CBP Floats New Plan for Customs Broker
Verification of an Importer’s Identity

August 14, 2019

In a Federal Register Notice published August 14, 2019 (84 FR 40302), Customs and Border Protection (CBP) released its long-awaited proposed rule to fight importer identity fraud, and CBP’s solution is to place the burden on customs brokers. The new rules are meant to crack down on importer fraud and present customs brokers with arguably unrealistic vetting procedures and potentially steep penalties, including loss of a license for failure to comply or to maintain the required records.

The proposed rule also impacts importers, particularly where the importer has multiple customs brokers, because each customs broker will be required to annually update its client information.

The 54-page document sets forth proposed requirements for customs brokers to collect certain information from importers to verify their identity, including that of nonresident importers, before engaging in “customs business” for them. By making these requirements mandatory, CBP believes that the proposed rule would also eliminate the ability of prospective clients to “broker shop.”

Comment Due Date: Comments must be received on or before October 15, 2019, unless CBP grants industry additional time to comment. 

Summary

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.

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 (up to $10,000) 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.

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.

Thereafter, the expectation is that customs brokers will update their records annually with any changes to the client, POA, or the information in the records, and reverify the client’s identity 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) discussed below.

The Proposal

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.

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;
  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. 

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 the information collected from the client under proposed paragraph (c).

The means of verification that CBP recommends for each data point are set forth in the proposal, 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.

Suggestions offered by CBP include:

Obtaining 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.

Client’s business registration and license with state authorities. A broker could use individual state databases to verify the business registration and license.

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.

Is the client a sanctioned or restricted person or entity? 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: 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 the 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. This requirement is to ensure that all brokers implement these policies, procedures, and internal 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. 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.

At a minimum, customs brokers will be expected to 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.

E. Penalties for Failure to Meet the Requirements

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. Section 116 of TFTEA provides that CBP may hold any customs broker liable for a monetary penalty not to exceed $10,000 if the broker fails to collect the required information and/or to revoke or suspend a license or permit of the customs broker.

F. Timing of Verifications

Proposed paragraph (h) of section 111.43 provides 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, the broker would be expected to collect the required information and verify the client’s identity within two or three years, depending on whether the client is an LLC or not. 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. Thereafter, the broker would also be required to reverify the client’s identity on an annual basis.

We look forward to working with the importer and brokerage community in assessing the potential impact of the proposed ruling and preparing comments to CBP. Please contact us for additional information at geo@tuttlelaw.com or 415-986-8780.  

 

George R. Tuttle, III is an attorney with the Law Offices of George R. Tuttle in the San Francisco Bay Area.

The information in this article is general in nature and is not intended to constitute legal advice or to create an attorney-client relationship with respect to any event or occurrence, and may not be considered as such.

Copyright © 2019 by Tuttle Law Offices. 
All rights reserved. 

Information has been obtained from sources believed to be reliable.  However, because of the possibility of human or mechanical error by our offices or by others, we do not guarantee the accuracy, adequacy, or completeness of any information and are not responsible for any errors, omissions, or for the results obtained from the use of such information.

 

 

 
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