HQ H318461
BRO-1; 3-05
OT:RR:CTF:ER
H318461 SMS
Herbert J. Lynch, Esq.
Sullivan & Lynch, P.C.
800 Turnpike Street, Suite 300
North Andover, MA 01845
Re: Request for a binding ruling regarding Customs broker relations with unlicensed persons
Dear Mr. Lynch:
This is in response to your letter dated April 29, 2021, submitted on behalf of your client, World Customs Brokerage (“WCB”). You inquire whether WCB may enter a business relationship with a freight forwarder, World Courier, Inc. (“WCI”), that is not a customs broker, within the regulations regarding Customs broker relations with unlicensed persons, under 19 C.F.R. §§ 111.24 and 111.36.
FACTS:
WCB is a licensed Customs Brokerage and a subsidiary of AmerisourceBergen Corporation (“ABC”), a healthcare solutions organization. You explain that occasionally, importers are referred to WCB by WCI, an affiliate company within ABC, who specializes in logistics and freight forwarding. All importers referred to or who directly engage with WCB are required to execute a Customs Power of Attorney (“POA”) and acknowledge receipt of WCB’s Terms and Conditions of Service. Included in the POA is a provision “whereby the client Importer specifically consents to the disclosure to the freight forwarder of records and information deemed confidential.” WCB’s proposed POA does not identify WCI by name, but merely by executing the POA the importer agrees that WCB can invoice a freight forwarder for services rendered to the importer and share records with it pertaining to the import transactions.
Specifically, the proposed POA states:
Where the grantor is being billed for brokerage services through a freight forwarder, the grantor acknowledges that it is World Customs Brokerage and not the forwarder who is conducting Customs business; In addition, by executing this power of attorney, the grantor acknowledges that all of World Customs Brokerage’s fees and expenses may be billed and collected by the forwarder and the grantor waives any requirement that an invoice or statement of the brokerage charges be sent directly by World Customs Brokerage to the grantor; nothing here in shall be construed as preventing the grantor from directly communicating with World Customs Brokerage; Grantor further acknowledges that records pertaining to the grantor’s import transaction can be disclosed by World Customs Brokerage to the grantor’s freight forwarder and/or provided the grantor through its freight forwarder.
You further explain that the exchange of “all information and communications necessary to prepare and file the Entry and Entry Summary takes place between WCB and the Importer.” In some instances, after calculating customs duties and fees owed on an importation, WCB invoices WCI for the duties and fees owed by the importer client. WCI “does not calculate the Customs duties and fees.” WCI collects the duties and fees from the importer and remits them to WCB. WCB then pays U.S. Customs and Border Protection (“CBP”) the duties and fees due on the entry. Under the agreement, importers may also make payment to CBP directly.
On September 17, 2021, Regulations and Rulings asked for clarification regarding this arrangement. On September 29, 2021, counsel for WCB elaborated on the business relationship and explained that WCI introduces the importer to WCB, at which time WCB will correspond with the importer and obtain a POA and other information necessary, directly from the importer. Therefore, WCI informs the importer that WCB will be the broker performing the customs business. Counsel also provided WCI’s Conditions of Carriage, which it provides to its customers, and includes a provision on Customs Brokers. You explain that while WCI does not require a POA from its customer, it does require its customers agree to the Conditions of Carriage which states if the shipper customer has not already appointed a broker, it appoints WCB or a third-party broker, selected by WCI to act as its agent.
You seek confirmation whether, under this arrangement WCB is authorized under 19 C.F.R. §§ 111.24, 111.29, and 111.36, to share confidential information with the freight forwarder; invoice the freight forwarder for duties, fees, and WCB expenses; and receive payment from the freight forwarder. You specifically inquire: 1) Does WCB’s POA satisfy the written consent and waiver requirements of 19 C.F.R. §§ 111.24 and 111.36(c)(2)(i); 2) must the name of the freight forwarder be identified in the POA; 3) and is there a requirement that WCB receive funds for the payment of Customs duties directly from the importer.
ISSUES:
Whether a Customs Broker must receive Customs duties directly from the importer.
Does WCB’s POA satisfy the written consent and waiver requirements of 19 C.F.R. §§ 111.24 and 111.36(c)(2)(i).
LAW AND ANALYSIS:
Whether a Customs Broker must receive Customs duties directly from the importer.
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.
19 C.F.R. § 111.1.
As explained in Headquarters Ruling (“HQ”) H258556, dated September 6, 2017, to comply with the statutory and regulatory requirements, while an intermediary may collect funds from the importer and forward to the broker, only a licensed broker or the importer of record may tender the payment to CBP. While we explained that a person may assume the liability for duties owed by another person, such a transaction must still be structured in a manner where only the customs broker or importer of record tenders the payment to CBP. Additionally, as the payment of duties to CBP amounts to customs business per 19 C.F.R. § 111.1, a freight forwarder’s intermediary role in the importer’s payments of duties to CBP must not amount to “active participation in decisions and activities” relating to these payments. H258556 (Sept. 6, 2017). In H258556, we found a freight forwarder was allowed to collect fees from the importer for forwarding to the broker. This payment arrangement was permissible because the licensed broker determined the amount of duty, the freight forwarder provided the importer a single bill, including the amount owed to CBP, which, after collection from the importer, the freight forwarder would then forward to the broker for payment to CBP. Id.
Here, like in H258556, we find that it is permissible for a broker to allow an intermediary freight forwarder to collect payment from the importer, if the freight forwarder does not remit the payment to CBP directly, nor participates in decisions relating to those payments. Specifically, as a freight forwarder or any unlicensed entity is precluded from conducting customs business, under 19 C.F.R. § 111.4, WCI may not actively participate in the customs decisions, calculation, or remittance of customs payments to CBP. Accordingly, WCB’s proposed payment transaction is permissible as the freight forwarder does not decide or calculate the amount of duties owed by the importer nor actively participates in customs decision. As WCB explained, it will handle all the calculations, then invoice WCI for collection purposes, and WCB or the importer will make payment to CBP.
Does WCB’s POA satisfy the written consent and waiver requirements of 19 C.F.R. §§ 111.24 and 111.36(c)(2)(i).
Sections 111.36 and 111.37 of CBP Regulations (19 C.F.R. §§ 111.36 and 111.37) govern the relationship between licensed Customs brokers, importers, and third parties. A violation of these provisions may lead to penalties or other sanctions being imposed under 19 U.S.C. § 1641(b)(6) and/or 19 U.S.C. § 1641(d)(1)(C). When fees generated from the transaction inure to the benefit of the unlicensed person, 19 C.F.R. § 111.36 of the CBP Regulations precludes a broker from entering into an agreement with an unlicensed person, except for relations with a freight forwarder, to perform Customs business for a third party. See 19 C.F.R. § 111.36. Specifically, 19 C.F.R. § 111.36(c) outlines the conditions necessary for a broker to enter a business relationship with a freight forwarder wherein the freight forwarder is compensated for referring business.
A broker may compensate a freight forwarder for referring brokerage business, subject to the following conditions:
The importer or other party in interest is notified in advance by the forwarder or broker of the name of the broker selected by the forwarder for the handling of his Customs transactions;
The broker transmits directly to the importer or other party in interest:
A true copy of his brokerage charges if the fees and charges are to be collected by or through the forwarder, unless this requirement is waived in writing by the importer or other party in interest . . .
No part of the agreement of compensation between the broker and the forwarder, nor any action taken pursuant to the agreement, forbids or prevents direct communication between the importer or other party in interest and the broker; and
In making the agreement and in all actions taken pursuant to the agreement, the broker remains subject to all other provisions of this part.
19 C.F.R. § 136(c).
Brokers are also subject to certain recordkeeping requirements, which are found 19 C.F.R. in sections 111.21 through 111.27 and Part 163 of the Customs Regulations (19 C.F.R. §§ 111.21-111.27; 19 C.F.R. Part 163). One of these requirements is that brokers maintain the confidentiality of client records. 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.
19 C.F.R. § 111.24. Furthermore, CBP defines “records” in 19 C.F.R. § 111.1 as:
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.
However, we have held that a broker obtaining a written release from a client allowing for the sharing of client information would not be subject to disciplinary action for violating the confidentiality requirements of § 111.24. In HQ 116025, dated September 29, 2003, we explained “brokers need merely request, and receive, a written release from the client authorizing disclosure of client information.” HQ 116025 (Sept. 29, 2003). In HQ H221355, dated November 21, 2021, we described this written release as, “such as that which would be necessary to share with a third party for security screening purposes.” HQ H221355 (Nov. 21, 2012). In H258556, we elaborated that general CBP POA language, which permits the agent to transact customs business on behalf of the principal, which may be properly transacted or performed by an agent or attorney is insufficient to authorize sharing of the principal’s information. See CBP Form 5291. Accordingly, under the regulations, unless the client provides specific written consent for disclosure of its information, customs brokers are required to maintain confidentiality of its importer client’s duty and billing information and may not share it with a third-party freight forwarder.
WCB also questions whether it must include the freight forwarder’s name in its POA which authorizes sharing of the importer’s information, to satisfy the written consent for disclosure requirements. We note, that under 19 C.F.R. § 111.36(c), as described above, there is no requirements that the broker must disclose the freight forwarder’s name, in fact the reverse is what is required; the regulations mandate that the broker identity must be disclosed.
Here, in WCBs proposed POA it states “[g]rantor further acknowledges that records pertaining to the grantor’s import transaction can be disclosed by World Customs Brokerage to the grantor’s freight forwarder and/or provided the grantor through its freight forwarder.” Accordingly, this language puts the importer on notice that it has agreed to waive its right to confidentiality of its information and has granted permission for WBC to share this information with an unnamed freight forwarder. The importer is free to demand WCB include the name of the freight forwarder or limit this waiver to certain freight forwarders, and if it so chooses, the importer could request amending the POA as it is currently drafted, prior to assentation. We note that recently in HQ H297978, we explained that neither CBP statutes nor regulations mandate the specific terms of a POA. See HQ H297978, dated July 16, 2021 (internal citations omitted) (“laws that establish requirements for and govern POA agreements are set by state agency and contract law”). Here, we find that the language in WCB’s proposed POA is sufficient, that a consenting importer would understand that it is waiving its right to confidentially regarding any freight forwarder WCB elects.
Here in some instance, the business relationship commences with the freight forwarder, WCI, prior to the importer being referred to WCB. Prior to referral, WCI has the importer agree to a separate business arrangement, where the importer consents to allow WCI to act as its agent or appoint a customs broker on its behalf. Subsequently, WCI introduces the importer to WCB, who then obtains a POA which states the importer permits WCB to disclose its records to an unnamed freight forwarder. While WCB does not include the name of the freight forwarder in its proposed POA, the importer is already aware of WCI, as they have already been contracted to act as the freight forwarder on the importer’s behalf.
You request clarification as to whether the language in WCB’s POA is sufficient to find that the importer has waived its rights to a copy of the brokerage charges, under 19 C.F.R.§ 111.36(c)(2)(i). Broker transaction requirements set forth in 19 C.F.R. § 111.29, outline diligence in correspondence and paying monies. This requires that brokers provide importer clients with a written statement that accounts for the payment of funds in certain circumstances described in 19 C.F.R. § 111.29(a) and a notice to the client of the method of payment as required in § 111.29(b). Additionally, as explained above in 19 C.F.R.§ 111.36(c)(2)(i), unless the requirement is waived in writing, the broker must transmit directly to the importer “a true copy of his brokerage charges if the fees and charges are to be collected by or through” a freight forwarder. In the proposed POA the importer “acknowledges that all of World Customs Brokerage’s fees and expenses may be billed and collected by the forwarder and the grantor waives any requirement that an invoice or statement of the brokerage charges be sent directly by World Customs Brokerage to the grantor.” As mentioned above, regarding customs payments and billing, other than what is included in 19 C.F.R. § 111.29, CBP does not mandate the specific terms of this private business agreement to affect the waiving of requirements found in 19 C.F.R. § 111.36. POAs, as private agency agreements are controlled by state and contract law. HQ H297978 (July 16, 2021). Nonetheless, we find the above language sufficient written acknowledgment that the importer has consented to waive the requirements found in 19 C.F.R.§ 111.36(c)(2)(i).
Lastly, we note that the ruling request made no mention of specific compensation to the WCI from WCB for the referral. Accordingly, if WCI will refer clients to WCB without accepting any form of compensation, the requirements of 19 C.F.R. § 111.36(c) will not apply to the referral arrangement because the regulation is expressly limited in scope to the conditions of a freight forwarder’s compensation by a broker.
HOLDING:
Based on the information provided, we find that:
There is no requirement that the broker receive customs duties directly from the importer and it may receive them from the freight forwarder.
In addition, WCB’s POA satisfies the written consent and waiver requirements of 19 C.F.R. §§ 111.24 and 111.36(c)(2)(i).
Please note that 19 C.F.R. § 177.9(b)(1) 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 CBP 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,
Alexandra B. Hess, Acting Chief
Entry Process and Duty Refunds Branch