NCBFAA Urging Lawmakers to Exempt Customs Brokers From Duty, Tax Liability During Importer Bankruptcies
Members of the National Customs Brokers & Forwarders Association of America (NCBFAA) were set to lobby this week for legislation that would prevent brokers from absorbing certain financial liability when importer clients file for bankruptcy, NCBFAA Legislative Representative Jon Kent said during the group’s Sept. 11 Government Affairs Conference in Washington. Importers that file for bankruptcy sometimes retroactively try to recover payments made to customs brokers, or through them to CBP, that were made within 90 days prior to the filing, according to an NCBFAA position paper. This scenario poses an “immediate and troublesome threat” to brokers in terms of financial liability, sometimes totaling well into the “six-figure range,” according to the position paper.
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The NCBFAA is pushing for passage in 2017 or 2018 of legislation to prevent these importer claims, and will meet Sept. 12 with a lawmaker in hopes of a resultant bill introduction, Kent said. While he didn’t name the lawmaker he plans to meet with, Kent said he would be “ideal” for introducing legislation that the NCBFAA calls the “Customs Business Fairness Act.” Section 547 of the U.S. Bankruptcy Code includes language requiring customs brokers to pay the bankruptcy trustee any money they receive from a debtor -- or advance to CBP on the debtor/importer’s behalf -- during a 90-day “claw back” period prior to the bankruptcy filing, the position paper says. This can leave brokers financially liable for repaying money received from debtors/importers during the 90-day lead-in to a bankruptcy filing, after the brokers have already paid duties and/or taxes to CBP, Kent said.
The NCBFAA wants to amend the Bankruptcy Code to allow brokers to be subrogated, or to “stand in the shoes,” of CBP, which would legally protect brokers from any importer actions to “claw back” from them money that has been or must be paid to CBP. Customs attempted through regulation several years ago to extend its “priority” status under the Bankruptcy Code to customs brokers, but the courts deemed the move to exceed the agency’s authority, and said changes in the Bankruptcy Code fall in Congress’ jurisdiction.
“We’re looking to address, basically, subrogation, not … the issue with priority,” Kent said during the conference. “When you say, ‘priority’ when you’re talking about bankruptcy … the reaction is that, somehow, one-upping someone is displacing someone else in the chain of rights … to claim the funds are yours.” Through arguing for “subrogation” instead, NCBFAA will be essentially claiming that brokers should “stand in the shoes of customs,” Kent said.
Specifically, the NCBFAA wants a technical amendment to Section 507(d) of the Bankruptcy Code to allow subrogation rights, which are derived from common law, for brokers who have received from the debtor or paid duties and taxes to the government on behalf of a bankrupt importer, the position paper says. Kent said NCBFAA members advocating for the Customs Business Fairness Act on Capitol Hill this week should get the issue on lawmakers’ radars, but advised brokers that there is no specific “ask” for the legislation at this point. Kent advised brokers to share with lawmakers’ offices any familiar experiences they have had with importers declaring bankruptcy, and any associated fairness concerns.
Email ITTNews@warren-news.com for a copy of the position paper.