On September 8, 2023, U.S. Customs and Border Protection ("CBP") published updates (Version 2.0) to its Customs Broker Guidance for the Trade Community ("Broker Guidance 2.0") to provide further clarity to CBP's promulgation of two Final Rules – Modernization of Customs Broker Regulations, 87 Fed. Reg. 63,267 (Oct. 18, 2022), and Elimination of Customs Broker District Permit Fee, 87 Fed. Reg. 63,262 (Oct. 18, 2022) (collectively, the "Modernized Broker Regulations").
The Broker Modernization Regulations made groundbreaking updates intended to respond to the current reality of trade transactions. For example:
- CBP eliminated broker districts and district permits and replaced them with national permits and allowed holders of such national permits to conduct any type of customs business throughout the customs territory of the United States, as opposed to just the district(s) in which they were authorized.
- CBP updated the responsible supervision and control oversight framework required of brokers to ensure that customs business is conducted within the United States.
- CBP clarified that a broker must execute a customs power of attorney ("POA") directly with the importer of record and not via a freight forwarder or other unlicensed third party, thereby requiring that a customs broker have direct communication with an importer.
- CBP also added a regulatory requirement that brokers must document and report to CBP if the broker separates from a client in instances in which the broker has reason to believe that the client attempts to defraud or commit a potentially criminal act against the United States Government.
Broker Guidance 2.0 provides several updates to the original guidance published concurrently with the Modernized Broker Regulations, and should be reviewed in their entirety by the broker community. There are three updates, however, that merit mention.
A broker's "responsible supervision and control." As background, there are thirteen regulatory factors that CBP may consider when determining whether a broker has performed and maintained responsible supervision and control. Broker Guidance 2.0 clarifies with respect to these factors that the broker's obligation will depend upon "each broker's particular circumstance" rather than "the circumstances in each instance," as the guidance previously required. While both the original and updated statements may at first glance appear similar, the updated language may impact how CBP approaches its analysis depending on circumstances particular to the broker whose activities are under review. For example, one of the thirteen "responsible supervision and control" factors is "[t]he training provided to broker employees," 19 C.F.R. § 111.28(a)(1). CBP may expect a large brokerage firm to have a robust training program provided for new employees, whereas CBP may find that a smaller brokerage firm exercises responsible supervision and control under a less robust program – when it provides its employees with a mentoring program and access to CBP's online training webinars, for example. Additionally, in Broker Guidance 2.0, CBP provides examples of certain "particular circumstances" that may be relevant when CBP considers the thirteen "responsible supervision and control" factors.
CBP also clarified that an applicant for a national permit must identify the licensed individual who qualifies the permit and who will exercise responsible supervision and control over the brokerage activities conducted under the national permit. Brokerage firms that are associations or corporations continue to be required by regulation, 19 C.F.R. § 111.11(c), to have at least one officer who is a licensed broker, but that officer need not be the same individual as the licensed individual who qualifies the national permit and who will exercise responsible supervision and control over the brokerage activities conducted under the national permit.
A broker's responsibility to report violation of law. The second update relates to the regulatory requirement added under the Modernized Broker Regulations that,
[a] broker also must document and report to CBP when the 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 report to CBP must include the client name, date of separation or cancellation, and reason for the separation or cancellation.
19 C.F.R. § 111.32. The Original Broker Guidance provided examples of types of information the broker is required to document and report, such as information that constitutes a violation of the law or serves as potential evidence of criminal intent. Conduct which may cause a broker to separate from a client and therefore would require the broker to report to CBP can include, "falsely and intentionally declaring country of origin information to avoid" duties (e.g., antidumping or Section 301 duties) or evidence of intentional forced labor violations.
In Broker Guidance 2.0, CBP merely clarified that reporting may occur by phone, email, or mail to a supervisory point of contact at the client's assigned Center of Excellence and Expertise and/or through CBP's e-Allegations program so long as all required information is reported. This change suggests that some confusion may have arisen in the brokerage community as to what exactly needs to be reported when the report is required.
A broker's requirement to have a Power of Attorney with the IOR. Lastly, the Modernized Broker Regulations require that brokers have "direct communication" with and execute a Power of Attorney directly with the importer of record. It is no longer acceptable for the Power of Attorney relationship to be established through a freight forwarder or an unlicensed third party. Broker Guidance 2.0 clarifies that no matter how the POAs are received from the client – whether by email, mail, or fax – the POA must be kept on file with the other records retained for that importer of record.
Ultimately, CBP's recent updates in Broker Guidance 2.0 do not significantly change the general understanding of the Modernized Broker Regulations. The updates do, however, demonstrate CBP's willingness to provide brokers with clarity and regular updates as real-time experiences require regarding the Modernized Broker Regulations.
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