New Rules for Customs Brokers – Bringing Your Brokerage into Compliance with the Modernized Part 111
After several years of review by U.S. Customs and Border Protection (“CBP”), the Customs Broker community, and the Commercial Customs Operations Advisory Council, CBP unveiled the new Customs Broker Regulations under 19 C.F.R. Part 111. On October 18, 2022, CBP published the final rules, Modernization of the Customs Broker Regulations, 87 FR 63267, and Elimination of Customs Broker District Permit Fee, 87 FR 63262, which go into effect on Monday, December 19, 2022. These new regulations impose heightened responsibilities on Customs Brokers, especially in the areas of “supervision and control” of employees and the broker-client relationship.
The National Customs Broker
Say goodbye to broker districts, district permits, and local permit waivers. The new national permit allows Customs Brokers to conduct customs business anywhere in the United States. By December 19, district permit holders without a national permit will be automatically transitioned to a national permit. Under 19 C.F.R. § 111.3(b), the national Customs Broker will need to designate a knowledgeable point of contact to be available to CBP during and outside normal business hours, or essentially 24/7 contact with the permit holder.
Changes to “Responsible Supervision and Control” Requirements
Any Customs Broker, whether operating as a sole proprietorship, partnership, association or corporation, must employ a sufficient number of licensed brokers in ratio to their non-licensed employees. This number is determined on a case-by-case basis after weighing a number of factors. The final rule incorporates the list of factors historically found under 19 C.F.R. § 111.1 into the provisions of 19 C.F.R. § 111.28. At the time of permit application, Customs Brokers must provide a supervision plan detailing the broker’s proposed strategy for exercising responsible supervision and control over their customs business. These may be unique to each broker and depend, among other things, on the size of the brokerage, the complexity of the customs business, and the types of transactions handled. Some of the key changes to the factors considered by CBP when determining what is necessary to perform and maintain responsible supervision and control are listed below.
- CBP will now only consider training that is actually provided to the broker’s employees. It is not enough for a broker to have a training requirement or plan – they must show what training was actually done.
- CBP will now consider the availability of a “sufficient” number of licensed brokers for consultation with employees, whereas previously, only the availability of an individual broker was prescribed.
- CBP added the factor of the timeliness of processing entries and payment of duty, tax, or other debt or obligation owing to the Government for which the broker is responsible, or for which the broker has received payment from a client.
- CBP added the factor of communications between CBP and the broker, and the broker’s responsiveness and action to communications, direction, and notices from CBP.
- CBP added the factor of communications between the broker and its officer(s) and member(s), and the broker’s responsiveness and action to communications and direction from its officer(s) and member(s).
However, in addition to revising these factors, CBP amended its obligation to consider them. In the final rule, the historical regulatory language that provided that CBP “will consider” the list of factors was replaced with the language “may consider in its discretion and to the extent any are relevant.” The change affords CBP more discretion in determinations of supervision and control sufficiency as well as enforcement actions for violations of the new regulations. Based on these revisions, Customs Brokers may need to supplement their supervision plan to account for training and procedures for communication with CBP officers.
The Broker-Client Relationship (and CBP)
The new regulations alter the legal requirements of the Customs Broker-Importer relationship. Customs Brokers will be required to execute powers of attorney for each client, conduct due diligence on the correctness of the information submitted to CBP on behalf of the client, and report the client in the event that the broker ceases representation due to fraudulent or criminal activity. (This appears to be a conflict of interest and will have to be navigated carefully).
A power of attorney will be needed for each client. Under 19 C.F.R. § 111.36, Customs Brokers will need to execute a customs power of attorney directly with the importer of record or drawback claimant, and not via a freight forwarder or other (unlicensed) third party, to transact customs business for that importer of record or drawback claimant. “Execute” in this case means having a power of attorney directly negotiated with the client and executed by an officer or other authorized employee of the importer.
Customs Brokers must also join the due diligence effort for accuracy of import documents. Under 19 C.F.R. § 111.39, Customs Brokers will be required to exercise due diligence to ascertain the correctness of any information that the broker imparts to a client, including advice to the client on the proper payment of any duty, tax, or other debt obligation owing to the US. Government. The Customs Broker cannot withhold information from a client relative to any customs business it conducts on behalf of a client. Knowingly imparting false information to a client is a violation.
CBP is also compelling the broker community play a more proactive role in enforcing the Customs Laws. Under 19 C.F.R. § 111.32, a Customs Broker “must not file or procure or assist in the filing of any claim, or of any document, affidavit, or other papers, known by such broker to be false.” In the event that a Customs broker separates from or cancels representation of a client “as a result of determining the client is intentionally attempting to use the broker to defraud the U.S. Government or commit any criminal act against the U.S. Government,” the Customs Broker must document and report the event to CBP. This report to CBP must include the client’s name, date of separation or cancellation, and the reason for separation or cancellation.
The revised regulations also contain revised – and more stringent – recordkeeping requirements. A broker must keep all original records, whether hard copy or electronic, in the US Customs territory. The required records include all documents supporting entries filed with CBP. These could include certificates of origin, packing sheets and other documents relevant to the entry. The records also include communications with the client and with CBP.
The broker may transmit via ACE (1) the office where records are kept, (2) a recordkeeping point of contact, and (3) a knowledgeable 24/7 point of contact. Alternatively, this information may be provided to the broker processing center. If there has been a breach of the records, such as hacking or inadvertent disclosure, the broker must notify CBP within 72 hours of the breach and report the affected importer of record numbers. CBP can request copies of records such as powers of attorney, entries and supporting documents. If requested the broker has 30 days to provide the requested records – or face a recordkeeping penalty.
When To Call Your Attorney
Navigating the new responsibilities for Customs Brokers will be challenging for most brokerages. Balancing a national practice with magnified requirements for responsible supervision and control, client communication and reporting, and recordkeeping obligations may require a Customs Broker to amend their current standards of procedure for conducting customs business. Proactive compliance with these new regulations is necessary to avoid enforcement actions and licensing issues in practice.
An experienced Customs and Trade Attorney can provide integral guidance and support to Customs Brokers who will need to change their practices in light of the new regulations. To prepare for the new rules, an attorney can assist with clarifying the regulations, revising procedures for doing customs business, revise and streamline the process of executing powers of attorney, counseling regarding due diligence requirements, and preparing plans for recordkeeping, supervision, and training. In the face of a potential violation, a Customs Broker should immediately contact legal representation. Given the consequential weight of the elevated responsibilities prescribed under the new regulations, Customs Brokers will need critical assistance to bring their practices into compliance.
Below is a list of CBP guidance documents and links regarding the new regulations.
- Customs Broker Guidance for the Trade Community, CBP Publication Number: 2016-0922 (October 18, 2022, with updates effective December 19, 2022): cbp.gov/document/guidance/customs-broker-guidance-trade-community.
- 19 CFR 111 Provisions Side-by-Side Comparison Chart, CBP Publication No. 1986-0922 (October 18, 2022): cbp.gov/document/guidance/19-cfr-111-provisions-side-side-comparison-chart.
- Fact Sheet: Responsible Supervision and Control, CBP Publication No. 2033-1022 (October 19, 2022): https://www.cbp.gov/document/fact-sheets/fact-sheet-responsible-supervision-and-control.
- Job Aid – Power of Attorney, CBP Publication No. 2034-1022 (October 20, 2022): cbp.gov/document/guidance/job-aid-power-attorney.
- CBP’s webpage for the Customs Broker Modernization Regulations 19 CFR 111: cbp.gov/trade/programs-administration/customs-brokers/modernization.
- CBP’s Customs Broker FAQs: cbp.gov/trade/programs-administration/customs-brokers/frequently-asked-questions.