BRO-3-05-CO:R:C:E 225023 WGR
District Director
U.S. Customs Service
1000 2nd Avenue
Room 2200
Seattle, WA 98104
RE: Request for Internal Advice; Propriety of Broker
Relationship; 19 U.S.C. 1641; Proper Billing Procedure;
19 CFR 111.36, 111.28, 111.37 and 111.24
Dear Sir:
This is in response to your memorandum (your file ADM 1
SE:B:B:WEH/llw) dated October 15, 1993, wherein you sought internal
advice on the question of broker relationships.
FACTS:
In June 1992, BLAIKLOCK (USA) INC. (Blaiklock), a subsidiary
of THE BLAIKLOCK GROUP (Blaiklock Canada), a Canadian customhouse
broker and freight forwarder, commenced U.S. customs brokerage
operations from an office in Blaine, Washington. Blaiklock Canada
is not licensed nor permitted to conduct any U.S. customs business.
After allowing an interval for Blaiklock to perfect their
organization, Blaine ISET contacted Blaiklock's office manager and
scheduled a routine broker compliance review of the Blaine
operation. The review disclosed significant deficiencies which led
ISET to seek assistance from Regulatory Audit, Pacific Region.
In response to the ISET request, Regulatory Audit initiated
an audit of Blaiklock and the results were reported to the Seattle
District Director. The auditor found that, in repeated instances,
Blaiklock Canada served as middleman in Blaiklock's customs
transactions, i.e. soliciting clients, securing powers of attorney
from Canadian shippers for Blaiklock, and billing Blaiklock's
clients. The audit report also concluded that Blaiklock was
allowing an unlicensed individual access to confidential client
records, did not maintain records in the required format, and did
not exercise adequate supervision.
In your memorandum you indicate that this practice is
widespread at the port of Blaine where U.S. brokers receive
referrals of Canadian clients from Canadian brokers. You state
that it is not unusual for the U.S. broker to bill entry
transaction charges to the referring Canadian broker, who then
rebills these charges to the Canadian shipper. Apparently, U.S.
Customs requests for information follow the same pattern. They are
forwarded by the U.S. broker to the referring Canadian broker for
transmission to the Canadian shipper.
ISSUE:
Does the business arrangement between Blaiklock and Blaiklock
Canada violate 19 U.S.C. 1641 and the applicable Customs
regulations?
LAW AND ANALYSIS:
In order to conduct customs business in the United States, a
person must hold a valid customs broker's license issued by the
Secretary of the Treasury. The statutory provision governing
Customs brokers is found in section 641, Tariff Act of 1930, as
amended (19 U.S.C. 1641) and the implementing Customs regulations,
part 111 of Title 19 of the Code of Federal Regulations (19 C.F.R.
111).
The auditor concluded that Blaiklock Canada directed its
clients to Blaiklock. The violation of 19 C.F.R. 111.37 is
alleged. The purpose of the regulation is to prevent a licensed
broker from serving as broker in name only. That is, the actual
Customs entry would be prepared by an unlicensed person. In part,
the Congressional purpose in granting a monopoly to licensed
brokers was to insure that documents for Customs would be prepared
by a person who was knowledgeable of Customs legal requirements so
as to relieve Customs officers from having to assist unqualified
persons in a Customs transaction. H. Rpt. 98-1015 on H.R. 6064,
71 (September 13, 1984). In the described situation, the documents
are prepared by Blaiklock. They are not filed by the unlicensed
Canadian company. Accordingly, the described situation does not
encompass a violation of 19 C.F.R. 111.37.
The auditor found that Blaiklock failed to have powers of
attorney from persons for whom Blaiklock filed entries. The
auditor also found that for numerous powers of attorney that were
on file, the powers were deficient in that they did not authorize
Blaiklock to serve as the agent for service of process for a
nonresident importer. A broker who transacts Customs business,
such as the filing of an entry for a person without having a valid
power of attorney from that person is contrary to the plain
language of 19 C.F.R. 141.46. The reason for the regulation is
to give assurance that a valid principal-agency was established.
The lack of such a power would make it more difficult for Customs
to establish responsibility in the event Customs discovers that an
entry filed by the broker contained false or incorrect information.
The lack of the designation of a readily available agent for
service of process increases the difficulty for Customs to obtain
jurisdiction over a nonresident principal for whom the broker is
filing entries with Customs.
The auditor also found that Blaiklock billed, and was paid by,
Blaiklock Canada for entries filed by Blaiklock naming other
persons as the importer. Based on the auditor's description of the
transaction, it appears that Blaiklock worked for Blaiklock Canada
rather than the parties in interest to the import transaction for
which Blaiklock filed entries with Customs. Without a direct
relationship with the importer, Blaiklock was not in a position to
insure that the entries filed by Blaiklock were based on complete
and accurate information provided by Blaiklock's ostensible
principal. The described arrangement is contrary to the literal
language of 19 C.F.R. 111.36(a). One purpose of the regulation
is to insure that there be a valid principal-agent relationship
between the broker who files the entry documents and the importer
for whom the documents are filed. If there is a valid principal-
agent relationship, then Customs can determine responsibility with
respect to the Customs transaction because of the concept of
imputed knowledge inherent in an agency.
The alleged violation of 19 C.F.R. 111.24 is based on
Blaiklock obtaining the information on the import transaction
through Blaiklock Canada. The purpose of the regulation is to
prevent a broker from providing information it receives from a
client to a third party without the consent of the broker's client.
In the described situation the importers provided the information
to Blaiklock Canada for transmittal to Blaiklock. Such an
arrangement does not violate 19 C.F.R. 111.24.
HOLDING:
Blaiklock is not in violation of section 111.37, Customs
Regulations, because it does in fact prepare the actual Customs
entry. Additionally, there is no violation of 19 CFR 111.24
because the Canadian importer provides the information to Blaiklock
Canada for transmittal to Blaiklock.
Blaiklock is in violation of 19 C.F.R. 141.46 for transacting
Customs business without valid powers of attorney. Blaiklock's
business arrangement with Blaiklock Canada is also in violation of
19 C.F.R. 111.36(a).
The Office of Regulations and Rulings will take steps to make
this decision available to Customs personnel via the Customs
Rulings Module in ACS and to the public via the Diskette
Subscription Service, Lexis, Freedom of Information Act and other
public access channels within 60 days from the date of this
decision.
Sincerely,
John Durant, Director
Commercial Rulings Division