In the Tuesday, October 18, 2022 Federal Register Customs published its new Part 111 regulations for customs brokers. The regulations should go into effect 60 days from October 18, which is December 17, 2022. It is likely that the first effective date will be the following Monday, December 19, 2022.
The final regulations mostly mirror the interim regulations that Customs took initial comments on. This means that Customs is unlikely to be very lenient with respect to implementation, since the draft regulations are literally years old. Many brokerages have been pondering these changes for several years.
First, the entire concept of districts for brokers has been abolished. All licenses will be transitioned into national licenses. This change matches the national focus Customs has adopted with the creation of the Center of Expertise and Excellence. It also reflects the reality that the Automated Commercial Environment has made it unnecessary for brokers to have a presence physically close to the port. Interestingly, Customs did not refute the notion that allowing national supervision of brokerage operations might lead to fewer brokers being employed in multi-district brokerages. Technology can be a mixed blessing.
In an apparent departure from the modernizing focus on electronic systems, Customs will continue to require that records be kept in the United States. Even companies using third party data storage must ensure that documents are stored on servers in the United States. While this requirement already exists in other areas (such as export compliance), it will require care and appropriate contractual terms for some brokers. Customs also noted that while primary documents must be stored in the United States, backup versions of those documents are not regulated by the law.
The final rule contains a fairly extensive discussion of section 111.32. This provision bars brokers from knowingly conveying, directly or indirectly information that is false that the broker knew or should have known was false or misleading. The provision also requires documentation and a report to Customs when the broker separates from a client because the broker has determined that the client is intentionally attempting to defraud the United States. Importantly, Customs clarified in the comments that the reporting requirements to Customs arise only in situations in which a client is intentionally trying to defraud the United States. This clarification is important since there had been some concern that brokers would be required to report good-faith disagreements and simply errors to Customs. Thus, while brokers do have a serious responsibility in 111.32 it is limited to specific circumstances.
Another important discussion in the Federal Register notice relates to the requirement under 111.36 that brokers must have powers of attorney directly with the importer of record or drawback claimant. This bars the practice of having the freight forwarder procure a power of attorney from the importer, then execute a power of attorney with a broker. Customs clarified that the principle set forth in this language is the necessity that brokers know their own customers. Therefore, brokers are still permitted to have contact with third parties hired by the importer but must also have a direct line of communication with the importer. So, answer the phone when friendly neighborhood trade attorney calls, please.
Fifth, there is significant discussion surrounding 111.39 which pertains to advice given to a client. The new regulations require that brokers not withhold information, nor give false information. They also require that the broker exercise due diligence in ascertaining the correctness of the information given. The requirement that seems most difficult to implement is in 111.39(c) and requires brokers to advise clients of proper corrective actions (and retain a record of having done so). Importantly, in the comments Customs makes clear that sometimes the appropriate corrective action is telling the client to call an attorney (!) or some other additional outside expert. Just make sure you document and save what you do.
Ultimately, we recommend that interested individuals review the Federal Register notice because the comments section may reflect relevant Customs thinking even if the regulation does not. For instance, in the comments Customs made clear that it will reject any effort to treat Certified Customs Specialists as having a credential similar to a license from Customs. This may be important information in some organizations.
If you have any questions about how the 176-page final rule applies to you or your operations as a broker do not hesitate to contact any attorney at Barnes, Richardson & Colburn, LLP.