HQ 0223453 - A power of attorney evidencing a broker/client relationship should name only one licensed broker to act as agent; a power of attorney can authorize a broker to appoint other brokers to act on principal's behalf, whether principal is resident or non- resident; 19 U.S.C. 1641; 19 C.F.R. 111.43 - United States International Trade Commision Rulings

United States International Trade Commision Rulings And Harmonized Tariff Schedule

faqs.org Rulings By Number Rulings By Category Tariff Numbers

faqs.org > Rulings and Tariffs Home > Rulings By Number > 1993 HQ Rulings > HQ 0223198 - HQ 0223539 > HQ 0223453

HQ 223453

January 21, 1992

BRO-4-01-CO:R:C:E 223453 C

CATEGORY: ENTRY LIQUIDATION

Director, Entry Division
Office of Trade Operations
U.S. Customs Service Headquarters
Washington, D.C. 20229

RE: A power of attorney evidencing a broker/client relationship should name only one licensed broker to act as agent; a power of attorney can authorize a broker to appoint other brokers to act on principal's behalf, whether principal is resident or non- resident; 19 U.S.C. 1641; 19 C.F.R. 111.43

Dear Mr. Laderberg:

This responds to your memorandum of September 5, 1991, concerning the referenced subject (BRO-3-CO:T:E:C TE). You submitted a package of documents concerning a matter that arose in the Seattle district. At issue is a practice carried on by two separately licensed brokers who appeared to be conducting their customs business in concert. Another issue was raised regarding 19 C.F.R. 141.43(b). We have reviewed the matter and our response follows.

FACTS:

The relevant facts concerning the first issue, as we understand them, are as follows: Western Overseas Corporation is a licensed customs broker. B.A. McKenzie & Co., Inc. is also a licensed broker. Both companies are separate and distinct corporate legal entities that are owned by a third company - Shipentine Corporation, a holding company. According to an August 7, 1990, memorandum from the Seattle district counsel to the ADD for commercial operations, there had been a problem with the two companies's practice of sharing employees, payroll systems, and management. The memo indicates that these problems have been resolved, but discusses one of the issues to be herein considered: the practice of these companies in using powers of attorney which name both Western Overseas Corporation and B.A. McKenzie & Co., Inc. as agents for the principal. The memo concluded that the Customs regulations contemplate that only one broker, per power of attorney, is to be granted the power to act on a given principal's behalf. Any other interpretation would lead to confusion and contribute to the violation of regulations. Indeed, a power of attorney which names two separately licensed legal entities as agent would raise questions concerning proper management and supervision of each company's respective customs business. By letter of August 15, 1991, Western Overseas Corporation requested a reconsideration of the Seattle district's opinion and requested that the issue be submitted to Headquarters for a determination. The matter was submitted to your office, and you have requested our views.

ISSUES:

(1) For purposes of transacting customs business with the Customs Service, can a power of attorney be executed by a principal in favor of two separate and distinct corporate entities operating under separate broker licenses?

(2) Does the authority of 19 C.F.R. 141.43(b) permit a situation where broker after broker, in an unending chain, can be authorized to represent a non-resident principal?

LAW AND ANALYSIS:

(1) For purposes of transacting customs business with the Customs Service, can a power of attorney be executed by a principal in favor of two separate and distinct corporate entities operating under separate broker licenses?

As you know, the conduct of brokers in performing customs business on behalf of importers is strictly regulated under the authority of 19 U.S.C. 1641. This statute requires, among other things, that brokers be licensed and "permitted" to perform customs business, that they exercise responsible supervision and control over their performance of customs business, and that they be subject to appropriate regulations governing their performance of such business. 19 U.S.C. 1641(b)(1), (b)(4), and (f). The statute is implemented by part 111 of the Customs Regulations. 19 C.F.R. 111. Therein, provisions governing brokers are set forth. These include the following: license and permit requirements (111.2); the qualifications required for obtaining a license (111.11); recordkeeping requirements (111.21-27); the requirement of responsible supervision over the performance of customs business (111.28); report filing requirements (111.30); the due diligence requirement applicable to corresponding with clients and accounting for monies received and paid (111.29); notification requirements (111.30); the conflict of interest prohibition (111.31); prohibitions against relations with unlicensed, and other, persons (111.36 and 42); controls over advice given to clients (111.39); procedures governing suspension and cancellation of licenses (111.50-81); etc. The pervasive regulation of broker activity is designed to ensure the competence of brokers, protect the importing public, and facilitate the administration of the importation and entry of merchandise. These are the policy concerns that drive Customs oversight of broker activity.

One of the foremost requirements affecting broker conduct is the requirement of responsible management and supervision of its customs business. 19 C.F.R. 111.28. Customs has held that an employer-employee relationship is required to demonstrate the requisite management, supervision, and control by the licensed broker over others who perform customs business for clients. Where a licensed broker is unable to effect the necessary management, supervision, and control over those who actually perform the customs business for clients, violations of section 111.28 have been found. This is the basis for the Broker A - Broker B principle discussed in C.S.D. 79-111 (copy attached) and other Headquarters letters and memoranda. (See also 54 Fed. Reg. 13,136 (March 30, 1989), copy attached.) Customs had prohibited the performance of customs business for clients of Broker A by employees of Broker B because Broker A could not adequately manage, supervise, and control the conduct of that customs business performed by Broker B's employees. Such an arrangement can be employed only where the client of Broker A, the principal, executes a power of attorney in favor of Broker A that explicitly authorizes Broker A to appoint another broker to perform customs business on behalf of the client of Broker A. In this instance, Broker A can appoint Broker B to perform customs business for its (Broker A's client) client, but the relationship is transformed into one between the client and Broker B. In this way, Broker B becomes subject to the requirement to exercise responsible supervision and control over the customs business performed for the client, as well as other requirements.

The instant matter originated as one involving the sharing of employees and management by two separate brokers, raising questions concerning responsible supervision of customs business and the protection of importers. The dual agent problem remains left over from the resolution of those problems. Customs Seattle properly took steps to clarify the separateness of the operations of these two brokers. This effort would be completed by resolving the instant issue to require that powers of attorney be executed in the name of one broker or the other, or that each broker be designated agent under a separate power of attorney.

An agency relationship can be created by a principal in favor of two or more agents. However, authority given by a principal to two or more persons to act as agents includes only authority to act jointly. First National Bank v. Hough, 643 F. 2d 705, 707 (1972); Keough v. Kittleman, 447 P. 2d 77, 78-79 (1968). The power of attorney in the instant case names both Western Overseas Corporation and B.A. McKenzie & Co. as agents and would thus require the two brokers to act jointly to bind their principal. Given the scheme of the customs laws and regulations pertaining to brokers, as well as the laws and regulations pertaining to the entry of merchandise, this would be unacceptable while the two brokers operate as separate legal entities under the authority of separate broker licenses. In accordance with the intent of the regulations, as well as with the aforementioned policy concerns, the Customs power of attorney should be limited to one principal and one broker/agent; that is, a single legal entity licensed and authorized to perform customs business for a single legal principal per one power of attorney. This is consistent with the intent to closely regulate the conduct of brokers for the purpose of protecting importers and administering the importation of merchandise.

(Note that executing a power of attorney authorizing two persons to act as agents is not prohibited under principles of agency law; however, the power should clearly set forth that one agent can act independently from the other to bind the principal. Again, given the policy concerns, the scheme of the customs laws pertaining to brokers and entry of merchandise, the intent of the regulations, the interest in avoiding confusion and liability problems, and the particular facts of the instant case, powers of attorney for the transaction of customs business should be limited to the appointment of one broker/agent.)

(2) Does the authority of 19 C.F.R. 141.43(b) permit a situation where broker after broker, in an unending chain, can be authorized to represent a non-resident principal?

The second issue raised by your memorandum concerns powers of attorney that authorize the broker/agent to authorize other brokers to perform customs business on the principal's behalf. The issue is raised in a July 25, 1990, memorandum from Customs at Blaine to the Seattle district director (BRO-4-02-SE:B:B:CO MM: slj). The memo contains the following:

I have recently been contacted by a Blaine broker regarding instances in which other brokers, not present at Blaine, have asked that he handle Customs business at Blaine for one of their clients. In both cases, the requestor has presented the local broker with a Power of Attorney naming the client as the principal, signed by the requesting broker for the client.

In one instance, the client was a U.S. resident. Therefore, 19 CFR 141.43(a)
[pertaining to the prohibition against a holder of a power of attorney for a U.S. resident principal from appointing a subagent except for the purpose of executing a shipper's export declaration] prohibited the Blaine broker from doing anything beyond a shippers' export declaration.

In the other case, the client was a non- resident, and there is apparently no prohibition covering the activity or preventing the Blaine broker from assigning a Power of Attorney to yet another subagent (a potentially unending chain of them).

Regarding the former situation - where the requesting broker represents a U.S. resident principal - if the power of attorney between the principal and the requesting broker expressly authorizes such broker to appoint another broker, this is the classic Broker A - Broker B scenario. It is not prohibited by 19 C.F.R. 141.43(a) because there is no appointment of a subagent. Broker B is not the subagent of Broker A; Broker B becomes the agent for the principal. As above, the relationship is transformed into one between the principal and Broker B, in this case the Blaine broker. (See Headquarters letter 730649, June 17, 1988, attached.) If the initial power of attorney does not authorize the requesting broker to appoint another broker, the Blaine broker should not perform customs business for the principal for the reasons explained above.

Regarding the latter situation - where the requesting broker represents a non-resident principal - this again is the Broker A - Broker B scenario. The Blaine broker can perform customs business for the principal if the initial power of attorney authorizes the requesting broker to appoint another broker for that purpose. In that instance, the Blaine broker would be the agent for the principal not for the requesting broker. By its terms, 19 CFR 141.43(b) requires that the initial power of attorney expressly authorize the U.S. resident agent to appoint another agent. Without that express authority in the initial power of attorney, the U.S. agent cannot appoint another agent under section 141.43(b), nor can a licensed broker act on behalf of another licensed broker's client (unless an employer - employee relationship exists between the brokers). Just as in the above situation involving a resident principal, the second broker appointed by the first broker (who is agent of a non- resident principal) is precluded from appointing another broker to perform customs business on behalf of the principal unless the initial power of attorney specifies that the first broker can convey that authority to the second broker. The scenarios we have seen in the past have not involved that kind of grant of authority.

HOLDINGS:

(1) For purposes of transacting customs business with the Customs Service, a power of attorney should be limited to authorize one licensed broker to act as agent for the principal. This does not preclude a principal from executing another power of attorney in favor of another licensed broker.

(2) A broker acting as agent for a principal can appoint another broker to act on behalf of that principal only where the initial power of attorney expressly gives the first broker the power to do so. The second broker can appoint yet another broker to act on behalf of the principal only where the first broker who appointed the second broker was granted the power to convey that authority by the principal in the initial power of attorney. Section 141.43(b) of the Customs Regulations does not authorize an endless chain of appointments of licensed brokers by licensed brokers. A broker's power to appoint another broker to act on behalf of the principal must always stem from the principal.

We hope the foregoing assists you in your response to the Seattle district director. If you have any additional questions, please feel free to submit them for our review.

Sincerely,

John Durant, Director

Previous Ruling Next Ruling