BRO-2
OT:RR:CTF:ER
H097816 PTM
Mr. Thomas D. Valenzuela
Attorney-in-Fact
Koot & Associates
1768 Equestrian Drive
Pleasanton, CA 94588
RE: Transacting Customs Business; 19 USC §1641; 19 CFR §111; Provision of Electronic Data.
Dear Mr. Valenzuela,
I am writing in response to your February 24, 2010, correspondence in which you request a binding ruling from U.S. Customs and Border Protection (“CBP”) on behalf of your client, Eveline D. Koot & Associates (herein “K&A”). Our response follows:
FACTS
K&A is a licensed customs broker. K&A is contemplating entering a referral agreement with another company that provides data mining services. For confidentiality purposes, you call the data mining company “Company X.” The purpose of the referral arrangement is to maximize revenue opportunities for the clients of Company X. Company X currently provides post audit services for its own clients. These services include Company X reviewing and maintaining master client purchasing, inventory and sales databases. To help maximize revenue opportunities for its clients, Company X will refer those clients with substantial import and export operations to K&A, which in turn will determine whether the clients are eligible for duty drawback and prepare drawback
claims. K&A will have no financial interest in Company X, or vice versa. Company X is not a licensed customs broker. There will be no financial compensation between K&A and Company X, and none of the fees generated by K&A in providing brokerage services will be sent to Company X for the referral of potential drawback clients. The only advantage Company X receives from the arrangement is that it can provide a revenue-maximizing referral to its clients to a non-competitor, K&A.
Per the terms of the proposed referral arrangement, Company X will:
identify clients with major international business activity;
refer potential clients to K&A;
provide K&A with electronic purchasing, inventory and sales databases for clients that choose to pursue drawback claims; and
provide K&A company organization, recordkeeping, and product flows for those clients.
Per the terms of the proposed referral arrangement, K&A will:
analyze data for drawback purposes;
secure drawback privileges;
prepare drawback claims using K&A proprietary software;
file drawback claims, under K&A’s filer code; and
account for drawback revenue to the drawback claimant, which will be a mutual client for Company X and K&A.
The extent of Company X’s involvement is to identify which of its current clients are potential drawback claimants. Interested clients will be informed that only licensed brokers can provide drawback services, and will be referred to K&A. You state that each client will be aware of the role Company X and K&A, respectively, play in the transaction.
A client that chooses to contact K&A regarding drawback services will authorize Company X as its agent and within the scope of existing contract terms permit Company X to disclose information to K&A. This data includes purchasing, inventory and sales data of the client. The data will be used by K&A to prepare and file drawback claims on behalf of the client.
The data will be analyzed for drawback suitability solely by K&A. K&A will develop a customized drawback program for each client’s operations, obtain the required drawback approvals and privileges, reconcile the data files to import and export records, and prepare the drawback claim utilizing its proprietary software. Other than identifying potential clients and providing raw data, Company X will not assist in the preparation or filing of any drawback claim.
ISSUE
Do the activities of Company X constitute “customs business” requiring a broker’s license?
LAW AND ANALYSIS
Section 641(b)(1) of the Tariff Act of 1930, as amended (19 U.S.C. §1641(b)(1)), provides that no person may conduct customs business unless that person holds a valid customs broker’s license and permit in order to transact customs business on behalf of others. Additionally, it sets forth standards for the issuance of broker’s licenses and permits. Section 641 provides for the issuance of rules and regulations relating to the customs business of brokers. See 19 U.S.C. §1641(f). The regulations issued under the authority of 19 U.S.C. §1641 are set forth in 19 CFR §111. The term “Customs business” is defined in 19 CFR §111.1 as:
those activities involving transactions with CBP concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges assessed or collected by CBP on merchandise by reason of its importation, and the refund, rebate, or drawback of those duties, taxes, or other charges. "Customs business" also includes the preparation, and activities relating to the preparation, of documents in any format and the electronic transmission of documents and parts of documents intended to be filed with CBP in furtherance of any other customs business activity, whether or not signed or filed by the preparer. However, "customs business" does not include the mere electronic transmission of data received for transmission to CBP and does not include a corporate compliance activity.
The activities performed by Company X do not concern the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges assessed or collected by CBP on merchandise by reason of its importation, as the arrangement targets potential drawback claims. Moreover, K&A is the party that will perform all of the activities relating the filing of the drawback claim
itself. Thus, the activities performed by Company X cannot be considered activities involving transactions with CBP concerning drawback. The remaining question is whether the data mining activities performed by Company X are considered the preparation of claims that would be considered “customs business” per the definition in 19 CFR §111.1.
This office held in HQ H068278 (September 28, 2009) that the use of software to extract data from files and databases to prepare customs documents extended beyond the “mere electronic transmission of data” as described in 19 U.S.C. §1641 and 19 CFR Part 111. The situation in the instant case is distinguishable. In HQ H068278, the unlicensed party used a program that was designed to pull information from a database and generate forms to be filed with CBP. Here, the data is not being used by Company X to prepare customs documents. Rather, it is transmitted to K&A so that K&A can evaluate the data to determine whether a given client’s operations are suitable for drawback. If a client does decide to pursue drawback claims, the data may be used by K&A to prepare and file such claims. Company X neither evaluates the data, nor prepares the drawback claims. It merely transmits the data to K&A, and it is K&A that conducts the activities relating to drawback, including the preparation and filing of claims. Consequently, it appears that the data mining and transmittal that Company X provides for K&A would be analogous to the “mere electronic transmission of data,” which is explicitly excluded from the definition of “customs business” as set forth in 19 CFR §111.1. Further, the identification of potential clients and the referral of those clients to K&A by Company X does not amount to activities concerning drawback.
Although you do not discuss whether K&A would share client information with Company X, we caution that under CBP regulations, brokers must maintain the confidentiality of client records. See 19 CFR §111.24. Section 111.24 of CBP regulations covers a broad range of records as defined in 19 C.F.R. § 163.1(a), and protects client records and the information contained in those records. Specifically, 19 C.F.R. § 111.24 currently provides that with the exception of certain accredited officers or agents of the United States and the surety involved in a particular transaction, brokers may not disclose client information to third persons except when ordered to by a court. This confidentiality requirement prevents a broker from disclosing information it receives from a client to a third-party.
You stated that there is no compensatory arrangement between Company X and K&A. Title 19 of the Customs regulations, at section §111.36(b), states that a broker must not enter into any agreement with an unlicensed person to transact customs business for others in such manner that the fees or other benefits resulting from the services rendered for others inure to the benefit of the unlicensed person. Consequently, Company X may refer clients to K&A for brokerage services, but it may not benefit directly from the services rendered by K&A as a result of the referral. This is consistent with our ruling HQ 113715 (January 9, 1997), in which we held that an unlicensed entity was not permitted to refer drawback clients to a broker and receive financial benefits as a result of the drawback services performed by the broker.
HOLDING
The activities of Company X in the potential referral arrangement, as described, do not constitute “customs business” as defined in 19 U.S.C. §1641 and 19 CFR §111.1. Therefore, Company X will not require a customs broker’s license to perform these activities. Company X, however, may not benefit directly from the customs services rendered by K&A as a result of the referrals provided by Company X. This decision is limited to the specific facts set forth herein. If the transaction varies from the facts stipulated to herein, this decision will not be binding on CBP.
Sincerely,
Myles B. Harmon, Director
Commercial and Trade Facilitation Division