[Federal Register Volume 65, Number 51 (Wednesday, March 15, 2000)]
[Rules and Regulations]
[Pages 13880-13904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 00-6175]


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DEPARTMENT OF THE TREASURY

Customs Service

19 CFR Parts 24, 111 and 178

[T.D. 00-17]
RIN 1515-AC34


Customs Brokers

AGENCY: Customs Service, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This document adopts as a final rule, with some changes, a 
proposed revision of part 111 of the Customs Regulations, which governs 
the licensing and conduct of customs brokers in the performance of 
customs business on behalf of others. The revision includes changes to 
the regulatory texts to reflect amendments to the underlying statutory 
authority enacted as part of the Customs Modernization provisions of 
the North American Free Trade Agreement Implementation Act and also 
includes changes to reflect the recent reorganization of Customs as 
well as changes to improve the content, layout and clarity of the 
regulatory texts. The document also includes conforming changes to 
parts 24 and 178 of the Customs Regulations.

EFFECTIVE DATE: April 14, 2000.

FOR FURTHER INFORMATION CONTACT: Operational Aspects: Mike Craig, 
Office of Field Operations (202-927-1684). Legal Aspects: Gina Grier, 
Office of Regulations and Rulings (202-927-2320).

SUPPLEMENTARY INFORMATION:

Background

    Section 641 of the Tariff Act of 1930, as amended (19 U.S.C. 1641), 
provides that a person must hold a valid customs broker's license and 
permit in order to transact customs business on behalf of others, sets 
forth standards for the issuance of broker's licenses and permits, 
provides for disciplinary action against brokers in the form of 
suspension or revocation of such licenses and permits or assessment of 
monetary penalties, and provides for the assessment of monetary 
penalties against other persons for conducting customs business without 
the required broker's license. Section 641 also authorizes the 
Secretary of the Treasury to prescribe rules and regulations relating 
to the customs business of brokers as may be necessary to protect 
importers and the revenue of the United States and to carry out the 
provisions of section 641.
    The regulations issued under the authority of section 641 are set 
forth in Part 111 of the Customs Regulations (19 CFR part 111). Part 
111 includes detailed rules regarding the licensing of, and granting of 
permits to, persons desiring to transact customs business as customs 
brokers, including the qualifications required of applicants and the 
procedures for applying for licenses and permits. Part 111 also 
prescribes recordkeeping and other duties and responsibilities of 
brokers, sets forth in detail the grounds and procedures for the 
revocation or suspension of broker licenses and permits and for the 
assessment of monetary penalties, and sets forth fee payment 
requirements applicable to brokers under section 641 and 19 U.S.C. 
58c(a)(7).
    On December 8, 1993, amendments to certain Customs and navigation 
laws became effective as the result of enactment of the North American 
Free Trade Agreement Implementation Act (``the Act''), Public Law 103-
182, 107 Stat. 2057. Title VI of the Act set forth Customs 
Modernization provisions that included, in section 648, certain 
amendments to section 641 of the Tariff Act of 1930. The substantive 
amendments to section 641 were as follows:
    1. In the definition of ``customs business'' in section 641(a)(2), 
a second sentence was added that provides that customs business ``also 
includes the preparation of documents or forms in any format and the 
electronic transmission of documents, invoices, bills, or parts 
thereof, intended to be filed with the Customs Service in furtherance 
of (the customs business activities listed in the first sentence), 
whether or not signed or filed by the preparer, or activities relating 
to such preparation, but does not include the mere electronic 
transmission of data received for transmission to Customs.''
    2. Section 641(c)(1) was amended by adding a provision for the 
issuance of a national permit for the conduct of such customs business 
as the Secretary of the Treasury prescribes by regulation.
    3. A new subsection (c)(4) was added to provide that when 
electronic filing (including remote location filing) of entry 
information with Customs at any location is implemented by the 
Secretary of the Treasury pursuant to the provisions of the National 
Customs Automation Program (``the NCAP,'' which was established by 
section 631 of the Act and is codified at 19 U.S.C. 1411-1414), a 
licensed broker may appoint another licensed broker who holds a permit 
in a Customs district to act on its behalf as its subagent in that 
district if such activity relates to the filing of information that is 
permitted to be filed electronically. New subsection (c)(4) also 
provides that the broker who appoints a subagent remains liable for all 
obligations arising under bond and for all duties, taxes and fees, and 
for any other liabilities imposed by law, and cannot delegate such 
liability to the subagent.
    4. Section 641(d)(2)(B), which sets forth the procedures for the 
suspension or revocation of a broker's license or permit, was amended 
to increase to 30 days the period within which a hearing is to be held 
after written notice of a hearing is provided to the broker.
    5. Finally, section 641(f) was amended to provide: That the 
Secretary of the Treasury may not prohibit customs brokers from 
limiting their liability to other persons in the conduct of customs 
business; that for purposes of any provision of the Tariff Act of 1930 
pertaining to recordkeeping, all data required to be retained by a 
customs broker may be kept on microfilm, optical disc, magnetic tapes, 
disks or drums, video files or any other electrically generated medium; 
and that, pursuant to such regulations as the Secretary of the Treasury 
shall prescribe, the conversion of data to such storage medium may be 
accomplished at any time subsequent to the relevant customs transaction 
and the data may be retained in a centralized basis according to such 
broker's business system.
    On September 27, 1995, Customs published the following documents in 
the Federal Register as a result of changes in the Customs Headquarters 
and field organizational structure:
    1. T.D. 95-77 (60 FR 50008) amended the Customs Regulations on an 
interim basis. The amendments included extensive changes to 
Secs. 101.1, 101.3 and 101.4 (19 CFR 101.1, 101.3 and 101.4) to reflect 
the changes to the basic Customs field organization, involving the 
elimination of regions and districts for most purposes so that ports of 
entry would constitute the foundation of the

[[Page 13881]]

Customs field structure and would be empowered with most of the 
functions and authority that had been held in the district and regional 
offices and also involving the designation of some ports as service 
ports having a full range of cargo processing functions, including 
inspection, entry, collection, and verification. T.D. 95-77 also 
included amendments to parts 4, 19, 24, 103, 111, 112, 113, 118, 122, 
127, 141, 142, 146 and 174 of the Customs Regulations (19 CFR parts 4, 
19, 24, 103, 111, 112, 113, 118, 122, 127, 141, 142, 146 and 174) to 
reflect these organizational changes. The background portion of T.D. 
95-77 pointed out that districts and regions would still exist as 
geographical descriptions for limited purposes such as for broker 
permits and certain cartage and lighterage purposes, and T.D. 95-77 
therefore set forth certain additional regulatory changes in order to 
reflect this fact; these changes included the addition of definitions 
for ``district,'' ``district director'' and ``region'' in Sec. 111.1 
(19 CFR 111.1) to enable the current statutory broker licensing and 
permitting schemes to operate. (The background portion of T.D. 95-77 
also noted that the Customs reorganization included the creation of 
twenty Customs Management Centers and five Strategic Trade Centers for 
which no regulatory changes were being made because these new 
organizational entities will not have direct contact with the public.)
    2. T.D. 95-78 (60 FR 50020) also amended the Customs Regulations on 
an interim basis and involved nomenclature changes. The T.D. 95-78 
changes were set forth in a table format in numerical order by section 
affected and in most cases involved the replacement of outdated 
references with new references to reflect the new Customs Headquarters 
and field organizational structure. The majority of these changes 
involved replacing ``district'' with ``port'' and replacing ``district 
director'' with ``port director,'' or some variation thereof. The T.D. 
95-78 changes involved almost every part within Chapter I of the 
Customs Regulations (19 CFR Chapter I) and included a large number of 
changes to part 111.
    3. A general notice (60 FR 49971) informed the public of the 
geographic areas covered for purposes of Customs broker permits and for 
certain cartage and lighterage purposes where the word ``district'' 
appears in the Customs Regulations. The notice was a consequence of the 
publication of T.D. 95-77 and T.D. 95-78 and, in particular, of the 
T.D. 95-77 regulatory changes made in order to retain the concept of a 
``district'' for certain Customs broker and cartage and lighterage 
purposes. The information contained in that notice is republished in a 
general notice also appearing in this issue of the Federal Register.
    Based on a review of the changes to section 641 made by section 648 
of the Act, Customs determined that the part 111 regulatory texts 
should be amended as follows: (1) To reflect the change to the section 
641(a)(2) definition of ``customs business;'' (2) to provide for the 
issuance of national permits as authorized under amended section 
641(c)(1); (3) to reflect the 30-day period within which a suspension 
or revocation hearing is to be held under amended section 641(d)(2)(B); 
(4) to implement the amended section 641(f) proscription against 
prohibiting a broker from limiting its liability to other persons; and 
(5) to reflect the amended section 641(f) recordkeeping provisions. 
With regard to the appointment of subagents as authorized under amended 
section 641(c)(4), Customs determined that it would be premature to 
amend part 111 at this time; rather, Customs concluded that it would be 
preferable to address this issue at such time as related NCAP test 
procedures have been concluded, appropriate programming enhancements 
have become operational, and appropriate regulatory proposals have been 
formulated.
    Customs also performed a general review of Part 111 to determine 
whether other regulatory changes should be made. Based on that review, 
Customs identified a number of other areas where significant 
improvement could be made to the existing regulatory texts. These 
improvements included: (1) The elimination of obsolete or otherwise 
unnecessary provisions; (2) the addition of new provisions where the 
regulations appeared to be incomplete or were otherwise in need of 
clarification; (3) further textual changes arising out of the 
reorganization of Customs that were not fully addressed in the 
district/port terminology changes made by T.D. 95-77 and T.D. 95-78, 
including some changes to those previously-published changes and 
particularly in order to clarify certain procedural aspects of the 
regulations (for example, where to file permit applications and broker 
status reports and where to pay permit user fees); and (4) a large 
number of nonsubstantive, editorial changes to improve the precision 
and clarity of the regulations, ranging from the reorganization or 
complete redrafting of existing texts to minor word changes within a 
particular regulatory provision.
    Based on the above considerations, on April 27, 1999, Customs 
published in the Federal Register (64 FR 22726) a notice of proposed 
rulemaking setting forth a complete revision of part 111. The notice of 
proposed rulemaking included a detailed section-by-section discussion 
of the proposed amendments (other than those of a minor wording or 
other editorial nature) and provided a 60-day period for the submission 
of public comments on the proposed changes. On June 29, 1999, a notice 
was published in the Federal Register (64 FR 34748) to extend the 
public comment period to July 28, 1999.

Discussion of Comments

    A total of 20 commenters responded to the solicitation of comments 
in the April 27, 1999, notice of proposed rulemaking. A discussion of 
those comments follows.

Section 111.1

    Comment: 
    The following two comments addressed the proposed definition of 
``customs business'':
    1. The first comment stated that the definition of ``customs 
business'' should specify which activities constitute the ``preparation 
and activities related to the preparation of documents''.
    2. The second comment asserted that the language in Sec. 111.1 
expands the definition in a manner not authorized by statute, by 
inserting the phrase ``in furtherance of any other customs business 
activity'' (emphasis added) in place of the statutory language ``in 
furtherance of such activities'' (emphasis added) in the second 
sentence of the definition.
    Customs response: 1. In determining how to define ``customs 
business'' in part 111, Customs concluded that the range of activities 
which potentially could be categorized as ``customs business'' was too 
broad for individual activities to be listed in the regulatory text. 
Questions on which activities constitute ``customs business'' will be 
answered through the prospective ruling and internal advice procedures 
and through the issuance of informed compliance publications. 
Consequently, the new definition of ``customs business'' in part 111 
does not include specific exemplars or otherwise go beyond the general 
approach of the definition in 19 U.S.C. 1641.
    2. Customs disagrees with the second comment. The language used in 
the second sentence of the regulatory text was intended to ensure that 
those ``other'' activities refer to the customs business activities 
listed in the first sentence in the definition, and not to the document 
preparation and transmission activities mentioned in that second 
sentence. Given that what is

[[Page 13882]]

defined is ``customs business,'' this textual clarification simply 
avoids the appearance of a tautology or circularity. No expansion of 
the statutory definition was intended or will result from the proposed 
regulatory text.
    Comment: A commenter suggested that the interchangeable use of the 
terms ``customs broker'' and ``broker'' throughout the regulations is 
confusing.
    Customs response: Both terms are defined for purposes of part 111, 
and it is clear from those definitions that both have the same meaning. 
Accordingly, Customs does not believe that any change to the regulatory 
texts should be made in response to this comment.
    Comment: A commenter recommended that the term ``port director'' be 
used consistently throughout the regulations, instead of being used 
interchangeably with the term ``director of the port''. This commenter 
also asked that the terms ``port director'' and ``port'' be defined in 
part 111.
    Customs response: As regards the first point, the term ``director 
of the port'' is used as a substitute for ``port director'' purely for 
reasons of sentence structure, and Customs believes it is clear that 
the two terms have the same meaning. On the second point, Customs 
believes that the suggestion is unnecessary, because ``port'' is 
already defined for general Customs Regulations purposes in 19 CFR part 
101, and the meaning of ``port director'' can be logically inferred 
when it appears in conjunction with the word ``port'.

Section 111.2

    Comment: A commenter questioned the need for district permits, now 
that districts and regions have been eliminated for other Customs 
purposes and Customs has the ability to monitor a broker's activities 
through automation.
    Customs response: Until such time as Congress repeals the permit 
system required by 19 U.S.C. 1641(c), brokers must have, as 
appropriate, either a national permit or a district permit, or both, to 
transact customs business for others.
    Comment: A commenter stated that Sec. 111.2(a)(2)(i) is contrary to 
law because it precludes persons other than the importer, his or her 
authorized regular employees or officers, or a customs broker from 
transacting customs business on behalf of the importer. The commenter 
asserted that this regulation conflicts with section 484(a)(1) of the 
Tariff Act of 1930, as amended (19 U.S.C. 1484(a)(1)).
    Customs response: Customs disagrees. Section 484(a)(1) authorizes 
one of the parties qualifying as ``importer of record,'' either in 
person or by an agent authorized by the party in writing, to make 
entry. An ``importer of record'' can be the owner or purchaser of 
imported merchandise, or a licensed customs broker appropriately 
designated by the owner, purchaser, or consignee of the merchandise. 
(19 U.S.C. 1484(a)(2)(B)). The statute governing brokers further 
restricts who may make entry. Section 641(b)(1) of the Tariff Act of 
1930, as amended (19 U.S.C. 1641(b)(1)) states that ``no person may 
conduct customs business (other than solely on behalf of that person) 
unless that person holds a valid customs broker's license * * *'' The 
filing of entry documentation qualifies as ``customs business'' (19 
U.S.C. 1641(a)(2)). It follows that the only ``agents'' eligible to 
make entry on behalf of the owner or purchaser of imported merchandise 
are either persons from within the owner or purchaser's own 
organization, such as an employee or officer, or alternatively, a 
licensed customs broker.
    Comment: A commenter recommended amendment of Sec. 111.2(a)(2)(i) 
to allow corporations under common ownership or control to be 
considered a single entity. This would enable companies with 
subsidiaries and incorporated divisions to centralize their personnel 
with customs knowledge under one unit and to have that unit provide 
comprehensive customs services to all subsidiaries and divisions.
    Customs response: Parent corporations and their subsidiaries and 
incorporated divisions are precluded by their separate legal status 
from providing customs business assistance to each other, unless they 
have a broker's license and the necessary district permits and powers 
of attorney. Customs cannot agree to amend Sec. 111.2(a)(2)(i) as 
suggested, because to do so would have the effect of denying the 
reality of the separate legal status of these entities. Affected 
parties should keep in mind, however, that a licensed entity with a 
national permit may be able to offer comprehensive customs business 
assistance to related subsidiaries, divisions, and parents, without 
having to obtain multiple district permits, by taking advantage of the 
employee implant and post-entry representation exceptions to the 
district permit rule.
    Comment: One commenter questioned the requirement in 
Sec. 111.2(a)(2)(ii)(A)(1) that employees of brokers who are authorized 
to sign customs business documents be U.S. residents. This commenter 
pointed out the inconsistency of imposing a residency requirement on 
employees of brokers but not on licensed and permitted brokers, who, if 
they are individuals, may also be signing customs documents.
    Customs response: Customs agrees that the restriction lacks logic. 
Accordingly, the regulatory text in question has been modified in this 
final rule by removing the residency requirement for employees with 
signature authority.
    Comment: A commenter asked whether Sec. 111.2(a)(2)(iv), which 
allows carriers without a broker license to make in-bond transportation 
entries for others, applies to agents of carriers and to all types of 
in-bond transportation entries.
    Customs response: Yes. Agents of carriers may make in-bond 
transportation entries for all types of in-bond transportation entries.
    Comment: A commenter suggested that Sec. 111.2(a)(2)(v) would be an 
appropriate vehicle for amending the Customs Regulations to clarify 
that a broker must obtain a power of attorney to file a commercial 
informal entry for a client. Section 111.2(a)(2)(v) authorizes an 
unlicensed person to enter a noncommercial shipment for another.
    Customs response: Customs believes that the suggested change is not 
necessary, because Sec. 141.46 of the Customs Regulations already 
requires a broker to obtain a valid power of attorney before 
transacting customs business for a client. The fact that an entry is 
``commercial informal'' does not remove the activity from designation 
as ``customs business.''
    Comment: A commenter suggested insertion of the word ``rule'' after 
``General'' in the heading to Sec. 111.2(b)(1), to make it clear that 
this is the ``general rule'' to which Sec. 111.2(b)(2) refers.
    Customs response: It is the opinion of Customs that the proposed 
layout and terminology are sufficiently clear in this regard and that 
the suggested change is therefore unnecessary.
    Comment: Several commenters submitted observations on the proposed 
Sec. 111.2(b)(2)(i) provision regarding an employee working in a 
client's facility (the ``employee implant'' rule). This new provision 
is an exception to the general rule that a broker must have a district 
permit to conduct customs business for another in that district. It 
allows a broker to place an employee in the facility of a client for 
whom the broker is filing entries at one or more other locations 
covered by a district permit issued to the broker, even though the 
broker has no district permit in the broker district in which the 
facility is

[[Page 13883]]

located. The points made by these commenters were as follows:
    1. One commenter objected to the requirement that the broker must 
be filing entries for the client elsewhere; instead, this commenter 
suggested that brokers should be allowed to place implants if they are 
conducting ``customs business'' for the client elsewhere. The commenter 
argued that the adoption of this change would eliminate the exclusivity 
of this particular district permit exception, which currently would 
only benefit customs brokers who file entries.
    2. Another commenter stated that a broker with an implanted 
employee should not be subject to penalties if errors are discovered in 
documentation filed by the client in the broker district in which the 
client's facility is located. The stated rationale for this comment is 
the fact that broker implants are precluded by the regulatory text from 
filing the client's entries or other documents with Customs in the 
broker district servicing that location.
    3. A commenter stated that proposed Sec. 111.2(b)(2)(i) should 
specify the activities that an implanted employee may perform at the 
client's facility.
    4. Another commenter expressed concern that the implant exception 
to the district permit diminishes the importance of both the permit 
system and the requirement for responsible supervision and control.
    Customs response: 1. Customs agrees with the suggestion of the 
commenter, and the regulatory text has been modified in this final rule 
by inserting the words ``conducting customs business'' in place of 
``filing entries.'' It is noted that proposed Sec. 111.2(b)(2)(i) has 
been redesignated as Sec. 111.2(b)(2)(i)(A) in this final rule.
    2. Customs disagrees with the general principle stated by this 
commenter that brokers should not be held liable in the described 
circumstances. The broker employee, by virtue of working with the 
client, may be involved in customs business activities relating to the 
preparation of the documents which the client files. The law imposes 
sanctions on brokers who perform customs business activities 
improperly. Customs will examine each situation on a case-by-case basis 
to determine if sanctions are warranted.
    3. It was the intent of Customs that the broker implant would 
confine his customs business activities to those matters that can be 
accomplished on-site. Since the range of activities which could 
potentially fall under the definition of ``customs business'' is so 
broad, it would more appropriate to specify qualifying activities on a 
case-by-case basis through the binding rulings process.
    4. Customs agrees that the proposed regulation is inconsistent with 
the statutory requirement that a broker have a national permit or a 
district permit, or both, to conduct customs business for another: 
Under the proposed text, a broker could use employee implants to 
conduct customs business in a broker district without coverage of 
either a local district permit or a national permit. (The concept of a 
``regional waiver'', authorized by 19 U.S.C. 1641(c)(2) and reflected 
in proposed Sec. 111.19(d)(2), would not apply, because a client 
facility may be located outside of the borders of the ``broker region'' 
in which the broker has a district permit.) To ensure consistency with 
the statutory standard, and in consideration of the fact that an 
employee implant situation represents an exception to the statutory 
district permit rule, the regulatory text has been modified in this 
final rule to require that brokers obtain a national permit before 
using employee implants (see also the discussion below regarding the 
reorganization of proposed Sec. 111.2(b)(2)). Finally, in response to 
the concern expressed by this commenter regarding the potential lack of 
responsible supervision and control in the implant environment, Customs 
will continue to expect that any work performed by an employee of a 
broker will be reviewed by an individually licensed permit qualifier of 
the broker (see 19 U.S.C. 1641(c)(1)(B) and Sec. 111.19(b)(4) as set 
forth below), regardless of where the work is performed.
    Comment: A commenter objected to the decision reflected in 
Sec. 111.2(b)(2)(ii) to restrict the district permit waiver to the 
filing of manual, but not electronic, drawback claims in the designated 
drawback office located in a district in which the broker does not have 
a district permit.
    Customs response: Customs has reconsidered this matter and agrees 
with the commenter that brokers should be allowed to file both manual 
and electronic drawback claims in the drawback office designated by 
Customs for their broker district, without having to obtain an 
additional district permit if the designated drawback office is 
physically located in a broker district in which the broker is not 
permitted. The first sentence of the regulatory text as proposed has 
been modified in this final rule to reflect this point. However, the 
requirement in the second sentence of the proposed text, that a broker 
must have a national permit to file electronic drawback claims at 
designated drawback offices covering geographical areas in which the 
broker does not have a district permit, remains but is set forth in 
this final rule as Sec. 111.2(b)(2)(i)(B) and with some wording changes 
to clarify its intended filing context (that is, part 143 electronic 
filing in a not-designated-drawback office). See also the discussion 
below regarding the reorganization of proposed Sec. 111.2(b)(2).
    Comment: A commenter stated that it would be consistent with the 
Customs policy of ``nationalizing'' drawback to allow brokers to file 
notices of intent to export in districts in which they are not 
permitted.
    Customs response: Customs disagrees. The filing of a notice of 
intent to export is a customs business activity. As already emphasized 
in this document, brokers are required to have a permit to transact 
customs business for others.
    Comment: A commenter recommended that Sec. 111.2(b)(2)(ii) be 
amended to allow brokers to file electronic and manual drawback 
entries, and to represent their drawback clients before Customs, at all 
locations without having to have district or national permits until the 
drawback component of the National Customs Automation Program 
(``NCAP'') becomes operational.
    Customs response: Customs cannot adopt this recommendation, because 
it runs counter to a broker's statutory obligation to conduct customs 
business under cover of a permit.
    Comment: Customs received a relatively large number of comments on 
the representation after entry acceptance provision of 
Sec. 111.2(b)(2)(iv). Before proceeding to a discussion of those 
comments, it is necessary to clarify that this district permit 
exception provision was intended to apply to representations made after 
entry summary acceptance, and the regulatory text in this final rule 
has been modified to reflect that intent and redesignated as 
Sec. 111.2(b)(2)(i)(D) (see also the discussion below regarding the 
reorganization of proposed Sec. 111.2(b)(2)).
    The points made by the various commenters on the provision 
regarding representation after entry acceptance were as follows:
    1. One commenter requested clarification of the meaning of the term 
``representations before Customs.''
    2. The same commenter also asked how ``representing a client before 
Customs'' differs from the ``performing of customs business.'' This 
commenter also expressed confusion over the ``different permit 
requirement(s)'' for the performing of customs business and the making 
of post-entry summary representations.

[[Page 13884]]

    3. One commenter claimed that the standard set forth in proposed 
Sec. 111.2(b)(2)(iv), under which a broker must have a national permit 
in order to represent an importer on post-entry matters in situations 
where the broker did not file the entry and entry summary and does not 
have a district permit in the broker district in which the 
representations are made, is in conflict with a broker's right under 
Sec. 111.5 to represent a client before government agencies.
    4. Two commenters supported the concept of post-entry 
representation by another broker who had no connection to the filing of 
the entry, but they questioned the connection between post-entry 
representation and national permits. These commenters stated that the 
purpose behind national permits is to allow the implementation of 
remote location filing and of the other components under NCAP.
    5. Another commenter in support of choice in post-entry 
representation stated that Customs should require brokers to formally 
establish their authority to represent an importer on any given matter.
    6. One commenter objected to the proposed Sec. 111.2(b)(2)(iv) 
post-entry representation provision, stating that brokers who file an 
entry for a client should not be in the position of being replaced.
    7. A commenter requested that proposed Sec. 111.2(b)(2)(iv) be 
eliminated, for the reason that a broker should be allowed to represent 
an importer in a district for which the broker does not have a permit 
irrespective of whether the broker has been issued a national permit. 
This commenter stated that many importers will want their ``primary 
broker'' to handle post-entry work, even in situations when an outport 
broker selected by the primary broker filed the entries.
    8. Another commenter suggested that since the issuance of national 
permits will likely be tied to the implementation of the ACE system, 
the requirement for a national permit for post-entry representations 
when the broker does not have a district permit should be put on hold 
or abolished entirely.
    9. A commenter stated that proposed Sec. 111.2(b)(2)(iv) should 
allow the ``actual importer'' to select a broker to make post-entry 
representations when another broker served as the importer of record on 
the entry.
    Customs response: 1. Customs intends the term ``representations 
before Customs'' to encompass any post-entry-summary activity that 
arises out of the entry or that concerns the merchandise covered by the 
entry, for example, responding to requests for information or preparing 
and filing protests or meeting with Customs officials to explain the 
client's position.
    2. ``Representing a client before Customs'' and the ``performing of 
customs business'' are related in that an importer hires a broker to 
represent its interests before Customs on matters concerning the 
transaction of customs business. Thus, the ``representations'' made by 
the broker to Customs will involve issues falling within the definition 
of ``customs business.'' As regards the second point regarding permit 
requirements, the general rule is that a broker must have a district 
permit to conduct customs business in the broker district in which the 
transaction occurs. Usually this general rule would apply to brokers 
who perform post-entry-summary customs business activities for clients. 
However, brokers may conduct post-entry-summary work for clients under 
a national permit when the provisions of proposed Sec. 111.2(b)(2)(iv) 
apply, that is, the entry was filed by the owner or purchaser or by 
another broker, and the owner or purchaser has elected to hire a second 
broker to handle its post-entry-summary matters.
    3. Customs disagrees. Section 111.5 contemplates that the broker 
making the representations has already been involved in some aspect of 
the importation or exportation of the merchandise, such as the filing 
of the consumption or drawback entry, and thus will have the requisite 
district permit. Proposed Sec. 111.2(b)(2)(iv), on the other hand, 
allows brokers to represent clients even though they played no part in 
the original entry. The latter provision was included in the proposed 
regulations to give importers the choice of engaging one broker to file 
the entry and entry summary and another to handle any ensuing post-
entry matters. It is conceivable that the second broker may be located 
outside of the broker district in which the entry and entry summary 
were filed. The proposed Sec. 111.2(b)(2)(iv) exception to the district 
permit rule simply enables the second broker who has a national permit 
to represent the client without having to obtain a district permit in 
the broker district where the entry was filed and where, presumably, 
the post-entry representations will be made.
    This comment has, however, prompted Customs to reevaluate the 
position reflected in proposed Sec. 111.2(b)(2)(iv) that the post-entry 
representation provision will only apply if a broker files the entry 
and entry summary. Upon further reflection, Customs has concluded that 
the benefits of this provision should also extend to those situations 
in which the owner or purchaser files the entry and entry summary. 
Consequently, Customs has amended the regulatory text in this final 
rule to refer to representation by ``a broker'' (rather than ``another 
broker'') who did not file the entry, in order to allow post-entry 
representation by brokers holding a national permit when the entry was 
filed either by the owner or purchaser or by another broker who was not 
acting as importer of record. See also the discussion below regarding 
the reorganization of proposed Sec. 111.2(b)(2).
    4. Customs agrees with the assessment that NCAP is a major reason 
for the establishment of national permits. This opinion is supported by 
the legislative history discussing national permits. However, it is the 
position of Customs that their use is by no means restricted to NCAP, 
and it is noted in this regard that 19 U.S.C. 1641(c)(1)(A) provides 
for the issuance of national permits to licensed customs brokers ``for 
the conduct of such customs business as the Secretary (of the Treasury) 
prescribes by regulation.'' Clearly, there is agency discretion to 
determine the purposes for which national permits will be used.
    5. The broker would still have to have in his files a valid power 
of attorney from a client as provided in Sec. 141.46 of the Customs 
Regulations to establish his authority to represent the client. Customs 
believes that this requirement (rather than also requiring that the 
broker establish his authority on a case-by-case basis) is sufficient 
for purposes of post-entry representations.
    6. It is the position of Customs that the selection--or 
replacement--of a broker by an importer is a matter solely between 
those two private parties.
    7. The observation of this commenter regarding the use of a 
``primary broker'' may be correct, but an importer's preference to have 
a particular broker perform post-entry functions does not override the 
statutory requirement that a broker have a district or national permit, 
or both, to transact customs business. Accordingly, Customs does not 
agree that this regulatory provision should be eliminated.
    8. Customs disagrees. The issuance of national permits is not 
contingent upon ACE being operational. Further, as already noted above, 
current law does not allow Customs to abolish or ignore the permit 
requirement.
    9. Customs does not agree with this suggestion. The proposed 
regulation was specifically drafted in order to, among other things, 
preclude the application of this district permit exception in cases 
where a broker is named as the importer of record on the

[[Page 13885]]

entry. This is because being designated as ``importer of record'' 
automatically imposes obligations on the person acting in that 
capacity. For example, the importer of record is responsible for the 
payment of estimated duties (and will also be liable for any increased 
and additional duties if an actual owner's declaration and superseding 
bond are not filed). Given this assumption of obligations, the importer 
of record must be allowed to retain the right to represent himself, or 
to select his own representative, in post-entry matters.
Reorganization of Proposed Sec. 111.2(b)(2)
    Finally, in the light of the various comments on Sec. 111.2(b) as 
summarized above and as a consequence of the substantive changes 
Customs has agreed to make to the regulatory texts as indicated above, 
Customs has concluded that some restructuring of the regulatory text 
should also be made. The general rule, that a broker is required to 
have a separate district permit for each broker district in which the 
broker conducts customs business for clients, remains as 
Sec. 111.2(b)(1). However, the ``exceptions'' to the statutory district 
permit rule listed in Sec. 111.2(b)(2) as set forth below have been 
reorganized into two basic groups, the first consisting of a ``national 
permit'' exception (which would no longer be limited to NCAP 
participants and transactions--see also the comment discussion below 
regarding Sec. 111.19(f)) with subparagraphs covering employee 
implants, electronic filing of drawback claims outside the designated 
drawback office, electronic transactions performed under an existing 
NCAP component, and post-entry-summary representations, and the second 
consisting of the filing of manual and electronic drawback claims in 
the designated drawback office.

Section 111.5

    Comment: One commenter objected to Sec. 111.5(b), which provides 
that, in order to represent a client before any agency not within the 
Treasury Department, a broker shall comply with any regulations of such 
agency governing the appearance of representatives before it. The basis 
of the objection was that Customs has no statutory authority to 
regulate a broker's interactions with other government agencies.
    Customs response: Customs disagrees with the rationale presented by 
this commenter. The statutory authority for the regulatory provision in 
question is section 641(f) of the Tariff Act of 1930, as amended (19 
U.S.C. 1641(f)), which gives the Secretary of the Treasury broad 
authority to prescribe rules and regulations relating to the customs 
business of customs brokers. Many import transactions involve 
compliance with the laws and regulations of other government agencies. 
The involvement of regulations of another agency besides Customs in an 
import transaction does not take away from the fact that the broker is 
conducting ``customs business.'' Since the regulation is directed only 
to the actions of brokers while conducting customs business, it is 
entirely consistent with the authority conferred by section 641(f).

Section 111.11

    Comment: Two commenters requested that the process of qualifying 
for an individual broker's license be made more stringent, to reflect 
brokers' status as ``experts'' under the Customs Modernization Act's 
reasonable care standards. One method suggested was to require 
applicants to possess a college degree, preferably in a business 
discipline; another was to require a person to have a 3-year employment 
history in the customs brokerage business prior to submitting the 
application.
    Customs response: While Customs agrees with the expressed aim of 
these comments, the imposition of the suggested additional standards 
does not appear to be necessary because the same goal can be reached at 
least as well, if not more effectively, through the present individual 
written examination process which is specifically designed to test an 
applicant's knowledge of customs requirements and procedures.
    Comment: One commenter objected to the new requirement in 
Sec. 111.11(a)(4) ``to pass the written examination within three years 
of applying for a broker's license.'' A second commenter addressed a 
related concern, questioning how the new 3-year rule would affect 
Customs employees who have passed the examination but whose license 
issuance has been delayed pending their separation from government 
service.
    Customs response: With regard to the first comment, this commenter 
misinterpreted the new provision. Instead of requiring an applicant to 
pass the broker's examination within three years of applying for a 
license, a person will now have three years in which to apply for a 
license after passing the examination. This arrangement reflects the 
newly-instituted separation of the examination and license application 
processes as discussed in the preamble portion of the April 27, 1999, 
notice of proposed rulemaking. As regards the second comment, that 
issue is currently under review and will be the subject of a separate 
policy determination.
    Comment: Another commenter stated that the proposed regulation on 
the basic requirements for a corporate broker license, contained in 
Sec. 111.11(c), would allow a corporate license to be issued in a 
district in which the corporation has neither a licensed officer nor a 
licensed employee resident within the district.
    Customs response: Although the comment incorrectly implies that 
licenses are issued on a district basis (licenses are only issued on a 
national basis), it has prompted Customs to reevaluate certain aspects 
of Sec. 111.11. As a result, proposed Secs. 111.11(b)(2) and 
111.11(c)(3) have been removed because the substance of their intended 
message--that is, that the holder of a partnership or association or 
corporate license will establish an office and will employ a licensed 
individual in the broker district in which the partnership or 
association or corporation operates as a broker--is adequately 
addressed in Sec. 111.19 which concerns broker permits. Customs 
believes that these changes are necessary because it is clear that the 
proposed Secs. 111.11(b)(2) and 111.11(c)(3) relate more logically to 
the district permit issuance process (which concerns the actual place 
where a licensee's brokerage activities are carried out) than to the 
national license issuance process. In addition, Secs. 111.11(b) and 
111.11(c)(2) have been modified in this final rule to clarify that a 
partnership, association or corporation must have a licensed member or 
officer for the partnership, association or corporation to qualify for 
a broker license. See also the comment discussion below regarding 
Sec. 111.19 for other related changes made to that section.

Section 111.12

    Comment: One commenter suggested that notice of the filing of an 
application for a broker's license should be posted on the Customs 
Electronic Bulletin Board or in some other electronic fashion in 
addition to being posted at the customhouse.
    Customs response: Customs agrees. Accordingly, Sec. 111.12(b) has 
been modified in this final rule by the inclusion of a reference to the 
posting of this information by appropriate electronic means.

Section 111.13

    Comment: One commenter questioned the legality of the provision in 
Sec. 111.13(c) which authorizes an individual to take a special written 
examination for the purpose of

[[Page 13886]]

continuing the business of a sole proprietorship broker, on the ground 
that a license issued to an individual is non-transferrable. This same 
commenter also recommended the inclusion of an appeal process for the 
denial of a request for a special written examination.
    Customs response: Customs agrees with the statement that licenses 
are non-transferrable. However, Customs notes that the provision in 
question exists solely to allow the continuation of the business 
infrastructure, and not of the license, of a sole proprietorship in the 
event of the proprietor's incapacity or death. The regulation 
contemplates that the person taking the special examination will place 
the business in his or her own name upon receipt of the license, or 
that a corporation, association, or partnership will be formed with the 
newly-licensed individual serving as the qualifying officer or member. 
Disruption of jobs and client services will thus be minimized. As 
regards appeals, Customs does not believe that an appeal procedure 
would be appropriate in this context. The special examination 
provisions were put in the regulations as an accommodation to brokers. 
Allowing a person to take a special examination is purely discretionary 
on Customs part, as is denying a special examination request and 
directing the prospective broker to take the next regularly scheduled 
examination.

Section 111.14

    Comment: Several commenters requested that Customs establish a 
maximum length of time after receipt of an application for a license 
during which background investigations on applicants will be completed.
    Customs response: Customs has for some time been aware of concerns 
over this issue, and Customs is currently exploring ways to expedite 
the investigative process. However, this issue is an administrative, 
operational matter that should be addressed outside the Part 111 
regulatory framework.

Section 111.16

    Comment: A commenter proposed that Customs, in its investigation of 
a license applicant, be limited to reviewing derogatory information 
that occurred within 15 years of the date of the submission of the 
license application. The use of older convictions or proof of other 
unacceptable conduct as grounds for denial of a license when the 
applicant has had an otherwise clean record since that time would be, 
in this commenter's view, unfair.
    Customs response: Customs does not believe that this suggestion 
should be adopted because Customs must have the most complete 
information possible on each applicant.

Section 111.19

    As a consequence of the comments on proposed Sec. 111.11 as 
discussed above, Customs also performed a general review of proposed 
Sec. 111.19 which concerns permits. As a result of that review, some 
wording changes have been made to the Sec. 111.19 text in this final 
rule to improve its clarity. These changes involve: (1) In 
Sec. 111.19(b), removal of the references to an ``additional'' district 
in the application information provisions in order to clarify that 
those requirements apply to all permit applications (including an 
application for an initial permit); (2) in Sec. 111.19(d)(1), changing 
the first sentence to refer to an applicant for a ``district permit'' 
to make it clear that the obligation of a broker regarding a place of 
business and regarding the exercise of responsible supervision and 
control over the customs business conducted in each broker district 
extends to all broker districts (rather than just to those broker 
districts in which the broker has received an additional permit); and 
(3) in the introductory text of Sec. 111.19(f), inclusion of a specific 
statement to clarify what was only implied in Sec. 111.19(a), that is, 
that a broker must have a district permit in order to obtain a national 
permit (see also the comment discussion below regarding Sec. 111.19(f) 
for other changes to this introductory text).
    Comment: Two commenters addressed Sec. 111.19(b)(6), which requires 
applicants for additional district permits to include the place of 
storage of brokerage records and the names of the applicant's 
recordkeeping officer and back-up recordkeeping officer in the 
application. One of the commenters questioned the need for brokers to 
have a recordkeeping officer at all, and both commenters challenged the 
back-up recordkeeping officer requirement. Finally, one of these 
commenters asked why the designated recordkeeper has to be an officer 
of the broker.
    Customs response: Customs notes that the proposed text in question 
was not consistent with the cross-referenced substantive regulatory 
provision (that is, Sec. 111.21 which, in paragraph (c), contains no 
mention of a recordkeeping officer and back-up recordkeeping officer 
but instead simply requires the existence of a knowledgeable company 
employee recordkeeping contact). Accordingly, Sec. 111.19(b)(6) has 
been modified in this final rule to more accurately reflect the terms 
of Sec. 111.21(c) in this regard. As regards the need for a 
recordkeeping contact, this requirement was adopted in connection with 
the revision of the Customs recordkeeping regulations (see T.D. 98-56 
which was published in the Federal Register at 63 FR 32916 on June 16, 
1998) and should be retained.
    Comment: One commenter raised a specific issue with regard to the 
national permit requirements of Sec. 111.19(f) and then posed a more 
general question on the entire permit system, as follows:
    1. The commenter first asked why national permits would be issued 
only to NCAP participants.
    2. The commenter then asked why individuals who are licensed 
brokers and who serve as ``licensed consultants'' need permits at all.
    Customs response: 1. Although Customs originally envisioned that 
applicants for a national permit would have to have NCAP capabilities 
and therefore included that requirement in proposed Sec. 111.19(f), as 
indicated in the comment discussion above regarding proposed 
Sec. 111.2(b)(2), it has since become apparent that the existence of 
other customs business activities outside of NCAP, for which national 
permits would be necessary, renders making the application contingent 
upon NCAP capability impractical. Accordingly, Customs now believes 
that an applicant for a national permit should simply have to meet 
certain basic requirements for the permit. Once the national permit has 
been secured, the national permit holder might then have to separately 
qualify for a specific program under which the national permit would be 
used, such as the filing of entries from a remote location, but that 
would be a function of the specific program at issue rather that a 
requirement under Sec. 111.19(f). Accordingly, Sec. 111.19(f) has been 
modified in this final rule by removing all references to NCAP from the 
introductory text and by removing paragraph (f)(4).
    2. A similar question was raised earlier in this document, to which 
Customs simply responded that permits are required by law. However, 
``licensed consultants'' will be able to represent clients on post-
entry matters under Sec. 111.2(b)(2) as modified in this final rule 
without having to obtain numerous district permits, provided they have 
a national permit secured by one district permit.

Section 111.23

    Comment: One commenter noted that the word ``papers'' (rather than

[[Page 13887]]

``records'') is used in the last sentence of Sec. 111.23(a)(2).
    Customs response: Customs agrees that ``records'' is the proper 
term to be used in this context. Accordingly, the text in question has 
been modified in this final rule by replacing the words ``copies of 
papers'' with ``records.''
    Comment: Two commenters addressed the provision in 
Sec. 111.23(b)(1) which states that ``the option of maintaining records 
on a consolidated basis is generally available to brokers who have been 
granted permits to do business in more than one district.'' They stated 
that the use of the word ``generally'' undermines brokers'' absolute 
right to consolidate their records.
    Customs response: Although in connection with the revision of the 
Customs recordkeeping regulations (see T.D. 98-56 mentioned above) it 
was decided to dispense with the requirement that brokers obtain 
approval from Customs before consolidating records, Customs does not 
agree with these commenters that the consolidation of broker records is 
an absolute right. This is because, if the consolidation involves going 
to an alternative method of storage and any of the records to be 
consolidated are required to be maintained under 19 U.S.C. 1508, some 
restrictions on the right to consolidate may apply under 19 CFR 
163.5(b). Since use of the word ``generally'' does not adequately 
clarify this point, Sec. 111.23(b)(1) has been modified in this final 
rule by removing ``generally'' and adding an exception clause regarding 
the application of a restriction under Sec. 163.5(b).
    Comment: A commenter stated that brokers should be allowed to 
retain records of their customs transactions at sites that are 
accessible to the broker business locations that created them, instead 
of within the broker districts that cover the Customs ports to which 
they relate. This commenter argued that brokers holding permits in 
multiple broker districts may prepare the customs documents at 
different locations than the ports or even the districts in which the 
transactions occur, and that it would serve no beneficial purpose to 
create duplicate sets of records.
    Customs response: Customs believes that the consolidation 
provisions of Sec. 111.23 as proposed would afford brokers the 
necessary flexibility to store their records at locations that are most 
convenient to their business operations. Therefore, no further 
amendment to Sec. 111.23 appears necessary.

Section 111.24

    Comment: Two commenters expressed general support for the proposed 
amendment which allows brokers to disclose client information to 
sureties. One of these commenters, however, expressed concern over the 
statement in the preamble portion of the April 27, 1999, document that 
disclosure to a surety ``will not automatically constitute a 
violation,'' because the statement implied that in some instances 
disclosure might constitute a violation. Both of these commenters also 
objected to the fact that disclosure would be discretionary on the part 
of the broker.
    Customs response: As regards the first point, use of the word 
``automatically'' was not intended to imply that a broker may be 
subject to sanction if client records are turned over to a surety. 
Rather, the intent was simply to point out that, in contrast to the 
former provision, disclosure would no longer constitute a violation. 
With regard to the second issue, the Customs position continues to be 
that, absent a subpoena, the disclosure of client records to a surety 
is at the option of the broker.
    Comment: One commenter urged Customs to publish a ``positive 
statement encouraging brokers to provide information to sureties, and 
for Customs to develop guidelines indicating the situations in which 
disclosure is most clearly appropriate.''
    Customs response: Customs has no intention of taking the suggested 
actions at this time. Customs remains of the view that these are 
matters to be worked out between sureties and brokers.
    Comment: A commenter stated that the term ``or other duly 
accredited officers or agents of the United States'' should be more 
clearly defined, or eliminated entirely. This commenter asserted that, 
in the absence of a subpoena, brokers should only be required to turn 
over client records to officers under the jurisdiction of the 
Commissioner of Customs. By way of explanation, the commenter related 
an incident in which there was confusion when state tax authorities 
requested importer records from a broker.
    Customs response: Customs believes that it is commonly understood 
that ``an officer or agent of the United States'' refers to employees 
of the federal government, and not to state or local authorities. 
Consequently, no change to the regulatory text is necessary in this 
regard.

Section 111.25

    Comment: One commenter stated that part 111 should advise brokers 
of their right to refuse access to records unless served with an 
administrative summons. This commenter stated that this right is 
conferred by the general recordkeeping regulations of 19 CFR part 163.
    Customs response: Customs disagrees with the observations of this 
commenter for two basic reasons. First, part 163 does not give a broker 
an unconditional right to refuse access to records unless served with 
an administrative summons. In the case of entry records required to be 
maintained and made available by a broker under 19 U.S.C. 1508 and 1509 
and under part 163, if the broker fails to timely produce any of those 
records following receipt of a written, oral or electronic demand for 
the records from Customs pursuant to Sec. 163.6(a), the broker may be 
subject to monetary penalties as provided in Sec. 163.6(b). In 
addition, in the case of records of a broker that are not entry records 
but that are nevertheless subject to the retention and examination 
requirements of 19 U.S.C. 1508 and 1509 and part 163 (see 
Sec. 163.6(c)), or if a broker fails to produce demanded entry records 
but no monetary penalty action is taken under part 163, the broker may 
be subject to disciplinary action under part 111. In both cases the 
sanctions that may be applied do not depend on the issuance of a 
Customs summons which is a separate procedure having its own 
enforcement mechanism (see Secs. 163.7 through 163.10). Second, whereas 
the provisions of part 163 apply specifically to records (including 
those of brokers) that relate to activities listed in 19 U.S.C. 1508, 
there are other records that brokers must maintain outside the part 163 
context, that is, records that are unique to the conduct of a brokerage 
business under 19 U.S.C. 1641 and part 111 (for example, powers of 
attorney and financial records regarding clients' accounts). This 
distinction is noted in Sec. 163.2(d), which provides that ``(e)ach 
customs broker must also make and maintain records and make such 
records available in accordance with part 111 of this chapter,'' and in 
the last sentence of Sec. 111.25 which states that ``(r)ecords subject 
to the requirements of part 163 of this chapter shall be made available 
to Customs in accordance with the provisions of that part.'' Section 
111.25, the substance of which relates to records that arise in a part 
111 context, provides that the records be made available ``upon 
reasonable notice'' but does not require the issuance of a summons, and 
a failure to make those records available to Customs could result in 
disciplinary action under part 111.

[[Page 13888]]

Section 111.28

    Comment: The following comments were made regarding the employee 
information reporting provisions of Sec. 111.28(b):
    1. A commenter stated that the lists of current and new employees 
required by Sec. 111.28(b) should be provided to the port director at 
the ``lead'' port, and not at every port within the broker district 
where the broker does business.
    2. Several commenters questioned the requirement in proposed 
Sec. 111.28(b)(1)(i) for an updated list of current employees to be 
submitted with the triennial status report. If Customs decides to 
retain the requirement, it was suggested that the list should only 
contain information on name, current address, date and place of birth, 
and social security number. One of these commenters argued that it 
would be administratively burdensome for brokers to have to keep track 
of their employees' last prior home addresses and of which employees 
had been employed for 3 years or less. Since that information would 
have been reported initially to Customs, it was suggested that it would 
be unnecessary to do so again.
    3. A commenter questioned why updated lists should be sent to the 
port director of the port where the license was issued, instead of to 
the ports in which the broker is permitted to conduct customs business.
    4. Another commenter observed that Sec. 111.28 makes no provision 
for the reporting of transferred employees of brokers.
    Customs response: 1. Customs disagrees. One of the main purposes 
behind this requirement is for the local customs officers to be 
familiar with the local brokerage community. This can best be 
accomplished by notification at the port at which the employee of the 
broker will be working.
    2. Customs agrees in part with the concerns expressed by these 
commenters. While it remains the position of Customs that updated 
employee lists are necessary, upon reconsideration Customs now believes 
that some of the information proposed to be required in the updated 
reports is superfluous. Accordingly, the last sentence of 
Sec. 111.28(b)(1)(i) has been modified in this final rule to list the 
specific information that must be included in the updated employee list 
(which does not include the last prior home address or the prior 
employment information on an employee employed by the broker for less 
than 3 years).
    3. Updated employee lists are sent to the port through which the 
license was delivered simply because they are submitted with the 
triennial status report (see also the comment discussion regarding 
Sec. 111.30(d) below). Customs will then route the lists to the various 
ports identified in the updated lists as being the ports in which the 
broker employees are working.
    4. While there is no specific reference to the reporting of a 
transfer of an employee, Customs believes that a broker employee who is 
transferred from one port to another would have to be reported under 
Sec. 111.28(b)(1)(i) either upon the opening of a new office or as an 
inclusion in the update list submitted with the triennial report.
    Comment: The following comments were submitted regarding 
Sec. 111.28(d), which requires the reporting of ownership changes in a 
broker to Customs:
    1. Several commenters asked why brokers are required to send a copy 
of the notice of change in ownership to the directors of each port 
through which a permit has been granted. They stated that notice to 
Customs headquarters should suffice.
    2. Another commenter stated that Sec. 111.28(d) would require a 
broker to notify Customs whenever there is a five percent or greater 
change in ownership of a broker and the ownership shares are not 
publicly traded. This commenter then went on to say that it would be 
very difficult for a broker whose shares are not publicly traded and 
are owned by another publicly traded firm, to keep track of and report 
changes of ownership in the parent firm. The commenter asked that an 
exception to the reporting requirement be made if the owner of the not-
publicly-traded shares of the brokerage is a large publicly traded 
company.
    3. Another commenter questioned the statutory authority of Customs 
to force a broker to divest itself of a new principal who does not pass 
a background investigation. This commenter also claimed that applying 
this rule only to non-publicly-traded brokers is discriminatory.
    Customs response: 1. Customs disagrees. One of the purposes behind 
this regulation is to enable Customs to better monitor who participates 
in the customs brokerage industry. Local Customs officials will in some 
instances have a greater familiarity than their counterparts at Customs 
headquarters with the reputations of persons acquiring all or part of 
an established brokerage firm. Therefore, the notification requirement 
at both the port and headquarters levels must remain in place.
    2. Customs would first point out that this comment appears to read 
the regulatory text as providing that at least a five percent interest 
must change hands before the reporting requirement is triggered. This 
reading of the text is incorrect. The proposed regulation states that a 
broker shall immediately provide written notice to Customs ``(i)f the 
ownership of a broker changes and ownership shares in the broker are 
not publicly traded.'' It does not attach a percentage threshold below 
which an ownership change is not required to be reported. The five 
percent figure comes into play in identifying whether a change of 
ownership results in the addition of a new principal. This is because a 
principal is defined as ``any person having at least a 5 percent 
capital, beneficiary or other direct or indirect interest in a broker 
or in the business of a broker.'' The addition of a principal is 
significant for purposes of Sec. 111.28(d) because Customs reserves the 
right to conduct background investigations of new principals and to 
require their removal if the results of the investigation are 
unsatisfactory. However, the five percent figure does not directly 
relate to the change of ownership reporting requirement. With respect 
to the concern expressed that it will be difficult to monitor and 
report trades in the shares of the parent firm, when such a firm 
exists, it is Customs intent that only changes in the ownership of the 
broker, and not of the broker's parent firm, be reported to Customs.
    3. The authority to force a broker to divest itself of a new 
principal who does not pass a background investigation stems from 19 
U.S.C. 1641(f), which permits the Secretary of the Treasury to 
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 * * *.'' As regards the 
issue of discrimination, it is not the intent of Customs to 
discriminate among classes of brokers because of their business 
structure. Indeed, Customs wants to reserve the right to investigate 
all new principals, regardless of how they obtained their ownership 
interest in the broker. The reporting onus falls on non-publicly-traded 
companies simply because information about publicly-traded corporations 
is widely available from other sources. However, Customs agrees that 
the proposed regulation could be read to restrict investigation and 
removal to new principals of non-publicly-traded companies. Therefore, 
Sec. 111.28(d) has been modified in this

[[Page 13889]]

final rule to ensure that the investigation and removal processes apply 
equally to new principals of publicly-traded brokers and to new 
principals of non-publicly-traded brokers.

Section 111.29

    Comment: A commenter requested that proposed Sec. 111.29(a) be 
changed to require the broker to remit overdue payments received from a 
client within 5 working days from the funds being confirmed as paid by 
the client's bank, instead of within 5 working days from receipt by the 
broker. This request was made to protect brokers in situations where 
there are insufficient funds to cover the client's check.
    Customs response: Customs does not believe that an amendment to the 
regulatory text is required to accommodate this commenter's concern 
because, under a proper interpretation of Sec. 111.29(a), ``receipt'' 
by a broker would mean actual receipt of the funds following their 
clearance from the client's bank.
    Comment: One commenter referred to the requirement in 
Sec. 111.29(b)(2)(i) that importers must be provided with written 
notification that payment to a broker will not relieve the importer of 
liability for Customs charges if the charges are not paid by the broker 
and that the notification must be on, or attached to, any power of 
attorney provided by the broker to a client for execution on or after 
September 27, 1982. This commenter stated that the ``September 27, 
1982'' effective date must be removed and replaced with ``the effective 
date of these regulations;'' otherwise, any power of attorney issued 
after September 27, 1982, would be invalid if it did not have the 
required notification.
    Customs response: The commenter's observation about powers of 
attorney without the notification being invalid is correct. This is 
because this regulation, and its notification requirement, have been in 
effect since the effective date of Treasury Decision 82-134 (September 
27, 1982). The current revision of part 111 does not nullify the 
notification requirement that has been in place since that date, nor 
does it render post-1982 powers of attorney without the requisite 
notification suddenly valid. Consequently, Customs declines to adopt 
the change suggested by this commenter.

Section 111.30

    Comment: One commenter requested clarification of the requirement 
in proposed Sec. 111.30(b)(2) that an organization report any other 
change in the legal nature of the organization, particularly as regards 
the meaning of ``change in the legal nature.'' Absent clarification, 
this commenter argued, Customs could be inundated with irrelevant 
paperwork, and brokers could unwittingly be sanctioned for lack of 
compliance.
    Customs response: Customs agrees that some clarification would be 
useful. Although it is not possible to come up with an all-inclusive 
list of potential changes in legal nature, the Sec. 111.30(b)(2) text 
has been modified in this final rule by the inclusion of several 
illustrative examples.
    Comment: Another commenter referred to the triennial status report 
of Sec. 111.30(d). This commenter first stated that Customs should 
devise a specific form to be used as a status report. The commenter 
then questioned the need in Sec. 111.30(d)(2)(iii) for individual 
brokers to have to make a statement that they continue to meet the 
requirements of Sec. 111.11 and Sec. 111.19 and have not engaged in any 
conduct that could constitute grounds for suspension or revocation.
    Customs response: Regarding the first point, Customs already 
provides a specific form to be used as a status report; Customs sends 
this form to license holders at their last known address prior to the 
filing date of the report. With regard to the second issue, Congress 
has vested Customs with authority to protect importers and the revenue 
through regulation of customs brokers. Requiring the statement is an 
exercise of that authority. Customs considers this to be far less 
onerous on brokers than requiring them to submit to periodic background 
reinvestigations. Therefore, Customs believes that the requirement is 
appropriate and should be retained in the regulations.
    Comment: One commenter suggested that proposed Sec. 111.30(d)(1) be 
amended to require submission of the triennial status report to the 
port director through which the application for the broker's license 
was made, instead of to the director of the port through which the 
broker's license was issued. Two reasons were given for this request. 
First, the actual license, printed on Customs Form 3131, states that 
licenses are issued in Washington, D.C. Second, there has been 
confusion when individuals have applied for a license in one port and 
have received their license at another following a job transfer or 
move.
    Customs response: While a broker's license is always issued out of 
Customs Headquarters, Sec. 111.15 provides for delivery of the license 
to the broker through a port director's office (normally the port where 
the license application was filed and processed). In order to avoid any 
confusion on the points raised by this commenter, Sec. 111.30(d)(1) has 
been modified in this final rule to provide that the status report must 
be addressed to the director of the port ``through which the license 
was delivered to the licensee (see Sec. 111.15).'' For purposes of 
consistency, similar language has been included in Sec. 111.19(a) as 
set forth below regarding concurrent issuance of an initial district 
permit.

Section 111.36

    Comment: The following comments were submitted on Sec. 111.36(a) 
which concerns obligations of a broker when the broker is employed by 
an unlicensed person other than the importer:
    1. Two commenters stated that the broker should be required to send 
a copy of the entry to the actual importer in situations where the 
broker has been hired by another person (the proposed regulatory text 
requires the broker to send a copy of the entry or of his bill for 
services rendered but allows the importer to waive transmittal of both 
in writing). One of these commenters asserted that the importer needs 
to see the entry to satisfy ``reasonable care'' requirements. This 
commenter also urged that the provision be structured to require that 
the ``actual importer'' be notified in advance of the entry being filed 
of who the broker will be.
    2. A commenter stated that the issue of fee sharing remains vague. 
This commenter asked for clarification regarding how this rule would 
apply to several specific factual situations.
    Customs response: 1. Customs disagrees. Giving the broker the 
option of sending either a copy of his bill for services rendered or a 
copy of the entry (rather than specifying only a copy of the entry) is 
intended to strike an appropriate balance between the important 
principles of disclosure and confidentiality. As regards reasonable 
care, if the broker is hired by a party other than the actual importer, 
no obligation to exercise reasonable care devolves upon the actual 
importer. Moreover, the entry law allows the nominal consignee to 
appoint a broker, so Customs has no right to interfere in that choice. 
The primary function of the regulation is to enable the actual importer 
to have access to information which can be used to protect the actual 
importer's rights in the importation process, such as by filing a 
protest.
    2. The questions presented by this commenter raise issues that are 
not proper for resolution in the regulations but rather would be more 
appropriately

[[Page 13890]]

addressed through the issuance of either a binding ruling or a response 
to an internal advice request. Consequently, Customs invites the 
commenter to write in for a binding ruling or to request internal 
advice on the matters in question in accordance with the requirements 
and procedures set forth in 19 CFR part 177.
Modification of Sec. 111.36(a)
    Upon further internal review of the proposed Sec. 111.36(a) text, 
Customs has determined that the words ``purchased for delivery on an 
all-free basis (duty and brokerage charges paid by the unlicensed 
person)'' should be replaced by the words ``purchased on a delivered 
duty-paid basis,'' to bring the text in line with modern terms of sale 
phraseology. The text in this final rule has been modified accordingly.
    Comment: A commenter questioned the need for the special rules 
governing a broker's relations with freight forwarders in 
Sec. 111.36(c). The commenter expressed the view that the prohibition 
against brokers sharing fees with unlicensed persons should apply to 
all unlicensed persons, including freight forwarders. This same 
commenter also stated that the definition of ``freight forwarder'' 
contained in Sec. 111.1 is out-of-date and should be changed to take 
into account new entities such as ocean transport intermediaries, 
consolidators, and freight brokers.
    Customs response: While these comments raise some new and 
interesting points, these issues are not appropriate for this final 
rule document but rather should be the subject of separate 
consideration with a view to possible further regulatory changes at a 
later date.

Section 111.42

    Comment: One commenter requested that the term ``notoriously 
disreputable'' be more clearly defined in the regulations.
    Customs response: Customs is of the view that the term is self-
explanatory and therefore requires no further elaboration.

Section 111.96

    Comment: One commenter objected to the requirement that the permit 
user fee be collected by Customs on an annual basis, stating that it 
places an unnecessary administrative burden on brokers and on Customs. 
A suggested alternative would be to pay the fee in advance every three 
years, at the same time as the submission of the triennial status 
report and the status report fee.
    Customs response: For two reasons, it would be inappropriate for 
Customs to adopt this suggestion. First, it would in effect create a 
triennial fee when the statute (19 U.S.C. 58c(a)(7)) refers to an 
annual fee and this, in turn, would lead to potential complications in 
complying with the mandate of the statute (19 U.S.C. 58c(d)(4)(A)) 
regarding publication of notice of the permit fee 60 days before the 
due date. Second, even if the permit fee statute were no bar to this 
suggestion, Customs believes that adoption of this change would create 
new administrative burdens, such as having to set up a refund system to 
reimburse brokers who close operations in a particular broker district 
within the three-year period.

Additional Changes to the Regulations

    In addition to the changes to the proposed regulatory texts 
identified and discussed above in connection with the public comments, 
Customs has included the following regulatory changes in this document:
    1. Some minor, editorial wording or punctuation changes have been 
made to the Part 111 texts to enhance their clarity, readability and 
application but without the intention of substantively affecting the 
texts. In addition, throughout the part 111 texts, an attempt has been 
made, wherever practicable, to replace legalistic wording with simple 
or more direct phraseology, consistent with prevailing plain English 
drafting principles. Thus, for example, the word ``shall'' has been 
replaced with either ``must'' or ``will'' depending on the context, the 
word ``such'' has been either removed or replaced, and, except where it 
forms part of a defined term, the word ``thereof'' has been removed in 
favor of repeating the actual words to which it relates.
    2. In Sec. 24.1(a)(3)(i) of the Customs Regulations (19 CFR 
24.1(a)(3)(i)), the third sentence refers to ``* * * a customhouse 
broker, not licensed in the district (see definition of ``district'' at 
Sec. 111.1) where an entry is filed * * *.'' This text is outdated in 
that it uses the old ``customhouse'' (rather than ``customs'') broker 
terminology and in that it does not reflect the fact that under the 
present statute and regulations brokers are licensed on a national, 
rather than district, basis. The regulatory text has been modified as 
set forth below to address these points.
    3. Finally, this document includes an appropriate update of the 
list of information collection approvals (see the Paperwork Reduction 
Act portion of this document below) contained in Sec. 178.2 of the 
Customs Regulations (19 CFR 178.2).

Conclusion

    Accordingly, based on the comments received and the analysis of 
those comments as set forth above, and after further review of this 
matter, Customs believes that the proposed regulatory amendments should 
be adopted as a final rule with certain changes as discussed above and 
as set forth below.

Executive order 12866

    This document does not meet the criteria for a ``significant 
regulatory action'' as specified in E.O. 12866.

Regulatory Flexibility Act

    Pursuant to the provisions of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), it is certified that these amendments will not 
have a significant economic impact on a substantial number of small 
entities. The regulatory amendments primarily represent a clarification 
of existing statutory and regulatory requirements. Accordingly, the 
amendments are not subject to the regulatory analysis or other 
requirements of 5 U.S.C. 603 and 604.

Paperwork Reduction Act

    The collections of information contained in this final rule have 
been reviewed and approved by the Office of Management and Budget (OMB) 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control numbers 1515-0076 and 1515-0100. An agency may 
not conduct or sponsor, and a person is not required to respond to, a 
collection of information unless it displays a valid control number 
assigned by OMB.
    The collections of information reviewed and approved under control 
number 1515-0076 are in Secs. 111.12, 111.13, 111.17, 111.19, and 
111.28. The information to be collected is necessary for the issuance 
of customs broker licenses and permits and for monitoring the 
performance of brokers in the conduct of customs business. The 
collections of information reviewed and approved under control number 
1515-0100 are in Secs. 111.30, 111.36, 111.60, and 111.76. The 
information to be collected is necessary for monitoring the performance 
of brokers in the conduct of customs business and in connection with 
the institution of disciplinary actions against brokers. The likely 
respondents to the collections of information in this final rule are 
individuals, partnerships, associations, and corporations, including 
individuals and organizations that are licensed brokers.
    The estimated average annual burden associated with the collections 
of information reviewed and approved

[[Page 13891]]

under control number 1515-0076 is 1 hour per respondent or 
recordkeeper. The estimated average annual burden associated with the 
collections of information reviewed and approved under control number 
1515-0100 is 1 hour per respondent or recordkeeper. Comments concerning 
the accuracy of these burden estimates and suggestions for reducing 
these burdens should be directed to the U.S. Customs Service, 
Information Services Group, Office of Finance, 1300 Pennsylvania 
Avenue, NW, Washington, DC 20229, and to OMB, Attention: Desk Officer 
for the Department of the Treasury, Office of Information and 
Regulatory Affairs, Washington, DC 20503.
    Drafting information. The principal author of this document was 
Francis W. Foote, Office of Regulations and Rulings, U.S. Customs 
Service. However, personnel from other offices participated in its 
development.

List of Subjects

19 CFR Part 24

    Accounting, Customs duties and inspection, Imports, Reporting and 
recordkeeping requirements.

19 CFR Part 111

    Administrative practice and procedure, Brokers, Customs duties and 
inspection, Imports, Licensing, Penalties, Reporting and recordkeeping 
requirements.

19 CFR Part 178

    Administrative practice and procedure, Reporting and recordkeeping 
requirements.

Amendments to the Regulations

    Accordingly, for the reasons stated in the preamble, 19 CFR Ch. I 
is amended, as set forth below.

PART 24--CUSTOMS FINANCIAL AND ACCOUNTING PROCEDURE

    1. The authority citation for Part 24 continues to read in part as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 58a-58c, 66, 1202 (General 
Note 20, Harmonized Tariff Schedule of the United States), 1505, 
1624; 26 U.S.C. 4461, 4462; 31 U.S.C. 9701.
    Section 24.1 also issued under 19 U.S.C. 197, 198, 1648;
* * * * *

    2. In Sec. 24.1(a)(3)(i), the third sentence is amended by removing 
the words ``a customhouse broker, not licensed in the district (see 
definition of ``district'' at Sec. 111.1) where an entry is filed,'' 
and adding, in their place, the words ``a customs broker who does not 
have a permit for the district (see the definition of ``district'' in 
Sec. 111.1 of this chapter) where the entry is filed''.

    3. Part 111 is revised to read as follows:

PART 111--CUSTOMS BROKERS

Sec.
111.0   Scope.
Subpart A--General Provisions
111.1   Definitions.
111.2   License and district permit required.
111.3   [Reserved]
111.4   Transacting customs business without a license.
111.5   Representation before Government agencies.
Subpart B--Procedure To Obtain License or Permit
111.11   Basic requirements for a license.
111.12   Application for license.
111.13   Written examination for individual license.
111.14   Investigation of the license applicant.
111.15   Issuance of license.
111.16   Denial of license.
111.17   Review of the denial of a license.
111.18   Reapplication for license.
111.19   Permits.
Subpart C--Duties and Responsibilities of Customs Brokers
111.21   Record of transactions.
111.22   [Reserved]
111.23   Retention of records.
111.24   Records confidential.
111.25   Records must be available.
111.26   Interference with examination of records.
111.27   Audit or inspection of records.
111.28   Responsible supervision.
111.29   Diligence in correspondence and paying monies.
111.30   Notification of change of business address, organization, 
name, or location of business records; status report; termination of 
brokerage business.
111.31   Conflict of interest.
111.32   False information.
111.33   Government records.
111.34   Undue influence upon Treasury Department employees.
111.35   Acceptance of fees from attorneys.
111.36   Relations with unlicensed persons.
111.37   Misuse of license or permit.
111.38   False representation to procure employment.
111.39   Advice to client.
111.40   Protests.
111.41   Endorsement of checks.
111.42   Relations with person who is notoriously disreputable or 
whose license is under suspension, canceled ``with prejudice,'' or 
revoked.
111.43   [Reserved]
111.44   [Reserved]
111.45   Revocation by operation of law.
Subpart D--Cancellation, Suspension, or Revocation of License or 
Permit, and Monetary Penalty in Lieu of Suspension or Revocation
111.50   General.
111.51   Cancellation of license or permit.
111.52   Voluntary suspension of license or permit.
111.53   Grounds for suspension or revocation of license or permit.
111.54   [Reserved]
111.55   Investigation of complaints.
111.56   Review of report on investigation.
111.57   Determination by Assistant Commissioner.
111.58   Content of statement of charges.
111.59   Preliminary proceedings.
111.60   Request for additional information.
111.61   Decision on preliminary proceedings.
111.62   Contents of notice of charges.
111.63   Service of notice and statement of charges.
111.64   Service of notice of hearing and other papers.
111.65   Extension of time for hearing.
111.66   Failure to appear.
111.67   Hearing.
111.68   Proposed findings and conclusions.
111.69   Recommended decision by hearing officer.
111.70   Additional submissions.
111.71   Immaterial mistakes.
111.72   Dismissal subject to new proceedings.
111.73   [Reserved]
111.74   Decision and notice of suspension or revocation or monetary 
penalty.
111.75   Appeal from the Secretary's decision.
111.76   Reopening the case.
111.77   Notice of vacated or modified order.
111.78   Reprimands.
111.79   Employment of broker who has lost license.
111.80   [Reserved]
111.81   Settlement and compromise.
Subpart E--Monetary Penalty and Payment of Fees
111.91   Grounds for imposition of a monetary penalty; maximum 
penalty.
111.92   Notice of monetary penalty.
111.93   Petition for relief from monetary penalty.
111.94   Decision on monetary penalty.
111.95   Supplemental petition for relief from monetary penalty.
111.96   Fees.

    Authority: 19 U.S.C. 66, 1202 (General Note 20, Harmonized 
Tariff Schedule of the United States), 1624, 1641.
    Section 111.3 also issued under 19 U.S.C. 1484, 1498;
    Section 111.96 also issued under 19 U.S.C. 58c, 31 U.S.C. 9701.


Sec. 111.0  Scope.

    This part sets forth regulations providing for the licensing of, 
and granting of permits to, persons desiring to transact customs 
business as customs brokers, including the qualifications required of 
applicants, and the procedures for applying for licenses and permits. 
This part also prescribes the duties and responsibilities of brokers, 
the grounds and procedures for disciplining brokers, including the

[[Page 13892]]

assessment of monetary penalties, and the revocation or suspension of 
licenses and permits.

Subpart A--General Provisions


Sec. 111.1  Definitions.

    When used in this part, the following terms have the meanings 
indicated:
    Assistant Commissioner. ``Assistant Commissioner'' means the 
Assistant Commissioner, Office of Field Operations, United States 
Customs Service, Washington, DC.
    Broker. ``Broker'' means a customs broker.
    Customs broker. ``Customs broker'' means a person who is licensed 
under this part to transact customs business on behalf of others.
    Customs business. ``Customs business'' means those activities 
involving transactions with Customs concerning the entry and 
admissibility of merchandise, its classification and valuation, the 
payment of duties, taxes, or other charges assessed or collected by 
Customs on merchandise by reason of its importation, and the refund, 
rebate, or drawback of those duties, taxes, or other charges. ``Customs 
business'' also includes the preparation, and activities relating to 
the preparation, of documents in any format and the electronic 
transmission of documents and parts of documents intended to be filed 
with Customs in furtherance of any other customs business activity, 
whether or not signed or filed by the preparer. However, ``customs 
business'' does not include the mere electronic transmission of data 
received for transmission to Customs.
    District. ``District'' means the geographic area covered by a 
customs broker permit other than a national permit. A listing of each 
district, and the ports thereunder, will be published periodically.
    Employee. ``Employee'' means a person who meets the common law 
definition of employee and is in the service of a customs broker.
    Freight forwarder. ``Freight forwarder'' means a person engaged in 
the business of dispatching shipments in foreign commerce between the 
United States, its territories or possessions, and foreign countries, 
and handling the formalities incident to such shipments, on behalf of 
other persons.
    Officer. ``Officer'', when used in the context of an association or 
corporation, means a person who has been elected, appointed, or 
designated as an officer of an association or corporation in accordance 
with statute and the articles of incorporation, articles of agreement, 
charter, or bylaws of the association or corporation.
    Permit. ``Permit'' means any permit issued to a broker under 
Sec. 111.19.
    Person. ``Person'' includes individuals, partnerships, 
associations, and corporations.
    Records. ``Records'' means documents, data and information referred 
to in, and required to be made or maintained under, this part and any 
other records, as defined in Sec. 163.1(a) of this chapter, that are 
required to be maintained by a broker under part 163 of this chapter.
    Region. ``Region'' means the geographic area covered by a waiver 
issued pursuant to Sec. 111.19(d).
    Responsible supervision and control. ``Responsible supervision and 
control'' means 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.
    Treasury Department or any representative of the Treasury 
Department. ``Treasury Department or any representative of the Treasury 
Department'' means any office, officer, or employee of the U.S. 
Department of the Treasury, wherever located.


Sec. 111.2  License and district permit required.

    (a) License--(1) General. Except as otherwise provided in paragraph 
(a)(2) of this section, a person must obtain the license provided for 
in this part in order to transact customs business as a broker.
    (2) Transactions for which license is not required--(i) For one's 
own account. An importer or exporter transacting customs business 
solely on his own account and in no sense on behalf of another is not 
required to be licensed, nor are his authorized regular employees or 
officers who act only for him in the transaction of such business.
    (ii) As employee of broker--(A) General. An employee of a broker, 
acting solely for his employer, is not required to be licensed where:
    (1) Authorized to sign documents. The broker has authorized the 
employee to sign documents pertaining to customs business on his 
behalf, and has executed a power of attorney for that purpose. The 
broker is not required to file the power of attorney with the port 
director, but must provide proof of its existence to Customs upon 
request; or
    (2) Authorized to transact other business. The broker has filed 
with the port director a statement identifying the employee as 
authorized to transact customs business on his behalf. However, no 
statement will be necessary when the broker is transacting customs 
business under an exception to the district permit rule.
    (B) Broker supervision; withdrawal of authority. Where an employee 
has been given authority under paragraph (a)(2)(ii) of this section, 
the broker must exercise sufficient supervision of the employee to 
ensure proper conduct on the part of the employee in the transaction of 
customs business, and the broker will be held strictly responsible for 
the acts or omissions of the employee within the scope of his 
employment and for any other acts or omissions of the employee which, 
through the exercise of reasonable care and diligence, the broker 
should have foreseen. The broker must promptly notify the port director 
if authority granted to an employee under paragraph (a)(2)(ii) of this 
section is withdrawn. The withdrawal of authority will be effective 
upon receipt by the port director.
    (iii) Marine transactions. A person transacting business in 
connection with entry or clearance of vessels or other regulation of 
vessels under the navigation laws is not required to be licensed as a 
broker.

[[Page 13893]]

    (iv) Transportation in bond. Any carrier bringing merchandise to 
the port of arrival or any bonded carrier transporting merchandise for 
another may make entry for that merchandise for transportation in bond 
without being a broker.
    (v) Noncommercial shipments. An individual entering noncommercial 
merchandise for another party is not required to be a broker, provided 
that the requirements of Sec. 141.33 of this chapter are met.
    (vi) Foreign trade zone activities. A foreign trade zone operator 
or user need not be licensed as a broker in order to engage in 
activities within a zone that do not involve the transfer of 
merchandise to the customs territory of the United States.
    (b) District permit--(1) General. Except as otherwise provided in 
paragraph (b)(2) of this section, a separate permit (see Sec. 111.19) 
is required for each district in which a broker conducts customs 
business.
    (2) Exceptions to district permit rule--(i) National permits. A 
national permit issued to a broker under Sec. 111.19(f) will constitute 
sufficient permit authority for the broker to act in any of the 
following circumstances:
    (A) Employee working in client's facility (employee implant). When 
a broker places an employee in the facility of a client for whom the 
broker is conducting customs business at one or more other locations 
covered by a district permit issued to the broker, and provided that 
the employee's activities are limited to customs business in support of 
that broker and on behalf of that client but do not involve the filing 
of entries or other documents with Customs, the broker need not obtain 
a permit for the district within which the client's facility is 
located;
    (B) Electronic drawback claims. A broker may file electronic 
drawback claims in accordance with the electronic filing procedures set 
forth in part 143 of this chapter even though the broker does not have 
a permit for the district in which the filing is made;
    (C) NCAP participation. A broker who is a participant in the 
National Customs Automation Program (NCAP) may electronically file 
entries for merchandise from a remote location and may electronically 
transact other customs business that is provided for and operational 
under the NCAP even though the entry is filed, or the other customs 
business is transacted, within a district for which the broker does not 
have a district permit; and
    (D) Representations after entry summary acceptance. After the entry 
summary has been accepted by Customs, and except when a broker filed 
the entry as importer of record, a broker who did not file the entry, 
but who has been appointed by the importer of record, may orally or in 
person or in writing or electronically represent the importer of record 
before Customs on any issue arising out of that entry or concerning the 
merchandise covered by that entry even though the broker does not have 
a permit for the district within which those representations are made, 
provided that, if requested by Customs, the broker submits appropriate 
evidence of his right to represent the client on the matter at issue.
    (ii) Filing of drawback claims. A broker granted a permit for one 
district may file drawback claims manually or electronically at the 
drawback office that has been designated by Customs for the purpose of 
filing those claims, and may represent his client before that office in 
matters concerning those claims, even though the broker does not have a 
permit for the district in which that drawback office is located.


Sec. 111.3  [Reserved]


Sec. 111.4  Transacting customs business without a license.

    Any person who intentionally transacts customs business, other than 
as provided in Sec. 111.2(a)(2), without holding a valid broker's 
license, will be liable for a monetary penalty for each such 
transaction as well as for each violation of any other provision of 19 
U.S.C. 1641. The penalty will be assessed in accordance with subpart E 
of this part.


Sec. 111.5  Representation before Government agencies.

    (a) Agencies within the Treasury Department. A broker who 
represents a client in the importation or exportation of merchandise 
may represent the client before the Treasury Department or any 
representative of the Treasury Department on any matter concerning that 
merchandise.
    (b) Agencies not within the Treasury Department. In order to 
represent a client before any agency not within the Treasury 
Department, a broker must comply with any regulations of that agency 
governing the appearance of representatives before it.

Subpart B--Procedure To Obtain License or Permit


Sec. 111.11  Basic requirements for a license.

    (a) Individual. In order to obtain a broker's license, an 
individual must:
    (1) Be a citizen of the United States on the date of submission of 
the application referred to in Sec. 111.12(a) and not an officer or 
employee of the United States Government;
    (2) Attain the age of 21 prior to the date of submission of the 
application referred to in Sec. 111.12(a);
    (3) Be of good moral character; and
    (4) Have established, by attaining a passing (75 percent or higher) 
grade on a written examination taken within the 3-year period before 
submission of the application referred to in Sec. 111.12(a), that he 
has sufficient knowledge of customs and related laws, regulations and 
procedures, bookkeeping, accounting, and all other appropriate matters 
to render valuable service to importers and exporters.
    (b) Partnership. In order to qualify for a broker's license, a 
partnership must have at least one member of the partnership who is a 
broker.
    (c) Association or corporation. In order to qualify for a broker's 
license, an association or corporation must:
    (1) Be empowered under its articles of association or articles of 
incorporation to transact customs business as a broker; and
    (2) Have at least one officer who is a broker.


Sec. 111.12  Application for license.

    (a) Submission of application and fee. An application for a 
broker's license must be submitted in duplicate to the director of the 
port where the applicant intends to do business. The application must 
be under oath and executed on Customs Form 3124. The application must 
be accompanied by the $200 application fee prescribed in Sec. 111.96(a) 
and one copy of the appropriate attachment required by the application 
form (Articles of Agreement or an affidavit signed by all partners, 
Articles of Agreement of the association, or the Articles of 
Incorporation). If the applicant proposes to operate under a trade or 
fictitious name in one or more States, evidence of the applicant's 
authority to use the name in each of those States must accompany the 
application. An application for an individual license must be submitted 
within the 3-year period after the applicant took and passed the 
written examination referred to in Secs. 111.11(a)(4) and 111.13. The 
port director may require an individual applicant to provide a copy of 
the notification that he passed the written examination (see 
Sec. 111.13(e)) and will require the applicant to submit fingerprints 
on Standard Form 87 at the time of filing the application. The port 
director may reject an application as improperly filed if the 
application, on its face, demonstrates that one or more of the basic 
requirements set forth in

[[Page 13894]]

Sec. 111.11 have not been met at the time of filing, in which case the 
application and fee will be returned to the filer without further 
action.
    (b) Posting notice of application. Following receipt of the 
application, the port director will post a notice that the application 
has been filed. The notice will be posted conspicuously for at least 2 
consecutive weeks in the customhouse at the port and similarly at any 
other port where the applicant also proposes to maintain an office. The 
notice also will be posted by appropriate electronic means. The notice 
will give the name and address of the applicant and, if the applicant 
is a partnership, association, or corporation, will state the names of 
all members or officers who are licensed as brokers. The notice will 
invite written comments or information regarding the issuance of the 
license.
    (c) Withdrawal of application. An applicant for a broker's license 
may withdraw the application at any time prior to issuance of the 
license by providing written notice of the withdrawal to the port 
director. However, withdrawal of the application does not entitle the 
applicant to a refund of the $200 application fee.


Sec. 111.13  Written examination for individual license.

    (a) Scope of examination. The written examination for an individual 
broker's license will be designed to determine the individual's 
knowledge of customs and related laws, regulations and procedures, 
bookkeeping, accounting, and all other appropriate matters necessary to 
render valuable service to importers and exporters. The examination 
will be prepared and graded at Customs Headquarters, Washington, DC.
    (b) Date and place of examination. Written examinations will be 
given on the first Monday in April and October. An individual who 
intends to take the written examination must so advise the port 
director in writing at least 30 calendar days prior to the scheduled 
examination date and must remit the $200 examination fee prescribed in 
Sec. 111.96(a) at that time. The port director will give notice of the 
exact time and place for the examination.
    (c) Special examination. If a partnership, association, or 
corporation loses the required member or officer having an individual 
broker's license (see Secs. 111.11(b) and (c)(2)) and its license would 
be revoked by operation of law under the provisions of 19 U.S.C. 
1641(b)(5) and Sec. 111.45(a) before the next scheduled written 
examination, Customs may authorize a special written examination for a 
prospective applicant for an individual license who would serve as the 
required licensed member or officer. Customs may also authorize a 
special written examination for an individual for purposes of 
continuing the business of a sole proprietorship broker. A special 
written examination for an individual may also be authorized by Customs 
if a brokerage firm loses the individual broker who was exercising 
responsible supervision and control over an office in another district 
(see Sec. 111.19(d)) and the permit for that additional district would 
be revoked by operation of law under the provisions of 19 U.S.C. 
1641(c)(3) and Sec. 111.45(b) before the next scheduled written 
examination. A request for a special written examination must be 
submitted to the port director in writing and must describe the 
circumstances giving rise to the need for the examination. If the 
request is granted, the port director will notify the prospective 
examinee of the exact time and place for the examination. If the 
individual attains a passing grade on the special written examination, 
the application for the license may be submitted in accordance with 
Sec. 111.12. The examinee will be responsible for all additional costs 
incurred by Customs in preparing and administering the special 
examination that exceed the $200 examination fee prescribed in 
Sec. 111.96(a), and those additional costs must be reimbursed to 
Customs before the examination is given.
    (d) Failure to appear for examination. If a prospective examinee 
advises the port director at least 2 working days prior to the date of 
a regularly scheduled written examination that he will not appear for 
the examination, the port director will refund the $200 examination fee 
referred to in paragraph (b) of this section. No refund of the 
examination fee or additional reimbursed costs will be made in the case 
of a special written examination provided for under paragraph (c) of 
this section.
    (e) Notice of examination result. Customs will provide to each 
examinee written notice of the result of the examination taken under 
this section. A failure of an examinee to attain a passing grade on the 
examination will preclude the submission of an application under 
Sec. 111.12 but will not preclude the examinee from taking an 
examination again at a later date in accordance with paragraph (b) of 
this section.
    (f) Appeal of failing grade on examination. If an examinee fails to 
attain a passing grade on the examination taken under this section, the 
examinee may challenge that result by filing a written appeal with 
Trade Programs, Office of Field Operations, U.S. Customs Service, 
Washington, DC 20229 within 60 calendar days after the date of the 
written notice provided for in paragraph (e) of this section. Customs 
will provide to the examinee written notice of the decision on the 
appeal. If the Customs decision on the appeal affirms the result of the 
examination, the examinee may request review of the decision on the 
appeal by writing to the Secretary of the Treasury within 60 calendar 
days after the date of the notice of that decision.


Sec. 111.14  Investigation of the license applicant.

    (a) Referral of application for investigation. The port director 
will immediately refer an application for an individual, partnership, 
association, or corporation license to the special agent in charge or 
other entity designated by Headquarters for investigation and report.
    (b) Scope of investigation. An investigation under this section 
will ascertain facts relevant to the question of whether the applicant 
is qualified and will cover, but need not be limited to:
    (1) The accuracy of the statements made in the application;
    (2) The business integrity of the applicant; and
    (3) When the applicant is an individual (including a member of a 
partnership or an officer of an association or corporation), the 
character and reputation of the applicant.
    (c) Referral to Headquarters. The port director will forward the 
originals of the application and the report of investigation to the 
Assistant Commissioner. The port director will also submit his 
recommendation for action on the application.
    (d) Additional investigation or inquiry. The Assistant Commissioner 
may require further investigation to be conducted if additional facts 
are deemed necessary to pass upon the application. The Assistant 
Commissioner may also require the applicant (or in the case of a 
partnership, association, or corporation, one or more of its members or 
officers) to appear in person before him or before one or more 
representatives of the Assistant Commissioner for the purpose of 
undergoing further written or oral inquiry into the applicant's 
qualifications for a license.


Sec. 111.15  Issuance of license.

    If the Assistant Commissioner finds that the applicant is qualified 
and has

[[Page 13895]]

paid all applicable fees prescribed in Sec. 111.96(a), he will issue a 
license. A license for an individual who is a member of a partnership 
or an officer of an association or corporation will be issued in the 
name of the individual licensee and not in his capacity as a member or 
officer of the organization with which he is connected. The license 
will be forwarded to the port director, who will deliver it to the 
licensee.


Sec. 111.16  Denial of license.

    (a) Notice of denial. If the Assistant Commissioner determines that 
the application for a license should be denied for any reason, notice 
of denial will be given by him to the applicant and to the director of 
the port at which the application was filed. The notice of denial will 
state the reasons why the license was not issued.
    (b) Grounds for denial. The grounds sufficient to justify denial of 
an application for a license include, but need not be limited to:
    (1) Any cause which would justify suspension or revocation of the 
license of a broker under the provisions of Sec. 111.53;
    (2) The failure to meet any requirement set forth in Sec. 111.11;
    (3) A failure to establish the business integrity and good 
character of the applicant;
    (4) Any willful misstatement of pertinent facts in the application 
for the license;
    (5) Any conduct which would be deemed unfair in commercial 
transactions by accepted standards; or
    (6) A reputation imputing to the applicant criminal, dishonest, or 
unethical conduct, or a record of that conduct.


Sec. 111.17  Review of the denial of a license.

    (a) By the Assistant Commissioner. Upon the denial of an 
application for a license, the applicant may file with the Assistant 
Commissioner, in writing, a request that further opportunity be given 
for the presentation of information or arguments in support of the 
application by personal appearance, or in writing, or both. This 
request must be received by the Assistant Commissioner within 60 
calendar days of the denial.
    (b) By the Secretary. Upon the decision of the Assistant 
Commissioner affirming the denial of an application for a license, the 
applicant may file with the Secretary of the Treasury, in writing, a 
request for any additional review that the Secretary deems appropriate. 
This request must be received by the Secretary within 60 calendar days 
of the Assistant Commissioner's affirmation of the denial of the 
application for a license.
    (c) By the Court of International Trade. Upon a decision of the 
Secretary of the Treasury affirming the denial of an application for a 
license, the applicant may appeal the decision to the Court of 
International Trade, provided that the appeal action is commenced 
within 60 calendar days after the date of entry of the Secretary's 
decision.


Sec. 111.18  Reapplication for license.

    An applicant who has been denied a license may reapply at any time 
by complying with the provisions of Sec. 111.12.


Sec. 111.19  Permits.

    (a) General. Each person granted a broker's license under this part 
will be concurrently issued a permit for the district in which the port 
through which the license was delivered to the licensee (see 
Sec. 111.15) is located and without the payment of the $100 fee 
required by Sec. 111.96(b), if it is shown to the satisfaction of the 
port director that the person intends to transact customs business 
within that district and the person otherwise complies with the 
requirements of this part.
    (b) Submission of application for initial or additional district 
permit. A broker who intends to conduct customs business at a port 
within another district for which he does not have a permit, or a 
broker who was not concurrently granted a permit with the broker's 
license under paragraph (a) of this section, and except as otherwise 
provided in paragraph (f) of this section, must submit an application 
for a permit in a letter to the director of the port at which he 
intends to conduct customs business. Each application for a permit must 
set forth or attach the following:
    (1) The applicant's broker license number and date of issuance;
    (2) The address where the applicant's office will be located within 
the district and the telephone number of that office;
    (3) A copy of a document which reserves the applicant's business 
name with the state or local government;
    (4) The name of the individual broker who will exercise responsible 
supervision and control over the customs business transacted in the 
district;
    (5) A list of all other districts for which the applicant has a 
permit to transact customs business;
    (6) The place where the applicant's brokerage records will be 
retained and the name of the applicant's designated recordkeeping 
contact (see Secs. 111.21 and 111.23); and
    (7) A list of all persons who the applicant knows will be employed 
in the district, together with the specific employee information 
prescribed in Sec. 111.28(b)(1)(i) for each of those prospective 
employees.
    (c) Fees. Each application for a permit under paragraph (b) or (f) 
of this section must be accompanied by the $100 and $125 fees specified 
in Secs. 111.96(b) and (c). The $125 fee specified in Sec. 111.96(c) 
also must be paid in connection with the issuance of an initial permit 
concurrently with a license under paragraph (a) of this section.
    (d) Responsible supervision and control--(1) General. The applicant 
for a district permit must have a place of business at the port where 
the application is filed, or must have made firm arrangements 
satisfactory to the port director to establish a place of business, and 
must exercise responsible supervision and control over that place of 
business once the permit is granted. Except as otherwise provided in 
paragraph (d)(2) of this section, the applicant must employ in each 
district for which a permit is granted at least one individual broker 
to exercise responsible supervision and control over the customs 
business conducted in the district.
    (2) Exception to district rule. If the applicant can demonstrate to 
the satisfaction of Customs that he regularly employs at least one 
individual broker in a larger geographical area in which the district 
is located and that adequate procedures exist for that individual 
broker to exercise responsible supervision and control over the customs 
business conducted in the district, Customs may waive the requirement 
for an individual broker in that district. A request for a waiver under 
this paragraph, supported by information on the volume and type of 
customs business conducted, or planned to be conducted, and supported 
by evidence demonstrating that the applicant is able to exercise 
responsible supervision and control through the individual broker 
employed in the larger geographical area, must be sent to the port 
director in the district in which the waiver is sought. The port 
director will review the request for a waiver and make recommendations 
which will be sent to the Office of Field Operations, Customs 
Headquarters, for review and decision. A written decision on the waiver 
request will be issued by the Office of Field Operations and, if the 
waiver is granted, the decision letter will specify the region covered 
by the waiver.
    (e) Action on application; list of permitted brokers. The port 
director who receives the application will issue a written decision on 
the permit

[[Page 13896]]

application and will issue the permit if the applicant meets the 
requirements of paragraphs (b), (c), and (d) of this section. If the 
port director is of the opinion that the permit should not be issued, 
he will submit his written reasons for that opinion to the Office of 
Field Operations, Customs Headquarters, for appropriate instructions on 
whether to grant or deny the permit. Each port director will maintain 
and make available to the public an alphabetical list of brokers 
permitted through his port.
    (f) National permit. A broker who has a district permit issued 
under paragraph (a) or paragraph (e) of this section may apply for a 
national permit for the purpose of transacting customs business in any 
circumstance described in Sec. 111.2(b)(2)(i). An application for a 
national permit under this paragraph must be in the form of a letter 
addressed to the Office of Field Operations, U.S. Customs Service, 
Washington, DC 20229, and must:
    (1) Identify the applicant's broker license number and date of 
issuance;
    (2) Set forth the address and telephone number of the office 
designated by the applicant as the office of record for purposes of 
administration of the provisions of this part regarding all activities 
of the applicant conducted under the national permit. That office will 
be noted in the national permit when issued;
    (3) Set forth the name, broker license number, office address, and 
telephone number of the individual broker who will exercise responsible 
supervision and control over the activities of the applicant conducted 
under the national permit; and
    (4) Attach a receipt or other evidence showing that the fees 
specified in Secs. 111.96(b) and (c) have been paid at the port through 
which the applicant's broker license was delivered (see Sec. 111.15).
    (g) Review of the denial of a permit--(1) By the Assistant 
Commissioner. Upon the denial of an application for a permit under this 
section, the applicant may file with the Assistant Commissioner, in 
writing, a request that further opportunity be given for the 
presentation of information or arguments in support of the application 
by personal appearance, or in writing, or both. This request must be 
received by the Assistant Commissioner within 60 calendar days of the 
denial.
    (2) By the Court of International Trade. Upon a decision of the 
Assistant Commissioner affirming the denial of an application for a 
permit under this section, the applicant may appeal the decision to the 
Court of International Trade, provided that the appeal action is 
commenced within 60 calendar days after the date of entry of the 
Assistant Commissioner's decision.

Subpart C--Duties and Responsibilities of Customs Brokers


Sec. 111.21  Record of transactions.

    (a) Each broker must keep current in a correct, orderly, and 
itemized manner records of account reflecting all his financial 
transactions as a broker. He must keep and maintain on file copies of 
all his correspondence and other records relating to his customs 
business.
    (b) Each broker must comply with the provisions of this part and 
part 163 of this chapter when maintaining records that reflect on his 
transactions as a broker.
    (c) Each broker must designate a knowledgeable company employee to 
be the contact for Customs for broker-wide customs business and 
financial recordkeeping requirements.


Sec. 111.22  [Reserved]


Sec. 111.23  Retention of records.

    (a) Place and period of retention--(1) Place. Records must be 
retained by a broker in accordance with the provisions of this part and 
part 163 of this chapter within the broker district that covers the 
Customs port to which they relate unless the broker chooses to 
consolidate records at one or more other locations, and provides 
advance notice of that consolidation to Customs, in accordance with 
paragraph (b) of this section.
    (2) Period. The records described in paragraph (a)(1) of this 
section, other than powers of attorney, must be retained for at least 5 
years after the date of entry. Powers of attorney must be retained 
until revoked, and revoked powers of attorney and letters of revocation 
must be retained for 5 years after the date of revocation or for 5 
years after the date the client ceases to be an ``active client'' as 
defined in Sec. 111.29(b)(2)(ii), whichever period is later. When 
merchandise is withdrawn from a bonded warehouse, records relating to 
the withdrawal must be retained for 5 years from the date of withdrawal 
of the last merchandise withdrawn under the entry.
    (b) Notification of consolidated records--(1) Applicability. 
Subject to the requirements of paragraph (b)(2) of this section and 
except when a restriction applies under Sec. 163.5(b) of this chapter, 
the option of maintaining records on a consolidated system basis is 
available to brokers who have been granted permits to do business in 
more than one district.
    (2) Form and content of notice. If consolidated storage is desired 
by the broker, he must submit a written notice addressed to the 
Director, Regulatory Audit Division, U.S. Customs Service, 909 S.E. 
First Avenue, Miami, Florida 33131. The written notice must include:
    (i) Each address at which the broker intends to maintain the 
consolidated records. Each such location must be within a district 
where the broker has been granted a permit;
    (ii) A detailed statement describing all the records to be 
maintained at each consolidated location, the methodology of record 
maintenance, a description of any automated data processing to be 
applied, and a list of all the broker's customs business activity 
locations; and
    (iii) An agreement that there will be no change in the records, the 
manner of recordkeeping, or the location at which they will be 
maintained, unless the Director, Regulatory Audit Division, in Miami is 
first notified.


Sec. 111.24  Records confidential.

    The records referred to in this part and pertaining to the business 
of the clients serviced by the broker are to be considered 
confidential, and the broker must not disclose their contents or any 
information connected with the records to any persons other than those 
clients, their surety on a particular entry, and the Field Director, 
Regulatory Audit Division, the special agent in charge, the port 
director, or other duly accredited officers or agents of the United 
States, except on subpoena by a court of competent jurisdiction.


Sec. 111.25  Records must be available.

    During the period of retention, the broker must maintain the 
records referred to in this part in such a manner that they may readily 
be examined. Records required to be made or maintained under the 
provisions of this part must be made available upon reasonable notice 
for inspection, copying, reproduction or other official use by Customs 
regulatory auditors or special agents or other authorized Customs 
officers within the prescribed period of retention or within any longer 
period of time during which they remain in the possession of the 
broker. Records subject to the requirements of part 163 of this chapter 
must be made available to Customs in accordance with the provisions of 
that part.


Sec. 111.26  Interference with examination of records.

    Except in accordance with the provisions of part 163 of this 
chapter, a broker must not refuse access to, conceal, remove, or 
destroy the whole or

[[Page 13897]]

any part of any record relating to his transactions as a broker which 
is being sought, or which the broker has reasonable grounds to believe 
may be sought, by the Treasury Department or any representative of the 
Treasury Department, nor may he otherwise interfere, or attempt to 
interfere, with any proper and lawful efforts to procure or reproduce 
information contained in those records.


Sec. 111.27  Audit or inspection of records.

    The Field Director, Regulatory Audit Division, will make any audit 
or inspection of the records required by this subpart to be kept and 
maintained by a broker as may be necessary to enable the port director 
and other proper officials of the Treasury Department to determine 
whether or not the broker is complying with the requirements of this 
part.


Sec. 111.28  Responsible supervision.

    (a) General. Every individual broker operating as a sole proprietor 
and every licensed member of a partnership that is a broker and every 
licensed officer of an association or corporation that is a broker must 
exercise responsible supervision and control (see Sec. 111.1) over the 
transaction of the customs business of the sole proprietorship, 
partnership, association, or corporation.
    (b) Employee information.
    (1) Current employees--(i) General. Each broker must submit, in 
writing, to the director of each port at which the broker intends to 
transact customs business, a list of the names of persons currently 
employed by the broker at that port. The list of employees must be 
submitted upon issuance of a permit for an additional district under 
Sec. 111.19, or upon the opening of an office at a port within a 
district for which the broker already has a permit, and before the 
broker begins to transact customs business as a broker at the port. For 
each employee, the broker also must provide the social security number, 
date and place of birth, current home address, last prior home address, 
and, if the employee has been employed by the broker for less than 3 
years, the name and address of each former employer and dates of 
employment for the 3-year period preceding current employment with the 
broker. After the initial submission, an updated list, setting forth 
the name, social security number, date and place of birth, and current 
home address of each current employee, must be submitted with the 
status report required by Sec. 111.30(d).
    (ii) New employees. In the case of a new employee, the broker must 
submit to the port director the written information required under 
paragraph (b)(1)(i) of this section within 10 calendar days after the 
new employee has been employed by the broker for 30 consecutive days.
    (2) Terminated employees. Within 30 calendar days after the 
termination of employment of any person employed longer than 30 
consecutive days, the broker must submit the name of the terminated 
employee, in writing, to the director of the port at which the person 
was employed.
    (3) Broker's responsibility. Notwithstanding a broker's 
responsibility for providing the information required in paragraph 
(b)(1) of this section, in the absence of culpability by the broker, 
Customs will not hold him responsible for the accuracy of any 
information that is provided to the broker by the employee.
    (c) Termination of qualifying member or officer. In the case of an 
individual broker who is a qualifying member of a partnership for 
purposes of Sec. 111.11(b) or who is a qualifying officer of an 
association or corporation for purposes of Sec. 111.11(c)(2), that 
individual broker must immediately provide written notice to the 
Assistant Commissioner when his employment as a qualifying member or 
officer terminates and must send a copy of the written notice to the 
director of each port through which a permit has been granted to the 
partnership, association, or corporation.
    (d) Change in ownership. If the ownership of a broker changes and 
ownership shares in the broker are not publicly traded, the broker must 
immediately provide written notice of that fact to the Assistant 
Commissioner and must send a copy of the written notice to the director 
of each port through which a permit has been granted to the broker. 
When a change in ownership results in the addition of a new principal 
to the organization, and whether or not ownership shares in the broker 
are publicly traded, Customs reserves the right to conduct a background 
investigation on the new principal. The port director will notify the 
broker if Customs objects to the new principal, and the broker will be 
given a reasonable period of time to remedy the situation. If the 
investigation uncovers information which would have been the basis for 
a denial of an application for a broker's license and the principal's 
interest in the broker is not terminated to the satisfaction of the 
port director, suspension or revocation proceedings may be initiated 
under subpart D of this part. For purposes of this paragraph, a 
``principal'' means any person having at least a 5 percent capital, 
beneficiary or other direct or indirect interest in the business of a 
broker.


Sec. 111.29  Diligence in correspondence and paying monies.

    (a) Due diligence by broker. Each broker must 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, must be made to the Government on 
or before the date that payment is due. Payments received by a broker 
from a client after the due date must be transmitted to the Government 
within 5 working days from receipt by the broker. Each broker must 
provide a written statement to a client accounting for funds received 
for the client from the Government, or received from a client where no 
payment to the Government has been made, or received from a client in 
excess of the Governmental or other charges properly payable as part of 
the client's customs business, within 60 calendar days of receipt. No 
written statement is required if there is actual payment of the funds 
by a broker.
    (b) Notice to client of method of payment--(1) All brokers must 
provide their clients with the following written notification:

    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. Therefore, if you pay by check, Customs charges may be 
paid with a separate check payable to the ``U.S. Customs Service'' 
which will be delivered to Customs by the broker.

    (2) The written notification set forth in paragraph (b)(1) of this 
section must be provided by brokers as follows:
    (i) On, or attached to, any power of attorney provided by the 
broker to a client for execution on or after September 27, 1982; and
    (ii) To each active client no later than February 28, 1983, and at 
least once at any time within each 12-month period after that date. An 
active client means a client from whom a broker has obtained a power of 
attorney and for whom the broker has transacted customs business on at 
least two occasions within the 12-month period preceding notification.

[[Page 13898]]

Sec. 111.30  Notification of change of business address, organization, 
name, or location of business records; status report; termination of 
brokerage business.

    (a) Change of address. When a broker changes his business address, 
he must immediately give written notice of his new address to each 
director of a port that is affected by the change of address. In 
addition, if an individual broker is not actively engaged in 
transacting business as a broker and changes his non-business mailing 
address, he must give written notice of the new address in the status 
report required by paragraph (d) of this section.
    (b) Change in an organization. A partnership, association, or 
corporation broker must immediately provide written notice of any of 
the following to the director of each port through which it has been 
granted a permit:
    (1) The date on which a licensed member or officer ceases to be the 
qualifying member or officer for purposes of Sec. 111.11(b) or (c)(2), 
and the name of the broker who will succeed as the qualifying member or 
officer; and
    (2) Any change in the Articles of Agreement, Charter, or Articles 
of Incorporation relating to the transaction of customs business, or 
any other change in the legal nature of the organization (for example, 
conversion of a general partnership to a limited partnership, merger 
with another organization, divestiture of a part of the organization, 
or entry into bankruptcy protection).
    (c) Change in name. A broker who changes his name, or who proposes 
to operate under a trade or fictitious name in one or more States 
within the district in which he has been granted a permit and is 
authorized by State law to do so, must submit to the Office of Field 
Operations, U.S. Customs Service, Washington, DC 20229, evidence of his 
authority to use that name. The name must not be used until the 
approval of Headquarters has been received. In the case of a trade or 
fictitious name, the broker must affix his own name in conjunction with 
each signature of the trade or fictitious name when signing customs 
documents.
    (d) Status report--(1) General. Each broker must file a written 
status report with Customs on February 1, 1985, and on February 1 of 
each third year after that date. The report must be accompanied by the 
fee prescribed in Sec. 111.96(d) and must be addressed to the director 
of the port through which the license was delivered to the licensee 
(see Sec. 111.15). A report received during the month of February will 
be considered filed timely. No form or particular format is required.
    (2) Individual. Each individual broker must state in the report 
required under paragraph (d)(1) of this section whether he is actively 
engaged in transacting business as a broker. If he is so actively 
engaged, he must also:
    (i) State the name under which, and the address at which, his 
business is conducted if he is a sole proprietor;
    (ii) State the name and address of his employer if he is employed 
by another broker, unless his employer is a partnership, association or 
corporation broker for which he is a qualifying member or officer for 
purposes of Sec. 111.11(b) or (c)(2); and
    (iii) State whether or not he still meets the applicable 
requirements of Sec. 111.11 and Sec. 111.19 and has not engaged in any 
conduct that could constitute grounds for suspension or revocation 
under Sec. 111.53.
    (3) Partnership, association or corporation. Each corporation, 
partnership or association broker must state in the report required 
under paragraph (d)(1) of this section the name under which its 
business as a broker is being transacted, its business address, the 
name and address of each licensed member of the partnership or licensed 
officer of the association or corporation who qualifies it for a 
license under Sec. 111.11(b) or (c)(2), and whether it is actively 
engaged in transacting business as a broker, and the report must be 
signed by a licensed member or officer.
    (4) Failure to file timely. If a broker fails to file the report 
required under paragraph (d)(1) of this section by March 1 of the 
reporting year, the broker's license is suspended by operation of law 
on that date. By March 31 of the reporting year, the port director will 
transmit written notice of the suspension to the broker by certified 
mail, return receipt requested, at the address reflected in Customs 
records. If the broker files the required report and pays the required 
fee within 60 calendar days of the date of the notice of suspension, 
the license will be reinstated. If the broker does not file the 
required report within that 60-day period, the broker's license is 
revoked by operation of law without prejudice to the filing of an 
application for a new license. Notice of the revocation will be 
published in the Customs Bulletin.
    (e) Custody of records. Upon the permanent termination of a 
brokerage business, written notification of the name and address of the 
party having legal custody of the brokerage business records must be 
provided to the director of each port where the broker was transacting 
business within each district for which a permit has been issued to the 
broker. That notification will be the responsibility of:
    (1) The individual broker, upon the permanent termination of his 
brokerage business;
    (2) Each member of a partnership who holds an individual broker's 
license, upon the permanent termination of a partnership brokerage 
business; or
    (3) Each association or corporate officer who holds an individual 
broker's license, upon the permanent termination of an association or 
corporate brokerage business.


Sec. 111.31  Conflict of interest.

    (a) Former officer or employee of U.S. Government. A broker who was 
formerly an officer or employee in U.S. Government service must not 
represent a client before the Treasury Department or any representative 
of the Treasury Department in any matter to which the broker gave 
personal consideration or gained knowledge of the facts while in U.S. 
Government service, except as provided in 18 U.S.C. 207.
    (b) Relations with former officer or employee of U.S. Government. A 
broker must not knowingly assist, accept assistance from, or share fees 
with a person who has been employed by a client in a matter pending 
before the Treasury Department or any representative of the Treasury 
Department to which matter that person gave personal consideration or 
gained personal knowledge of the facts or issues of the matter while in 
U.S. Government service.
    (c) Importations by broker or employee. A broker who is an importer 
himself must not act as broker for an importer who imports merchandise 
of the same general character as that imported by the broker unless the 
client has full knowledge of the facts. The same restriction will apply 
if a broker's employee is an importer.


Sec. 111.32  False information.

    A broker must not file or procure or assist in the filing of any 
claim, or of any document, affidavit, or other papers, known by such 
broker to be false. In addition, a broker must not knowingly give, or 
solicit or procure the giving of, any false or misleading information 
or testimony in any matter pending before the Treasury Department or 
any representative of the Treasury Department.


Sec. 111.33  Government records.

    A broker must not procure or attempt to procure, directly or 
indirectly, information from Government records or other Government 
sources of any kind to which access is not granted by proper authority.

[[Page 13899]]

Sec. 111.34  Undue influence upon Treasury Department employees.

    A broker must not influence or attempt to influence the conduct of 
any representative of the Treasury Department in any matter pending 
before the Treasury Department or any representative of the Treasury 
Department by the use of duress or a threat or false accusation, or by 
the offer of any special inducement or promise of advantage, or by 
bestowing any gift or favor or other thing of value.


Sec. 111.35  Acceptance of fees from attorneys.

    With respect to customs transactions, a broker must not demand or 
accept from any attorney (whether directly or indirectly, including, 
for example, from a client as a part of any arrangement with an 
attorney) on account of any case litigated in any court of law or on 
account of any other legal service rendered by an attorney any fee or 
remuneration in excess of an amount measured by or commensurate with 
the time, effort and skill expended by the broker in performing his 
services.


Sec. 111.36  Relations with unlicensed persons.

    (a) Employment by unlicensed person other than importer. When a 
broker is employed for the transaction of customs business by an 
unlicensed person who is not the actual importer, the broker must 
transmit to the actual importer either a copy of his bill for services 
rendered or a copy of the entry, unless the merchandise was purchased 
on a delivered duty-paid basis or unless the importer has in writing 
waived transmittal of the copy of the entry or bill for services 
rendered.
    (b) Service to others not to benefit unlicensed person. Except as 
otherwise provided in paragraph (c) of this section, a broker must not 
enter into any agreement with an unlicensed person to transact customs 
business for others in such manner that the fees or other benefits 
resulting from the services rendered for others inure to the benefit of 
the unlicensed person.
    (c) Relations with a freight forwarder. A broker may compensate a 
freight forwarder for referring brokerage business, subject to the 
following conditions:
    (1) The importer or other party in interest is notified in advance 
by the forwarder or broker of the name of the broker selected by the 
forwarder for the handling of his Customs transactions;
    (2) The broker transmits directly to the importer or other party in 
interest:
    (i) A true copy of his brokerage charges if the fees and charges 
are to be collected by or through the forwarder, unless this 
requirement is waived in writing by the importer or other party in 
interest; or
    (ii) 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 to the agreement, forbids 
or prevents direct communication between the importer or other party in 
interest and the broker; and
    (4) In making the agreement and in all actions taken pursuant to 
the agreement, the broker remains subject to all other provisions of 
this part.


Sec. 111.37  Misuse of license or permit.

    A broker must not allow his license, permit or name to be used by 
or for any unlicensed person (including a broker whose license or 
permit is under suspension), other than his own employees authorized to 
act for him, in the solicitation, promotion or performance of any 
customs business or transaction.


Sec. 111.38  False representation to procure employment.

    A broker must not knowingly use false or misleading representations 
to procure employment in any customs matter. In addition, a broker must 
not represent to a client or prospective client that he can obtain any 
favors from the Treasury Department or any representative of the 
Treasury Department.


Sec. 111.39  Advice to client.

    (a) Withheld or false information. A broker must not withhold 
information relative to any customs business from a client who is 
entitled to the information. Moreover, a broker must exercise due 
diligence to ascertain the correctness of any information which he 
imparts to a client, and he must not knowingly impart to a client false 
information relative to any customs business.
    (b) Error or omission by client. If a broker knows that a client 
has not complied with the law or has made an error in, or omission 
from, any document, affidavit, or other paper which the law requires 
the client to execute, he must advise the client promptly of that 
noncompliance, error, or omission.
    (c) Illegal plans. A broker must not knowingly suggest to a client 
or prospective client any illegal plan for evading payment of any duty, 
tax, or other debt or obligation owing to the U.S. Government.


Sec. 111.40  Protests.

    A broker must not act on behalf of any person, or attempt to 
represent any person, regarding any protest unless he is authorized to 
do so in accordance with part 174 of this chapter.


Sec. 111.41  Endorsement of checks.

    A broker must not endorse or accept, without authority of his 
client, any U.S. Government draft, check, or warrant drawn to the order 
of the client.


Sec. 111.42  Relations with person who is notoriously disreputable or 
whose license is under suspension, canceled ``with prejudice,'' or 
revoked.

    (a) General. Except as otherwise provided in paragraph (b) of this 
section, a broker must not knowingly and directly or indirectly:
    (1) Accept employment to effect a Customs transaction as associate, 
correspondent, officer, employee, agent, or subagent from any person 
who is notoriously disreputable or whose broker license was revoked for 
any cause or is under suspension or was cancelled ``with prejudice;''
    (2) Assist in the furtherance of any customs business or 
transactions of any person described in paragraph (a)(1) of this 
section;
    (3) Employ, or accept assistance in the furtherance of any customs 
business or transactions from, any person described in paragraph (a)(1) 
of this section, without the approval of the Assistant Commissioner 
(see Sec. 111.79);
    (4) Share fees with any person described in paragraph (a)(1) of 
this section; or
    (5) Permit any person described in paragraph (a)(1) of this section 
to participate, directly or indirectly and whether through ownership or 
otherwise, in the promotion, control, or direction of the business of 
the broker.
    (b) Client exception. Nothing in this section will prohibit a 
broker from transacting customs business on behalf of a bona fide 
importer or exporter who may be notoriously disreputable or whose 
broker license is under suspension or was cancelled ``with prejudice'' 
or revoked.


Sec. 111.43  [Reserved]


Sec. 111.44  [Reserved]


Sec. 111.45  Revocation by operation of law.

    (a) License. If a broker that is a partnership, association, or 
corporation fails to have, during any continuous period of 120 days, at 
least one member of the partnership or at least one officer of the 
association or corporation who

[[Page 13900]]

holds a valid individual broker's license, that failure will, in 
addition to any other sanction that may be imposed under this part, 
result in the revocation by operation of law of the license and any 
permits issued to the partnership, association, or corporation. The 
Assistant Commissioner or his designee will notify the broker in 
writing of an impending revocation by operation of law under this 
section 30 calendar days before the revocation is due to occur.
    (b) Permit. If a broker who has been granted a permit for an 
additional district fails, for any continuous period of 180 days, to 
employ within that district (or region, as defined in Sec. 111.1, if an 
exception has been granted pursuant to Sec. 111.19(d)) at least one 
person who holds a valid individual broker's license, that failure 
will, in addition to any other sanction that may be imposed under this 
part, result in the revocation of the permit by operation of law.
    (c) Notification. If the license or an additional permit of a 
partnership, association, or corporation is revoked by operation of law 
under paragraph (a) or (b) of this section, the Assistant Commissioner 
or his designee will notify the organization of the revocation. If an 
additional permit of an individual broker is revoked by operation of 
law under paragraph (b) of this section, the Assistant Commissioner or 
his designee will notify the broker. Notice of any revocation under 
this section will be published in the Customs Bulletin.
    (d) Applicability of other sanctions. Notwithstanding the operation 
of paragraph (a) or (b) of this section, each broker still has a 
continuing obligation to exercise responsible supervision and control 
over the conduct of its brokerage business and to otherwise comply with 
the provisions of this part. Any failure on the part of a broker to 
meet that continuing obligation during the 120 or 180-day period 
referred to in paragraph (a) or (b) of this section, or during any 
shorter period of time, may result in the initiation of suspension or 
revocation proceedings or the assessment of a monetary penalty under 
subpart D or subpart E of this part.

Subpart D--Cancellation, Suspension, or Revocation of License or 
Permit, and Monetary Penalty in Lieu of Suspension or Revocation


Sec. 111.50  General.

    This subpart sets forth provisions relating to cancellation, 
suspension, or revocation of a license or a permit, or assessment of a 
monetary penalty in lieu of suspension or revocation, under section 
641(d)(2)(B), Tariff Act of 1930, as amended (19 U.S.C. 1641(d)(2)(B)). 
The provisions relating to assessment of a monetary penalty under 
sections 641(b)(6) and (d)(2)(A), Tariff Act of 1930, as amended (19 
U.S.C. 1641(b)(6) and (d)(2)(A)), are set forth in subpart E of this 
part.


Sec. 111.51  Cancellation of license or permit.

    (a) Without prejudice. The Assistant Commissioner may cancel a 
broker's license or permit ``without prejudice'' upon written 
application by the broker if the Assistant Commissioner determines that 
the application for cancellation was not made in order to avoid 
proceedings for the suspension or revocation of the license or permit. 
If the Assistant Commissioner determines that the application for 
cancellation was made in order to avoid those proceedings, he may 
cancel the license or permit ``without prejudice'' only with 
authorization from the Secretary of the Treasury.
    (b) With prejudice. The Assistant Commissioner may cancel a 
broker's license or permit ``with prejudice'' when specifically 
requested to do so by the broker. The effect of a cancellation ``with 
prejudice'' is in all respects the same as if the license or permit had 
been revoked for cause by the Secretary except that it will not give 
rise to a right of appeal.


Sec. 111.52  Voluntary suspension of license or permit.

    The Assistant Commissioner may accept a broker's written voluntary 
offer of suspension of the broker's license or permit for a specific 
period of time under any terms and conditions to which the parties may 
agree.


Sec. 111.53  Grounds for suspension or revocation of license or permit.

    The appropriate Customs officer may initiate proceedings for the 
suspension, for a specific period of time, or revocation of the license 
or permit of any broker for any of the following reasons:
    (a) The broker has made or caused to be made in any application for 
any license or permit under this part, or report filed with Customs, 
any statement which was, at the time and in light of the circumstances 
under which it was made, false or misleading with respect to any 
material fact, or has omitted to state in any application or report any 
material fact which was required;
    (b) The broker has been convicted, at any time after the filing of 
an application for a license under Sec. 111.12, of any felony or 
misdemeanor which:
    (1) Involved the importation or exportation of merchandise;
    (2) Arose out of the conduct of customs business; or
    (3) Involved larceny, theft, robbery, extortion, forgery, 
counterfeiting, fraudulent concealment, embezzlement, fraudulent 
conversion, or misappropriation of funds;
    (c) The broker has violated any provision of any law enforced by 
Customs or the rules or regulations issued under any provision of any 
law enforced by Customs;
    (d) The broker has counseled, commanded, induced, procured, or 
knowingly aided or abetted the violations by any other person of any 
provision of any law enforced by Customs or the rules or regulations 
issued under any provision of any law enforced by Customs;
    (e) The broker has knowingly employed, or continues to employ, any 
person who has been convicted of a felony, without written approval of 
that employment from the Assistant Commissioner;
    (f) The broker has, in the course of customs business, with intent 
to defraud, in any manner willfully and knowingly deceived, misled or 
threatened any client or prospective client; or
    (g) The broker no longer meets the applicable requirements of 
Sec. 111.11 and Sec. 111.19.


Sec. 111.54  [Reserved]


Sec. 111.55  Investigation of complaints.

    Every complaint or charge against a broker which may be the basis 
for disciplinary action will be forwarded for investigation to the 
special agent in charge of the area in which the broker is located. The 
special agent in charge will submit a report on the investigation to 
the director of the port and send a copy of it to the Assistant 
Commissioner.


Sec. 111.56  Review of report on investigation.

    The port director will review the report of investigation to 
determine if there is sufficient basis to recommend that charges be 
preferred against the broker. He will then submit his recommendation 
with supporting reasons to the Assistant Commissioner for final 
determination together with a proposed statement of charges when 
recommending that charges be preferred.


Sec. 111.57  Determination by Assistant Commissioner.

    The Assistant Commissioner will make a determination on whether or 
not

[[Page 13901]]

charges should be preferred, and he will notify the port director of 
his decision.


Sec. 111.58  Content of statement of charges.

    Any statement of charges referred to in this subpart must give a 
plain and concise, but not necessarily detailed, description of the 
facts claimed to constitute grounds for suspension or revocation of the 
license or permit. The statement of charges also must specify the 
sanction being proposed (that is, suspension of the license or permit 
or revocation of the license or permit), but if a suspension is 
proposed the charges need not state a specific period of time for which 
suspension is proposed. A statement of charges which fairly informs the 
broker of the charges against him so that he is able to prepare his 
response will be deemed sufficient. Different means by which a purpose 
might have been accomplished, or different intents with which acts 
might have been done, so as to constitute grounds for suspension or 
revocation of the license may be alleged in the alternative under a 
single count in the statement of charges.


Sec. 111.59  Preliminary proceedings.

    (a) Opportunity to participate. The port director will advise the 
broker of his opportunity to participate in preliminary proceedings 
with an opportunity to avoid formal proceedings against his license or 
permit.
    (b) Notice of preliminary proceedings. The port director will serve 
upon the broker, in the manner set forth in Sec. 111.63, written notice 
that:
    (1) Transmits a copy of the proposed statement of charges;
    (2) Informs the broker that formal proceedings are available to 
him;
    (3) Informs the broker that sections 554 and 558, Title 5, United 
States Code, will be applicable if formal proceedings are necessary;
    (4) Invites the broker to show cause why formal proceedings should 
not be instituted;
    (5) Informs the broker that he may make submissions and 
demonstrations of the character contemplated by the cited statutory 
provisions;
    (6) Invites any negotiation for settlement of the complaint or 
charge that the broker deems it desirable to enter into;
    (7) Advises the broker of his right to be represented by counsel;
    (8) Specifies the place where the broker may respond in writing; 
and
    (9) Advises the broker that the response must be received within 30 
calendar days of the date of the notice.


Sec. 111.60  Request for additional information.

    If, in order to prepare his response, the broker desires additional 
information as to the time and place of the alleged misconduct, or the 
means by which it was committed, or any other more specific information 
concerning the alleged misconduct, he may request that information in 
writing. The broker's request must set forth in what respect the 
proposed statement of charges leaves him in doubt and must describe the 
particular language of the proposed statement of charges as to which 
additional information is needed. If in the opinion of the port 
director that information is reasonably necessary to enable the broker 
to prepare his response, he will furnish the broker with that 
information.


Sec. 111.61  Decision on preliminary proceedings.

    The port director will prepare a summary of any oral presentations 
made by the broker or his attorney and forward it to the Assistant 
Commissioner together with a copy of each paper filed by the broker. 
The port director will also give to the Assistant Commissioner his 
recommendation on action to be taken as a result of the preliminary 
proceedings. If the Assistant Commissioner determines that the broker 
has satisfactorily responded to the proposed charges and that further 
proceedings are not warranted, he will so inform the port director who 
will notify the broker. If no response is filed by the broker or if the 
Assistant Commissioner determines that the broker has not 
satisfactorily responded to all of the proposed charges, he will advise 
the port director of that fact and instruct him to prepare, sign, and 
serve a notice of charges and the statement of charges. If one or more 
of the charges in the proposed statement of charges was satisfactorily 
answered by the broker in the preliminary proceedings, the Assistant 
Commissioner will instruct the port director to omit those charges from 
the statement of charges.


Sec. 111.62  Contents of notice of charges.

    The notice of charges must inform the broker that:
    (a) Sections 554 and 558, Title 5, United States Code, are 
applicable to the formal proceedings;
    (b) The broker may be represented by counsel;
    (c) The broker will have the right to cross-examine witnesses;
    (d) Within 10 calendar days after service of this notice, the 
broker will be notified of the time and place of a hearing on the 
charges; and
    (e) Prior to the hearing on the charges, the broker may file, in 
duplicate with the port director, a verified answer to the charges.


Sec. 111.63  Service of notice and statement of charges.

    (a) Individual. The port director will serve the notice of charges 
and the statement of charges against an individual broker as follows:
    (1) By delivery to the broker personally;
    (2) By certified mail addressed to the broker, with demand for a 
return card signed solely by the addressee;
    (3) By any other means which the broker may have authorized in a 
written communication to the port director; or
    (4) If attempts to serve the broker by the methods prescribed in 
paragraphs (a)(1) through (a)(3) of this section are unsuccessful, the 
port director may serve the notice and statement by leaving them with 
the person in charge of the broker's office.
    (b) Partnership, association or corporation. The port director will 
serve the notice of charges and the statement of charges against a 
partnership, association, or corporation broker as follows:
    (1) By delivery to any member of the partnership personally or to 
any officer of the association or corporation personally;
    (2) By certified mail addressed to any member of the partnership or 
to any officer of the association or corporation, with demand for a 
return card signed solely by the addressee;
    (3) By any other means which the broker may have authorized in a 
written communication to the port director; or
    (4) If attempts to serve the broker by the methods prescribed in 
paragraphs (b)(1) through (b)(3) of this section are unsuccessful, the 
port director may serve the notice and statement by leaving them with 
the person in charge of the broker's office.
    (c) Certified mail; evidence of service. When the service under 
this section is by certified mail, the receipt of the return card duly 
signed will be satisfactory evidence of service.


Sec. 111.64  Service of notice of hearing and other papers.

    (a) Notice of hearing. After service of the notice and statement of 
charges, the port director will serve upon the broker and his attorney 
if known, by one of the methods set forth in Sec. 111.63 or by ordinary 
mail, a written notice of the time and place of the hearing. The 
hearing will be scheduled to take place within 30 calendar days after 
service of the notice of hearing.

[[Page 13902]]

    (b) Other papers. Other papers relating to the hearing may be 
served by one of the methods set forth in Sec. 111.63 or by ordinary 
mail or upon the broker's attorney.


Sec. 111.65  Extension of time for hearing.

    If the broker or his attorney requests in writing a delay in the 
hearing for good cause, the hearing officer designated pursuant to 
Sec. 111.67(a) may reschedule the hearing and in that case will notify 
the broker or his attorney in writing of the extension and the new time 
for the hearing.


Sec. 111.66  Failure to appear.

    If the broker or his attorney fails to appear for a scheduled 
hearing, the hearing officer designated pursuant to Sec. 111.67(a) will 
proceed with the hearing as scheduled and will hear evidence submitted 
by the parties. The provisions of this part will apply as though the 
broker were present, and the Secretary of the Treasury may issue an 
order of suspension of the license or permit for a specified period of 
time or revocation of the license or permit, or assessment of a 
monetary penalty in lieu of suspension or revocation, in accordance 
with Sec. 111.74 if he finds that action to be in order.


Sec. 111.67  Hearing.

    (a) Hearing officer. The hearing officer must be an administrative 
law judge appointed pursuant to 5 U.S.C. 3105.
    (b) Rights of the broker. The broker or his attorney will have the 
right to examine all exhibits offered at the hearing and will have the 
right to cross-examine witnesses and to present witnesses who will be 
subject to cross-examination by the Government representatives.
    (c) Interrogatories. Upon the written request of either party, the 
hearing officer may permit deposition upon oral or written 
interrogatories to be taken before any officer duly authorized to 
administer oaths for general purposes or in customs matters. The other 
party to the hearing will be given a reasonable time in which to 
prepare cross-interrogatories and, if the deposition is oral, will be 
permitted to cross-examine the witness. The deposition will become part 
of the hearing record.
    (d) Transcript of record. The port director will provide a 
competent reporter to make a record of the hearing. When the record of 
the hearing has been transcribed by the reporter, the port director 
will deliver a copy of the transcript of record to the hearing officer, 
the broker and the Government representative without charge.
    (e) Government representatives. The Assistant Commissioner will 
designate one or more persons to represent the Government at the 
hearing.


Sec. 111.68  Proposed findings and conclusions.

    The hearing officer will allow the parties a reasonable period of 
time after delivery of the transcript of record in which to submit 
proposed findings and conclusions and supporting reasons for the 
findings as contemplated by 5 U.S.C. 557(c).


Sec. 111.69  Recommended decision by hearing officer.

    After review of the proposed findings and conclusions submitted by 
the parties pursuant to Sec. 111.68, the hearing officer will make his 
recommended decision in the case and certify the entire record to the 
Secretary of the Treasury. The hearing officer's recommended decision 
must conform to the requirements of 5 U.S.C. 557.


Sec. 111.70  Additional submissions.

    Upon receipt of the record, the Secretary of the Treasury will 
afford the parties a reasonable opportunity to make any additional 
submissions that are permitted under 5 U.S.C. 557(c) or otherwise 
required by the circumstances of the case.


Sec. 111.71  Immaterial mistakes.

    The Secretary of the Treasury will disregard an immaterial misnomer 
of a third person, an immaterial mistake in the description of any 
person, thing, or place, or ownership of any property, any other 
immaterial mistake in the statement of charges, or a failure to prove 
immaterial allegations in the description of the broker's conduct.


Sec. 111.72  Dismissal subject to new proceedings.

    If the Secretary of the Treasury finds that the evidence produced 
at the hearing indicates that a proper disposition of the case cannot 
be made on the basis of the charges preferred, he may instruct the port 
director to serve appropriate charges as a basis for new proceedings to 
be conducted in accordance with the procedures set forth in this 
subpart.


Sec. 111.73  [Reserved]


Sec. 111.74  Decision and notice of suspension or revocation or 
monetary penalty.

    If the Secretary of the Treasury finds that one or more of the 
charges in the statement of charges is not sufficiently proved, he may 
base a suspension, revocation, or monetary penalty action on any 
remaining charges if the facts alleged in the charges are established 
by the evidence. If the Secretary of the Treasury, in the exercise of 
his discretion and based solely on the record, issues an order 
suspending a broker's license or permit for a specified period of time 
or revoking a broker's license or permit or, except in a case described 
in Sec. 111.53(b)(3), assessing a monetary penalty in lieu of 
suspension or revocation, the Assistant Commissioner will promptly 
provide written notification of the order to the broker and, unless an 
appeal from the Secretary's order is filed by the broker (see 
Sec. 111.75), the Assistant Commissioner will publish a notice of the 
suspension or revocation, or the assessment of a monetary penalty, in 
the Federal Register and in the Customs Bulletin. If no appeal from the 
Secretary's order is filed, an order of suspension or revocation or 
assessment of a monetary penalty will become effective 60 calendar days 
after issuance of written notification of the order unless the 
Secretary finds that a more immediate effective date is in the national 
or public interest. If a monetary penalty is assessed and no appeal 
from the Secretary's order is filed, payment of the penalty must be 
tendered within 60 calendar days after the effective date of the order, 
and, if payment is not tendered within that 60-day period, the license 
or permit of the broker will immediately be suspended until payment is 
made.


Sec. 111.75  Appeal from the Secretary's decision.

    An appeal from the order of the Secretary of the Treasury 
suspending or revoking a license or permit, or assessing a monetary 
penalty, may be filed by the broker in the Court of International Trade 
as provided in section 641(e), Tariff Act of 1930, as amended (19 
U.S.C. 1641(e)). The commencement of those proceedings will, unless 
specifically ordered by the Court, operate as a stay of the Secretary's 
order.


Sec. 111.76  Reopening the case.

    (a) Grounds for reopening. Provided that no appeal is filed in 
accordance with Sec. 111.75, a person whose license or permit has been 
suspended or revoked, or against whom a monetary penalty has been 
assessed in lieu of suspension or revocation, may make written 
application in duplicate to the Assistant Commissioner to reopen the 
case and have the order of suspension or revocation or monetary penalty 
assessment set aside or modified on the ground that new evidence has 
been discovered or on the ground that

[[Page 13903]]

important evidence is now available which could not be produced at the 
original hearing by the exercise of due diligence. The application must 
set forth the precise character of the evidence to be relied upon and 
must state the reasons why the applicant was unable to produce it when 
the original charges were heard.
    (b) Procedure. The Assistant Commissioner will forward the 
application, together with his recommendation for action thereon, to 
the Secretary of the Treasury. The Secretary may grant or deny the 
application to reopen the case and may order the taking of additional 
testimony before the Assistant Commissioner. The Assistant Commissioner 
will notify the applicant of the Secretary's decision. If the Secretary 
grants the application and orders a hearing, the Assistant Commissioner 
will set a time and place for the hearing and give due written notice 
of the hearing to the applicant. The procedures governing the new 
hearing and recommended decision of the hearing officer will be the 
same as those governing the original proceeding. The original order of 
the Secretary will remain in effect pending conclusion of the new 
proceedings and issuance of a new order under Sec. 111.77.


Sec. 111.77  Notice of vacated or modified order.

    If, pursuant to Sec. 111.76 or for any other reason, the Secretary 
of the Treasury issues an order vacating or modifying an earlier order 
under Sec. 111.74 suspending or revoking a broker's license or permit, 
or assessing a monetary penalty, the Assistant Commissioner will notify 
the broker in writing and will publish a notice of the new order in the 
Federal Register and in the Customs Bulletin.


Sec. 111.78  Reprimands.

    If a broker fails to observe and fulfill the duties and 
responsibilities of a broker as set forth in this part but that failure 
is not sufficiently serious to warrant initiation of suspension or 
revocation proceedings, Headquarters, or the port director with the 
approval of Headquarters, may serve the broker with a written 
reprimand. The reprimand, and the facts on which it is based, may be 
considered in connection with any future disciplinary proceeding that 
may be instituted against the broker in question.


Sec. 111.79  Employment of broker who has lost license.

    Five years after the revocation or cancellation ``with prejudice'' 
of a license, the ex-broker may petition the Assistant Commissioner for 
authorization to assist, or accept employment with, a broker. The 
petition will not be approved unless the Assistant Commissioner is 
satisfied that the petitioner has refrained from all activities 
described in Sec. 111.42 and that the petitioner's conduct has been 
exemplary during the period of disability. The Assistant Commissioner 
will also give consideration to the gravity of the misconduct which 
gave rise to the petitioner's disability. In any case in which the 
misconduct led to pecuniary loss to the Government or to any person, 
the Assistant Commissioner will also take into account whether the 
petitioner has made restitution of that loss.


Sec. 111.80  [Reserved]


Sec. 111.81  Settlement and compromise.

    The Assistant Commissioner, with the approval of the Secretary of 
the Treasury, may settle and compromise any disciplinary proceeding 
which has been instituted under this subpart according to the terms and 
conditions agreed to by the parties including, but not limited to, the 
assessment of a monetary penalty in lieu of any proposed suspension or 
revocation of a broker's license or permit.

Subpart E--Monetary Penalty and Payment of Fees


Sec. 111.91  Grounds for imposition of a monetary penalty; maximum 
penalty.

    Customs may assess a monetary penalty or penalties as follows:
    (a) In the case of a broker, in an amount not to exceed an 
aggregate of $30,000 for one or more of the reasons set forth in 
Secs. 111.53 (a) through (f) other than those listed in 
Sec. 111.53(b)(3), and provided that no license or permit suspension or 
revocation proceeding has been instituted against the broker under 
subpart D of this part for any of the same reasons; or
    (b) In the case of a person who is not a broker, in an amount not 
to exceed $10,000 for each transaction or violation referred to in 
Sec. 111.4 and in an amount not to exceed an aggregate of $30,000 for 
all those transactions or violations.


Sec. 111.92  Notice of monetary penalty.

    If assessment of a monetary penalty under Sec. 111.91 is 
contemplated, Customs will issue a written notice which advises the 
broker or other person of the allegations or complaints against him and 
explains that the broker or other person has a right to respond to the 
allegations or complaints in writing within 30 calendar days of the 
date of mailing of the notice. The port director has discretion to 
provide additional time for good cause.


Sec. 111.93  Petition for relief from monetary penalty.

    A broker or other person who receives a notice issued under 
Sec. 111.92 may file a petition for relief from the monetary penalty in 
accordance with the procedures set forth in part 171 of this chapter.


Sec. 111.94  Decision on monetary penalty.

    Customs will follow the procedures set forth in part 171 of this 
chapter in considering any petition for relief filed under Sec. 111.93. 
After Customs has considered the allegations or complaints set forth in 
the notice issued under Sec. 111.92 and any timely response made to the 
notice by the broker or other person, the Fines, Penalties, and 
Forfeitures Officer will issue a written decision to the broker or 
other person setting forth the final determination and the findings of 
fact and conclusions of law on which the determination is based. If the 
final determination is that the broker or other person is liable for a 
monetary penalty, the broker or other person must pay the monetary 
penalty, or make arrangements for payment of the monetary penalty, 
within 60 calendar days of the date of the written decision. If payment 
or arrangements for payment are not timely made, Customs will refer the 
matter to the Department of Justice for institution of appropriate 
judicial proceedings.


Sec. 111.95  Supplemental petition for relief from monetary penalty.

    A decision of the Fines, Penalties, and Forfeitures Officer with 
regard to any petition filed in accordance with part 171 of this 
chapter may be the subject of a supplemental petition for relief. Any 
supplemental petition also must be filed in accordance with the 
provisions of part 171 of this chapter.


Sec. 111.96  Fees.

    (a) License fee; examination fee; fingerprint fee. Each applicant 
for a broker's license pursuant to Sec. 111.12 must pay a fee of $200 
to defray the costs to Customs in processing the application. Each 
individual who intends to take the written examination provided for in 
Sec. 111.13 must pay a $200 examination fee before taking the 
examination. An individual who submits an application for a license 
must also pay a fingerprint check and processing fee; the port director 
will inform the applicant of the current Federal Bureau of 
Investigation fee for conducting fingerprint checks and the Customs 
fingerprint processing fee, the total of which must be paid to Customs

[[Page 13904]]

before further processing of the application will occur.
    (b) Permit fee. Each application for a permit pursuant to 
Sec. 111.19, including an application for reinstatement of a permit 
that was revoked by operation of law or otherwise, must be accompanied 
by a fee of $100 to defray the costs of processing the application.
    (c) User fee. Payment of an annual user fee of $125 is required for 
each permit, including a national permit under Sec. 111.19(f), granted 
to an individual, partnership, association, or corporate broker. The 
user fee is payable when an initial district permit is issued 
concurrently with a license under Sec. 111.19(a), or upon filing the 
application for the permit under Sec. 111.19 (b) or (f), and for each 
subsequent calendar year at the port through which the broker was 
granted the permit or at the port referred to in Sec. 111.19(f)(4) in 
the case of a national permit. The user fee must be paid by the due 
date as published annually in the Federal Register, and must be 
remitted in accordance with the procedures set forth in Sec. 24.22(i) 
of this chapter. When a broker submits an application for a permit or 
is issued an initial district permit under Sec. 111.19, the full $125 
user fee must be remitted with the application or when the initial 
district permit is issued, regardless of the point during the calendar 
year at which the application is submitted or the initial district 
permit is issued. If a broker fails to pay the annual user fee by the 
published due date, the appropriate port director will notify the 
broker in writing of the failure to pay and will revoke the permit to 
operate. The notice will constitute revocation of the permit.
    (d) Status report fee. The status report required under 
Sec. 111.30(d) must be accompanied by a fee of $100 to defray the costs 
of administering the reporting requirement.
    (e) Method of payment. All fees prescribed under this section must 
be paid by check or money order payable to the United States Customs 
Service.

PART 178--APPROVAL OF INFORMATION COLLECTION REQUIREMENTS

    4. The authority citation for Part 178 continues to read as 
follows:

    Authority: 5 U.S.C. 301; 19 U.S.C. 1624; 44 U.S.C. 3501 et seq.


    5. In Sec. 178.2, the table is amended by revising the listing for 
Part 111 to read as follows:


Sec. 178.2  Listing of OMB control numbers.

----------------------------------------------------------------------------------------------------------------
            19 CFR section                                Description                        OMB control No.
----------------------------------------------------------------------------------------------------------------
 
*                  *                  *                  *                  *                  *
                                                        *
Part 111.............................  Issuance of customs broker licenses and permits,  1515-0076 and 1515-
                                        monitoring performance of brokers in conducting   0100.
                                        customs business, and institution of
                                        disciplinary action against brokers.
 
*                  *                  *                  *                  *                  *
                                                        *
----------------------------------------------------------------------------------------------------------------


Raymond W. Kelly,
Commissioner of Customs.
    Approved: March 6, 2000.
John P. Simpson,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 00-6175 Filed 3-14-00; 8:45 am]
BILLING CODE 4820-02-P