On October 18, 2022, US Customs and Border Protection (CBP) published the long anticipated final rule for the modernization of Customs broker regulations under 19 CFR part 111.
The rule will go into effect on December 19, 2022. The changes will require brokers to re-evaluate their policies and procedures and affect how importers interact with their brokers.
What You Need to Know
The final rule:
- Requires brokers to take an active role in “policing” customs compliance by advising importers on corrective actions for noncompliance and requiring retention of records of such communications.
- Transitions brokers from district permits to national permits, which allow holders to conduct customs business anywhere in the Customs Territory of the United States.
- Revises the responsible supervision and control framework for customs brokerages.
- Includes restrictions on third-party interaction in the broker-importer relationship.
To support the final rule, CBP issued a new “Customs Broker Guidance for the Trade Community” publication, a fact sheet of key changes, a side-by-side comparison of revisions to 19 CFR. part 111, and scheduled two webinars for the trade community on Thursday, October 27, and Wednesday, November 9.
A concurrent final rule was also published, eliminating references to district permit filing fees from regulations.
Key Updates for Importers
1. Customs brokers will be authorized to file entries at any port in the Customs Territory of the United States.
The transition from district to national permits will eliminate the need to contract with different customs brokers based on the port of entry location, allowing importers to consolidate the number of customs brokers used and lowering the risk that brokers will outsource entry filing to local operators without notice to the importer.
2. Customs brokers must execute a customs power of attorney directly with the importer of record and not via freight forwarder or other third party.
This rule was established to ensure there is opportunity for direct communication between brokers and importers of record, and to address issues of identity theft, supply chain security, and fee transparency. However, this does not prevent the assignment of a power of attorney from one broker to another broker, which is permissible so long as the Importer of Record consented in the original power of attorney. Importers are encouraged to review their active powers of attorney to ensure they are executed directly with customs brokers and not through a third party.
3. Customs brokers are required to advise clients on proper corrective actions required to correct noncompliance, errors, or omissions, and retain a record of said communications “for potential review by CBP on a routine visit to the broker.”
This change requires brokers to take a proactive role in “policing” customs compliance. Previously, brokers were only required to “inform” the client of noncompliance, errors, or omissions, and there was no recordkeeping requirement.
Importers should internally review any broker notifications of noncompliance and consider consulting with counsel to evaluate the associated risks before executing corrective actions recommended by brokers. Importers should also be aware it is possible that through these records, CBP may be able to establish that an importer has a pattern of repeated errors, omissions, or noncompliance in future compliance reviews or investigations.
Key Updates for Brokers
1. Transition from District to National Permits.
This will significantly reduce the number of qualifying licensed customs brokers required to operate a brokerage, as it eliminates the former requirement to employ at least one broker in each district or wider geographic area for which a permit is granted.
The final rule stipulates that Customs business must be conducted and records must be maintained within the Customs Territory of the United States. Information regarding the permit transition process is published on CBP’s website.
2. Modification to the responsible supervision and control framework.
The final rule was modified to state that CBP “may” consider a list of criteria when determining if a broker exercised responsible supervision and control. The modification provides CBP with more discretion in the factors it can consider in bringing enforcement actions against brokers.
Brokers must provide CBP a plan for exercising responsible supervision and control over its customs business, which will be unique to each broker based on the criteria defined in the new regulations. CBP published examples of practices brokers can implement that may demonstrate responsible supervision and control. These include “developed” training program for new hires and continuing training, internal handbook or manual, sharing of relevant guidance issued by CBP, documented audits and reviews, broker continuing education, and evidence of timely responses to CBP inquiries and notices.
3. Additional reporting and point of contact requirements.
The rules impose additional reporting requirements. Brokers must notify CBP electronically of any known breach of electronic or physical records relating to Customs business within 72 hours of discovery, and provide an updated list of compromised importer identification numbers within 10 business days of notification. Brokers are also required to inform CBP when they terminate a client relationship as a result of determining the client is intentionally attempting to defraud the US government. This requirement forces brokers to essentially “whistleblow” on their customers.
The final rule also requires that brokers designate a knowledgeable point of contact who will be available to respond to CBP regarding customs business issues both during and outside of normal operating hours.
How We Can Help
The rules are complicated and impose new obligations on brokers and some new risks to importers. ArentFox Schiff has a robust Customs and Import Compliance team of attorneys, Customs Brokers, and other legal professionals poised to help importers and brokerages navigate the revised regulations. We can help by:
- Counseling brokers and importers regarding the impact of the revised regulations on their business operations.
- Reviewing and revising powers of attorney for compliance under the final rule.
- Assisting companies with analyzing and consolidating brokerage relationships.
- Counseling and evaluating brokerages on compliance under the revised responsible supervision and control framework.
- Assisting brokerages with developing, drafting, and implementing plans for exercising responsible supervision and control to submit to CBP, including guidelines, procedures, and training.
- Counseling companies on risk associated with recommended corrective actions for noncompliance, omissions, and errors.