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HQ 225023


February 23, 1994

BRO-3-05-CO:R:C:E 225023 WGR

CATEGORY: ENTRY

District Director
U.S. Customs Service
1000 2nd Avenue
Room 2200
Seattle, WA 98104

RE: Request for Internal Advice; Propriety of Broker Relationship; 19 U.S.C. 1641; Proper Billing Procedure; 19 CFR 111.36, 111.28, 111.37 and 111.24

Dear Sir:

This is in response to your memorandum (your file ADM 1 SE:B:B:WEH/llw) dated October 15, 1993, wherein you sought internal advice on the question of broker relationships.

FACTS:

In June 1992, BLAIKLOCK (USA) INC. (Blaiklock), a subsidiary of THE BLAIKLOCK GROUP (Blaiklock Canada), a Canadian customhouse broker and freight forwarder, commenced U.S. customs brokerage operations from an office in Blaine, Washington. Blaiklock Canada is not licensed nor permitted to conduct any U.S. customs business. After allowing an interval for Blaiklock to perfect their organization, Blaine ISET contacted Blaiklock's office manager and scheduled a routine broker compliance review of the Blaine operation. The review disclosed significant deficiencies which led ISET to seek assistance from Regulatory Audit, Pacific Region.

In response to the ISET request, Regulatory Audit initiated an audit of Blaiklock and the results were reported to the Seattle District Director. The auditor found that, in repeated instances, Blaiklock Canada served as middleman in Blaiklock's customs transactions, i.e. soliciting clients, securing powers of attorney from Canadian shippers for Blaiklock, and billing Blaiklock's clients. The audit report also concluded that Blaiklock was allowing an unlicensed individual access to confidential client records, did not maintain records in the required format, and did not exercise adequate supervision.

In your memorandum you indicate that this practice is widespread at the port of Blaine where U.S. brokers receive referrals of Canadian clients from Canadian brokers. You state that it is not unusual for the U.S. broker to bill entry transaction charges to the referring Canadian broker, who then rebills these charges to the Canadian shipper. Apparently, U.S. Customs requests for information follow the same pattern. They are forwarded by the U.S. broker to the referring Canadian broker for transmission to the Canadian shipper.

ISSUE:

Does the business arrangement between Blaiklock and Blaiklock Canada violate 19 U.S.C. 1641 and the applicable Customs regulations?

LAW AND ANALYSIS:

In order to conduct customs business in the United States, a person must hold a valid customs broker's license issued by the Secretary of the Treasury. The statutory provision governing Customs brokers is found in section 641, Tariff Act of 1930, as amended (19 U.S.C. 1641) and the implementing Customs regulations, part 111 of Title 19 of the Code of Federal Regulations (19 C.F.R. 111).

The auditor concluded that Blaiklock Canada directed its clients to Blaiklock. The violation of 19 C.F.R. 111.37 is alleged. The purpose of the regulation is to prevent a licensed broker from serving as broker in name only. That is, the actual Customs entry would be prepared by an unlicensed person. In part, the Congressional purpose in granting a monopoly to licensed brokers was to insure that documents for Customs would be prepared by a person who was knowledgeable of Customs legal requirements so as to relieve Customs officers from having to assist unqualified persons in a Customs transaction. H. Rpt. 98-1015 on H.R. 6064, 71 (September 13, 1984). In the described situation, the documents are prepared by Blaiklock. They are not filed by the unlicensed Canadian company. Accordingly, the described situation does not encompass a violation of 19 C.F.R. 111.37.

The auditor found that Blaiklock failed to have powers of attorney from persons for whom Blaiklock filed entries. The auditor also found that for numerous powers of attorney that were on file, the powers were deficient in that they did not authorize Blaiklock to serve as the agent for service of process for a nonresident importer. A broker who transacts Customs business, such as the filing of an entry for a person without having a valid power of attorney from that person is contrary to the plain language of 19 C.F.R. 141.46. The reason for the regulation is to give assurance that a valid principal-agency was established. The lack of such a power would make it more difficult for Customs to establish responsibility in the event Customs discovers that an entry filed by the broker contained false or incorrect information.

The lack of the designation of a readily available agent for service of process increases the difficulty for Customs to obtain jurisdiction over a nonresident principal for whom the broker is filing entries with Customs.

The auditor also found that Blaiklock billed, and was paid by, Blaiklock Canada for entries filed by Blaiklock naming other persons as the importer. Based on the auditor's description of the transaction, it appears that Blaiklock worked for Blaiklock Canada rather than the parties in interest to the import transaction for which Blaiklock filed entries with Customs. Without a direct relationship with the importer, Blaiklock was not in a position to insure that the entries filed by Blaiklock were based on complete and accurate information provided by Blaiklock's ostensible principal. The described arrangement is contrary to the literal language of 19 C.F.R. 111.36(a). One purpose of the regulation is to insure that there be a valid principal-agent relationship between the broker who files the entry documents and the importer for whom the documents are filed. If there is a valid principal- agent relationship, then Customs can determine responsibility with respect to the Customs transaction because of the concept of imputed knowledge inherent in an agency.

The alleged violation of 19 C.F.R. 111.24 is based on Blaiklock obtaining the information on the import transaction through Blaiklock Canada. The purpose of the regulation is to prevent a broker from providing information it receives from a client to a third party without the consent of the broker's client. In the described situation the importers provided the information to Blaiklock Canada for transmittal to Blaiklock. Such an arrangement does not violate 19 C.F.R. 111.24.

HOLDING:

Blaiklock is not in violation of section 111.37, Customs Regulations, because it does in fact prepare the actual Customs entry. Additionally, there is no violation of 19 CFR 111.24 because the Canadian importer provides the information to Blaiklock Canada for transmittal to Blaiklock.

Blaiklock is in violation of 19 C.F.R. 141.46 for transacting Customs business without valid powers of attorney. Blaiklock's business arrangement with Blaiklock Canada is also in violation of 19 C.F.R. 111.36(a).

The Office of Regulations and Rulings will take steps to make this decision available to Customs personnel via the Customs Rulings Module in ACS and to the public via the Diskette

Subscription Service, Lexis, Freedom of Information Act and other public access channels within 60 days from the date of this decision.

Sincerely,

John Durant, Director

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