BRO-4-01-CO:R:C:E 223453 C
Director, Entry Division
Office of Trade Operations
U.S. Customs Service Headquarters
Washington, D.C. 20229
RE: A power of attorney evidencing a broker/client relationship
should name only one licensed broker to act as agent; a power of
attorney can authorize a broker to appoint other brokers to act
on principal's behalf, whether principal is resident or non-
resident; 19 U.S.C. 1641; 19 C.F.R. 111.43
Dear Mr. Laderberg:
This responds to your memorandum of September 5, 1991,
concerning the referenced subject (BRO-3-CO:T:E:C TE). You
submitted a package of documents concerning a matter that arose
in the Seattle district. At issue is a practice carried on by
two separately licensed brokers who appeared to be conducting
their customs business in concert. Another issue was raised
regarding 19 C.F.R. 141.43(b). We have reviewed the matter and
our response follows.
FACTS:
The relevant facts concerning the first issue, as we
understand them, are as follows: Western Overseas Corporation is
a licensed customs broker. B.A. McKenzie & Co., Inc. is also a
licensed broker. Both companies are separate and distinct
corporate legal entities that are owned by a third company -
Shipentine Corporation, a holding company. According to an
August 7, 1990, memorandum from the Seattle district counsel to
the ADD for commercial operations, there had been a problem with
the two companies's practice of sharing employees, payroll
systems, and management. The memo indicates that these problems
have been resolved, but discusses one of the issues to be herein
considered: the practice of these companies in using powers of
attorney which name both Western Overseas Corporation and B.A.
McKenzie & Co., Inc. as agents for the principal. The memo
concluded that the Customs regulations contemplate that only one
broker, per power of attorney, is to be granted the power to act
on a given principal's behalf. Any other interpretation would
lead to confusion and contribute to the violation of regulations.
Indeed, a power of attorney which names two separately licensed
legal entities as agent would raise questions concerning proper
management and supervision of each company's respective customs
business. By letter of August 15, 1991, Western Overseas
Corporation requested a reconsideration of the Seattle district's
opinion and requested that the issue be submitted to Headquarters
for a determination. The matter was submitted to your office,
and you have requested our views.
ISSUES:
(1) For purposes of transacting customs business with the
Customs Service, can a power of attorney be executed by a
principal in favor of two separate and distinct corporate
entities operating under separate broker licenses?
(2) Does the authority of 19 C.F.R. 141.43(b) permit a
situation where broker after broker, in an unending chain, can be
authorized to represent a non-resident principal?
LAW AND ANALYSIS:
(1) For purposes of transacting customs business with
the Customs Service, can a power of attorney be
executed by a principal in favor of two separate and
distinct corporate entities operating under separate
broker licenses?
As you know, the conduct of brokers in performing customs
business on behalf of importers is strictly regulated under the
authority of 19 U.S.C. 1641. This statute requires, among other
things, that brokers be licensed and "permitted" to perform
customs business, that they exercise responsible supervision and
control over their performance of customs business, and that they
be subject to appropriate regulations governing their performance
of such business. 19 U.S.C. 1641(b)(1), (b)(4), and (f). The
statute is implemented by part 111 of the Customs Regulations.
19 C.F.R. 111. Therein, provisions governing brokers are set
forth. These include the following: license and permit
requirements (111.2); the qualifications required for obtaining a
license (111.11); recordkeeping requirements (111.21-27); the
requirement of responsible supervision over the performance of
customs business (111.28); report filing requirements (111.30);
the due diligence requirement applicable to corresponding with
clients and accounting for monies received and paid (111.29);
notification requirements (111.30); the conflict of interest
prohibition (111.31); prohibitions against relations with
unlicensed, and other, persons (111.36 and 42); controls over
advice given to clients (111.39); procedures governing suspension
and cancellation of licenses (111.50-81); etc. The pervasive
regulation of broker activity is designed to ensure the
competence of brokers, protect the importing public, and
facilitate the administration of the importation and entry of
merchandise. These are the policy concerns that drive Customs
oversight of broker activity.
One of the foremost requirements affecting broker conduct is
the requirement of responsible management and supervision of its
customs business. 19 C.F.R. 111.28. Customs has held that an
employer-employee relationship is required to demonstrate the
requisite management, supervision, and control by the licensed
broker over others who perform customs business for clients.
Where a licensed broker is unable to effect the necessary
management, supervision, and control over those who actually
perform the customs business for clients, violations of section
111.28 have been found. This is the basis for the Broker A -
Broker B principle discussed in C.S.D. 79-111 (copy attached) and
other Headquarters letters and memoranda. (See also 54 Fed. Reg.
13,136 (March 30, 1989), copy attached.) Customs had prohibited
the performance of customs business for clients of Broker A by
employees of Broker B because Broker A could not adequately
manage, supervise, and control the conduct of that customs
business performed by Broker B's employees. Such an arrangement
can be employed only where the client of Broker A, the principal,
executes a power of attorney in favor of Broker A that explicitly
authorizes Broker A to appoint another broker to perform customs
business on behalf of the client of Broker A. In this instance,
Broker A can appoint Broker B to perform customs business for its
(Broker A's client) client, but the relationship is transformed
into one between the client and Broker B. In this way, Broker B
becomes subject to the requirement to exercise responsible
supervision and control over the customs business performed for
the client, as well as other requirements.
The instant matter originated as one involving the sharing
of employees and management by two separate brokers, raising
questions concerning responsible supervision of customs business
and the protection of importers. The dual agent problem remains
left over from the resolution of those problems. Customs Seattle
properly took steps to clarify the separateness of the operations
of these two brokers. This effort would be completed by
resolving the instant issue to require that powers of attorney be
executed in the name of one broker or the other, or that each
broker be designated agent under a separate power of attorney.
An agency relationship can be created by a principal in
favor of two or more agents. However, authority given by a
principal to two or more persons to act as agents includes only
authority to act jointly. First National Bank v. Hough, 643 F.
2d 705, 707 (1972); Keough v. Kittleman, 447 P. 2d 77, 78-79
(1968). The power of attorney in the instant case names both
Western Overseas Corporation and B.A. McKenzie & Co. as agents
and would thus require the two brokers to act jointly to bind
their principal. Given the scheme of the customs laws and
regulations pertaining to brokers, as well as the laws and
regulations pertaining to the entry of merchandise, this would be
unacceptable while the two brokers operate as separate legal
entities under the authority of separate broker licenses. In
accordance with the intent of the regulations, as well as with
the aforementioned policy concerns, the Customs power of attorney
should be limited to one principal and one broker/agent; that is,
a single legal entity licensed and authorized to perform customs
business for a single legal principal per one power of attorney.
This is consistent with the intent to closely regulate the
conduct of brokers for the purpose of protecting importers and
administering the importation of merchandise.
(Note that executing a power of attorney authorizing two
persons to act as agents is not prohibited under principles of
agency law; however, the power should clearly set forth that one
agent can act independently from the other to bind the principal.
Again, given the policy concerns, the scheme of the customs laws
pertaining to brokers and entry of merchandise, the intent of the
regulations, the interest in avoiding confusion and liability
problems, and the particular facts of the instant case, powers of
attorney for the transaction of customs business should be
limited to the appointment of one broker/agent.)
(2) Does the authority of 19 C.F.R. 141.43(b) permit a
situation where broker after broker, in an unending
chain, can be authorized to represent a non-resident
principal?
The second issue raised by your memorandum concerns powers
of attorney that authorize the broker/agent to authorize other
brokers to perform customs business on the principal's behalf.
The issue is raised in a July 25, 1990, memorandum from Customs
at Blaine to the Seattle district director (BRO-4-02-SE:B:B:CO
MM: slj). The memo contains the following:
I have recently been contacted by a Blaine
broker regarding instances in which other
brokers, not present at Blaine, have asked
that he handle Customs business at Blaine for
one of their clients. In both cases, the
requestor has presented the local broker with
a Power of Attorney naming the client as the
principal, signed by the requesting broker
for the client.
In one instance, the client was a U.S.
resident. Therefore, 19 CFR 141.43(a)
[pertaining to the prohibition against a
holder of a power of attorney for a U.S.
resident principal from appointing a subagent
except for the purpose of executing a
shipper's export declaration] prohibited the
Blaine broker from doing anything beyond a
shippers' export declaration.
In the other case, the client was a non-
resident, and there is apparently no
prohibition covering the activity or
preventing the Blaine broker from assigning a
Power of Attorney to yet another subagent (a
potentially unending chain of them).
Regarding the former situation - where the requesting broker
represents a U.S. resident principal - if the power of attorney
between the principal and the requesting broker expressly
authorizes such broker to appoint another broker, this is the
classic Broker A - Broker B scenario. It is not prohibited by 19
C.F.R. 141.43(a) because there is no appointment of a subagent.
Broker B is not the subagent of Broker A; Broker B becomes the
agent for the principal. As above, the relationship is
transformed into one between the principal and Broker B, in this
case the Blaine broker. (See Headquarters letter 730649, June
17, 1988, attached.) If the initial power of attorney does not
authorize the requesting broker to appoint another broker, the
Blaine broker should not perform customs business for the
principal for the reasons explained above.
Regarding the latter situation - where the requesting broker
represents a non-resident principal - this again is the Broker A
- Broker B scenario. The Blaine broker can perform customs
business for the principal if the initial power of attorney
authorizes the requesting broker to appoint another broker for
that purpose. In that instance, the Blaine broker would be the
agent for the principal not for the requesting broker. By its
terms, 19 CFR 141.43(b) requires that the initial power of
attorney expressly authorize the U.S. resident agent to appoint
another agent. Without that express authority in the initial
power of attorney, the U.S. agent cannot appoint another agent
under section 141.43(b), nor can a licensed broker act on behalf
of another licensed broker's client (unless an employer -
employee relationship exists between the brokers). Just as in
the above situation involving a resident principal, the second
broker appointed by the first broker (who is agent of a non-
resident principal) is precluded from appointing another broker
to perform customs business on behalf of the principal unless the
initial power of attorney specifies that the first broker can
convey that authority to the second broker. The scenarios we
have seen in the past have not involved that kind of grant of
authority.
HOLDINGS:
(1) For purposes of transacting customs business with the
Customs Service, a power of attorney should be limited to
authorize one licensed broker to act as agent for the principal.
This does not preclude a principal from executing another power
of attorney in favor of another licensed broker.
(2) A broker acting as agent for a principal can appoint
another broker to act on behalf of that principal only where the
initial power of attorney expressly gives the first broker the
power to do so. The second broker can appoint yet another broker
to act on behalf of the principal only where the first broker who
appointed the second broker was granted the power to convey that
authority by the principal in the initial power of attorney.
Section 141.43(b) of the Customs Regulations does not authorize
an endless chain of appointments of licensed brokers by licensed
brokers. A broker's power to appoint another broker to act on
behalf of the principal must always stem from the principal.
We hope the foregoing assists you in your response to the
Seattle district director. If you have any additional questions,
please feel free to submit them for our review.
Sincerely,
John Durant, Director
Commercial Rulings Division