BRO-3-05 OT:RR:CTF:ER H068278 RFA
BRO-3-06
Mr. Kenneth M. Carmon, President
Bay Brokerage, Inc.
44951 Country Rte 191
PO Box 293
Wellesley Island, NY 13640
RE: Definition of “Customs Business”; 19 U.S.C. §1641; 19 CFR Part 111
Dear Mr. Carmon:
This is in response to your letter, dated July 7, 2009, requesting a binding ruling as to three (3) varying services listed below from a service bureau providing certain services to Canadian customs brokers and freight forwarders in assisting their clients in preparing documents to be filed with U.S. Customs and Border Protection (CBP) and other governmental agencies. Our decision on each of the three scenarios is detailed below.
FACTS:
According to the information provided, the Buffalo service bureau (hereafter- bureau), a non-licensed entity, will provide software to the Canadian customs broker, freight forwarder and U.S. customs broker which enables a Canadian exporter client of the Canadian customs broker or freight forwarder to transmit data to the bureau’s server. The bureau’s server will be linked to the bureau’s databases. The bureau may be paid by one or more of the following: the Canadian customs broker, freight forwarder or U.S. customs broker. The Canadian customs broker, freight forwarder and U.S. customs broker will not have any financial ownership interest in the merchandise involved in the subject import transactions. A Canadian exporter client of the Canadian customs broker or freight forwarder who exports merchandise to the U.S. will use the bureau’s server to file data for that merchandise, which will include the export invoice information. The bureau will then transmit the information to the U.S. customs broker, who will file the entry with CBP. The bureau’s software and information on the bureau’s databases will direct the U.S. customs broker in the preparation of the entry.
Scenario #1:
In the first scenario, the U.S. customs broker will file the entry on behalf of the Canadian exporter who will be the importer of record. The entry will have been prepared by the bureau’s software without any action by the U.S. customs broker other than the act of filing itself. The bureau’s software is programmed to extract the relevant information for the data provided by the Canadian exporter and to create the entry.
Scenario #2:
This scenario is identical to Scenario #1 except to the source of CBP data. In this scenario, either the Canadian customs broker and/or the freight forwarder will access the bureau’s server through the Internet and will manually enter the relevant data to the CBP transaction. The bureau or the Canadian broker/forwarder will prepare the paperwork to be filed with CBP for the release and entry of the merchandise.
Scenario #3:
This scenario is identical to Scenario #1 with the exception of the means of obtaining the data to generate the CBP transaction and prepare the documents and forms. In this scenario, the bureau will contract with a Canadian vendor, a non-licensed entity, which will extract the relevant information to the transaction through optical character recognition (“OCR”) technology. The exporter will provide the bureau and the contractor with the seller’s databases. The contractor will then scan certain documents including commercial invoices related to the transaction for the preparation of documents or forms including the electronic transmission in the ABI format. The bureau will maintain the web-based database that would complete the missing fields that may be lost during the scanning/OCR process.
ISSUE:
Whether the bureau is conducting “customs business” as defined in 19 U.S.C. §1641 in each of the 3 scenarios outlined above?
LAW AND ANALYSIS:
Section 641(b)(1) of the Tariff Act of 1930, as amended (19 U.S.C. §1641(b)(1)) provides that “[n]o person may conduct customs business (other than solely on behalf of that person) unless that person holds a valid customs broker’s license ...”. The term “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.
Section 111.1 to the CBP Regulations [19 C.F.R. §111.1] further defines “Customs business” 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 performance by an unlicensed person of an activity amounting to “customs business” may subject that person to a penalty of up to $10,000 for each violation. (19 U.S.C. §1641(b)(6)). Corporations are considered to be persons for customs broker licensing purposes. (19 CFR §111.1.)
In HQ 114199, dated February 26, 1998, CBP stated that “[t]he definition of customs business [in §1641(a)(2)] includes provisions added in 1993 pursuant to the Customs Modernization Act (“Mod Act”)(Public Law 103-182). Specifically, document preparation and activities leading to such preparation are activities now reserved as the province of importers or licensed brokers.” CBP further held that the statute did not permit unlicensed persons to prepare or help to prepare forms or documents that will be filed with CBP involving transactions concerning the entry and admissibility of merchandise (e.g., classification and valuation), drawback contracts or claims is conducting customs business. However, CBP noted in the ruling that “a license is not required to give instruction and general advice on various Customs topics. Teaching brokers, importers and exporters how to prepare and file drawback claims, and helping them to establish drawback programs would fall under this category. We permit these types of educational activities because they have no direct relationship to actual transactions with [CBP].” See also HQ 114404, dated March 16, 1999.
In HQ 114654, dated May 28, 1999, CBP determined that a service bureau may provide ABI software to clients and may dispense general advice on customs policies and procedures to the Canadian companies; however, it may not provide specific guidance on how to classify, appraise and mark merchandise that is going to be the subject of an import entry. CBP further held that the service bureau may not discuss
entry transactions with CBP without the client being present, nor may it prepare and file CBP documentation on behalf of a client. The service bureau may review a client’s entry compliance procedures and perform post entry audits, provided such review does not evolve into the actual transaction of customs business.
In the situation outlined in Scenario #1, the bureau prepares the documents which are then transmitted to the U.S customs broker. The information transmitted would be filed by the U.S. customs broker to enable entry of the goods into the United States. Under this scenario, the bureau’s actions extend beyond the “mere electronic transmission of data” as found in the statute and the regulations. Based on the plain meaning of the statutory and regulatory language and HQ 114199 and HQ 114654, CBP finds that the bureau, which is an unlicensed entity, is conducting “customs business” because the bureau as the provider of the software prepares the entry from the data supplied by the importer.
Scenario #2 is similar to Scenario #1 with the exception that the exporter, the Canadian customs broker and/or the freight forwarder will have the ability through a login process to manually enter the data relevant to the customs transaction. The bureau is conducting “customs business” as its actions extend beyond the “mere electronic transmission of data” as described in the statue and regulation.
Scenario #3 is similar to Scenario #1 with the exception that the data generated for the customs forms and documents will be done by a non-licensed Canadian vendor as a contractor to the bureau. The contractor will extract the necessary data from the bureau’s customer databases by means of OCR technology. Under this scenario, the bureau’s actions through its contractor extend beyond the “mere electronic transmission of data” as found in the statute and the regulations. The bureau and the contractor are unlicensed entities which are conducting “customs business” because they are determining valuation, classification and other entry-related information.
HOLDING:
The bureau’s preparation of entries through the application of software as an unlicensed entity would be conducting customs business in violation of 19 U.S.C. §1641.
Sincerely,
William G. Rosoff, Chief
Entry Process & Duty Refunds Branch