BRO-3-05-RR:IT:EC 113817 GOB
Port Director of Customs
Attn.: Trade Compliance Process Owner, Sue-Ann Linnemann
P.O. Box 619050
Dallas/Fort Worth, Texas 75261
RE: 19 U.S.C. 1641; 19 CFR 111.29(a); Payment of duties; Request
for internal advice
Dear Madam:
This is in response to your memorandum of January 8, 1997,
to which was attached a request for internal advice from a
customs broker (the "requester").
FACTS:
The requester states the issues which it presents as
follows:
Except for checks for duties made out to the U.S.
Customs Service, is a customs broker legally obligated
to make payable to Customs monies tendered to it by its
principal, which may or may not have been expressly
designated by the principal for payment to the Customs
Service as "duties," when there is an outstanding legal
debt owing the customs broker by the principal in the
amount of or greater than those monies?
Alternately, except for checks for duties made payable
to the U.S. Customs Service, is a customs broker
legally (i.e., in terms of the Customs law) prohibited
from applying monies tendered to it by its principal
against outstanding legal debt of the principal to the
customs broker, regardless of whether the principal
designates such monies for payment to the Customs
Service as "duties?"
...
We respectively submit the answer to each of the
foregoing legal questions is "NO."
It is our view of the law that the ONLY checks from an
importer which a customs broker is legally obligated to
tender to Customs in payment of duties are checks made
expressly payable to the "U.S. Customs Service" [19 CFR
141.1(b)(3)(ii)(B)]. There is no exception to this
rule in either the law or regulations. The foregoing
legal conclusion seems confirmed in T.D. 82-134
(Exhibit 1), which created 19 CFR 111.29, effective
September 27, 1982.
[All emphasis in the original.]
ISSUE:
Where a principal-client has designated monies for payment
to Customs as duties, but has made the check payable to the
broker, can the broker use those funds against the outstanding
debt of the client to the broker, rather than paying the Customs
duties?
LAW AND ANALYSIS:
Statutory and Regulatory Background
19 U.S.C. 1641 is the customs statute with respect to
customs brokers.
19 U.S.C. 1641(a)(1) provides that "[t]he term customs
broker' means any person granted a customs broker's license by
the Secretary [of the Treasury] under subsection (b) of this
section."
19 U.S.C. 1641(b)(4) provides that "[a] customs broker shall
exercise responsible supervision and control over the customs
business that it conducts."
19 U.S.C. 1641(d) provides for disciplinary proceedings and
monetary penalties in certain situations. 19 U.S.C.
1641(d)(1)(C) provides that a monetary penalty may be imposed or
a disciplinary proceeding undertaken if it is shown that the
broker "has violated any provision of any law enforced by the
Customs Service or the rules or regulations issued under any such
provision[.]"
19 U.S.C. 1641(f) provides that "[t]he Secretary [of the
Treasury] may prescribe such rules and regulations relating to
the customs business of customs brokers as the Secretary
considers necessary to protect importers and the revenue of the
United States..."
19 CFR 111.29(a) provides, in pertinent part:
111.29 Diligence in correspondence and paying
monies.
(a) Due diligence by broker. Each broker shall
exercise due diligence in making financial settlements,
in answering correspondence, and in preparing or
assisting in the preparation and filing of records
relating to any customs business matter handled by him
as a broker. Payment of duty, tax, or other debt or
obligation owing to the Government for which the broker
is responsible, or for which the broker has received
payment from a client, shall be made to the Government
on or before the date that payment is due...
[Emphasis supplied.]
19 CFR 111.53(c) provides that Customs may take disciplinary
action or assess a monetary penalty if the "broker has violated
any provision of any law enforced by Customs or the rules or
regulations issued under any such provision[.]"
Requester's Claims
The requester has cited 19 CFR 141.1(b)(3)(ii)(B) in support
of its position. That regulation, with respect to methods of
payment of the importer for his duty liability, provides that the
importer may issue the broker two separate checks or bank drafts.
One check or bank draft would cover duties and would be payable
to the "U.S. Customs Service" for transmittal by the broker to
Customs. The second check or bank draft would cover the broker's
fees and charges.
19 CFR 141.1(b)(3)(ii)(B) states a valid method of payment.
However, it is not applicable here because the stated facts have
the principal-client designating the monies as payment for duties
yet making the check payable to the broker.
19 CFR 111.29(a) is not in conflict with 19 CFR
141.1(b)(3)(ii)(B). The latter regulation provides a method of
payment which has not been utilized in the stated facts.
The requester cites 19 CFR 111.29(b) with respect to "notice
to client of method of payment." That regulation is not
pertinent here, as the issue in this ruling is the responsibility
of the broker to transmit funds to Customs, not the provision of
notice to the principal-client.
19 CFR 111.29(b) contains notification language which
includes language that "...Customs charges may be paid with a
separate check payable to the U.S. Customs Service' which shall
be delivered to Customs by the broker." In the facts at issue,
the principal-client has elected not to make his check payable to
the U.S. Customs Service.
19 CFR 11.29(b) also contains the following notification
language to be provided by the broker to the principal-client:
"If you are the importer of record, payment to the broker will
not relieve you of liability for Customs charges (duties, taxes,
or other debts owed Customs) in the event the charges are not
paid by the broker." This language has no effect on the broker's
responsibility under the subject facts to transmit the monies to
Customs.
The requester cites language from T.D. 82-134 to the effect
that there is no requirement for a broker to advance funds on
behalf of an importer. That situation is not present here as the
importer, or principal-client, has not asked the broker to
advance funds. The importer has simply provided the broker with
monies, in the form of a check payable to the broker, for Customs
duties.
Determination
It is our determination that the language of 19 CFR
111.29(a) excerpted above is directly on point and controlling
with respect to the issue stated above.
Thus, if a principal-client has designated monies as payment
for Customs duties, and has provided those monies to its customs
broker in the form of a check payable to the broker, the broker
is required to pay those monies to Customs in satisfaction of the
principal-client's duty obligation.
In such a situation, the broker may not use such monies
against the outstanding debt of the principal-client to the
broker.
The failure to comply with Customs regulations may subject a
broker to disciplinary proceedings and/or a monetary penalty
under 19 U.S.S. 1641.
HOLDING:
Pursuant to 19 CFR 111.29(a), where a principal-client has
designated monies for payment to Customs as duties, but has made
the check payable to the broker, the broker is required to pay
those monies to Customs in satisfaction of the principal-client's
duty obligation. In such a situation, the broker may not use
such monies against the outstanding debt of the principal-client
to the broker.
This decision should be mailed by your office to the
internal advice requester no later than 60 days from the date of
this letter. On that date the Office of Regulations and Rulings
will take steps to make the decision available to Customs
personnel via the Customs Rulings Module in ACS and to the public
via the Diskette Subscription Service, the Freedom of Information
Act and other public access channels.
Sincerely,
Jerry Laderberg
Acting Chief,
Entry and Carrier Rulings Branch