[Federal Register Volume 84, Number 157 (Wednesday, August 14, 2019)]
[Proposed Rules]
[Pages 40302-40317]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-17179]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF HOMELAND SECURITY
U.S. Customs and Border Protection
19 CFR Part 111
[USCBP-2019-0024]
RIN 1651-AB17
Customs Broker Verification of an Importer's Identity
AGENCY: U.S. Customs and Border Protection, Department of Homeland
Security.
ACTION: Notice of proposed rulemaking.
-----------------------------------------------------------------------
SUMMARY: This rule proposes to amend the U.S. Customs and Border
Protection (CBP) regulations to require customs brokers to collect
certain information from importers to enable the customs brokers to
verify the identity of importers, including nonresident importers. CBP
proposes these amendments, pursuant to section 116 of the Trade
Facilitation and Trade Enforcement Act of 2015 (TFTEA), which directs
CBP to promulgate regulations to require brokers to verify the identity
of the importers who are their clients.
DATES: Comments must be received on or before October 15, 2019.
ADDRESSES: You may submit comments, identified by docket number, by one
of the following methods:
Federal eRulemaking Portal at http://www.regulations.gov.
Follow the instructions for submitting comments via Docket No. USCBP-
2019-0024.
Mail: Trade and Commercial Regulations Branch, Regulations
and Rulings, Office of Trade, U.S. Customs and Border Protection, 90 K
Street NE, 10th Floor, Washington, DC 20229-1177.
Instructions: All submissions received must include the agency name
and docket number for this rulemaking. All comments received will be
posted without change to http://www.regulations.gov, including any
personal information provided. For detailed instructions on submitting
comments and additional information on the rulemaking process, see the
``Public Participation'' heading of the
[[Page 40303]]
SUPPLEMENTARY INFORMATION section of this document.
Docket: For access to the docket to read background documents or
comments received, go to http://www.regulations.gov. Submitted comments
may be inspected during regular business days between the hours of 9
a.m. and 4:30 p.m. at the Trade and Commercial Regulations Branch,
Regulations and Rulings, Office of Trade, U.S. Customs and Border
Protection, 90 K Street NE, 10th Floor, Washington, DC 20229-1177.
Arrangements to inspect submitted comments should be made in advance by
calling Mr. Joseph Clark at (202) 325-0118.
FOR FURTHER INFORMATION CONTACT: Randy Mitchell, Director, Commercial
Operations Revenue Entry Division, Office of Trade, U.S. Customs and
Border Protection, 202-325-6532, [email protected].
SUPPLEMENTARY INFORMATION:
I. Public Participation
Interested persons are invited to participate in this rulemaking by
submitting written data, views, or arguments on all aspects of this
proposed rule. U.S. Customs and Border Protection (CBP) also invites
comments that relate to the economic, environmental, or federalism
effects that might result from this regulatory change. Comments that
will provide the most assistance to CBP will reference a specific
portion of the rule, explain the reason for any recommended change, and
include data, information or authority that support such recommended
change. See ADDRESSES above for information on how to submit comments.
II. Background
Section 641 of the Tariff Act of 1930, as amended (19 U.S.C. 1641),
provides that individuals and business entities must hold a valid
customs broker's license and permit in order to transact customs
business on behalf of others. The statute also 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 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.\1\
---------------------------------------------------------------------------
\1\ The Homeland Security Act of 2002 generally transferred the
functions of the U.S. Customs Service from the Treasury Department
to the Secretary of the Department of Homeland Security (DHS). See
Pub. L. 107-296, 116 Stat. 2142. The Act provides that the Secretary
of the Treasury retains customs revenue functions unless delegated
to the Secretary of DHS. The regulation of customs brokers is
encompassed within the customs revenue functions set forth in
section 412 of the Homeland Security Act. On May 15, 2003, the
Secretary of the Treasury delegated authority related to the customs
revenue functions to the Secretary of DHS subject to certain
exceptions. See Treasury Order No. 100-16 (Appendix to 19 CFR part
0). Since the authority to prescribe the rules and regulations
related to customs brokers is not listed as one of the exceptions,
this authority now resides with the Secretary of DHS.
---------------------------------------------------------------------------
The regulations issued under the authority of section 641 are set
forth in part 111 of title 19 of the Code of Federal Regulations (CFR)
(19 CFR part 111). Customs brokers serve many functions when acting on
behalf of their clients, which include resident and nonresident
importers. Customs brokers file information about their clients'
merchandise and transactions with CBP. Customs brokers also track
shipments, pay duties and fees to CBP, and keep current documents and
records about the business they transact on behalf of their clients,
all to help their clients comply with Federal import and export laws.
See 19 CFR part 111 subpart C.
However, before a customs broker may transact customs business on
behalf of a client, the broker must obtain a valid power of attorney
(POA). 19 CFR 141.46. A POA authorizes the customs broker to become
that client's agent and to prepare and file the necessary customs
documents on their behalf.
A. Current POA Regulations
In the customs broker context, a valid POA is the written
appointment of the broker as the true and lawful agent of the principal
(i.e., client) allowed to transact customs business on behalf of the
principal. The regulations governing POAs are set forth in 19 CFR part
141 subpart C.
A POA may be executed for a specified part of the principal's
business (limited power of attorney) or all of the principal's customs
business (general power of attorney). See 19 CFR 141.31(a). Pursuant to
19 CFR 141.32, POAs can be executed through various means. CBP Form
5291 may be used to establish a power of attorney. If CBP Form 5291 is
not used, a limited POA must be executed in the same manner and as
explicit in its terms as CBP Form 5291. 19 CFR 141.32. A general POA
with unlimited authority may be executed in any format. See 19 CFR
141.32.
A POA issued by a partnership is limited to a period not to exceed
two years from the date of execution. 19 CFR 141.34. All other POAs may
be granted for an unlimited period of time. 19 CFR 141.34.
A valid POA requires the principal to provide only limited
information. The principal is required to provide:
(1) A statement from the principal authorizing the customs broker
to act as the principal's agent and for the customs broker to file
entry/entry summary in the principal's name for a shipment;
(2) The name of the individual or the authorized representative of
the sole proprietorship, partnership, or corporation executing the POA;
and
(3) The name and address of the individual or business on whose
behalf the POA is being executed.
See 19 CFR 141.32; 141.36-.39.
B. Customs Brokers' Current Practice for Verifying Importer's Identity
While only a limited amount of information is required for a valid
POA, the majority of customs brokers currently require additional
information when a POA is obtained from an importer, which is used by
the broker to verify the importer's existence and identity. Brokers
require this additional information and have initiated processes and
procedures to validate an importer's identity in order to protect the
broker's business interests, reduce identity theft, and help to prevent
the use of shell \2\ or shelf \3\ companies to further a business fraud
scheme. Additional information that a broker might request includes,
but is not limited to, the registration of the importer's business with
a state government and the Articles of Incorporation under which that
business is formed.
---------------------------------------------------------------------------
\2\ A shell company is a company without active business
operations or significant assets, which may be used illegitimately
to disguise business ownership or operations.
\3\ A shelf company is a company which was created and
maintained by legal means, but is left dormant for a period of time
before its sale to a buyer, which may serve to conceal the buyer's
identity and history of business transactions so as not to appear as
a new business entity.
---------------------------------------------------------------------------
CBP provides non-binding guidance on how brokers can validate
importers when they obtain a POA. For example, CBP recommends that a
broker should, whenever possible, do the following: \4\
---------------------------------------------------------------------------
\4\ See U.S. Customs and Border Protection, ``Validating the
Power of Attorney'' for comprehensive list of recommendations. Last
published May 25, 2018. Available at https://www.cbp.gov/trade/programs-administration/customs-brokers/validating-power-attorney.
---------------------------------------------------------------------------
[[Page 40304]]
(1) Complete POAs in-person and review personal identification
(driver's license, passport, etc.);
(2) Check applicable websites to verify the business registration
with State authorities;
(3) Confirm business's trade or fictitious names that may appear on
the POA;
(4) Verify that the importer's name, importer number, and Employer
Identification Number (EIN) (also known as the Federal Tax
Identification Number) on the POA match what is in CBP's Automated
Commercial Environment (ACE);
(5) Check whether an importer is named as a sanctioned or
restricted person or entity by the U.S. Government.
Since the collection and verification of any additional information
from the importer is voluntary, certain brokers do not require any
additional information. As a result, an atmosphere of ``broker
shopping'' has been created where an importer that does not wish to
provide this additional information might refuse to provide the
information to one broker in the hopes that another broker will not ask
for that information. If the second broker does not request the
additional information, that broker, with minimal knowledge about the
importer, transacts customs business on the importer's behalf leading
to the possible use of shell or shelf companies, revenue loss,
increased security risks with the goods being imported into the United
States, and an uneven playing field for brokers.
C. Section 116 of TFTEA
On February 24, 2016, Congress enacted the Trade Facilitation and
Trade Enforcement Act of 2015 (TFTEA), Section 116, Public Law 114-125,
130 Stat. 122 (19 U.S.C. 4301 note), which amended section 641 of the
Tariff Act of 1930 (19 U.S.C. 1641). Section 116 of TFTEA, Customs
Broker Identification of Importers, specifically requires the Secretary
to promulgate regulations setting minimum standards to: (1) Identify
the information that an importer, including a nonresident importer, is
required to submit to a customs broker and that a broker is required to
collect in order to verify the identity of the importer; (2) identify
reasonable procedures that a broker is required to follow in order to
verify the authenticity of the information collected from the importer;
and (3) require the broker to maintain records of the information
collected by the broker used to substantiate the importer's identity.
Section 116 also empowers the Secretary to assess a monetary penalty
for each violation for a broker that fails to collect the information,
as well as revoke or suspend the license or permit of the broker.
III. Discussion of Proposed Amendments
CBP proposes to amend the CBP regulations to standardize the
process by which customs brokers verify the identity of their clients,
specifically importers and nonresident importers. These proposed
regulations illuminate, for the international trade community and the
public in general, the important role customs brokers have in verifying
prospective clients and in ensuring the quality and integrity of the
information they keep. When brokers verify the bona fides of clients,
CBP is better assured that importers are conducting legitimate trade
transactions. By formalizing the verification process and requiring
that a reverification process be carried out by brokers every year, CBP
believes that a broker's knowledge of its importer client would be
improved. This improved broker knowledge could allow for commercial
fraud prevention and revenue protection and help prevent the use of
shell or shelf companies by importers who attempt to evade the customs
laws of the United States. Preventing the use of shell or shelf
companies by importers would help reduce instances of a
misclassification of merchandise to avoid duties, protect against
intellectual property rights (IPR) violations, reduce antidumping/
countervailing duty (AD/CVD) infractions, and reduce the importation of
unsafe merchandise.
As the importer's and nonresident importer's agent, the customs
broker is uniquely situated to collect the information necessary to
authenticate their identity. CBP has determined that it is most
efficient for the broker to collect and verify this information at the
time the POA is obtained because the broker must both verify the
client's identity and obtain a valid POA before transacting customs
business on behalf of the client.
CBP is proposing to add a new section, 111.43, entitled Importer
identity verification, to title 19 of the CFR to establish the identity
collection criteria and to create a required verification process of
importer and nonresident importer clients. These proposed regulations
set forth the minimum requirements a customs broker must meet to verify
the importer's identity prior to transacting customs business on behalf
of the importer or nonresident importer client. As discussed above,
most customs brokers already meet or exceed these minimum requirements.
Customs brokers may continue to exceed the requirements in proposed
section 111.43, regarding the collection of information and documents,
or conducting research about a client.
Proposed paragraph (a) describes the general scope of the
requirements for customs brokers to collect, verify, and maintain the
information necessary to authenticate the identity of their clients.
Proposed paragraph (b) provides definitions for this section. In
accordance with section 116(a)(i)(4) of TFTEA, the term ``importer'' is
defined as one of the parties that qualifies to be an importer of
record under 19 U.S.C. 1484(a)(2)(B) and ``nonresident importer'' is
defined as an importer of record that is not a citizen of the United
States or an alien lawfully admitted for permanent residence in the
United States; or a partnership, corporation, or other commercial
entity that is not organized under the laws of a jurisdiction within
the customs territory of the United States (as such term is defined in
General Note 2 of the Harmonized Tariff Schedule of the United States)
or in the Virgin Islands of the United States.\5\ The definition of the
term ``client'' is the importer or nonresident importer of record who
is seeking or employing the services of a customs broker to transact
customs business on behalf of the importer or nonresident importer of
record. The definition of the term ``grantor'' is the individual
executing the power of attorney on behalf of the client.
---------------------------------------------------------------------------
\5\ We note that the definition for ``nonresident importer''
provided by Congress in section 116 of TFTEA differs from the
definition of ``nonresident'' in 19 CFR 141.31 governing POAs. CBP
does not discuss these differences in this notice of proposed
rulemaking (NPRM) because the differing definitions of ``resident''
and ``nonresident'' in 19 CFR part 141 do not influence whether a
broker is required to obtain a POA from a client on behalf of which
it transacts customs business.
---------------------------------------------------------------------------
A. Minimum Information That the Customs Broker Is Required To Collect
From the Client
Proposed paragraph (c) of section 111.43 identifies the information
that the customs broker is required to collect from the client at the
time the POA is obtained by the broker. The broker collects this
information to verify the client's identity.
At the time the POA is obtained by the broker, the broker must
collect, at a minimum, the following information from the client, if
applicable:
(1) The client's name;
(2) For a client who is an individual, the client's date of birth;
[[Page 40305]]
(3) For a client that is a partnership, corporation, or
association, the grantor's date of birth;
(4) For a client that is a partnership, corporation, or
association, the client's trade or fictitious names;
(5) The address of the client's physical location (for a client
that is a partnership, corporation, or association, the physical
location would be the client's headquarters) and telephone number;
(6) The client's email address and business website;
(7) A copy of the grantor's unexpired government-issued photo
identification;
(8) The client's Internal Revenue Service (IRS) number, employer
identification number (EIN), or importer of record (IOR) number;
(9) The client's publicly available business identification number
(e.g., Data Universal Numbering System (DUNS) number, etc.);
(10) A recent credit report;
(11) A copy of the client's business registration and license with
state authorities; and
(12) The grantor's authorization to execute power of attorney on
behalf of client.
The broker must collect all the information that is applicable to
that particular client. Some information might not be applicable to a
client depending on whether the client is an individual, partnership,
corporation, or association. For example, a small business might not
have a business website; or a client who is an individual would not
have a business registration and license with state authorities or a
publicly available business identification number. Additionally, if
certain foreign jurisdictions do not provide credit reports, the broker
is not required to collect a recent credit report from that client.
Under current practice, most brokers already collect all of the
above applicable information from the client in the ordinary course of
business. Most brokers currently require this information to ensure
that the client is not concealing his or her identity, misusing another
business owner's identity, or using a shell or shelf corporation to
further a business fraud scheme. By requiring all of the applicable
information above from all of the broker's clients, the proposed rule
would also eliminate the ability of prospective clients to ``broker
shop.''
B. Procedures That a Customs Broker Is Required To Perform To Verify
the Information Collected
CBP is proposing procedures for a customs broker to use to verify
the authenticity of the information collected from its clients.
Proposed paragraph (d) of section 111.43 requires customs brokers to
verify all the information collected from the client, under proposed
paragraph (c), to ensure accurate identification of the client.
As explained in Section A. above, the broker must collect all the
information set forth in proposed paragraph (c) that is applicable to
that client. The broker would be required to verify each of the data
points (i.e. client's name, address, etc.) that the broker collects
from that particular client. The means of verification that the customs
broker uses for each data point, however, are at the broker's
discretion. There are various methods of verification that would
satisfy CBP's requirement that the broker verify each data point that
the broker collects. The means of verification that CBP recommends for
each data point are set forth below and include in-person verification,
review of the proper evidence of the grantor's authorization to execute
the POA, and/or research performed using various federal agency, state
government, and publicly available data sources. The broker must use as
many of the recommended verification means as necessary to be
reasonably certain of the client's identity.
In addition to verifying each data point collected, the broker
would be required to check if the client is a sanctioned or restricted
person or entity, or if the client is suspended or debarred from doing
business with the U.S. Government.
Under the proposed rule, for any prospective client, the customs
broker would be required to perform this verification before
transacting customs business on the client's behalf. For existing
clients with a POA issued by a partnership, brokers would have two
years to verify this information and three years for all other existing
clients.
1. The Client's Name, Address, Telephone Number, Email Address,
Business Website, Trade or Fictitious Names
A customs broker could verify the client's name, address, telephone
number, email, website, and trade or fictitious names, if applicable,
through various means. A customs broker could use the Automated Broker
Interface (ABI) to access ACE to verify a client's information. This
means of verification is only available for a broker to access an
existing client's information for transactions where the broker
represented the client.
The broker could alternatively check the client's unexpired
government-issued photo identification, the state licensing database or
use open-source mapping. Customs brokers may also conduct research
using reputable business information databases, individual state
databases, and credit reporting entities or any other public or private
database which provides accurate, timely, and relevant information
about the client.
To verify the client's address, the broker could use various
navigation and mapping functions available on public websites to verify
the location. Warning signs could include an incomplete or inaccurate
address, or providing only a post office box address. To verify the
telephone number, the broker could verify whether the number is a
landline as opposed to a cell phone and could use return call
verification to ensure that the number is accurate. To verify the email
address, the broker could ensure that there is a return email message.
If applicable, the broker could visit the client's place of
business in-person to verify its existence and the client's identity.
During this in-person visit, the broker would be looking for any
possible indication that the client's identity is not what he or she
provided; that the business is defunct or nonexistent; or that the
company is a shell or shelf company. To verify a business website, the
broker could check the depth of the website, the business universal
resource locator (URL), and the viability of any links provided.
2. The Client's or Grantor's Date of Birth
There are various ways that a customs broker could verify the
client's or grantor's date of birth. The broker could perform an in-
person review of the client's or grantor's unexpired government-issued
photo identification to verify the date of birth. Alternatively, a
broker could use individual state databases or open-source software.
3. The Grantor's Unexpired Government-Issued Photo Identification
The customs broker can perform an in-person review of the grantor's
unexpired government-issued photo identification such as a passport or
driver's license. During this in-person verification, the broker would
be looking for any possible indications that the grantor's identity is
not what he or she provided, or that there is fraud. Alternatively, the
broker may conduct research using reputable databases to establish the
veracity of the government-issued photo identification.
[[Page 40306]]
4. The Client's IRS Number, EIN, or IOR Number
A customs broker could use federal government databases or the
client's tax forms to verify the client's IRS, EIN, or IOR number. The
broker could also use the ABI to access ACE to verify an existing
client's IRS number, EIN, or IOR number. This means of verification is
only available for a broker to access an existing client's information
for transactions where the broker represented the client.
Alternatively, the broker could conduct research using reputable public
or private databases and websites, such as www.freeerisa.com, which is
a private website that provides free access to all Employee Retirement
Income Security Act (ERISA) form 5500s filed with the Department of
Labor over the past two years.
5. The Client's Publicly Available Business Identification Number
If the client provides a non-government issued business identifier,
the broker can use the associated database to verify the relevant
aspects of that client's identification. For example, if the client
provides its DUNS number, the broker could use the Dun and Bradstreet
website at www.DNB.com to verify the client's DUNS number, company
name, address, and telephone number.
6. A Recent Credit Report
To check the client's credit report, the broker would check with a
nationally recognized credit reporting entity. When checking the
client's credit report, warning signs could include declarations of
bankruptcy, and any delayed payment history. If the client informs the
broker that a credit report cannot be provided because its jurisdiction
does not provide credit reports, the broker must verify this by
checking the address of the client's physical location.
7. The Client's Business Registration and License With State
Authorities
A broker could use individual state databases to verify the
business registration and license.
8. The Grantor's Authorization To Execute Power of Attorney on Behalf
of Client
A broker is required to confirm that the grantor has the authority
to execute the POA. When a representative appears on behalf of the
client, the representative would be required to provide evidence of his
or her authorization to sign the POA. This evidence should be notarized
whenever possible; however, the person whose signature is required is
dependent on the type of business. To determine the type of evidence
required, the broker would review the business's public filings, for
example, the articles of incorporation, to determine who holds the key
positions. For a corporation, the evidence would be a corporate officer
providing certification on the entity's letterhead. For a limited
liability company (LLC), the evidence would be the managing partner or
member providing certification on the entity's letterhead. For a
partnership, authorization would be the general and/or managing partner
providing certification on the entity's letterhead. For a sole
proprietorship or individual, evidence of authorization would consist
of a certification, notarized by the sole proprietor or individual,
stating that the representative was authorized to sign on behalf of the
individual or the sole proprietor.
9. Check if the Client is a Sanctioned or Restricted Person or Entity
by the U.S. Government or if the Client is Suspended or Debarred From
Doing Business With the U.S. Government
The broker would be required to check to determine if the client is
a sanctioned or restricted person or entity, or if the client is
suspended or debarred from doing business with the U.S. Government. The
broker could check this information through any of the following
websites: www.sam.gov, a U.S. government website that may be used to
search public records for company registrations; https://www.treasury.gov/resource-center/sanctions/Pages/default.aspx, which is
a U.S. Department of Treasury website identifying Office of Foreign
Assets Control (OFAC) sanctioned companies and individuals; or https://build.export.gov/main/ecr/eg_main_023148, which is a consolidated
screening list identifying entities that have been sanctioned by U.S.
Department of Commerce, International Trade Administration.
C. Requirement To Implement Policies, Procedures and Internal Controls
Proposed paragraph (e) of section 111.43 requires customs brokers
to implement policies, procedures, and internal controls to verify a
client's identity before transacting customs business on behalf of that
client. While most customs brokers already have such policies,
procedures, and internal controls in place to collect and verify this
information, this requirement is to ensure that all brokers implement
these policies, procedures, and internal controls so that brokers are
required to collect the required information from the client, and to
ensure that the broker has established policies and procedures to
verify and reverify the information.
D. Recordkeeping Requirements
Section 116 of TFTEA requires that the regulations also set minimum
standards for customs brokers to maintain records of the information
used to substantiate the client's identity. Accordingly, proposed
paragraph (f) requires all customs brokers to make, retain, and update
records containing the information the brokers collected to verify the
client's identity.
1. Current Recordkeeping Requirements
Customs brokers must make, retain, and update certain records of
their transactions with their clients and must comply with all
recordkeeping requirements. For customs brokers, the relevant
recordkeeping provisions are in part 111 and part 163 and each broker
must comply with the provisions of those parts when maintaining records
that reflect on his or her transactions as a broker. 19 CFR 111.21 and
163.2(d). Part 163 governs the maintenance, production, inspection, and
examination of records, in general. Part 111 sets forth the specific
recordkeeping requirements applicable to customs brokers, and the
additional records that each customs broker must make and maintain, and
make available for CBP examination.
Pursuant to part 111, customs brokers are required to keep current
records of account reflecting all their transactions as a broker, and
keep and maintain copies of all correspondence and other records
relating to their customs business. 19 CFR 111.21. A broker is not
required to file a POA with CBP but must retain the POA as part of his
or her records and make it available to representatives of the
Department of Homeland Security (DHS).\6\ See 19 CFR 141.46. Customs
brokers must maintain all these records for the required retention
periods, in a manner that allows CBP to readily examine them, and
pursuant to an allowable method of storage. See 19 CFR 111.25 and
163.5. These records, except for POAs, must be retained for at least
five years after the date of entry. See 19 CFR 111.23 and 163.4. POAs
must be retained until
[[Page 40307]]
revoked, and revoked POAs and letters of revocation must be retained
for five years after the date of revocation or for five years after the
date the client ceases to be an ``active client'' as defined in section
111.29(b)(2)(ii), whichever period is later. See 19 CFR 111.23 and
163.4.
---------------------------------------------------------------------------
\6\ Subpart C of 19 CFR part 111 provides that the POA and other
records must be made available to representatives of the Department
of the Treasury; however, pursuant to the Homeland Security Act of
2002 and Treasury Order No. 100-16 (Appendix to 19 CFR part 0), this
was delegated to representatives of the Secretary of DHS as opposed
to representatives of the Department of the Treasury. See Pub. L.
107-296, 116 Stat. 2142.
---------------------------------------------------------------------------
The proposed regulations add additional records to 19 CFR part 111
that the customs broker must make, retain, update, and have readily
available for CBP examination.
2. Retention of Identification and Verification Records
Proposed paragraphs (f)(1) and (2) of section 111.43 set forth the
minimum identification and verification records that customs brokers
must retain. At a minimum, customs brokers must retain the information
required by proposed paragraph (c), including any identification
records, which consists of the information presented to the broker used
to identify the client as well as any certifications the client makes.
Customs brokers must also retain verification records of the means and
documents relied on to verify the client's identity as required by
proposed paragraph (d) and each record must indicate which information
required pursuant to proposed paragraph (c) was verified by those means
and documents. At a minimum, for the verification records, customs
brokers must retain descriptions of any documents relied upon, any non-
documentary methods, any results of measures undertaken, and any
resolution of discrepancies as well as who performed the verification
and the date the verification was performed. Brokers must indicate in
the verification records which information required pursuant to
proposed paragraph (c) was not collected from the client because it was
inapplicable to that particular client.
3. Records Must Be Readily Available for CBP Examination
The identification and verification records collected by the broker
must be retained in accordance with 19 CFR 111.23 and be made available
upon request by CBP for examination. The period of retention for the
identification and verification records shall be the same as for POAs.
See 19 CFR 111.23 and 163.4.
4. Updating the POA, Identification and Verification Records
Proposed paragraph (f)(4) requires customs brokers to implement
procedures to ensure the accuracy, timeliness, completeness, and
relevancy of any POA and any information about the client. These
procedures must include a requirement that customs brokers update their
records annually with any changes to the client, POA, or the
information in the records, and reverify the client's identity.
The customs broker would update this information with new
information or records received through either the client or through
the broker's independent research. Customs brokers must update their
information on an annual basis about any client and its business to
ensure that the information they have is timely, accurate, complete,
and relevant, and they must reverify the client's identity annually
using the procedures set forth in proposed section 111.43(d). Depending
on the client, maintaining the information could include setting up
news alerts about the client, confirming with a client the accuracy of
information, or setting up automatic searches in specific databases.
This ensures the quality and integrity of the information in the POA,
and in the identification and verification records.
E. Penalties for Failure To Meet the Requirements
Section 116 of TFTEA amended section 641 of the Tariff Act of 1930
(19 U.S.C. 1641) to authorize the Secretary, at his or her discretion,
to hold any customs broker liable if the broker fails to collect the
required information for a monetary penalty not to exceed $10,000 for
each violation and to revoke or suspend a license or permit of the
customs broker pursuant to the procedures set forth in section 641(d).
Further, it holds that the penalty shall be assessed in the same manner
and under the same procedures as the monetary penalties provided for in
section 641(d)(2)(A). See 19 U.S.C. 1641(d)(2)(A). 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 19 CFR 111, subpart E.
Proposed paragraph (g) sets forth the conditions under which CBP
may assess a monetary penalty and the maximum amount that a penalty may
be assessed for. CBP may, at its discretion, assess a monetary penalty
for a broker's failure to collect, verify, secure, retain, update, or
make available for inspection the information in this section in an
amount not to exceed $10,000 per client. CBP could also choose to
revoke or suspend the customs broker's license or permit in accordance
with 19 U.S.C. 1641(d)(2)(B).
F. Timing of Verifications
Proposed paragraph (h) of section 111.43 provides the different
timing requirements for verifications based on whether it is a
prospective or existing client. This is to allow customs brokers that
are not already collecting, verifying, and maintaining the information,
additional time to start complying with the requirements for existing
clients.
For prospective clients, customs brokers would be required to
comply with proposed 19 CFR 111.43 as of the effective date of the
final rule. A customs broker would not be permitted to begin
transacting customs business on behalf of that client until the broker
collected the required information and verified the client's identity.
The broker would also be required to reverify the client's identity on
an annual basis.
For existing clients with a POA issued by a partnership, customs
brokers would have two years from the effective date of the final rule
to verify the client's identity, and to update the necessary
identification and verification records. This is because, as discussed
above, unlike all other POAs, a POA issued by a partnership is limited
to a period not to exceed two years from the date of execution. See 19
CFR 141.34. Brokers would have to reverify the client's identity on an
annual basis after the initial verification.
For all other existing clients, customs brokers would have three
years from the effective date of the final rule to verify the client's
identity, and to update the necessary identification and verification
records. The three-year period is to allow brokers adequate time to
verify existing client's identities pursuant to the new regulatory
requirements taking into account the number of existing POAs and the
number of hours per existing POA that the verification process will
take (see Section IV. Executive Orders 13563, 12866, and 13771 for more
detailed information). Brokers would have to reverify the client's
identity on an annual basis after the initial verification.
IV. Executive Orders 13563, 12866, and 13771
Executive Orders 13563 (``Improving Regulation and Regulatory
Review'') and 12866 (``Regulatory Planning and Review'') direct
agencies to assess the costs and benefits of available regulatory
alternatives and, if regulation is necessary, to select regulatory
approaches that maximize net benefits (including potential economic,
environmental, public health and safety effects, distributive impacts,
and equity). Executive Order 13563
[[Page 40308]]
emphasizes the importance of quantifying both costs and benefits, of
reducing costs, of harmonizing rules, and of promoting flexibility.
Executive Order 13771 (``Reducing Regulation and Controlling Regulatory
Costs'') directs agencies to reduce regulation and control regulatory
costs and provides that ``for every one new regulation issued, at least
two prior regulations be identified for elimination, and that the cost
of planned regulations be prudently managed and controlled through a
budgeting process.''
This rule is not designated a ``significant regulatory action''
under section 3(f) of Executive Order 12866. Accordingly, the rule has
not been reviewed by the Office of Management and Budget. As this rule
is not a significant regulatory action, it is exempt from the
requirements of Executive Order 13771. See OMB's Memorandum titled
``Guidance Implementing Executive Order 13771, Titled `Reducing
Regulation and Controlling Regulatory Costs' '' (April 5, 2017). The
regulatory amendments in this rule are the result of the Trade
Facilitation and Trade Enforcement Act of 2015 (TFTEA) (Pub. L. 114-
125). This rule's annualized net regulatory cost is $11.7 million using
a 7 percent discount rate and 2017 U.S. dollars. CBP has prepared the
following analysis to help inform stakeholders of the impacts of this
proposed rule.
1. Need and Purpose of Rule
CBP is one of several agencies that are responsible for issuing
regulations governing the importation of goods into the United States.
As this process is complex and involves compliance with numerous
requirements ranging from agricultural safety to intellectual property
rights, to the payment of appropriate duties and fees, CBP licenses
customs brokers to assist importers with the importation process. As
brokers are knowledgeable about the legal requirements and often have a
great deal of visibility into their clients' businesses, they are key
partners to CBP in preventing fraud and ensuring that the correct
amount of revenue is collected. However, brokers' knowledge of their
importer clients can vary as there is no current requirement that
standardizes the collection and verification of broker's information
about their clients. Most brokers verify their clients' information
prior to conducting business with them, even absent a requirement to do
so, but some do not and there is no universal standard for this
verification. CBP has for many years provided guidance on this matter,
but it is non-binding, and not all brokers follow it. We note that
CBP's guidance closely follows industry best practice standards that
many brokers have been following for years and CBP's guidance
standardizes and publicizes the best practices. CBP does not have
evidence indicating the guidance changed industry's behavior. As such,
brokers who properly verify their importers impose a higher burden on
themselves and their clients than brokers who do not properly verify
their clients. Also, importers who intend to commit fraud or are
otherwise reluctant to share their information likely gravitate toward
brokers who do not thoroughly verify their clients' information. This
puts brokers who properly verify importers' identities at a competitive
disadvantage and makes it easier for fraudulent importers to remain
undetected.
Section 116, Customs Broker Identification of Importers, of TFTEA
requires CBP to prescribe regulations governing the customs broker
identification of importers. This proposed rule would satisfy this
requirement by setting minimum standards for importers to provide the
information and for customs brokers to collect this information and
verify the identity of their importer or nonresident importer clients.
The definition of the term ``client'' is the importer or nonresident
importer of record who is seeking or employing the services of a
customs broker to transact customs business on behalf of the importer
or nonresident importer of record. The definition of the term
``grantor'' is the individual executing the power of attorney on behalf
of the client. This regulation would reduce fraud by helping to
eliminate the use of shell or shelf companies, protect U.S. Government
revenue, and ensure level competitiveness among brokers.
2. Background
Each year, approximately 350,000 importers actively transact
customs business with CBP through one of approximately 2,093 permitted
customs brokers.\7\ By regulation, each importer is required to have a
Power of Attorney (POA) with the broker before the broker may transact
customs business on behalf of the client. In addition to assisting the
importer with its filings, the broker has an important function in
preventing fraud. As an importer's agent and CBP-licensed entity, the
broker is uniquely situated to verify specific data on its importer and
nonresident importer clients. The most timely and efficient way for a
broker to request identity-verifying information is to do so at the
point of the POA development. A valid POA is the written appointment of
the broker as the true and lawful agent of the principal (i.e., client)
allowed to transact ``customs business'' in the name of that principal.
The broker's own professional business interest and continuing
obligation to demonstrate reasonable care involves determining that a
POA is valid. Currently, the information required for a valid POA is
limited to:
---------------------------------------------------------------------------
\7\ Source: Email correspondence with CBP's Broker Management
Branch, Office of Trade [hereinafter referred to as CBP's Broker
Management Branch], on August 15, 2017.
---------------------------------------------------------------------------
(1) A statement from the principal authorizing the broker to act as
the principal's agent and for the customs broker to file entry/entry
summary in the principal's name for a shipment;
(2) The name of the individual or authorized representative of the
sole proprietorship, partnership, or corporation executing the POA; and
(3) The name and address of the individual or business on whose
behalf the POA is being executed.
As noted previously, the vast majority of customs brokers verify
their clients' identity and industry groups have established best
practices for doing so over the years. While there is no current
requirement for brokers to verify their client's information prior to
transacting customs business on their behalf and only a limited amount
of information is required for a valid POA, the majority of brokers
currently require importers to provide them with certain additional
information when a POA is obtained from an importer, which is used by
the broker to verify the importer's existence and identity. This
includes, but is not limited to, the registration of the importer's
business with a state government and the Articles of Incorporation
under which that business is formed. As this validation is important to
prevent fraud and to protect a broker's business interests, CBP
provides non-binding guidance on how brokers can validate importers
when they obtain a POA. For example, CBP recommends that a broker
should, whenever possible, do the following: \8\
---------------------------------------------------------------------------
\8\ Source: U.S. Customs and Border Protection, ``Validating the
Power of Attorney.'' Last published May 25, 2018. Available at
https://www.cbp.gov/trade/programs-administration/customs-brokers/validating-power-attorney. Accessed May 31, 2018.
---------------------------------------------------------------------------
(1) Complete POAs in-person and review personal identification
(driver's license, passport, etc.);
(2) Check applicable websites to verify the business registration
with State authorities;
[[Page 40309]]
(3) Confirm business's trade or fictitious names that may appear on
the POA;
(4) Verify that the importer's name, importer number, and Employer
Identification Number (EIN) (also known as the Federal Tax
Identification Number) on the POA match what is in CBP's Automated
Commercial Environment (ACE); and
(5) Check whether an importer is named as a sanctioned or
restricted person or entity by the U.S. Government.
This proposed rule standardizes the process by which brokers verify
the identities of their importer clients by requiring that the broker
collect specified identity-verifying information from the client at the
time the POA is obtained and mandating procedures for the broker to
verify the importer client's identity. Since CBP has determined that it
is most efficient for brokers to collect this information and verify at
the time the POA is obtained, this analysis uses the number of POAs
created and existing to determine when the importer client's identity
must be verified pursuant to this proposed rule's requirements.
According to CBP's Broker Management Branch and conversations with
members of the trade community, including one of the major broker
associations and some individual brokers, for the vast majority--about
95 percent--of POAs obtained by brokers, the broker has sufficiently
verified the importer client's identity, a process that takes about 2
hours per POA.\9\ The 2 hour time burden can be divided into four major
categories which include time for recordkeeping. Brokers who
sufficiently verify their clients' identity spend approximately 40
minutes to check state or local business status via appropriate
channels, 20 minutes to check their clients' business profile via
organizations such as Dun and Bradstreet,\10\ 40 minutes to access and
review credit reports, and 20 minutes for internet research on the
client's company. CBP requests comment on these estimates.
---------------------------------------------------------------------------
\9\ Source: Email correspondence with CBP's Broker Management
Branch on August 15, 2017, and numerous conversations with the trade
in August 2017. The exact percentage of customs brokers that do not
properly verify importers and nonresident importer clients is
unknowable, as no broker will readily admit that it is not
adequately verifying importer and nonresident importer information.
\10\ Source: Dun and Bradstreet. Get a Dun & Bradstreet DUNS
number. https://www.dnb.com/duns-number/get-a-duns.html. Accessed
March 28, 2019.
---------------------------------------------------------------------------
CBP estimates that approximately 100,000 new POAs are created
annually when an importer either enters into a relationship with a
broker for the first time or the particulars of the POA change and a
new one is needed.\11\ Therefore, CBP estimates that brokers currently
spend approximately 190,000 hours per year validating 95 percent of the
importer clients' identities at the time the POA is obtained. It also
takes time for importers to provide their information to their brokers
for a POA and the additional information required to verify the
client's identity. Based on conversations with the trade community, CBP
expects that it would take each importer approximately 1 hour to
provide the broker with this verifying information. Accordingly, CBP
estimates that importers currently spend approximately 95,000 hours per
year gathering the necessary information to complete a POA and the
additional information required to verify the client's identity.
---------------------------------------------------------------------------
\11\ Source: Email correspondence with CBP's Broker Management
Branch on August 16, 2017, and March 27, 2018. The actual number of
new POAs varies each year. In 2015, there were 84,520 new POAs, in
2016 there were 101,945, and in 2017 there were 101,110.
---------------------------------------------------------------------------
3. Impacts of Rule
CBP proposes to formalize the process by which customs brokers
verify importers and nonresident importer clients. This proposed rule
would require the broker to collect specified information from the
importer client and for the broker to verify the information from
importers before it begins working under a new POA allowing the broker
to transact customs business on behalf of the client.\12\ In addition,
within three years of the effective date of this proposed rule being
finalized,\13\ brokers would also need to verify this information from
existing clients.\14\ Additionally, brokers must continue to make and
retain identification and verification records. This requirement would
be enforceable according to the recordkeeping requirements of current
broker regulations in 19 CFR part 111 and part 163. Finally, brokers
will now be required to reverify the client's identity and update their
records annually with any changes to the client, POA, or information in
the records.
---------------------------------------------------------------------------
\12\ Many brokers currently collect more information than what
this proposed rule requires and they may continue to do so. This
proposed rule simply establishes a minimum threshold of information
that the client must provide and that the broker must verify.
\13\ For any existing client with a POA issued by a partnership,
the broker also must verify the client's identity. Existing clients
with partnership POAs will need to have their identities verified
within two years from the effective date of this proposed rule being
finalized and reverified every year thereafter. However, according
to subject matter experts from CBP's Broker Management Branch,
partnership POAs represent less than 1% of active POAs, though we
lack data on the precise number of partnership POAs. To the extent
partnership POAs are affected, it will increase broker costs by a
small amount because they may require verification sooner than
estimated.
\14\ Source: Email correspondence with CBP's Broker Management
Branch on May 17, 2017.
---------------------------------------------------------------------------
The information that the customs broker would now be required to
collect, at minimum, from the importer client under this proposed rule
is as follows, if applicable:
The client's name;
For a client who is an individual, the client's date of
birth;
For a client that is a partnership, corporation, or
association, the grantor's date of birth;
For a client that is a partnership, corporation, or
association, the client's trade or fictitious names;
The address of the client's physical location (for a
client that is a partnership, corporation, or association, the physical
location would be the client's headquarters) and telephone number;
The client's email address and business website;
A copy of the grantor's unexpired government-issued photo
identification;
The client's Internal Revenue Service (IRS) number,
Employer Identification Number (EIN), or Importer of Record (IOR)
number;
The client's publicly available business identification
number (e.g., DUNS number, etc.);
A recent credit report;
A copy of the client's business registration and license
with state authorities; and
The grantor's authorization to execute power of attorney
on behalf of client.
Importer clients can obtain a DUNS number without cost and already
report their DUNS number on CBP Form 5106. Brokers can verify the DUNS
number online for free. The time it takes to do this is included in the
estimated time to verify an importer client's information.
The broker must collect all the information that is applicable to
that particular client. Some information might not be applicable to a
client depending on whether the client is an individual, partnership,
corporation or association. For example, a small business might not
have a business website; and a client who is an individual would not
have a business registration and license with state authorities or a
publicly available business identification number. Additionally,
certain foreign jurisdictions do not provide credit reports;
accordingly, if the address of
[[Page 40310]]
the client's physical location is located in one of those
jurisdictions, the broker is not required to collect a recent credit
report from that client.
Once customs brokers collect this data from importers and
nonresident importers, brokers would need to check to determine whether
the importer client is named as a sanctioned or restricted person or
entity by the U.S. Government, or if the client is suspended or
debarred from doing business with the U.S. Government, and would need
to verify all the information collected from the importer client using
various federal agency, state government, and publicly available data
sources. The means of verification are at the customs broker's
discretion. The broker must use as many of the recommended verification
means as necessary to be reasonably certain as to the client's
identity. Some of the tools that are recommended for verifying this
information include:
A check of the appropriate websites to determine whether
the client is named as a sanctioned or restricted person or entity by
the U.S. Government, or if the client is suspended or debarred from
doing business with the U.S. Government;
An in-person review of the grantor's unexpired government-
issued identification;
An in-person client meeting;
An in-person visit of the client's place of business;
A review of the client's Articles of Incorporation; and
A query of publicly available information, business
information and credit reporting entities, Federal, state, and local
databases or websites and any other relevant trade or business sources.
As previously stated, conscientious brokers already require
information from the importer or nonresident importer client in order
to verify the client's identity. According to CBP's Broker Management
Branch and conversations with the trade community, for approximately 5
percent of POAs, the brokers do not require most or any of this
additional information and the importer clients' identities are not
currently verified or are only minimally verified.\15\ As a result of
this rule, all brokers will be required to verify all of the specified
information collected from the client to verify the client's existence
and identity for all POAs granted by importers and nonresident importer
clients and this information will need to be reverified annually. CBP
analyzes the costs and benefits of these new requirements over a 5-year
period of analysis spanning from 2019 to 2023.
---------------------------------------------------------------------------
\15\ Source: Email correspondence with CBP's Broker Management
Branch on August 15, 2017. The exact percentage of customs brokers
that do not properly verify importers and nonresident importer
clients is unknowable because no broker will readily admit that it
is not adequately verifying importer and nonresident importer
information.
---------------------------------------------------------------------------
4. Costs
Costs to Brokers
Brokers currently have approximately 350,000 POAs with importer
clients, for which brokers would now need to verify the client's
identity under this rule within three years of the effective date of
this proposed rule being finalized. CBP assumes that brokers would
verify the importer client's identity for one-third of these existing
POAs each year beginning in 2019--or about 116,666 each year from 2019
to 2021--to satisfy this rule's new verification requirement (see Table
1).\16\ These existing verifications would each take approximately 2
hours and can be divided into four distinct time-burden categories that
were identified earlier.17 18 There is a time cost of $59.52
each, according to CBP's assumed hourly time value for customs brokers
of $29.76.19 20 Based on the historical number of POAs
created each year, CBP estimates that 100,000 new POAs would be created
each year between 2019 and 2023 (see Table 1). CBP estimates that in
the absence of this rule, brokers would have verified 95 percent of the
importer clients' identities for new POAs--or 95,000 POAs--while the
remaining 5 percent--or 5,000--new POAs would have the clients'
identities go unverified based on historical estimates. According to
CBP's Broker Management Branch, this rule's verification requirements
would not increase the time burden for the 95 percent of instances
where brokers verify the importer client's identity for each new POA.
The specific information brokers currently require may be different
than the information required under this rule, but we estimate that it
takes approximately two hours to verify either set of data. As such,
this rule will have no additional time burden to do the initial
validation of the importer client's identity for the POA. The remaining
5 percent of brokers who do not currently verify the client's identity
would incur a two-hour time burden for the verification of the importer
client's identity for a POA under this rule,\21\ at an added time cost
of $59.52 per new POA according to CBP's assumed hourly time value for
customs brokers.\22\
---------------------------------------------------------------------------
\16\ Source: Email correspondence with CBP's Broker Management
Branch on August 15, 2017.
\17\ The two hours includes the time to implement policies,
procedures and internal controls for identity verification, and to
keep records containing the information used to verify the importer.
\18\ Source: Email correspondence with CBP's Broker Management
Branch on August 15, 2017.
\19\ 2-hour time burden for broker to verify information of the
client's identity for an existing POA x $29.76 hourly time value for
customs brokers = $59.52 time cost.
\20\ CBP bases the $29.76 hourly time value for customs brokers
on the Bureau of Labor Statistics' (BLS) 2017 median hourly wage
rate for Cargo and Freight Agents ($20.11), which CBP assumes best
represents the wage for brokers, by the ratio of BLS' average 2017
total compensation to wages and salaries for Office and
Administrative Support occupations (1.4801), the assumed
occupational group for brokers, to account for non-salary employee
benefits, and rounded. Source of median wage rate: U.S. Bureau of
Labor Statistics. Occupational Employment Statistics, ``May 2017
National Occupational Employment and Wage Estimates, United States--
Median Hourly Wage by Occupation Code: 43-5011.'' Updated March 30,
2018. Available at https://www.bls.gov/oes/2017/may/oes_nat.htm#43-0000 . Accessed March 26, 2019. The total compensation to wages and
salaries ratio is equal to the calculated average of the 2017
quarterly estimates (shown under Mar., June, Sep., Dec.) of the
total compensation cost per hour worked for Office and
Administrative Support occupations divided by the calculated average
of the 2017 quarterly estimates (shown under Mar., June, Sep., Dec.)
of wages and salaries cost per hour worked for the same occupation
category. Source of total compensation to wages and salaries ratio
data: U.S. Bureau of Labor Statistics. Employer Costs for Employee
Compensation. Employer Costs for Employee Compensation Historical
Listing March 2004-December 2018, ``Table 3. Civilian workers, by
occupational group: Employer costs per hours worked for employee
compensation and costs as a percentage of total compensation, 2004-
2018 by Respondent Type: Office and administrative support
occupations.'' Available at https://www.bls.gov/web/ecec/ececqrtn.pdf. Accessed March 26, 2019.
\21\ Source: Email correspondence with CBP's Broker Management
Branch in March 2018. The 100,000 figure is a rounded average of the
number of POAs that were filed in 2015 (84,520), 2016 (101,945), and
2017 (101,110).
\22\ 2-hour added time burden for broker to verify information
of the importer's identity for a new POA x $29.76 hourly time value
for customs brokers = $59.52 time cost.
[[Page 40311]]
Table 1--Projected Number of POAs Requiring Broker Verification With Rule
----------------------------------------------------------------------------------------------------------------
Existing POAs New POAs Total POAs
requiring requiring requiring
Year identity- identity- identity-
verification verification verification
----------------------------------------------------------------------------------------------------------------
2019............................................................ 116,667 5,000 121,667
2020............................................................ 116,667 5,000 121,667
2021............................................................ 116,666 5,000 121,667
2022............................................................ 0 5,000 5,000
2023............................................................ 0 5,000 5,000
-----------------------------------------------
Total....................................................... 350,000 25,000 375,000
----------------------------------------------------------------------------------------------------------------
To estimate the total time cost for brokers to verify existing
importer clients' identities, CBP multiplies the projected number of
existing POAs requiring identity-verification during the period of
analysis shown in Table 1 by the $59.52 time cost to complete each
identity-verification of an existing client by measuring the existing
POAs. Accordingly, CBP finds that brokers would incur undiscounted
costs totaling $20.8 million to verify existing clients' identities
from 2019 to 2023 following this rule's implementation (see Table 2).
Brokers who do not already conduct client identity verifications would
sustain a total time cost of $1.5 million for verification of the
importer client's identity based on their $59.52 added time burden and
their projected number of client identities verified measured by the
number of projected POAs over the period of analysis (see Table 1 and
Table 2). Altogether, the total undiscounted cost of this rule to
brokers would measure $22.3 million from 2019 to 2023.
Table 2--Total Cost for Brokers To Verify Client's Identity for Existing and New POAs With Rule
[Undiscounted 2017 U.S. dollars]
----------------------------------------------------------------------------------------------------------------
Total time
cost for
Time cost to Time cost to brokers to
Year verify verify new verify
existing POAs POAs existing and
new POAs
----------------------------------------------------------------------------------------------------------------
2019............................................................ $6,944,020 $297,600 $7,241,620
2020............................................................ 6,944,020 297,600 7,241,620
2021............................................................ 6,944,020 297,600 7,241,620
2022............................................................ 0 297,600 297,600
2023............................................................ 0 297,600 297,600
-----------------------------------------------
Total....................................................... 20,832,000 1,488,000 22,320,000
----------------------------------------------------------------------------------------------------------------
Additionally, as a result of this rule, customs brokers will need
to update their records and reverify on an annual basis that the POA
information, and the identification and verification records for their
importer clients is accurate. According to CBP's Broker Management
Branch, there are approximately 350,000 active importers of record
(IORs) in any given year and that is not expected to change
significantly--on average any new IORs are offset by IORs that become
inactive.\23\ Brokers will now have to verify all 350,000 existing
client's identities as measured by the existing POAs within three years
of the effective date of this proposed rule being finalized and
reverify the client's identity annually thereafter. As discussed
earlier, we expect brokers to do the initial verification evenly over
the course of the first three years (see Table 1). The reverifications,
then, will lag the initial verifications by a year. As the new
importers are offset by importers who become inactive, brokers will
need to reverify 350,000 existing clients' identities each year, after
the initial 3-year verification window. Table 3 shows the number of
verifications we estimate for each year. These verifications would each
take approximately 45 minutes (.75 hours) to complete,\24\ at a time
cost of $22.32 each, according to CBP's assumed hourly time value for
customs brokers of $29.76.\25\ Table 3 shows the estimated costs of
this reverification. The total undiscounted cost to verify and update
recordkeeping requirements for existing and prospective clients as
measured by existing and new POAs is $23,436,022 over the period of the
analysis.
---------------------------------------------------------------------------
\23\ Source: Email correspondence with CBP's Broker Management
Branch on April 12, 2018.
\24\ Source: Email correspondence with CBP's Broker Management
Branch on March 20, 2018.
\25\ 0.75-hour time burden for broker to verify information of
the importer client's identity for an existing POA x $29.76 hourly
time value for customs brokers = $22.32 time cost.
Table 3--Total Cost for Brokers To Verify and Update Recordkeeping
Requirements for Existing and New Clients With Rule
[Undiscounted 2017 U.S. dollars]
------------------------------------------------------------------------
Total POAs
requiring Total time
Year annual cost to
reverification reverify POAs
------------------------------------------------------------------------
2019.................................... 0 $0
2020.................................... 116,667 2,604,007
2021.................................... 233,334 5,208,015
2022.................................... 350,000 7,812,000
2023.................................... 350,000 7,812,000
-------------------------------
Total................................. 1,050,000 23,436,022
------------------------------------------------------------------------
Costs to Importers
In addition to its costs to brokers, this rule would impose costs
on the broker's existing and prospective importer clients now required
to provide additional identity-verifying data to brokers for their
existing and new POAs. Based on conversations with the trade
[[Page 40312]]
community, CBP assumes that each existing POA corresponds to a unique
importer of record.\26\ As a result, CBP estimates that 350,000
existing importer clients would provide identity-verifying data to
brokers for 350,000 existing POAs within three years of the effective
date of this proposed rule being finalized (see Table 1). CBP expects
that it would take each importer approximately one hour to provide the
broker with this identity-verifying information, at a time cost of
$29.76 according to CBP's assumed hourly time value for importers of
$29.76.27 28 Considering this time cost and the projected
number of existing POAs where the importer's identity must be verified
during the period of analysis (see Table 1), CBP finds that importers
would incur a total cost of $10.4 million to provide identity-verifying
information to their brokers for existing POAs (see Table 4). For new
POAs where the importer's identity must be verified, CBP estimates that
importers already provide most of the additional identity-verifying
information required in this rule to brokers for 95 percent--or
95,000--of new POAs each year. As stated above, while the specific
information brokers require currently may vary, it is generally very
similar to what this rule requires that the brokers collect. Hence, CBP
assumes these importers would not incur an added burden to provide
identity-verifying information to their brokers with this rule beyond
what they already bear. For the remaining 5 percent--or 5,000--of POAs
where the importer's identity is not currently verified, this rule
would require brokers to collect such information from their clients.
Like with existing POAs, CBP believes that it would take each importer
approximately one hour to provide the broker with this identity-
verifying information, at a time cost of $29.76 according to CBP's
assumed hourly time value for importers of $29.76.\29\ By applying this
time cost to the 5,000 new POAs where the importer's identity would not
be verified absent this rule, CBP estimates that some importers would
sustain undiscounted costs totaling $0.7 million over the period of
analysis from this rule's identity-verifying data submission
requirement (see Table 4). In all, this rule would impose undiscounted
costs of $11.2 million on importers between 2019 and 2023, as
illustrated in Table 4.
---------------------------------------------------------------------------
\26\ Some importers have several importer of record numbers, but
each requires its own POA.
\27\ 1-hour time burden for importer to provide broker with the
required information to verify the importer's identity for an
existing POA x $29.76 hourly time value for importers = $29.76 time
cost.
\28\ CBP bases the $29.76 hourly time value for importers on the
Bureau of Labor Statistics' (BLS) 2017 median hourly wage rate for
Cargo and Freight Agents ($20.11), which CBP assumes best represents
the wage for importers, by the ratio of BLS' average 2017 total
compensation to wages and salaries for Office and Administrative
Support occupations (1.4801), the assumed occupational group for
importers, to account for non-salary employee benefits, and rounded.
Source of median wage rate: U.S. Bureau of Labor Statistics.
Occupational Employment Statistics, ``May 2017 National Occupational
Employment and Wage Estimates, United States--Median Hourly Wage by
Occupation Code: 43-5011.'' Updated March 30, 2018. Available at
https://www.bls.gov/oes/current/oes_nat.htm. Accessed March 26,
2019. The total compensation to wages and salaries ratio is equal to
the calculated average of the 2017 quarterly estimates (shown under
Mar., June, Sep., Dec.) of the total compensation cost per hour
worked for Office and Administrative Support occupations divided by
the calculated average of the 2017 quarterly estimates (shown under
Mar., June, Sep., Dec.) of wages and salaries cost per hour worked
for the same occupation category. Source of total compensation to
wages and salaries ratio data: U.S. Bureau of Labor Statistics.
Employer Costs for Employee Compensation. Employer Costs for
Employee Compensation Historical Listing March 2004-December 2018,
``Table 3. Civilian workers, by occupational group: employer costs
per hours worked for employee compensation and costs as a percentage
of total compensation, 2004-2017 by Respondent Type: Office and
administrative support occupations.'' Available at https://www.bls.gov/web/ecec/ececqrtn.pdf. Accessed March 26, 2019.
\29\ 1-hour time burden for importer to provide broker with
information to verify the importer's identity for a new POA x $29.76
hourly time value for importers = $29.76 time cost.
Table 4--Total Cost for Importers To Provide Identity-Verifying Data for Existing and New POAs With Rule
[Undiscounted 2017 U.S. dollars]
----------------------------------------------------------------------------------------------------------------
Total time
Time cost for cost for
existing Time cost for importers to
importers to new importers provide data
Year provide to provide for
verifying data data for verification
for existing verification of existing
POAs and new POAs
----------------------------------------------------------------------------------------------------------------
2019............................................................ $3,472,010 $148,800 $3,620,810
2020............................................................ 3,472,010 148,800 3,620,810
2021............................................................ 3,471,980 148,800 3,620,810
2022............................................................ 0 148,800 148,800
2023............................................................ 0 148,800 148,800
-----------------------------------------------
Total....................................................... 10,416,000 744,000 11,160,000
----------------------------------------------------------------------------------------------------------------
Brokers are required to obtain recent credit reports from their
client importers for use in the verification process. We next estimate
the cost of running credit reports to the importer. It is common
practice among businesses to periodically run their own credit report,
so we expect most importers to simply provide the broker with a
previously run credit report. For the purposes of this analysis, we
again assume that 95% of importers are already providing their credit
report to the broker or that they routinely run their own credit report
for their own purposes. There is not a financial cost to these
importers.\30\ The remaining 5 percent or approximately 5,000 importers
will incur a costs by purchasing credit reports with credit scores from
each of the credit bureaus (Equifax, Experian, and Transunion). The
three reports costs approximately $40.\31\ Table 5 shows the costs to
importers working with brokers not currently accessing free credit
reports from their clients.
---------------------------------------------------------------------------
\30\ Source: Communication with CBP's Broker Management Branch
on March 23, 2019, and numerous conversations with the trade in
August 2017. During the March 23, 2019 discussion with the Broker
Management Branch, the branch noted that there can be a cost to
brokers for collecting credit reports that range between $35 to $50
depending on the source.
\31\ Source: Experian. Consumer Products. https://www.experian.com/consumer-products/experian-equifax-transunion-credit-report-and-score.html. Accessed March 27, 2019.
[[Page 40313]]
Table 5--Cost of Credit Report for Importers
[Undiscounted 2017 U.S. dollars]
------------------------------------------------------------------------
New POAs
requiring Credit report
Year identity- costs
verification
------------------------------------------------------------------------
2019.................................... 5,000 $200,000
2020.................................... 5,000 200,000
2021.................................... 5,000 200,000
2022.................................... 5,000 200,000
2023.................................... 5,000 200,000
-------------------------------
Total................................. 25,000 1,000,000
------------------------------------------------------------------------
Total Costs
Table 6 summarizes the costs of this rule to brokers and importers.
Altogether, this rule would impose a total undiscounted cost of $57.9
million on the trade community from 2019 to 2023.
Table 6--Total Cost of Rule to Brokers and Importers
[Undiscounted 2017 U.S. dollars]
------------------------------------------------------------------------
Total cost of
Year importer ID
rule
------------------------------------------------------------------------
2019.................................................... $11,062,430
2020.................................................... 13,666,437
2021.................................................... 16,270,355
2022.................................................... 8,458,400
2023.................................................... 8,458,400
---------------
Total................................................. 57,916,022
------------------------------------------------------------------------
When discounted, as shown in Table 7, this cost would measure $51.4
million in present value and $11.7 million on an annualized basis
(using a 7 percent discount rate and 2017 U.S. dollars).
Table 7--Total Monetized Present Value and Annualized Costs of Rule,
2019-2023
[2017 U.S. dollars]
------------------------------------------------------------------------
3% Discount 7% Discount
rate rate
------------------------------------------------------------------------
Present Value Cost...................... $54,922,999 $51,403,406
Annualized Cost......................... 11,643,386 11,716,647
------------------------------------------------------------------------
Note: The estimates in this table are contingent upon CBP's projections
as well as the discount rates applied.
5. Benefits
Most brokers are already verifying the identity of their
prospective clients when they begin their business relationship, but
there are some who do not. Based on conversations with the broker
community, CBP estimates that five percent of importers' identities are
not currently verified or are only minimally verified. Those who do not
wish to be thoroughly verified sometimes ``broker shop'' for a broker
that does not require the same amount of verifying information. While
some importers simply do not want to share more information with their
brokers than is required, others intend to commit fraud and import
illicit and/or counterfeit goods into the United States. These
fraudulent importers seek out brokers who do not ask for verifying
information in order to use a shell or shelf company to import
fraudulent goods into the United States. When the customs broker or CBP
discovers the illegal activities and attempts to penalize the shell or
shelf company, it disappears. By formalizing the verification process
for importers and requiring that it be carried out every year, this
proposed rule would help prevent the use of shell or shelf companies by
importers who attempt to commit fraud against the United States.
The fraud this proposed rule is intended to prevent can take a
number of forms. It can range from misclassifying merchandise to avoid
duties to intellectual property rights (IPR) violations, to
antidumping/countervailing duty (AD/CVD) infractions, to the
importation of unsafe merchandise. CBP believes that this proposed rule
would improve brokers' knowledge of the importers. This improved broker
knowledge could allow for commercial fraud prevention and revenue
protection. According to CBP's Broker Management Branch, from
approximately 2007 to 2017, there was about $3.3 billion in uncollected
duties related to AD/CVD violations by shell companies. Fifteen percent
of these business entities are out of business. Their business model is
to open, import merchandise subject to AD/CVD for a short period of
time, and then shut down operations and disappear to avoid paying the
required duties.\32\ As CBP cannot find the party responsible for
importing, the duties can remain unpaid forever. Similarly, these shell
companies frequently engage in the trade of counterfeit and pirated
goods. The Organization for Economic Cooperation and Development
estimates that counterfeit and pirated products accounted for as much
as $461 billion dollars in world trade in 2013.\33\ This proposed rule
will help prevent companies from engaging in these types of fraud
because they will need to share real, verified information with their
broker, which will make it much more difficult for those liable to
disappear.
---------------------------------------------------------------------------
\32\ Source: Email correspondent with CBP's Broker Management
Branch on April 20, 2018.
\33\ Source: Trade in Counterfeit and Pirated Goods: Mapping the
Economic Impact. Accessed April 25, 2018. http://www.oecd.org/industry/global-trade-in-fake-goods-worth-nearly-half-a-trillion-dollars-a-year.htm.
---------------------------------------------------------------------------
When shell or shelf companies importing goods into the United
States do disappear before paying outstanding customs bills for duties,
taxes and fees, CBP must collect the outstanding debt from sureties who
issue bonds for the imported merchandise. The amount of duties, taxes,
and fees that CBP may collect from sureties is limited by the value of
the bond. In some instances, the bond value is insufficient to cover
all outstanding duties, taxes, and fees owed by the importer.
Consequently, there is a loss of revenue for CBP. At the same time,
sureties incur additional costs to cover the duties, taxes, and fees
collected against the bonds. This proposed rule will allow brokers to
more effectively vet importers and reduce the number of bad actors.
This will decrease revenue loss for the government and reduce costs
incurred by sureties.
Reducing fraud by shell or shelf companies is a benefit to all
parts of the economy. The United States Government would benefit by
collecting the appropriate revenue for imported merchandise. To the
extent that it avoids fruitless enforcement actions against shell or
shelf companies that disappear, it would also save on
[[Page 40314]]
enforcement costs. Brokers would benefit as they would have better
knowledge of their importers and would be better able to avoid engaging
in business with fraudulent companies. Brokers would also benefit
through the leveling of the playing field in obtaining new clients or
retaining current clients. Currently, brokers who properly verify their
importer client's identity when the POA is obtained incur costs
verifying the importer's identity and can lose customers to brokers who
do not ask importers for information to verify their identity. This
proposed rule would eliminate the opportunity to ``broker shop'' for a
broker that does not require as much identifying information from the
importers. The larger trade community would benefit from this proposed
rule as it would reduce identity theft, the number of counterfeit or
IPR-violative imports, and it would help enforce AD/CVD laws. The
American public would benefit through any reduction in unsafe
merchandise that results from this proposed rule. Finally, this
proposed rule fulfills the congressional mandate in TFTEA that CBP
issue regulations governing the broker identification of importers.
V. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.), as amended
by the Small Business Regulatory Enforcement and Fairness Act of 1996,
requires agencies to assess the impact of regulations on small
entities. A small entity may be a small business (defined as any
independently owned and operated business not dominant in its field
that qualifies as a small business per the Small Business Act); a small
not-for-profit organization; or a small governmental jurisdiction
(locality with fewer than 50,000 people).
This proposed rule will affect all customs brokers and IORs. The
vast majority of customs brokers and importers are small businesses, so
this rule would have an impact on a substantial number of small
entities. However, these impacts will not be significant. As stated
above, as a result of this rule, brokers would need to collect
identity-verifying information from both their existing importer
clients and prospective importer clients within three years of the
effective date of this proposed rule being finalized.\34\ CBP estimates
that the monetized value of time spent by importers to provide this
data costs $29.76 per POA. Additionally about five percent of importers
not currently working with brokers requesting credit reports with
scores might incur a $40 fee, as noted above. CBP does not consider the
time cost of $29.76 and possibly a $40 fee to be a significant cost to
importers. It is possible that some importers may have more than one
IOR number and therefore more than one POA where their identity would
need to be verified, but that is less likely for small businesses. We
note that even in an extreme case where a small business has 10 POAs
for each of its IOR numbers, the time cost would be only $297.60 (or
even less if there are efficiencies in submitting similar information
multiple times) with a possible $40 credit report fee, which CBP also
does not consider a significant impact.
---------------------------------------------------------------------------
\34\ For any existing client with a POA issued by a partnership,
the broker also must verify the client's identity. Existing clients
with partnership POAs will need to have their identities verified
within two years from the effective date of this proposed rule being
finalized and reverified every year thereafter. However, according
to subject matter experts from CBP's Broker Management Branch,
partnership POAs represent less than 1% of active POAs, though we
lack data on the precise number of partnership POAs. To the extent
partnership POAs are affected, it will increase broker costs by a
small amount.
---------------------------------------------------------------------------
Brokers would incur costs associated with verifying their importer
client's identity whether they are prospective or existing clients.
Above, as seen in Tables 2 and 3 we estimate that in the most costly
year (2021), 2,093 permitted brokers bear total costs of $12,449,635
for an average of $5,948.22 per permitted broker. However, it is
unlikely that the burden is spread evenly among brokers; those with
more clients would need to verify more importer clients' identities, so
their costs would be higher. To estimate the burden per broker and to
assess whether the burden is significant, we will go through the
following steps:
Estimate the number of small brokers in various revenue
categories.
Per each category of brokers, estimate the additional
number of POAs for which brokers will need to verify the importer
client's identity.
Estimate the cost per permitted broker of these
verifications.
Estimate the ratio of costs to annual revenue to assess
whether the costs are significant.
To estimate the number of small brokers in different size
categories, we use data from the U.S. Census Bureau. The U.S. Census
Bureau categorizes customs brokers under the North American Industry
Classification System (NAICS) code 488510, which also includes other
businesses such as freight forwarders.\35\ The Small Business
Administration (SBA) considers a business entity classified under the
488510 NAICS code as small if it has less than $15 million in annual
receipts.\36\ As shown in Table 8, 95 percent of businesses classified
under this NAICS code are small businesses. For the purposes of this
analysis, we will assume that all brokers are small businesses. To the
extent some are not, the impact on small businesses will be smaller
than estimated in this analysis. We estimate the number of firms in
each revenue category by allocating the 2,093 permitted brokers
proportionally to the number of total firms in the NAICS code.
---------------------------------------------------------------------------
\35\ Source: U.S. Census. http://www.census.gov/cgi-bin/sssd/naics/naicsrch?code=488510&search=2012%20NAICS%20Search. Accessed
August 8, 2018.
\36\ Source: U.S. Small Business Administration. Table of Small
Business Size Standards Matched to North American Industry
Classification System Codes. https://www.sba.gov/sites/default/files/files/Size_Standards_Table_2017.pdf. Accessed March 21, 2019.
Table 8--Business Entity Data for NAICS Code 488510
----------------------------------------------------------------------------------------------------------------
Estimated
Number of number of
Annual revenue ($) (midpoint) firms Small permitted
brokers
----------------------------------------------------------------------------------------------------------------
<100,000 (50,000)............................................ 2,195 Yes 323
100,000-499,999 (300,000).................................... 4,935 Yes 727
500,000-999,999 (750,000).................................... 2,330 Yes 343
1,000,000-2,499,999 (1,750,000).............................. 2,429 Yes 358
2,500,000-4,999,999 (3,750,000).............................. 1,208 Yes 178
5,000,000-7,499,999 (6,250,000).............................. 540 Yes 80
7,500,000-9,999,999 (8,750,000).............................. 284 Yes 42
10,000,000-14,999,999 (12,500,000)........................... 282 Yes 42
[[Page 40315]]
>15,000,000.................................................. 815 No 0
--------------------------------------------------
Total.................................................... 15,018 * (14,203/15,018) 2,093
----------------------------------------------------------------------------------------------------------------
Source: U.S. Census Bureau. 2012 SUSB Annual Data Tables by Establishment Industry. https://www.census.gov/data/tables/2012/econ/susb/2012-susb-annual.html.
* 95 percent are small.
Now that we have estimated the number of permitted brokers in each
size category, we estimate how much of each type of IOR verification
will be done by brokers in each category. We use total annual revenue
as a proxy for the number of clients (IORs) each broker has. While
cases may exist where a broker generates a lot of revenue from just a
few IORs or conversely that a broker generates little revenue from many
IORs, on average we expect that the number of clients is well
correlated with the broker's revenue. To estimate total revenue for
each size category, we use the category's revenue midpoint. We
determine the different types of client identities that need to be
verified as existing importer clients; clients that need their POAs,
information and records to be annually reverified and updated; and
prospective clients, and we allocate these to the different types of
POAs (existing POAs requiring identity-verification, POAs needing
annual verification, and new POAs needing identity-verification)
proportionally to the total revenue for each size category. Table 9
shows the number of brokers in each revenue category, their total
revenue, and the number of each type of POA for which the brokers would
need to verify the importer client's identity under this proposed rule.
Note that we present estimates for 2021, which is the most costly year
for brokers.
Table 9--POAs by Size Category in 2021
----------------------------------------------------------------------------------------------------------------
Estimated POAs requiring New POAs
Annual revenue ($) (midpoint) number of Total revenue Existing POAs annual requiring
brokers (000 ') reverification verification
----------------------------------------------------------------------------------------------------------------
<100,000 (50,000)............... 323 $16,150 593 1,186 25
100,000-499,999 (300,000)....... 727 218,100 8,007 16,013 343
500,000-999,999 (750,000)....... 343 257,250 9,444 18,888 405
1,000,000-2,499,999 (1,750,000). 358 626,500 22,999 45,999 986
2,500,000-4,999,999 (3,750,000). 178 667,500 24,504 49,009 1,050
5,000,000-7,499,999 (6,250,000). 80 500,000 18,355 36,711 787
7,500,000-9,999,999 (8,750,000). 42 367,500 13,491 26,982 578
10,000,000-14,999,999 42 525,000 19,273 38,546 826
(12,500,000)...................
-------------------------------------------------------------------------------
Total....................... 2,093 3,178,000 116,667 233,334 5,000
----------------------------------------------------------------------------------------------------------------
We next estimate the costs per broker. In the analysis above, we
estimated that the cost per verification for existing clients'
identities for each POA and the initial verification of the prospective
client's identity for new POAs was each $59.52. Additionally, as shown
in the analysis above, the cost for each reverification of the client's
identity was $22.32. We multiply these costs to the number of POAs from
Table 9 to reach the total costs for each broker category, shown in
Table 10 below.
Table 10--Broker Costs by Size Category in 2021
----------------------------------------------------------------------------------------------------------------
Cost for Cost for new
Annual revenue ($) (midpoint) Cost for annual POAs requiring Total cost
existing POAs revalidation verification
----------------------------------------------------------------------------------------------------------------
<100,000 (50,000)............................... $35,288 $26,466 $1,512 $63,267
100,000-499,999 (300,000)....................... 476,555 357,416 20,424 854,394
500,000-999,999 (750,000)....................... 562,099 421,574 24,090 1,007,762
1,000,000-2,499,999 (1,750,000)................. 1,368,920 1,026,690 58,668 2,454,278
2,500,000-4,999,999 (3,750,000)................. 1,458,506 1,093,880 62,507 2,614,893
5,000,000-7,499,999 (6,250,000)................. 1,092,514 819,386 46,822 1,958,722
7,500,000-9,999,999 (8,750,000)................. 802,998 602,248 34,414 1,439,660
10,000,000-14,999,999 (12,500,000).............. 1,147,140 860,355 49,163 2,056,658
---------------------------------------------------------------
Total....................................... 6,944,020 5,208,015 297,600 12,449,635
----------------------------------------------------------------------------------------------------------------
[[Page 40316]]
We next calculate the cost per broker and assess whether it is a
significant impact. To calculate the cost per broker for each size
category, we simply divide the total cost for the category from Table
10 by the number of brokers in it. Then we compare the cost per broker
by the revenue per broker (again using the midpoint for each range) to
assess whether the costs significant. The results are presented in
Table 11. As shown, the costs are about 0.4 percent of revenue. CBP
does not consider this to be significant.
Table 11--Costs per Broker in 2021
----------------------------------------------------------------------------------------------------------------
Estimated
Annual revenue ($) (midpoint) number of Total cost Cost per Cost to
brokers broker revenue ratio
----------------------------------------------------------------------------------------------------------------
<100,000 (50,000)............................... 323 $63,267 $195.87 0.004
100,000-499,999 (300,000)....................... 727 854,394 1,175.23 0.004
500,000-999,999 (750,000)....................... 343 1,007,762 2,938.08 0.004
1,000,000-2,499,999 (1,750,000)................. 358 2,454,278 6,855.53 0.004
2,500,000-4,999,999 (3,750,000)................. 178 2,614,893 14,690.41 0.004
5,000,000-7,499,999 (6,250,000)................. 80 1,958,722 24,484.02 0.004
7,500,000-9,999,999 (8,750,000)................. 42 1,439,660 34,277.63 0.004
10,000,000-14,999,999 (12,500,000).............. 42 2,056,658 48,968.04 0.004
---------------------------------------------------------------
Total....................................... 2,093 12,449,635 5,948.22 ..............
----------------------------------------------------------------------------------------------------------------
In summary, this proposed rule would affect a substantial number of
importers and brokers. However, the costs do not rise to the level of
economic significance. Therefore, CBP certifies that this proposed rule
will not have a significant economic impact on a substantial number of
small entities. CBP welcomes comments on this conclusion and any
additional data.
VI. Paperwork Reduction Act
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C.
3501 et seq.), an agency may not conduct, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number assigned by OMB. The
collections of information and recordkeeping requirements related to
this NPRM will be submitted for approval by OMB under a revision and
extension of collection number 1651-0034 (CBP Regulations Pertaining to
Customs Brokers). The likely respondents are importers and customs
brokers.
Customs Brokers Verification Burden
Number of Respondents: 121,667.
Number of Responses per Respondent: 1.
Total Number of Responses: 121,667.
Time per Response: 2 hours.
Total Annual Burden Hours: 243,334.
The estimated total annual burden associated with the collection of
information in this NPRM is 243,334 hours.
VII. Signing Authority
This document is being issued in accordance with 19 CFR 0.1(b)(1),
which provides that the Secretary of the Treasury delegated to the
Secretary of Homeland Security the authority to prescribe and approve
regulations relating to customs revenue functions on behalf of the
Secretary of the Treasury for when the subject matter is not listed as
provided by Treasury Department Order No. 100-16. Accordingly, this
proposed rule to amend such regulations may be signed by the Secretary
of Homeland Security (or his or her delegate).
List of Subjects in 19 CFR Part 111
Administrative practice and procedure, Brokers, Penalties,
Reporting and recordkeeping requirements.
For the reasons set forth above, CBP proposes to amend 19 CFR part
111 as set forth below:
PART 111--CUSTOMS BROKERS
0
1. The general authority citation for part 111 continues to read as
follows:
Authority: 19 U.S.C. 66, 1202 (General Note 3(i), Harmonized
Tariff Schedule of the United States), 1624, 1641.
* * * * *
0
2. Add Sec. 111.43 to read as follows:
Sec. 111.43 Importer identity verification.
(a) Scope. This section sets forth the minimum requirements for
importer and nonresident importer clients to provide information and
for customs brokers to collect, verify, and maintain information about
the identities of their resident and nonresident importer clients. The
customs broker must collect certain information from the importer
client when the importer client provides the customs broker with a
power of attorney and the customs broker must verify all of the
information collected before the broker may transact customs business
on behalf of that client.
(b) Definitions. (1) Importer and nonresident importer. For
purposes of this section, ``importer'' is defined as one of the parties
qualifying as an importer of record under 19 U.S.C. 1484(a)(2)(B).
``Nonresident importer'' is defined as an importer of record that is
not a citizen of the United States or an alien lawfully admitted for
permanent residence in the United States; or a partnership,
corporation, or other commercial entity that is not organized under the
laws of a jurisdiction within the customs territory of the United
States (as such term is defined in General Note 2 of the Harmonized
Tariff Schedule of the United States) or in the Virgin Islands of the
United States.
(2) Client. For purposes of this section, the ``client'' is defined
as the importer or nonresident importer of record who is seeking or
employing the services of a customs broker to transact customs business
on behalf of the importer or nonresident importer of record.
(3) Grantor. For purposes of this section, the ``grantor'' is
defined as the individual executing the power of attorney on behalf of
the client.
(c) Minimum information that the customs broker must collect from
the client. The customs broker must collect, at minimum, the following
information, if applicable, from the client to allow the customs broker
to verify the client's identity when the customs broker, as required by
Sec. 141.46 of this chapter, obtains a power of attorney:
(1) The client's name;
(2) For a client who is an individual, the client's date of birth;
(3) For a client that is a partnership, corporation, or
association, the grantor's date of birth;
[[Page 40317]]
(4) For a client that is a partnership, corporation, or
association, the client's trade or fictitious names;
(5) The address of the client's physical location (for a client
that is a partnership, corporation, or association, the physical
location would be the client's headquarters) and telephone number;
(6) The client's email address and business website;
(7) A copy of the grantor's unexpired government-issued photo
identification;
(8) The client's Internal Revenue Service (IRS) number, employer
identification number (EIN), or importer of record (IOR) number;
(9) The client's publicly available business identification number;
(10) A recent credit report;
(11) A copy of the client's business registration and license with
state authorities; and
(12) The grantor's authorization to execute power of attorney on
behalf of client.
(d) Verification of information by customs broker. Before
transacting customs business on behalf of a client, the customs broker
must authenticate the client's identity by verifying all the
information collected from the client pursuant to paragraph (c) of this
section. The customs broker must verify all the information collected
from the client or the inapplicability of the information to that
client. The customs broker also must check to determine whether the
client is named as a sanctioned or restricted person or entity by the
U.S. Government, or if the client is suspended or debarred from doing
business with the U.S. Government. The means of verification are at the
customs broker's discretion; however, the broker must use as many of
the recommended verification means as necessary to be reasonably
certain as to the client's identity. These means include:
(1) A check of the appropriate websites to determine whether the
client is named as a sanctioned or restricted person or entity by the
U.S. Government, or if the client is suspended or debarred from doing
business with the U.S. Government;
(2) An in-person review of the grantor's government-issued photo
identification;
(3) An in-person client meeting;
(4) An in-person visit of the client's place of business;
(5) A review of the client's Articles of Incorporation;
(6) A query of publicly available information, business information
and credit reporting entities, Federal, state, and local databases or
websites and any other relevant trade or business sources.
(e) Establishment of policies, procedures and internal controls.
All customs brokers must implement policies, procedures, and internal
controls to identify and verify a client's identity before transacting
customs business on behalf of that client. The policies, procedures,
and internal controls must also fulfill the recordkeeping requirements
in paragraph (f) of this section, particularly the requirement for
updating information and records, and reverifying the client's
identity.
(f) Recordkeeping. All customs brokers must make, retain, and
update records containing the required information used to identify and
to verify the client's identity.
(1) Identification records. At a minimum, customs brokers must
retain any information collected pursuant to paragraph (c) of this
section, including any identifying information presented to the customs
broker, as well as any certifications the client has made.
(2) Verification records. At a minimum, customs brokers must retain
descriptions of any documents relied upon, any non-documentary methods
relied upon, any results of measures undertaken, and any resolution of
discrepancies used to verify the client's identity as required by
paragraph (d) of this section. The verification records must indicate
which information collected pursuant to paragraph (c) was verified, who
performed the verification, and the date the verification was
performed.
(3) Compliance with other recordkeeping provisions. All customs
brokers must comply with the recordkeeping provisions of this part,
part 141 of this chapter, and part 163 of this chapter. The
identification and verification records must be retained and made
available upon request for CBP examination in accordance with parts
111, 141, and 163 of this chapter. The required retention period for
the identification and verification records is the same period as is
required for a power of attorney in Sec. Sec. 111.23 and 163.4 of this
chapter.
(4) Updating information. All customs brokers must implement
procedures to update the records required in this section and to
reverify the information collected from the client pursuant to the
procedures set forth in paragraph (d) annually to ensure that the
information is accurate, timely, and complete.
(g) Penalties for noncompliance. Failure to collect, verify,
secure, retain, update, or make available for inspection the
information required in this section is grounds for a monetary penalty
to be assessed against the customs broker not to exceed $10,000 per
client in accordance with 19 U.S.C. 1641(d)(2)(A), or revocation or
suspension of the customs broker's license or permit in accordance with
19 U.S.C. 1641(d)(2)(B).
(h) Timing of verifications. (1) Prospective clients. For all
prospective clients, customs brokers must verify the information
required in this section before the customs broker may begin to
transact customs business on behalf of that client. The customs broker
must comply with all the requirements in this section for that client
including updating all records and information.
(2) Existing clients. For existing clients with a power of attorney
issued by a partnership, customs brokers must, within two years of the
final rule being effective, update and verify the information required
in this section. For all other existing clients, customs brokers must,
within three years of the final rule being effective, update and verify
the information required in this section. By these dates, the customs
broker must have complied with all the requirements in this section,
including the updating of all records and information, and must
continue to comply.
(3) Reverification. Reverification must occur annually after the
initial verification required by this section.
Dated: August 6, 2019.
Kevin K. McAleenan,
Acting Secretary.
[FR Doc. 2019-17179 Filed 8-13-19; 8:45 am]
BILLING CODE 9111-14-P