Decoding CBP’s Modernized Customs Broker Regulations – What You Need to Know

U.S. Customs and Border Protection (CBP) issued the final rule modernizing the customs broker regulations 19 CFR 111 with an effective date of December 19, 2022.   Key changes include transitioning to a national permit framework, requiring that a customs broker have direct communication with an importer, revising the standard of care of using responsible supervision and control oversight, and strengthening records requirements, among others. CBP is deploying a new online system, the eCBP Portal, for processing broker submissions and electronic payments.

 

These modifications are made in response to two major developments that have fundamentally changed the traditional ways that customs brokers and CBP interact: the establishment of the Centers of Excellence and Expertise (CEEs) and the creation of the Automated Commercial Environment (ACE), which operate on a national level rather than a district one. Based on the modernized broker regulations an uptick in CBP targeting and enforcement, including customs broker inspections, prior disclosures, and penalties, can be expected.

 

CBP has issued a plethora of educational resources to assist the broker industry in complying with the new regulation changes. Resources include a new “Customs Broker Guidance for the Trade Community” publication, a fact sheet of key changes, a fact sheet on Responsible Supervision and Control a side-by-side comparison of revisions to 19 CFR. part 111, and two webinars for the trade community.

 

The following summarizes the updated regulations impacting importers and brokers.

 

Broker/Client Relationship

 

POA. To ensure direct communication with the importer instead of a third party/freight forwarder, CBP requires brokers to execute a customs power of attorney directly with the importer.

 

Policing Customs Compliance. The final rule requires brokers to proactively police customs compliance, in cases of non-compliance, an error, or an omission. Brokers are required to advise clients on proper corrective actions for any errors or omissions and must retain records of such communication. Importers who receive broker notifications of noncompliance with recommended changes should proactively assess whether consulting with customs counsel is needed to evaluate the associated risks prior to implementing the corrective actions. Because a broker is required to keep a record of any broker notifications of noncompliance, CBP will be able to review the documentation to establish whether an importer has failed to take corrective action suggested by the broker or has exhibited a pattern of repeated errors, omissions, or noncompliance. An increase in broker visits can be expected, which will make CBP investigation efforts easier. If an importer relying on advice from an expert (Customs broker) who is in possession of the relevant facts demonstrates reasonable care, then ignoring the same advice can be considered at least negligence and a breach of an importer’s standard of care. 

Under the prior regulations and the new regulations, a broker’s notification of an error means that the broker cannot make future entries for the client with the same error (wrong tariff classification, value, country of origin, non-deposit of ADD, etc.).  This scenario typically leads an importer to change brokers since the notifying broker will not be able to handle the importer’s entries anymore if it insists that the broker continue entering merchandise in a manner the broker believes is erroneous.   We would anticipate that Customs could weigh changing brokers more heavily in its targeting formulas, which will lead to increased CBP enforcement and prior disclosures.

 

Whistleblower. Brokers will have an affirmative obligation to report their clients to CBP when a broker terminates a client relationship because a client is intentionally attempting to defraud or otherwise commit any criminal act against the U.S. government. Brokers should be cautious and consult with counsel when suspecting ADD evasion, transshipment, double invoicing, or other complex transactions. 

 

Responsible Supervision and Control

 

Factors. The final rule modifies the requirements for exercising “responsible supervision and control”. 19 CFR § 111.28 lists the specific 13 factors that CBP will consider in determining whether the standard of care has been met by a broker in its customs business. These factors have been revised to heighten the burden of responsibility on brokerages and are described below:

 

Supervision Plan. Brokers are responsible for submitting a written supervision plan at the time of applying. Those licensed are required to beef up their current SOPs to ensure the factors, especially as it relates to employee training, align with the responsible supervision and control factors considered by CBP. These factors generally require brokers to be readily available to employees, train employees, provide instructions and guidelines in written or electronic forms to such employees, and ensure employees have access to current editions of laws and regulations. The factors also provide that CBP will consider the broker’s reject rate relative to the overall volume of transactions it conducts.

 

Should a broker receive an informed compliance letter related to its breach of care, it’s recommended to consult with counsel to determine whether any factors may mitigate any potential penalties or other enforcement actions. CBP has noted in the final rule, “There may be instances where one or more factors will be more relevant than others in determining whether a broker did or did not exercise responsible supervision and control. While it is possible that CBP’s determination that a customs broker has failed to exercise responsible supervision and control may be predicated on fewer factors, but ones that CBP considers relevant, this does not prevent the broker from presenting in its defense any factors it believes to be mitigating.”

 

Current brokers do not have to submit a Supervision Plan; only new brokers are required to submit a plan at the time of applying for licensure. CBP highly recommends current license brokers have a plan in place.

 

The Number of Brokers 

 

The rule adds a new requirement for brokerages.  Sole proprietorship, partnership, association, or corporation must employ a “sufficient number of licensed brokers relative to the job complexity, similarity of subordinate tasks, physical proximity of subordinates, abilities, and skills of employees, and abilities and skills of the managers.” CBP is likely seeking to decrease the number of employee errors that result in issuances of informed compliance; the more work a non-broker employee is responsible for, the more likely errors will result at the time of transmitting entries to CBP.

 

Single National Permit

 

Under the final rule, Brokers may file entries at any port of entry within the Customs Territory of the United States. Brokers will operate under a national permit, which allows the broker to conduct customs business on a national scale. They will have to designate an office of record as the primary location that oversees the administration of all activities conducted under a national permit. CBP eliminated the broker district permits to align with the CEEs and ACE; those holders will be automatically transitioned to a national permit prior to the effective date of the rule.

 

Those already on a national permit have nothing to do during the transition to the national permit framework. The approximate 370 brokers that are on district permits will be transitioned to national permits. CBP highly recommends that district brokers engage with their service providers and ABI representatives to test transactions prior to the effective date.

 

Recordkeeping Practices

 

The final rule implements a new requirement to notify CBP when there has been a breach of broker records. A broker is required to notify CBP within 72 hours of the discovery of the breach and provide any IOR numbers that have been compromised. 10 days later, the broker must update CBP with any additional findings. Brokers must retain original records, including electronic formats, within customs territory.

 

Confidential Treatment of Records

 

The final rule clarifies that a broker may share client information with third parties when authorized in writing by the client. The authorization may be included in the broker’s POA or in a separate writing. Importers should be mindful when signing a POA and understand whether a confidentiality waiver is included. Importantly, the confidential designation does apply to those documents that were properly obtained through public forums.

 

Knowledgeable Point of Contact

 

A brokerage must designate a knowledgeable employee to be the point of contact (POC). The POC must be available to CBP during and outside of normal operating hours to respond to customs business issues. CBP is requiring a point of contact to cover operating hours across all time zones, should CBP need to contact an importer regarding the release of goods.

 

Responsible Supervision and Control

 

CBP will evaluate the broker’s timeliness in transmitting payment of duties from the date received from the IOR as a factor when considering whether responsible supervision and control were exercised.

 

Other

 

Brokers are strongly advised to obtain an ACE account to facilitate communication with CBP and maintain employee contact information.

 

Continued Education requirements are a separate rule, which is forthcoming.

 

How Can Our Team Help

 

The new rules pose new risks for both brokers and importers, as well as drawback claimants and others using brokerage services. Our firm has a robust Customs and Trade Team with over 100 years of combined experience, who can assist in navigating the new regulations, respond to informed compliance letters, and provide recommendations to a broker for required importer corrective actions.

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