BRO-3-5
BRO-1
OT:RR:CTF:ER H114313 JHR
Ms. Donna L. Bade
Sandler, Travis & Rosenberg, P.A.
225 W. Washington St.
Suite 1640
Chicago, IL 60606
Dear Ms. Bade,
This is in response to your letter dated July 6, 2010, in which you request a ruling on whether EC Global Dynamics’ (ECGD) proposed business structure will meet the requirements of 19 C.F.R. § 111. Our ruling follows.
FACTS:
Singer Consulting, Inc. (SCI) requested a ruling in 2009 to determine whether the use of ECGD’s computer software would be considered conducting “customs business” and would require a customs broker’s license. This office issued an information letter in response informing SCI that the activities performed by the software would be considered conducting “customs business.” Your letter proposes one of two scenarios in order for ECGD to obtain a brokerage license so that it may perform those activities.
You state that in the first scenario, in order to obtain a customs broker license, ECGD will appoint Thomas Singer, a licensed customs broker and president of SCI, as the Assistant Secretary of ECGD and will contract with SCI to supervise ECGD’s customs’ responsibilities. In the second scenario presented in your ruling request, ECGD would not hire Mr. Singer or appoint him as an officer of the corporation, but would outsource the brokerage responsibilities to SCI for oversight of its customs brokerage activities. Mr. Singer would be the only customs broker license holder working for ECGD, but as a contractor. You state that in both scenarios, ECGD will amend its articles of incorporation to include that ECGD has been empowered to “transact customs business as a broker” so that it is in compliance with 19 C.F.R. § 111.11(c)(1). In an email dated September 28, 2010, you stated that Mr. Singer already had been hired as Assistant Secretary of ECGD and is paid a salary, however, you requested that our ruling address both scenarios presented in your original ruling request.
In both scenarios, SCI will review ECGD’s processes for collecting data and matching up databases provided by the importer with the information supplied by foreign vendors and carriers for each shipment in order to create the entry data transmission that is sent to the customer’s designated customs broker for filing with CBP. SCI will ensure that all ECGD information and SCI information is kept separate and that it will not use or disclose any confidential information gained from either company for the benefit of the other company.
ISSUES:
Whether ECGD will comply with the requirements of 19 C.F.R. § 111.11(c) if it appoints a licensed customs broker as the Assistant Secretary and hires the broker to supervise ECGD’s customs responsibilities.
Whether ECGD will comply with the requirements of 19 C.F.R. § 111.11(c) if it outsources its brokerage responsibilities to SCI by contracting with SCI for oversight of its customs brokerage activities.
LAW & ANALYSIS:
Because this office previously determined that the activities ECGD is engaged in constitute customs business, ECGD seeks to obtain a customs broker license by either hiring or contracting with a licensed broker to oversee those activities that constitute customs business. 19 U.S.C. § 1641 provides that no person may conduct customs business unless that person holds a valid customs broker’s license issued by the Secretary of the Treasury. “Customs business” is defined in 19 U.S.C. §1641(a)(2) as:
. . . [T]hose activities involving transactions with the Customs Service concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges assessed or collected by the Customs Service upon merchandise by reason of its importation, or the refund, rebate or drawback thereof. It also includes the preparation of documents or forms in any format and the electronic transmission of documents, invoices, bills, or parts thereof, intended to be filed with the Customs Service in furtherance of such activities, whether or not signed or filed by the preparer, or activities relating to such preparation, but does not include the mere electronic transmission of data received for transmission to Customs.
Licenses for customs brokers are provided for under 19 U.S.C. § 1641(b). Licenses for individuals are provided for under 19 U.S.C. § 1641(b)(2) and licenses for corporations, associations, or partnerships are provided for under 19 U.S.C. § 1641(b)(3). Pursuant to the latter provision, "at least one officer of the corporation or association, or one member of the partnership" must hold a valid individual customs brokers license. “Officer” is defined in 19 C.F.R. § 111.1 as,
…a person who has been elected, appointed, or designated as an officer of an association or corporation in accordance with statute and the articles of incorporation, articles of agreement, charter, or bylaws of the association or corporation.
Further, Black’s Law Dictionary defines “officer” as,
[a] person who holds an office of trust, authority, or command…in corporate law, the term refers esp. to a person elected or appointed by the board of directors to manage the daily operations of a corporation, such as a CEO, president, secretary, or treasurer.
Black’s Law Dictionary 889 (7th ed. 2000). Therefore, in order for ECGD to obtain a corporate customs broker license, at least one person with a valid individual customs broker license must be appointed as an officer of ECGD and the individual must be involved in the management of the daily operations of the corporation.
CBP’s regulations pertaining to customs brokers are found in 19 C.F.R. Part 111. Under 19 C.F.R. § 111.2, a person is required to obtain a customs brokers license to transact the business of a broker and a separate permit is required for each district in which a licensee conducts customs business. Under paragraphs (b) and (c) of section 111.11, a partnership, association, or corporation must have at least one member (in the case of a partnership) or officer (in the case of an association or corporation) who is a licensed broker. Further, in the case of a corporation, the regulations require that the corporation’s articles of incorporation state that it is empowered to transact customs business as a broker. See 19 C.F.R. § 111.11(c)(1). Also under these provisions, the partnership, association, or corporation must establish that it will have an office in the district where it has applied for a permit in which its customs transactions will be performed by a licensed member of the partnership (if the broker is a partnership), or a licensed officer (if the broker is an association or a corporation), or by an employee under the responsible supervision and control of the licensed member or officer. 19 C.F.R. § 111.19(d). Additionally, 19 C.F.R. § 111.28(a) provides that,
…every licensed officer of an association or corporation which is licensed as a broker shall exercise responsible supervision and control over the transaction of the customs business of such sole proprietorship, partnership, association, or corporation.
Thus, in addition to appointing a licensed broker as an officer of ECGD, ECGD must also amend its articles of incorporation to empower it to transact customs business, obtain a permit, establish an office in the district in which it applies for a permit, and the officer of ECGD that is a licensed broker must exercise responsible supervision and control over the customs business transacted by ECGD.
Issue 1:
CBP previously explained that the use of computer software to extract data and fill in documents to be filed with CBP constitutes “customs business,” because the software prepared entries to be filed with CBP. See H068278 (September 28, 2009); 19 U.S.C. § 1641. The statute and regulation state that in order for a corporation to obtain a license and thereby conduct “customs business,” at least one officer of the corporation must hold a valid individual customs broker license. See 19 U.S.C. § 1641(b)(3); 19 C.F.R. § 111.11(c)(2).
In the first scenario you propose, ECGD would appoint a licensed customs broker, Thomas Singer, as Assistant Secretary of ECGD and would amend its articles of incorporation to state that it is empowered to transact customs business to qualify the corporation for a broker’s license. See 19 U.S.C. § 1641(b)(3). Therefore, in the first scenario, ECGD would meet the basic requirements for a customs broker license and could submit an application for a license pursuant to 19 C.F.R. § 111.12(a). It should be noted that ECGD also would be required to obtain a separate permit in each district in which it conducts customs business pursuant to 19 C.F.R. § 111.2(b) and that Thomas Singer would be responsible for exercising responsible supervision and control over the transacting of customs business of ECGD pursuant to 19 C.F.R. § 111.28. Additionally, since Mr. Singer maintains his own brokerage, his work for ECGD must take place during prescribed, non-concurrent hours. See HQ 225011 (February 22, 1994) (stating that a broker may operate her own brokerage while working prescribed, non-concurrent hours for another brokerage).
We caution, however, that while this arrangement does meet the requirements of 19 C.F.R. § 111.11(c), Mr. Singer could not be the permit qualifier for both SCI and ECGD. This office has previously ruled that where a sole proprietor is also employed by another broker during prescribed, non-concurrent hours, that individual may not qualify for more than one district permit. See HQ115005 (May 2, 2000) (stating that a licensed individual cannot qualify more than one district permit). Since ECGD must have a permit in addition to a license in order to transact customs business, it would not be allowed to conduct customs business under the facts you presented. Additionally, SCI and ECGD’s client lists must not overlap in order to avoid a conflict of interest in the arrangement. See H225011 (February 22, 1994) (stating that no conflict of interest exists where the client lists of two brokerages do not overlap when a broker works for both brokerages during non-concurrent hours).
Issue 2:
In the second scenario you propose, ECGD will outsource its brokerage oversight responsibilities to SCI and Thomas Singer will be the qualifying license holder as a contractor. In your letter you cite CBP ruling HQ114404 (March 16, 1999) as legal authority permitting the outsourcing of the customs brokerage responsibilities that you propose. In HQ114404, DuPont created two different entities to manage its imports. One of the entities, DuPont Import Operations (DIO), was contracted out to BDP International, Inc. (BDP), a licensed customs broker. DIO was comprised of BDP employees and was responsible for the actual entry and clearance of DuPont’s imports and DuPont was listed as the importer of record in these transactions. However, the facts of the scenario presented in HQ114404 are distinguishable from those presented in your letter in that DuPont was the importer of record for the transactions handled by DIO. This type of arrangement is no different than an individual importer using a customs broker to manage its imports and does not require DuPont as a corporation to obtain a customs broker license. In your proposed scenario however, ECGD is not the importer of record, but merely an intermediary between the importer and designated customs broker who files the entry with CBP. Accordingly, since ECGD is not the importer of record and seeks to conduct activities that constitute customs business, it must obtain a license.
Additionally, in HQ114404, DuPont referred the business of separate corporations that it established through joint ventures, acquisitions and divestitures to DIO and acceptance of DIO’s services was done on a business-by-business basis. In those cases, the businesses sometimes would enter into a separate contract with BDP and the ruling cautioned that when there is no separate contract, DIO must ensure that its services as a broker do not benefit DuPont so as to comply with 19 C.F.R. § 111.36(a). Again, the scenario described in HQ114404 is distinguishable from the scenario you present. In HQ114404, DuPont referred client corporations to a licensed broker who would then enter into separate contracts with that broker. In your proposed scenario, ECGD would not refer importers to SCI who would then conduct “customs business,” but instead would seek to conduct “customs business” itself and contract only with a licensed customs brokerage, SCI, for the oversight of the “customs business” activities. Since ECGD is a corporation engaged in “customs business” (through use of its software), it must have a customs broker license. As stated above, the statute and regulations direct that a corporation may obtain a customs broker license if an office of the corporation is a licensed customs broker. As such, ECGD would be in violation of 19 C.F.R. Part 111 if it were to engage in “customs business” without a licensed customs broker as an officer of the corporation.
HOLDING:
ECGD is a corporation that seeks to engage in activities that constitute “customs business,” therefore it must obtain a customs broker license by instating a licensed customs broker as an officer of the corporation, amend its articles of incorporation to state that it is empowered to transact customs business as a broker, obtain a district permit and maintain an office in the district in which it applies for a permit in order to conduct “customs business.”
Sincerely,
Carrie L. Owens
Chief
Entry Process & Duty Refunds Branch