HQ 115005 - Sole proprietor broker; employment by another broker; responsible supervision and control; disclosure of arrangement to clients. - United States International Trade Commision Rulings

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HQ 115005

May 2, 2000

BRO-1-RR:IT:EC 115005 GG

CATEGORY: BROKERS

Mr. Raul Campos
General Manager
Campos Customs Brokers
9005 Travis Drive, Suite 2
Las Milpas Industrial Park
Pharr, TX 78577

RE: Sole proprietor broker; employment by another broker; responsible supervision and control; disclosure of arrangement to clients.

Dear Mr. Campos:

This is in response to your letter, dated March 29, 2000, in which you ask for internal advice on the legality of operating a sole proprietorship customs brokerage business while being employed by another broker. Since internal advice usually involves correspondence between different offices within the Customs Service, we are treating your letter as a ruling request pursuant to 19 CFR §177.2.

FACTS:

You state that you are a licensed customs broker doing business as a sole proprietor. Your letterhead indicates that you go by the trade name of “Raul Campos d/b/a CAMPOS CUSTOMS BROKERS”. We will refer to Campos Customs Brokers as “Broker A” for purposes of this letter. A second customs broker (“Broker B”) also employs you full-time as a District Manager.

You work for Broker B from 8:00 a.m. to 5:00 p.m., Monday through Friday. The hours set aside for Broker A are after 5:00 p.m., Monday through Friday, “only to review occasionally [your] employee’s work”. You state that your employee may or may not be present.

ISSUES:

Whether Broker A may operate as a customs broker while at the same time being employed by Broker B during non-concurrent hours; Whether Broker A is exercising responsible supervision and control over his employee; and Whether there is a conflict of interest if Broker A and Broker B fail to notify their clients of this arrangement.

LAW AND ANALYSIS:

The first issue concerns the employment by a broker of a licensed individual who also operates a sole proprietorship brokerage business. Customs has previously ruled that an individually licensed broker who is operating as a sole proprietor may also be employed by another broker during prescribed, non-concurrent hours, provided the status of the licensed individual at the employer broker is that of a supervised employee, and not that of a permit qualifier. See Headquarters Ruling Letter (HRL) 225011, dated February 22, 1994. You do not specify whether Broker B uses you as a permit qualifier. However, your letter raises concerns because you state that you are a District Manager for Broker B. Many brokers routinely designate their district managers as their district permit qualifiers. If this is the case in your situation, then there is a violation of the rule that a licensed individual cannot qualify more than one district permit. You may continue to work for Broker B, but your status as the permit qualifier will have to cease immediately. Broker B will have to appoint another licensed employee as the district permit qualifier.

You also ask whether you are exercising responsible supervision and control over your employee at Broker A. Your question stems from Section 641(b)(4) of the Tariff Act of 1930, as amended (19 U.S.C. 1641(b)(4)), which requires customs brokers to exercise responsible supervision and control over the customs business that they conduct. You indicate that you periodically review your employee’s work during evening hours, sometimes in the employee’s absence. Section 111.28(a) of the Customs Regulations (19 CFR §111.28(a)) requires every individual operating as a sole proprietor to exercise responsible supervision and control over the transaction of the customs business of the sole proprietorship. The term “responsible supervision and control” is defined in Section 111.1 of the Customs Regulations as:

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 Customs 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 the Customs Regulations, the Harmonized Tariff Schedule of the United States, and Customs 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.

As you can see, Customs will look at many factors when determining whether a broker is exercising the requisite degree of responsible supervision and control. Unfortunately, we are unable to make such a determination based on information relating to one or several of these factors alone. As we stated in HRL 225010, dated July 21, 1994, “unless each of the listed criteria in 19 CFR 111.11(d) [now 111.1] was considered and where appropriate, the apparent failure to meet a specific criterion was analyzed, it would be improper for Customs to make a determination whether responsible supervision and control was being exercised.” Consequently, we cannot rule on the issue of whether Broker A is exercising responsible supervision and control.

Finally, you ask whether a conflict of interest exists if Broker A and Broker B fail to notify their clients of your employment by Broker B. Provided the client lists of Broker A and Broker B do not overlap, there is no conflict of interest. The brokers do not have to notify their respective clients of the arrangement. See HRL 225011, supra, and HRL 225006, dated February 15, 1994.

HOLDING:

Broker A may operate as a sole proprietorship broker and work, during prescribed and non-concurrent hours, as a supervised employee of another broker; There is insufficient information for a determination to be made on the adequacy of the responsible supervision and control exercised over the customs business transactions performed by Broker A; There is no conflict of interest if Broker A and Broker B have different clients and fail to notify them of the arrangement.

Sincerely,

Acting Chief
Entry Procedures and Carriers Branch

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