H258892
BRO 3-05
H258892 SMS
OT:RR:CTF:ER
Rachel Black
Superior Brokerage Services, Inc.
1700 Wynne Avenue
St. Paul, MN 55108
Re: Electronic Customs entry submissions of unlicensed employees.
Dear Ms. Black:
This is in response to your request for a ruling dated October 24, 2014, on behalf of Superior Brokerage Services, Inc. (“SBS”), whether unlicensed employees may submit remote electronic transmissions to U.S. Customs and Border Protection (“CBP”) through CBP’s Automated Broker Interface (“ABI”), Automated Commercial System (“ACS”), or Automated Commercial Environment (“ACE”). We regret the delay in our response.
FACTS:
SBS is a licensed Customs broker, and currently, conducts customs business at its Minneapolis/St. Paul, Minnesota and Miami, Florida locations, where it holds local port permits. Additionally, SBS has a national permit in order to file entries remotely from their Minneapolis/St. Paul and Miami locations. SBS also has an office located in Chicago, Illinois. SBS has staff at the Minneapolis/St. Paul and Miami locations that hold Customs broker licenses and practice responsible supervision over their unlicensed employees. Due to an increased workload at the Minneapolis/St. Paul location, you seek to use your unlicensed Chicago employees to transmit Customs entries during the weekend.
You explain that the Chicago location is only used for freight forwarding, and the employees do not currently perform any customs business. No Chicago employee holds a Customs broker license. However, the Chicago office has access to the Minneapolis/St. Paul brokerage system. You specifically inquire whether you may use your unlicensed employees from the Chicago office to log into the Minnesota system and transmit Customs entries. Minneapolis/St. Paul employees would prepare the entries prior to the weekend by keying in all of the data required, into the SBS computer system. Subsequently, the Chicago employees would “only” transmit the data through ABI, ACS, or ACE to CBP. The Chicago employees would not review the entries, and the entries would be subject to a ten percent auditing requirement, as if filed in the Minneapolis/St. Paul office. You indicated the Chicago employees “would merely be hitting the send button and then checking ABI for a [sic] [Automated Manifest System] AMS match. If an airway bill changed, they would update as part of their normal break bulk function.” If entry documents are required, the Minneapolis/St. Paul office would send the packet the following week. Additionally, if a manifest issue arose, which cannot be corrected by the airline, the entry will not be made over the weekend. You indicate that Minneapolis is still the only point of contact for all customs purposes, besides the importer of record.
ISSUES:
I. Whether the electronic transmission of entry data to CBP, as described, constitutes “customs business.”
II. Whether unlicensed employees, of a licensed Customs broker, may use the ABI system.
LAW AND ANALYSIS:
I. Whether the electronic transmission of entry data to CBP, as described, constitutes “customs business.”
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 (other than solely on behalf of that person) unless that person holds a valid Customs broker’s license. The regulatory definition of “customs business,” which closely follows the language set forth in 19 U.S.C. § 1641(a), is provided in 19 C.F.R. § 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.
19 C.F.R. § 111.1. The Court of International Trade (“CIT”) has expounded the definition of customs business in Delgado v. United States, 581 F. Supp. 2d 1326 (Ct. Int’l Trade 2008). In Delgado, when determining whether a person unlawfully practiced “customs business” the Court stated that the “definition of ‘Customs business’ is very broad,” in that customs business not only includes “‘transactions with the Customs service’ it includes ‘activities involving transactions with the Customs Service.’” Id. at 1331. It not only includes “preparation of documents . . . intended to be filed with the Customs Service,” but also includes any “activities relating to such preparation.” Id.
SBS cites to Headquarters Rulings Letter (HQ) 227181, dated September 16, 1996, and HQ H045695, dated October 15, 2010, which indicate that customs business does not include, “the mere electronic transmission of data received for transmission to Customs.” HQ 227181 does not discuss customs business, or the issue at hand; it is an unpublished informational letter concerning the import and export requirements of the U.S. Air Force Worldwide Warehouse Redistribution Services project. In HQ H045695, a Chinese affiliate of a licensed U.S. company sought to file Importer Security Filings (“ISF”), using the U.S. company’s ABI software. As SBS points out, HQ H045695 references 19 C.F.R. § 143.1, which states, the only parties who may use ABI for transmitting data relating to entry and entry summary are customs brokers, importers and ABI service bureaus. HQ H045695 also explains that any party may participate in ABI solely for the purpose of filing the ISF; however, if a party other than a customs broker or an importer submits the ISF, no portion of the ISF can be used for entry or entry summary purposes. See 19 C.F.R. § 143.1(b). In this instance, the Chicago employees would be using ABI to transmit the entry data through the Minneapolis/St. Paul ABI system, not merely ISF; accordingly, both of the SBS cited cases are distinguishable to the present scenario.
CBP has further clarified and defined customs business in various rulings. In HQ H167815, dated June 18, 2013, we determined that activities that are solely related to billing clients and do not involve transactions with CBP would not be considered customs business. In HQ H167815, two scenarios were presented for analysis; first employees would review information that was previously submitted to CBP, which specifically related to a CBP transaction to resolve billing disputes or discrepancies. The information that would be evaluated included detailed CBP entry and entry summary forms, and supporting documents that included invoice value, Harmonized Tariff Schedule of the United States (“HTSUS”) numbers, names, and addresses of the ultimate consignee and importer of record, as well as airway bill numbers, commercial invoices and other various types of information. We held that if employees reviewed the entry documentation and found discrepancies, this could lead to corrections with the entry and entry summary filed with CBP. Accordingly, a billing verification and review that included the entry and entry summary was considered “customs business.” The second scenario included a review of only the bills of lading or airway bills, commercial invoices, and other commercial documents, as well as a bill issued to the customer. In this instance, the potential for a corrected entry or entry summary did not exist because the employee did not see the entry and entry summary, and so would not know whether they were erroneous. Only after the discrepancy was referred back to a broker would the broker be able to confirm whether erroneous information was submitted to CBP. Accordingly, the review of a bill of lading, commercial invoice, and a client bill in order to process a billing dispute was not included within the definition of “customs business.” See also, HQ 115248 (Aug. 28, 2001)(The review of prepared entries, and paperwork supporting the data contained in the entries, for verification of duty amounts, may only be performed by the importer or by a licensed broker, when the possibility exists that corrected duty information derived from the duty verification process will ultimately appear on the entry.)
In HQ H068278, dated September 28, 2009, three scenarios were presented for analysis. In scenario one, a service bureau prepared documents which were then transmitted to a U.S Customs broker. The information transmitted was filed by the Customs broker to enable entry of the goods into the United States. Under this scenario, we held the bureau’s actions extended beyond the “mere electronic transmission of data” as found in the statute and the regulations. CBP found that the bureau, which was an unlicensed entity, was conducting “customs business” because the bureau, as the provider of the software, prepared the entry from the data supplied by the importer. In scenario two, the exporter, a Canadian Customs broker and/or the freight forwarder, had the ability through a login process to manually enter the data relevant to the customs transaction. We also held that the bureau conducted “customs business” in this scenario, as its actions extended beyond the “mere electronic transmission of data.” Lastly, in scenario three, the data generated for the customs forms and documents was prepared by a non-licensed Canadian vendor as a contractor to the bureau. The contractor extracted the necessary data from the bureau’s customer databases. Under this scenario, the bureau’s actions through its contractor also extended beyond the “mere electronic transmission of data.” The bureau and the contractor were both unlicensed entities conducting “customs business,” because they were determining valuation, classification, and other entry-related information. Accordingly, CBP held 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 C.F.R. § 111.
Conversely in HQ, H097816, dated August 3, 2010, we distinguished that data pulled from a database, by an unlicensed company, not being used to prepare customs documents but transmitted to a licensed broker to evaluate the data was not “customs business.” We found that the activities performed by the unlicensed entity did not concern the entry and admissibility of merchandise. The licensed broker evaluated the data to determine whether a given client’s operations were suitable for drawback. If a client decided to pursue drawback claims, the data would be used by a broker to prepare and file such claims. The referring company neither evaluated the data, nor prepared the drawback claims, it merely transmitted the data relating to drawback, which the broker used to prepare and file claims. Accordingly, we held that this form of data mining and transmittal was analogous to the “mere electronic transmission of data,” which is explicitly excluded from the definition of “customs business.” Similarly, in HQ H175280, dated September 24, 2012, we found that compliance offices that conduct post entry audits by reviewing electronic documentation submitted via a licensed broker’s software, against the original source entry documents filed with CBP, to determine if there are discrepancies with regard to value, classification, and quantity entered, was not “customs business.” The review of information and documents to find inconsistencies did not involve preparing documents for filing with CBP or activities leading to such preparation. Additionally, the employees did not make decisions concerning classification, value, or admissibility of merchandise leading to preparation of CBP documents, or resolve discrepancies or irregularities in CBP transactions. If irregularities or potential errors were discovered, it would be forwarded to licensed brokers to determine if errors were actually made. Additionally, we pointed out that the documents submitted to CBP were filed by the brokers. Accordingly, the post entry review and audits in that decision were not considered “customs business.”
As you have explained, the importer of record will inform you if a shipment is to be cleared and entered on the weekend, prior to the weekend. The Minneapolis/St. Paul office will prepare and key in the customs entries during the regular work week. The unlicensed employees located in Chicago, who work on the weekends, will log into the Minneapolis/St. Paul brokerage system and transmit the customs entries to CBP. In this instance, as proposed, the unlicensed employees login remotely to the Minneapolis/ St. Paul computer database to access customs documents already prepared to be submitted to CBP. The unlicensed employees will not be involved in any activity leading to the preparation, nor will they become involved in the preparation of the documents. Once the employees access the documents, they will not review or alter the information. “They would merely be hitting the send button and then checking ABI for an AMS match.” If there is a manifest issue, it would be corrected by the airline, or entry would not be made over the weekend. This scenario is distinguishable from HQ H068278, where an unlicensed party extracted data from a database to prepare customs documents. It is also distinguishable from HQ H175280 and HQ H097816; while, the unlicensed parties were not involved in the preparation of the submission or determine valuation, classification, or other entry-related information, in both these instances the data was not being pulled in direct connection to the transmission of customs business documents or it was pulled after the customs documents were submitted to CBP. These rulings also included two separate entities, and in all of the above scenarios the licensed broker submitted the entry materials to Customs. However in this instance, all of the Chicago employees are employed by a licensed broker, SBS.
The case at hand is more analogous to the situation in Delgado, and the analysis provided is telling. In Delgado, the Court held that it must determine whether the record contained substantial evidence to show that the activities “(1) arose from any activity involving ‘transactions with the Customs Service concerning the entry and admissibility of merchandise . . . [or] the payment of duties, taxes, or other charges assessed or collected by the Customs Service upon merchandise by reason of its importation’; (2) arose from the preparation of any documents, forms, invoices, bills, or parts thereof that are intended to be filed with the Customs Service in furtherance of such activities; or (3) arose from activities relating to the preparation of such documents.” Delgado, 581 F. Supp. 2d at 1331. In this instance, the Minnesota offices will be conducting customs business by preparing data and documents to be filed with CBP for entry purposes. The Chicago office will then access the database and documents and file the entries with CBP, to allow for the admittance of merchandise into the United States. This activity will be performed in furtherance of the customs business performed by the Minnesota office. It will arise from the activities relating to the preparation of documents intended to be filed with CBP, in furtherance of customs business. As indicated in 19 C.F.R. § 111.1, the furtherance of customs business including the electronic transmission of documents, whether or not filed by the preparer, is specifically included in the definition of “customs business.” These activities are all connected for the purpose of facilitating the entry of merchandise, under one employer. While, the unlicensed employees are not engaging in the preparation of the documents to be submitted, evaluating the data before it is submitted, correcting errors, or altering the document, are activities concerning the entry and admissibility of merchandise. Accordingly, these activities are elevated to a level beyond “mere electronic transmission of data” and constitute “customs business,” as set forth in 19 C.F.R. §111.1 and Delgado.
Based on the facts presented, SBS’s proposed activities will constitute “customs business” as defined in 19 U.S.C. §1641, 19 CFR §111.1, and Delgado, as they are in direct furtherance of customs business and are connected to the entry and admissibility of merchandise into the United States. Therefore, the employees of the Chicago office are subject to the laws and regulations applicable to Customs brokers transacting customs business. However, as discussed below, the unlicensed Chicago employees may transmit such entry filings, under the appropriate supervision.
II. Whether unlicensed employees, of a licensed Customs broker, may use the ABI system.
Pursuant to 19 C.F.R. § 143.1, the only parties who may use ABI for transmitting data relating to entry and entry summary are Customs brokers, importers, and ABI service bureaus. A “Customs broker” is defined in 19 C.F.R. § 111.1 as a person who is licensed to transact customs business on behalf of others. Corporations are considered to be persons for customs broker licensing purposes. See 19 C.F.R. §111.1. Under 19 C.F.R § 111.37, “a broker must not allow his license, permit or name to be used by or for any unlicensed person . . . other than his own employees authorized to act for him, in the solicitation, promotion or performance of any customs business or transaction.” 19 C.F.R § 111.37 (emphasis added).
Title 19 of the C.F.R. section 111.2 further explains the requirement to obtain a license. Under 19 C.F.R. § 111.2(a)(1), “Except as otherwise provided in paragraph (a)(2) of this section, a person must obtain the license provided for in this part in order to transact customs business as a broker.” However, pursuant to § 111.2(a)(2)(ii)(A), entitled Transactions for which license is not required, the regulations explain that:
An employee of a broker, acting solely for his employer, is not required to be licensed where:
(1) Authorized to sign documents. The broker has authorized the employee to sign documents pertaining to customs business on his behalf, and has executed a power of attorney for that purpose. . . .
(2) Authorized to transact other business. The broker has filed with the port director a statement identifying the employee as authorized to transact customs business on his behalf. However, no statement will be necessary when the broker is transacting customs business under an exception to the district permit rule.
19 C.F.R. § 111.2(a)(2)(ii)(A).
Pursuant to, 19 C.F.R. §111.2(b)(1), a separate permit is required for each district in which a broker conducts customs business. However, an exception applies where a broker holds a national permit. A broker may electronically file entries for merchandise from a remote location, and may electronically transact other customs business even though the entry is filed, or other customs business is transacted, within a district for which the broker does not have a district permit. See 19 C.F.R. § 111.2(b)(2)(i)(C). Under 19 C.F.R. § 111.19(f)(3), an individual broker who will exercise responsible supervision and control over the activities conducted under the national permit, must be designated.
Pursuant to 19 C.F.R. § 111.11, “in order for an association or corporation to qualify for a broker’s license, an association or corporation must: (1) Be empowered under its articles of association or articles of incorporation to transact customs business as a broker; and (2) Have at least one officer who is a broker.” Under 19 C.F.R. § 111.28(a), every individual broker, licensed member of a partnership that is a broker, and every licensed officer of an association or corporation that is a broker, must exercise responsible supervision and control over the transaction of the customs business. Title 19 of the U.S.C. section 1641(b)(4) provides that a Customs broker shall exercise responsible supervision and control over the customs business that it conducts. Responsible supervision and control is defined in 19 C.F.R § 111.1:
‘Responsible supervision and control’ means that degree of supervision and control necessary to ensure the proper transaction of the customs business of a broker, including actions necessary to ensure that an employee of a broker provides substantially the same quality of service in handling customs transactions that the broker is required to provide. While the determination of what is necessary to perform and maintain responsible supervision and control will vary depending upon the circumstances in each instance, factors which CBP will consider include, but are not limited to: The training required of employees of the broker; the issuance of written instructions and guidelines to employees of the broker; the volume and type of business of the broker; the reject rate for the various customs transactions; the maintenance of current editions of CBP Regulations, the Harmonized Tariff Schedule of the United States, and CBP issuances; the availability of an individually licensed broker for necessary consultation with employees of the broker; the frequency of supervisory visits of an individually licensed broker to another office of the broker that does not have a resident individually licensed broker; the frequency of audits and reviews by an individually licensed broker of the customs transactions handled by employees of the broker; the extent to which the individually licensed broker who qualifies the district permit is involved in the operation of the brokerage; and any circumstance which indicates that an individually licensed broker has a real interest in the operations of a broker.
19 C.F.R § 111.1. Additionally, Pursuant to 19 C.F.R. § 143.6, ABI participants must adhere to the performance requirements and operational standards of the ABI system and maintain a high level of quality in the transmission of data, as defined in Customs Publication 552 Customs and Trade Automated Interface Requirements (“CATAIR”) and Customs directives and policy statements. Furthermore, 19 C.F.R. § 143.1(c) allows any party, upon CBP approval, to participate in ABI “for other purposes, including transmission of protests, forms relating to in-bond movements (CBP Form 7512), and applications for [Foreign Trade Zone (“FTZ”)] admission (CBP Form 214).” Id.
In this instance SBS, a licensed corporation, requests to have its own employees file entry documents electronically through ABI. This is distinguishable from allowing affiliates or employees of separate entities to conduct CBP filings, and is permissible under the appropriate supervision. Customs business is limited to licensed Customs brokers, and the use of the ABI system is specifically limited to Customs brokers, importers, and ABI service bureaus. While licensed brokers are not physically located in Chicago, oversight and responsible supervision and control is necessary. Responsible supervision is broadly defined, as a “degree of supervision and control necessary to ensure that the employee provides substantially the same quality of service in handling customs transactions that the licensed broker is required to provide.” 19 C.F.R. §111.1. The court in United States v. UPS Customhouse Brokerage, Inc., 575 F.3d 1376 (Fed. Cir. 2009) held that Customs has discretion in how it weighs each of the factors listed in 19 C.F.R. §111.1. The “regulation makes clear that Customs is free to consider other factors in addition to those listed. See 19 C.F.R. § 111.1 (listing ‘factors which [Customs] will consider include, but are not limited to . . . .’). However, this discretion does not absolve Customs of its obligation under the regulation to consider at the least the ten listed factors.” UPS Customhouse Brokerage, Inc., 575 F.3d 1376 at 1382; see also United States v. UPS Customhouse Brokerage, Inc., 686 F. Supp. 2d 1337 (Ct. Int’l Trade 2010). In SBS’s situation, a licensed broker should be designated as in charge of supervising the activities performed under the national permit. There are licensed brokers in the Minneapolis/St. Paul and Miami locations, who can provide the oversight needed. You also explain that ten percent of all entries will be audited and will be monitored. We further suggest that under the regulations, as outlined in 19 C.F.R. §111.1, other forms of supervision should be implemented such as training, the issuance of guidance instructions, and supervisory site visits. If SBS follows these guidelines to ensure the necessary supervision of the Chicago employees, the proposed transaction is permissible.
Accordingly, we see no objection to your proposed arrangement, provided that the requisite responsible supervision and control over the Chicago employees is exercised, as required by 19 U.S.C. § 1641(b)(3) and (4); 19 C.F.R. § 111.11(c); and 19 C.F.R. § 111.19(d), to ensure that the employees provide substantially the same quality of service in handling customs business and ACE, ACS, and ABI transactions that a licensed broker is required to provide.
HOLDING:
Based on the facts presented, SBS’s proposed activities constitute “customs business” as defined in 19 U.S.C. §1641, 19 CFR §111.1, and Delgado, as they are in direct furtherance of customs business and are connected to the entry and admissibility of merchandise into the United States. However, as Superior Brokerage Services, Inc., is a licensed corporation, its employees will be allowed to conduct customs business, and use the ABI system, under the necessary responsible supervision and control, as required pursuant to 19 U.S.C. § 1641(b)(3) and (4), 19 C.F.R. § 111.11(c), and 19 C.F.R. § 111.19(d).
Please note that 19 C.F.R. §177.9(b) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruling letter, either directly, by reference, or by implication, is accurate and complete in every material respect. The application of a ruling letter by a Customs Service filed office to the transaction to which it is purported to relate is subject to the verification of the facts incorporated in the ruling letter, a comparison of the transaction described therein to the actual transaction, and the satisfaction of any conditions on which the ruling was based.”
Sincerely,
Monika R. Brenner, Acting Chief
Entry Process and Duty Refunds Branch