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HQ 115080





September 14, 2000

BRO-05-RR:IT:EC 115080 LLO

Karen Quintana
New Wave Transport U.S.A., Inc.
Assistant Vice President
2417 E. Carson Street
Suite 200
Long Beach, California 90810

RE: Title 19 C.F.R. §111.36; Customs Brokers’ Relations with Unlicensed Persons; Freight Forwarder; Compensation

Dear Ms. Quintana:

We received your request for ruling regarding the “commission” that ABC Company receives from you every time it refers a customer to New Wave Transport U.S.A., Inc.

FACTS:

You indicate that New Wave Transport U.S.A., Inc. (NWT) is a licensed customs broker and that ABC Company will soon begin referring business to NWT at a cost of $10.00 per referral. You go on to note, that ABC will obtain a Power of Attorney from the importer of record on behalf of NWT and notify them in advance that NWT is the broker. NWT will have direct contact with the importer of record for any questions, problems or concerns. NWT will then provide ABC Company with an invoice for all charges, duties and fees. The invoice will be made out to ABC Company c/o the importer of record, while the original invoice will go to ABC Company with copies of the invoice, entry summary and all required back up to the importer of record. NWT will then bill ABC Company $100.00 for the customs clearance fee, but ABC will only pay $90.00 taking the $10.00 difference as compensation for the referral.

ISSUE:

Whether a customs broker is permitted to pay an unlicensed freight forwarder a referral fee for new customers recommended to it under 19 C.F.R. §111.36.

LAW & ANALYSIS:

Title 19 C.F.R. § 111.36 covers the relationship that customs brokers are permitted to have with unlicensed persons, and what conduct is and is not permissible. Typically, a customs broker is not permitted to enter into any agreement with an unlicensed person in an effort to transact Customs business for others in such manner that the fees or other benefits resulting from the services provided for others customarily benefits the unlicensed person. Only when a freight forwarder employs a customs broker, may a broker compensate the forwarder for the services rendered in obtaining brokerage business, provided the following conditions are met:

1) the importer is notified in advance by the forwarder or broker of the name of the broker selected by the forwarder for the handling of customs transactions; 2) the broker transmits directly to the importer; a true copy of his brokerage charges if fees and charges are to be collected by or through the forwarder, unless importer waives requirement in writing; or a statement of his brokerage charges and an itemized list of any charges to be collected for the account of the freight forwarder if the fees and charges are to be collected by or through the broker 3) no part of the agreement of compensation between the broker and the forwarder, nor any action taken pursuant thereto, shall forbid or prevent direct communication between the importer and the broker, and; 4) in making the agreement and in all actions taken pursuant thereto, the broker shall be subject to all other provisions of these regulations. 19 C.F.R. §111.36(b).

In the situation that you describe, ABC is an unlicensed freight forwarder, which NWT compensates (in the amount of $10.00 per referral), for all referred brokerage business. This situation is permitted under the exception stated in 19 C.F.R. §111.36(b), provided all of the conditions listed in that section are met.

The first condition that must be met under 19 C.F.R. §111.36(b) is that the importer is notified in advance by ABC Company or NWT, of NWT’s full name. Secondly, NWT must transmit directly to the importer, the following items:

-a true copy of NWT’s brokerage charges, if the fees and charges are to be collected by or through ABC Company, or; -a statement of NWT’s charges to be collected for the account of ABC Company if the fees and charges are to be collected by or through NWT

Additionally, NWT and ABC Company cannot have in any way agreed, with regard to compensation, nor shall any action be taken as a result of an agreement that will prevent direct communication between the importer and NWT. Finally, NWT, in making the agreement, and in all actions taken as a result of the agreement, will be subject to all other provisions of the code of federal regulations.

HOLDING:

NWT’s billing procedure of paying ABC Company (freight forwarder) $10.00 compensation as a referral fee for services rendered in obtaining the brokerage business for NWT, as described above, is permissible as stated under title 19 C.F.R. § 111.36(b). A customs broker’s compensation of an unlicensed freight forwarder for services rendered in obtaining brokerage business is not necessarily a violation pursuant to 19 C.F.R. §111.36(b), provided all prerequisites listed therein are met.

Sincerely,

Larry L. Burton
Chief

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