BRO-1-RR:IT:EC 113715 GEV
Michael Hahn
President
Export Links Inc.
87 Dorchester Drive
Grimsby, Ontario, Canada L3M 1B1
RE: Broker; Consultant; 19 CFR 111.36(a)
Dear Mr. Hahn:
This is in response to your letter dated September 25, 1996,
requesting a ruling to assist you in understanding and complying
with the above-referenced regulation of the U.S. Customs Service.
Our ruling on this matter is set forth below.
FACTS:
Your company, Export Links Inc., is a Canadian company which
provides various financial, consulting and management services to
its clients. Your clients are primarily Canadian but some are
subsidiaries of U.S. companies. Due in part to this type of U.S.
exposure, you have recently been contacted to provide certain
management services to U.S. importers. These management services
include the provision of a review of financial and customs
records. To facilitate this process, your U.S. clients have
appointed you as "agents in trust" and have contractually
empowered you to represent their interests in dealing with
federal authorities.
Further in regard to the services your company provides, you
state that you are not a U.S.- licensed customs broker or law
firm. You therefore do not dispense U.S. customs legal advice,
nor do you engage in any services which require a U.S. broker's
license. You simply manage the process of conducting a review of
the aforementioned records of your clients. If a specific area
requires the services of a customs attorney or licensed customs
broker, you have the contractual authority and obligation to
appoint and hire the appropriate parties to provide the required
services.
- 2 -
With respect to your company's services, you request our
opinion as to the applicability of 111.36(a), Customs
Regulations (19 CFR 111.36(a)) or any other applicable
regulations in the following scenarios:
Scenario 1
Your service results in the discovery of a drawback
opportunity. You engage a licensed customs broker to prepare and
present the drawback claims. You negotiate the terms of
engagement and contract to pay the licensed broker for the
services provided. Additionally, your client, the U.S. importer,
signs the required "Power of Attorney" authorizing the licensed
broker to provide the service. The licensed broker then works
directly with the importer to provide drawback services. Payment
for the broker's service comes from you and is a cost to you.
Scenario 2
You purchase shares in a licensed U.S. brokerage firm.
Shares are either privately held or publicly traded. From time
to time you refer business to this licensed brokerage firm. No
"agreement to perform Customs business for a third party" exists.
No fees or commissions are paid to you on the referred business.
However, dividends are paid as earned according to the
shareholders' agreement.
ISSUE:
Whether the procedures described in the above two scenarios
are permissible under the Customs Regulations.
LAW AND ANALYSIS:
At the outset we note that the U.S. Customs Service
regulation applicable to both scenarios is found at title 19,
Code of Federal Regulations, 111.36(a) (19 CFR 111.36(a))
which provides, in pertinent part, that "[a] broker shall 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 except as provided in
paragraph (b) of this section." The aforementioned exception
regarding a freight forwarder is inapplicable with respect to the
two scenarios in question.
In regard to Scenario 1, we note that Customs has had
previous occasion to consider similar facts in light of
111.36(a). (See Headquarters information letter 221330, dated
May 20, 1991) In that case, a customs consultant without a
broker's license contracted to review various customs matters of
its client, including drawback. The consultant determined that
his client, an importer, qualified for drawback and subsequently
forwarded the necessary documentation and information to a
licensed broker with whom he had a working relationship. The
broker in turn prepared the drawback proposal and claims and
filed them with Customs. The consultant billed
- 3 -
the importer/drawback claimant, and the broker billed the
consultant for brokerage services rendered for the
importer/drawback claimant. Our position, as stated in the
aforementioned letter, was that in view of the fact that the
consultant, an unlicensed party, would receive a monetary benefit
from the performance of Customs business by the broker for a
third party, this arrangement would be a violation of
111.36(a). We find this rationale applicable with respect to the
first scenario proposed in your letter. Your company, an
unlicensed customs consultant, would be receiving a monetary
benefit (i.e., fees paid to you from your client) stemming from a
contractual agreement between your company and the broker for the
transaction of Customs business by the broker for your client.
Accordingly, such a scenario results in a violation of
111.36(a).
We do not reach the same conclusion with respect to Scenario
2. In that situation the financial benefits (i.e., dividends)
paid to your company are pursuant to a shareholder's agreement
entered into upon its purchase of shares in a licensed U.S.
brokerage firm, not from an agreement between your company and
the brokerage firm to transact Customs business for the benefit
of a third party. Your company's gratuitous, informal business
referrals to the brokerage firm do not constitute the "agreement"
contemplated by 111.36(a). Consequently, Scenario 2 does not
constitute a violation of that regulation.
HOLDING:
The procedures described in Scenario 1 are violative of
111.36(a) whereas those described in Scenario 2 are not.
Sincerely,
Jerry Laderberg
Chief
Entry and Carrier Rulings Branch