Last June (2023), in response to a ruling request from Your Special Delivery Services Specialty Logistics (YSDS), Customs and Border Protection (CBP) issued HQ H324098, clarifying what it means to be an "owner or purchaser" with sufficient financial interest to act as importer of record (IOR).

The ambiguity surrounding the question of who has the right to act as IOR arises from the language of the applicable law. 19 USC § 1484(a)(1)-(2) states that only a party "qualifying as 'IOR' [...]" shall make entry, and that only "the owner or purchaser [...] or, when appropriately designated by the owner, purchaser, or consignee of the merchandise, [a licensed customs broker]" shall transmit the materials necessary to make entry. Based on the law's plain language, the IOR may be an owner, a purchaser, or a licensed customs broker. But where numerous parties—including logistics companies like YSDS—have different contractual rights, interests, and obligations with regard to the same merchandise, the definition of "owner or purchaser" is murkier than the plain language suggests.

CBP resolved much of the law's ambiguity in Customs Directive (CD) 3530-002A. Since the Office of Field Operations issued the CD in 2001, CBP has understood the terms "owner" and "purchaser" to "include any party with a financial interest in a transaction, [such as] the actual owner [...], the actual purchaser [...], a buying or selling agent, a person or firm who imports on consignment, a person or firm who imports under loan or lease, a person or firm who imports for exhibition at a trade fair, a person or firm who imports goods for repair or alteration or further fabrication, etc... [but not] a 'nominal consignee' who effectively possesses no other right, title, or interest in the goods except as he possessed under a bill of lading, air waybill, or other shipping document." Because carriers, freight forwarders, and logistics companies such as YSDS are not categorically similar to buying or selling agents, consignment sellers, lessees, exhibitors, or repair services, they are not logical additions to the CD's non-exhaustive list. And because their business is the transportation of goods under bills of lading and other shipping documents—rather than the acquisition of goods through ownership, leasing, or purchase agreements—the CD seems to explicitly exclude them as nominal consignees.

But YSDS's ruling request highlighted a possible exception: Where a logistics company or similar service provider has a lien on the goods that it can exercise either itself or on behalf of the seller in the event of nonpayment, does it have sufficient financial interest in the goods to act as IOR? YSDS proposed that two documents created sufficient financial interest under the 2001 CD's definition: 1) the purchase order between the purchaser and the seller, which granted YSDS as the "seller's agent [...] an enforceable security interest" in the goods in the form of a lien; and 2) the purchase order between itself and the seller, which similarly granted YSDS as the "seller's agent [...] seller's security rights in the [goods] so that YSDS can bring legal action or attach a lien on the [goods]" in the event of nonpayment or other breach of contract. Remarking that YSDS was only "purportedly" a seller's agent (a party normally entitled to act as IOR), Acting Branch Chief Kristina Frolova rejected its proposal.

Frolova explained that, according to the terms of the CD and earlier rulings, "owners or purchasers must have more than custodial interest in the goods... [and] a financial interest [...] that goes beyond that of a bailee." In a shipping context, borrowing a definition from the Uniform Commercial Code, the bailee is a party who by "warehouse receipt, bill of lading, or other document of title acknowledges possession of goods and contracts to deliver them." The bailee gains only a temporary right to possess the goods, does not take ownership of them, and loses its rights with regard to them when it fulfills the contract. YSDS and similarly situated parties, such as NVOCCs, whose financial interest is in transportation and other services incidental to the goods, rather than in the goods themselves, are archetypal bailees.

A cargo lien, even where spelled out in a contract, does not alter the nature of such a party's financial interest in the goods, and in fact is a well-established element of bailment relationships in international shipping. In Saray Dokum ve Madeni Aksam Sanayi Turizm A.S. v. MTS Logistics, Inc. (August 2023), the District Court for the Southern District of New York cited 4885 Bags of Linseed, a 163-year-old case, to explain that a carrier or similar party's "lien [...] arises from his right to retain possession until the freight is paid," and exists whether or not it is contractually granted. But the lien only secures the party's interest in payment for services—not in the goods themselves. And once the freight is paid or the delivery contract is fulfilled, the party has no further interest.

Nowhere in case law or statute does a cargo lien create financial interest of the sort that would give a party such as YSDS the right to act as IOR. Acting Branch Chief Frolova cited HQ 116344 and HQ H007168 as examples of cases where similar security interests did indicate sufficient financial interest. But in both cases, it was a seller—not a carrier or similar party—who was entitled to act as IOR. And in both cases the seller transferred ownership to its US customers prior to importation but retained a security interest in the goods to ensure payment after importation. In contrast to these sellers, Frolova reasoned, because YSDS was not the seller, never held title, gained ownership, or bore any risk of loss, and only had a financial interest in the goods in the form a lien to exercise in the event of nonpayment, "YSDS's role [most] closely resemble[d] that of a nominal consignee."

To establish financial interest sufficient to entitle a party to act as IOR, there must be a "nexus between the financial welfare of the would-be importer and the imported goods" themselves. Where a security interest, rather than actual ownership, indicates such a financial interest, it demonstrates that the party relies on payment in exchange for the goods to benefit from the transaction. Since at least as early as 1861, cargo liens held by parties acting as bailees have secured only payment in exchange for services incidental to goods, not for goods themselves. Accordingly, as HQ H324098 illustrates, parties who are not owners, purchasers, designated licensed customs brokers, or another party explicitly enumerated in the 2001 CD but wishing to act as IOR should be certain that their financial interest is in the goods themselves, "more than custodial," and "beyond that of a bailee."

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