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HQ 113817





August 22, 1997

BRO-3-05-RR:IT:EC 113817 GOB

CATEGORY: BROKERS

Port Director of Customs
Attn.: Trade Compliance Process Owner, Sue-Ann Linnemann P.O. Box 619050
Dallas/Fort Worth, Texas 75261

RE: 19 U.S.C. 1641; 19 CFR 111.29(a); Payment of duties; Request for internal advice

Dear Madam:

This is in response to your memorandum of January 8, 1997, to which was attached a request for internal advice from a customs broker (the "requester").

FACTS:

The requester states the issues which it presents as follows:

Except for checks for duties made out to the U.S. Customs Service, is a customs broker legally obligated to make payable to Customs monies tendered to it by its principal, which may or may not have been expressly designated by the principal for payment to the Customs Service as "duties," when there is an outstanding legal debt owing the customs broker by the principal in the amount of or greater than those monies?

Alternately, except for checks for duties made payable to the U.S. Customs Service, is a customs broker legally (i.e., in terms of the Customs law) prohibited from applying monies tendered to it by its principal against outstanding legal debt of the principal to the customs broker, regardless of whether the principal designates such monies for payment to the Customs Service as "duties?"
...
We respectively submit the answer to each of the foregoing legal questions is "NO."

It is our view of the law that the ONLY checks from an importer which a customs broker is legally obligated to tender to Customs in payment of duties are checks made expressly payable to the "U.S. Customs Service" [19 CFR 141.1(b)(3)(ii)(B)]. There is no exception to this rule in either the law or regulations. The foregoing legal conclusion seems confirmed in T.D. 82-134 (Exhibit 1), which created 19 CFR 111.29, effective September 27, 1982.
[All emphasis in the original.]

ISSUE:

Where a principal-client has designated monies for payment to Customs as duties, but has made the check payable to the broker, can the broker use those funds against the outstanding debt of the client to the broker, rather than paying the Customs duties?

LAW AND ANALYSIS:

Statutory and Regulatory Background

19 U.S.C. 1641 is the customs statute with respect to customs brokers.

19 U.S.C. 1641(a)(1) provides that "[t]he term customs broker' means any person granted a customs broker's license by the Secretary [of the Treasury] under subsection (b) of this section."

19 U.S.C. 1641(b)(4) provides that "[a] customs broker shall exercise responsible supervision and control over the customs business that it conducts."

19 U.S.C. 1641(d) provides for disciplinary proceedings and monetary penalties in certain situations. 19 U.S.C. 1641(d)(1)(C) provides that a monetary penalty may be imposed or a disciplinary proceeding undertaken if it is shown that the broker "has violated any provision of any law enforced by the Customs Service or the rules or regulations issued under any such provision[.]"

19 U.S.C. 1641(f) provides that "[t]he Secretary [of the Treasury] may prescribe such rules and regulations relating to the customs business of customs brokers as the Secretary considers necessary to protect importers and the revenue of the United States..."

19 CFR 111.29(a) provides, in pertinent part:

?111.29 Diligence in correspondence and paying monies.

(a) Due diligence by broker. Each broker shall exercise due diligence in making financial settlements, in answering correspondence, and in preparing or assisting in the preparation and filing of records relating to any customs business matter handled by him as a broker. Payment of duty, tax, or other debt or obligation owing to the Government for which the broker is responsible, or for which the broker has received payment from a client, shall be made to the Government on or before the date that payment is due... [Emphasis supplied.]

19 CFR 111.53(c) provides that Customs may take disciplinary action or assess a monetary penalty if the "broker has violated any provision of any law enforced by Customs or the rules or regulations issued under any such provision[.]"

Requester's Claims

The requester has cited 19 CFR 141.1(b)(3)(ii)(B) in support of its position. That regulation, with respect to methods of payment of the importer for his duty liability, provides that the importer may issue the broker two separate checks or bank drafts. One check or bank draft would cover duties and would be payable to the "U.S. Customs Service" for transmittal by the broker to Customs. The second check or bank draft would cover the broker's fees and charges.

19 CFR 141.1(b)(3)(ii)(B) states a valid method of payment. However, it is not applicable here because the stated facts have the principal-client designating the monies as payment for duties yet making the check payable to the broker.

19 CFR 111.29(a) is not in conflict with 19 CFR 141.1(b)(3)(ii)(B). The latter regulation provides a method of payment which has not been utilized in the stated facts.

The requester cites 19 CFR 111.29(b) with respect to "notice to client of method of payment." That regulation is not pertinent here, as the issue in this ruling is the responsibility of the broker to transmit funds to Customs, not the provision of notice to the principal-client.

19 CFR 111.29(b) contains notification language which includes language that "...Customs charges may be paid with a separate check payable to the U.S. Customs Service' which shall be delivered to Customs by the broker." In the facts at issue, the principal-client has elected not to make his check payable to the U.S. Customs Service.

19 CFR 11.29(b) also contains the following notification language to be provided by the broker to the principal-client: "If you are the importer of record, payment to the broker will not relieve you of liability for Customs charges (duties, taxes, or other debts owed Customs) in the event the charges are not paid by the broker." This language has no effect on the broker's responsibility under the subject facts to transmit the monies to Customs.

The requester cites language from T.D. 82-134 to the effect that there is no requirement for a broker to advance funds on behalf of an importer. That situation is not present here as the importer, or principal-client, has not asked the broker to advance funds. The importer has simply provided the broker with monies, in the form of a check payable to the broker, for Customs duties.

Determination

It is our determination that the language of 19 CFR 111.29(a) excerpted above is directly on point and controlling with respect to the issue stated above.

Thus, if a principal-client has designated monies as payment for Customs duties, and has provided those monies to its customs broker in the form of a check payable to the broker, the broker is required to pay those monies to Customs in satisfaction of the principal-client's duty obligation.

In such a situation, the broker may not use such monies against the outstanding debt of the principal-client to the broker.

The failure to comply with Customs regulations may subject a broker to disciplinary proceedings and/or a monetary penalty under 19 U.S.S. 1641.

HOLDING:

Pursuant to 19 CFR 111.29(a), where a principal-client has designated monies for payment to Customs as duties, but has made the check payable to the broker, the broker is required to pay those monies to Customs in satisfaction of the principal-client's duty obligation. In such a situation, the broker may not use such monies against the outstanding debt of the principal-client to the broker.
This decision should be mailed by your office to the internal advice requester no later than 60 days from the date of this letter. On that date the Office of Regulations and Rulings will take steps to make the decision available to Customs personnel via the Customs Rulings Module in ACS and to the public via the Diskette Subscription Service, the Freedom of Information Act and other public access channels.

Sincerely,

Jerry Laderberg
Acting Chief,
Entry and Carrier Rulings Branch

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