Part 171 App. B(D)(6) (“All parties, including importers of record or their agents, are required to exercise reasonable care in fulfilling their responsibilities involving entry of merchandise.”). The standard of “reasonable care” can become relevant in the penalties context under 19 U.S.C. § 1592. Pursuant to § 1592, once Customs has shown that a materially false statement or omission occurred, “the defendant must affirmatively demonstrate that it exercised reasonable care under the circumstances.” United States v. Ford Motor Co., 463 F.3d 1267, 1279 (Fed. Cir. 2006); see also 19 C.F.R. Part 171 App. B(C)(1) (“A violation is determined to be negligent if it results from an act or acts (of commission or omission) done through either the failure to exercise the degree of reasonable care and competence expected from a person in the same circumstances . . . .”).
A defense of reasonable care includes,
seeking guidance from the Customs Service through the pre-importation or formal ruling program; consulting with a Customs broker, a Customs consultant, or a public accountant or an attorney; or using in-house employees such as counsel, a Customs administrator, or if valuation is an issue, a corporate controller, who have experience and knowledge of customs laws, regulations, and procedures.
United States v. Optrex America, Inc., 560 F. Supp. 2d 1326, 1335 (Ct. Int’l Trade 2008) (citing H. Rep. No. 103-361 at 120).
Seeking advice and guidance from a customs consultant, however, does not provide a per se defense of reasonable care. As indicated by the Informed Compliance Publication, Reasonable Care (A Checklist for Compliance), “{t}he facts and circumstances surrounding every import transaction differ . . . . Consequently, neither U.S. Customs and Border Protection nor the importing community can develop a foolproof reasonable care checklist which would cover every import transaction.” Indeed, many of the checklist questions contemplate the use of an expert or consultant and still highlight the need for further procedures to conduct reasonable care. For example, “If you use an expert to assist you in complying with Customs requirements, have you discussed your importations in advance with that person and have you provided that person with full, complete and accurate information about the import transactions?”
The defense of “reasonable care” is extremely fact-specific and is analyzed by Customs on a case-by-case basis. Accordingly, Customs is unable to prospectively rule on whether engaging Company A’s services in the abstract would “enhance a client’s case” with regard to proving the exercise of “reasonable care” if the client were to come into a 19 U.S.C. § 1592 penalties situation.
HOLDING:
Based on the above, Company A would not be unlawfully engaged in the conduct of “customs business” by reason of preparing a tariff classification database in the event that it is made clear to the client that the specific tariff classification to be applied to a specific entry of merchandise is to be determined by a licensed Customhouse broker. Additionally, Company A would not be unlawfully engaged in the conduct of “customs business” by reason of preparing ruling requests and protests, assisting in the preparation of corporate import manuals and desk procedures, conducting post-entry audit reviews (to the extent the reviews will not lead to the preparation of Customs documents or result in activities leading to the filing of such documents), and filing prior disclosures.
Customs is unable to prospectively rule on the exercise of “reasonable care” by a client, whether or not it has engaged the advice of Company A, in light of the extremely fact-specific nature of such a determination.
The holding set forth above applies only to the specific factual situation and procedures and processes identified in the ruling request. This position is set forth in 19 C.F.R. § 177.9(b)(1), that states 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.” Should it be subsequently determined that the information furnished is not complete and does not comply with 19 C.F.R. § 177.9(b)(1), the ruling will be subject to modification or revocation. In the event there is a change in the facts previously furnished, this may affect the determination of whether the work performed by Company A is “customs business.” Accordingly, if there is any change in the facts submitted to Customs, it is recommended that a new ruling request be submitted in accordance with 19 C.F.R. § 177.2.
Sincerely,
Monika R. Brenner, Acting Chief
Entry Process & Duty Refunds Branch