Brokers Concerned on New Part 111 Regs' Effect on Client Relations, but Silver Linings, Experts Say

The requirement that brokers report termination of a client relationship “has caused more grief on the part of the brokerage community than anything else” in the Part 111 customs modernization final rule CBP issued in October (see 2210170071), but it only applies when the client is trying to use the broker to intentionally defraud the government, said Robert Silverman of Grunfeld Desiderio on the webinar, hosted by the Coalition of New England Companies for Trade.

“It has got to be really bad,” Silverman said of what the client has to do to trigger the requirement. “We’re not talking about a disagreement” between a broker and an importer on a compliance issue, but rather a fraudulent misstatement or omission “done voluntarily and intentionally as established by clear and convincing evidence,” he said. There also has to be an existing relationship between the broker and client, Silverman noted.

“I think these will be very rare occurrences,” said Ania Wierzbowska-Fuller of A.N. Deringer, who also spoke during the webinar. Examples would include double-invoicing schemes to understate customs value on entry documentation, or knowingly and intentionally not adding the value of assists to transaction value, or intentionally avoiding payment of antidumping duties, she said.

For example, an importer might tell its broker to change the classification of merchandise to a subheading not subject to Section 301 duties or a different country of origin, knowing that the classification or origin is incorrect, Wierzbowska-Fuller said. “This may indicate that the importer has an intention ... to defraud the government,” she said. In such a circumstance, the broker should explain to the importer that it’s wrong to falsify information to save on duties, and if the importer insists, “I can tell you that no good broker would support that. That broker would discontinue the relationship and, because of the new regulations, now the broker would need to report this relationship discontinuation to CBP,” she said.

“From my perspective,” there should be no concerns from the importer ”about not being able to trust your broker regarding compliance questions you may have,” such as classification questions, Wierzbowska-Fuller said. The new provision doesn’t change how brokers work with clients, and brokers should continue answering compliance-related questions, offering their consulting services, and they would not have to report any of these compliance conversations to CBP,” she said.

Silverman did note that the reporting requirement applies to all kinds of crimes, including cyber crimes, financial crimes, antiquities crimes and money laundering. Antiquities can in particular be a difficult area, and “I wouldn’t want to be in a position of having to figure out what's a crime or not a crime in that case,” he said.

More problematic for Silverman than the relationship termination reporting requirement is a new requirement that brokers document any communications with their clients related to corrective actions they suggest to clients they think are out of compliance, with CBP able to examine those records upon request.

“Importers may want to know what’s in their broker’s files,” Silverman said. “Brokers should be careful what they write down, but now they have to write down everything that occurred,” he said.

But Wierzbowska-Fuller said there could be benefits to recording this type of interaction between a broker and an importer client. Documentation “could be a demonstration of reasonable care on the part of the importer if CBP questions the importer’s transaction,” she said. Rather than keep the documentation in their files, brokers should share the information with their clients. That way, the client can say, "‘I went to an expert, I asked about the classification,” and use that to demonstrate reasonable care. It will now be more important for importers to fix compliance issues that brokers bring to their attention, Wierzbowska-Fuller said.

While not having the same potential effect on client relationships, changes to employee reporting requirements in the Part 111 final rule could prove onerous for brokers, Silverman said.

Now, all employees of a broker must be reported, whatever their responsibilities or work hours may be, Wierzbowska-Fuller said. In addition to employees conducting customs business, all other employees, including warehouse workers, office workers and part-time employees must now be reported as well, as well as employees that live in other countries, such as Canada and Mexico, she said.

One question that has come up since the final rule was issued is whether temporary employees working for a temp agency must be reported, Wierzbowska-Fuller said. While CBP said during a recent webinar that the employee does not have to be reported unless the broker pays the employee directly, CBP still has not put that out in writing, she said. “Despite this comment from CBP, I think this is still somewhat of a gray area” until written clarification comes out, she said.

The deadline for reporting the new employees is Feb. 17, and “my understanding is that some of the larger companies are still having a problem meeting this deadline,” Silverman said.