BRO-3-02/BRO-3-03-RR:IT:EC 114267 GG
Harvey Isaacs, Esq.
Siegel, Mandell & Davidson, P.C.
One Astor Plaza
1515 Broadway
43rd Floor
New York, NY 10036-7900
RE: Customs Brokers; Leasing Employee to Broker; Adequate
Supervision and Control
Dear Mr. Isaacs:
This is in response to your request for a ruling, dated
September 25, 1997, made on behalf of your client, KAT Import
Brokers, Inc. Our response will also address a follow-up letter
made by you on June 4, 1998, and telephone conversation that
occurred on December 15, 1998.
FACTS:
KAT Import Brokers, Inc. ("KAT") is related to Kamino
International, Inc. ("Kamino"), a freight forwarder. Prior to
1991, Kamino was known as Kamino Air Transport, Inc. It filed an
application for a broker's license under that name in 1984.
Customs declined to issue a license because a license had already
been issued to an unrelated company with a similar name, Kamino
Air Import Corp. Kamino formed KAT as a result of this denial
and had KAT obtain a broker's license. KAT presently maintains
nine permitted offices, all of which share common offices with
Kamino.
KAT's employees are reflected on Kamino's records as
employees of Kamino, and are paid by Kamino. This is done to
afford KAT employees the same benefits enjoyed by regular Kamino
employees. In turn, KAT pays a fee to Kamino to cover the
payroll, fringe and administrative costs involved. That is
Kamino's sole function.
All customs business is conducted in KAT's name and the
individuals working for KAT are reported to Customs as employees
of that company. KAT holds the required powers of attorney from
its clients and all invoices for services rendered are issued in
KAT's name. All decisions relating to the hiring and firing of
personnel, including the placing of advertisements in the
employment classified sections of newspapers, are made by KAT.
The individual license holders at each permitted location are
responsible for the supervision and control over the customs
business activities of the leased employees.
Customs previously reviewed this arrangement in internal
advice issued to Customs in Los Angeles in 1996. (Headquarters
Ruling Letter 226101). We advised that "KAT's use of employees
from Kamino to conduct customs business is a failure of KAT to
exercise responsible supervision and control under 19 U.S.C.
1641(b)(4)." Although you do not specifically state in your
ruling request that you are seeking a reconsideration of that
issuance, we infer that this is your intent. You point to
another internal Customs memorandum, HQ 223585, dated March 31,
1992, to support your position that the arrangement between
Kamino and KAT does not violate Section 641.
In your follow-up letter of June 4, 1998, you suggest that
the name change of 1991, which transformed Kamino Air Transport,
Inc., into the present Kamino International Inc., removed the
impediment to Kamino being able to obtain a broker's license in
its own name. The argument is that the name "Kamino
International Inc." is sufficiently dissimilar to "Kamino Air
Import Corp." to remove any confusion between the two. You
indicate that the best solution would be for Kamino to apply for
a license under its new name, obtain permits and powers of
attorney from KAT clients, and then assume the operations
currently undertaken by KAT. KAT would cease doing business once
Kamino was fully established.
On December 15, 1998, in a telephone conversation, you
proposed another alternative in the event of either a prohibition
on the employee leasing arrangement or a denial of a license to
Kamino under its new name. To wit, KAT would cease doing
business and voluntarily give up its corporate broker's license.
Kamino International Inc. would obtain a corporate broker's
license under the condition that it first obtain approval to
d/b/a KAT Import Brokers.
ISSUE:
1) Whether the arrangement whereby a freight forwarder
leases its employees to a broker for the purpose of conducting
customs business violates the provisions of 19 U.S.C.1641.
2) Whether Kamino may obtain a corporate broker's license
under its current name, or, alternatively, under the name of
"Kamino International Inc. d/b/a KAT Import Brokers."
LAW AND ANALYSIS:
We will first address the matter of issuing a license to
Kamino under its new name. It is the determination of this
agency that the name change from Kamino Air Transport, Inc., to
Kamino International Inc., was not sufficiently radical to dispel
the original objection to issuing a license. The name "Kamino
International Inc." is still strikingly similar to that of the
other broker, Kamino Air Import Corp. The common thread
obviously is the use by both companies of the distinctive and
unusual name, "Kamino". It is reasonable to assume that
importers and Customs could easily confuse the two. Therefore, a
new license cannot be granted to Kamino under its current name.
The proposal to close down KAT Import Brokers, Inc., and to
issue a license to Kamino International Inc. d//b/a KAT Import
Brokers, is acceptable to Customs provided the necessary state
approval is first obtained in accordance with 19 CFR 111.12.
Customs position is clear on the propriety of a broker
leasing employees from an unlicensed company, who will then be
used in the customs business work of the broker. In Headquarters
Ruling Letter (HRL) 113867, dated March 19, 1997, we held that an
employee leasing arrangement of a type similar to that of your
client would violate Section 641 of the Tariff Act of 1930, as
amended, (19 U.S.C.1641). The unlicensed lessor in that case
served as a "co-employer" with the broker of the leased
employees. The lessor managed the payroll, workman's
compensation, and health benefits; the broker took responsibility
for all hiring and firing decisions and supervised the customs
business activities of the leased employees. Notwithstanding the
claimed separation of functions, Customs determined that the
arrangement violated 19 U.S.C. 1641 because the lessor's status
as an employer of persons engaged in customs business placed the
lessor in the position of conducting customs business without a
license. Section 641(b)(1) specifically precludes unlicensed
persons from transacting customs business for others. The broker
in HRL 113867 was also found to be in violation of Section 641
because, by leasing rather than employing its workers, the broker
had relinquished the control necessary for it to fulfill its
duties imposed by 19 U.S.C. 1641(b)(4). Section 641(b)(4)
requires a broker to exercise responsible supervision and control
over the customs business that it conducts. We find the
situation of KAT and Kamino to be analogous to that described in
HRL 113867. For the reasons expressed above, Kamino's leasing of
employees to KAT is a violation of 19 U.S.C. 1641.
This decision is not intended to limit the right of a
licensed broker to retain outside entities to perform functions
that are unrelated to the customs business of the broker. For
example, it would be proper for a broker to engage a janitorial
service to clean its offices, or to hire an independent
bookkeeper or accountant to go over its books. A distinction can
be drawn, however, between these types of services and those
provided by the leased Kamino employees. The Kamino employees
perform tasks for KAT which qualify as customs business.
Therefore, the rules governing brokers apply.
The authority you cite to support your client's leasing
arrangement, HQ 223585, is not controlling because it is merely
an internal agency memorandum venturing an informal opinion. HRL
113867, supra, takes precedence because it is a formal written
ruling.
HOLDING:
The leasing of Kamino employees to KAT for the purpose of
performing customs business functions violates 19 U.S.C. 1641.
The holding of HRL 226101 is upheld. Further, your request that
a new license be issued to Kamino upon application is denied,
because Kamino's new name is still too similar to that of another
licensed broker. However, a license may be issued to "Kamino
International Inc. d/b/a KAT Import Brokers", provided the
currently licensed KAT is dissolved and its license canceled, and
the necessary state approval for use of the trade name is
obtained and submitted to Customs with the license application.
Sincerely,
Jerry Laderberg
Chief
Entry Procedures and Carriers
Branch