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Rule2022-22445

Modernization of the Customs Broker Regulations

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Published

October 18, 2022

Effective

December 19, 2022

Issuing agencies

Homeland Security DepartmentU.S. Customs and Border ProtectionTreasury Department

Abstract

This document adopts as final, with changes, proposed amendments to the U.S. Customs and Border Protection (CBP) regulations modernizing the customs broker regulations. CBP is transitioning all customs brokers to a single national permit and expanding the scope of the national permit authority to allow national permit holders to conduct any type of customs business throughout the customs territory of the United States. To accomplish this, CBP is eliminating broker districts and district permits, which in turn removes the need for the maintenance of district offices, and district permit waivers. CBP is also updating, among other changes, the responsible supervision and control oversight framework, ensuring that customs business is conducted within the United States, and requiring that a customs broker have direct communication with an importer. These changes are designed to enable customs brokers to meet the challenges of the modern operating environment while maintaining a high level of service in customs business. Further, CBP is increasing fees for the broker license application to recover some of the costs associated with the review of customs broker license applications and the necessary vetting of individuals and business entities (i.e., partnerships, associations, and corporations). Additionally, CBP is announcing the deployment of a new online system, the eCBP Portal, for processing broker submissions and electronic payments. Lastly, CBP is publishing a concurrent final rule document to eliminate all references to customs broker district permit user fees (see "Elimination of Customs Broker District Permit Fee" RIN 1515-AE43) to align with the changes made in this final rule document.

Full Text

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<title>Federal Register, Volume 87 Issue 200 (Tuesday, October 18, 2022)</title>
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[Federal Register Volume 87, Number 200 (Tuesday, October 18, 2022)]
[Rules and Regulations]
[Pages 63267-63321]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-22445]

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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection

DEPARTMENT OF THE TREASURY

19 CFR Parts 24 and 111

[USCBP-2020-0009;CBP Dec. 22-21]
RIN 1651-AB16

Modernization of the Customs Broker Regulations

AGENCY: U.S. Customs and Border Protection, Department of Homeland
Security, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This document adopts as final, with changes, proposed
amendments to the U.S. Customs and Border Protection (CBP) regulations
modernizing the customs broker regulations. CBP is transitioning all
customs brokers to a single national permit and expanding the scope of
the national permit authority to allow national permit holders to
conduct any type of customs business throughout the customs territory
of the United States. To accomplish this, CBP is eliminating broker
districts and district permits, which in turn removes the need for the
maintenance of district offices, and district permit waivers. CBP is
also updating, among other changes, the responsible supervision and
control oversight framework, ensuring that customs business is
conducted within the United States, and requiring that a customs broker
have direct communication with an importer. These changes are designed
to enable customs brokers to meet the challenges of the modern
operating environment while maintaining a high level of service in
customs business. Further, CBP is increasing fees for the broker
license application to recover some of the costs associated with the
review of customs

[[Page 63268]]

broker license applications and the necessary vetting of individuals
and business entities (i.e., partnerships, associations, and
corporations). Additionally, CBP is announcing the deployment of a new
online system, the eCBP Portal, for processing broker submissions and
electronic payments. Lastly, CBP is publishing a concurrent final rule
document to eliminate all references to customs broker district permit
user fees (see ``Elimination of Customs Broker District Permit Fee''
RIN 1515-AE43) to align with the changes made in this final rule
document.

DATES: This final rule is effective December 19, 2022.

FOR FURTHER INFORMATION CONTACT: Melba Hubbard, Chief, Broker
Management Branch, (202) 325-6986, <a href="/cdn-cgi/l/email-protection#e38e868f8182cd8b968181829187a3808193cd878b90cd848c95"><span class="__cf_email__" data-cfemail="cea3aba2acafe0a6bbacacafbcaa8eadacbee0aaa6bde0a9a1b8">[email&#160;protected]</span></a>.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. Discussion of Comments
Subpart A. General Provisions
Subpart B. Procedure to Obtain License or Permit
Subpart C. Duties and Responsibilities of Customs Brokers
Subpart D. Cancellation, Suspension, or Revocation of License or
Permit, and Monetary Penalty in Lieu of Suspension or Revocation
Subpart E. Monetary Penalty and Payment of Fees
III. Other Changes
IV. The Benefits of CBP's New Payment and Submission System, the
eCBP Portal, for Licensed Customs Brokers
V. Conclusion
VI. Statutory and Regulatory Requirements
A. Executive Orders 13563 and 12866
B. Regulatory Flexibility Act
C. Paperwork Reduction Act
VII. Signing Authority
List of Subjects
Regulatory Amendments

I. Background

The Role of Licensed Customs Brokers in Conducting Customs Business

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 to transact customs business on
behalf of others. The statute also sets forth standards for the
issuance of broker 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\
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\1\ The Homeland Security Act of 2002 generally transferred the
functions of the U.S. Customs Service from the Department of the
Treasury to the Secretary of the Department of Homeland Security
(DHS). See Public Law 107-296, 116 Stat. 2142. The Act provides that
the Secretary of the Treasury retains the 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). Because 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. However, the
regulation of user fees is encompassed within the customs revenue
functions set forth in section 412 of the Act. See Appendix to 19
CFR part 0.
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The regulations issued under the authority of section 641 are set
forth in part 111 of title 19 of the Code of Federal Regulations (19
CFR part 111) and provide for, among other things, the rules for
license and permit requirements; recordkeeping and other duties and
responsibilities of brokers; the grounds and procedures for the
cancellation, suspension or revocation of broker licenses and permits,
and monetary penalties in lieu of suspension or revocation; and, rules
pertaining to the imposition of a monetary penalty, and fee payment
requirements applicable to brokers under section 641 and 19 U.S.C.
58c(a)(7).
Customs brokers are private individuals and/or business entities
(partnerships, associations, or corporations) that are licensed and
regulated by U.S. Customs and Border Protection (CBP) to assist
importers in conducting customs business. Customs brokers have an
enormous responsibility to their clients and to CBP, which requires
them to properly prepare importation documents, file these documents
timely and accurately, classify and value goods properly, pay duties,
taxes, and fees, safeguard their clients' information, and protect
their licenses from misuse.
The existing customs broker regulations are based on the district
system. A district is the geographic area covered by a customs broker
permit other than a national permit. Customs brokers are currently
required to maintain a physical presence within a district so that the
broker is physically close to the ports of entry within the district in
order to file any paperwork associated with an entry, entry summary, or
post-summary activity. Entry, entry summary, and certain post-summary
activities are customs business activities for which a district permit
is required. See 19 CFR 111.1; 111.2(b)(1). As a rule, all merchandise
imported into the United States is required to be entered, unless
specifically excepted. The act of entering merchandise consists of the
filing of paper or electronic data with CBP containing sufficient
information to enable CBP to determine whether imported merchandise may
be released from CBP custody. See 19 CFR 141.0a(a). Additionally, entry
summary refers to documentation that enables CBP to assess duties,
collect statistics on imported merchandise, and determine whether other
requirements of law or regulation are met. See 19 CFR 141.0a(b).
Pursuant to the existing regulations, customs business includes certain
post-summary activities such as the refund, rebate, or drawback of
duties, taxes, or other charges.

The Impact of the Centers of Excellence and Expertise and the Automated
Commercial Environment on Licensed Customs Brokers

Two major developments, the establishment of the Centers of
Excellence and Expertise (Centers) and the creation of the Automated
Commercial Environment (ACE), have fundamentally changed the
traditional ways that customs brokers and CBP interact. After a four-
year transition of operational trade functions from ports of entry and
port directors to Centers and Center directors, CBP published an
interim final rule in the Federal Register (81 FR 92978), which
codified the role of the Centers as strategic locations around the
country to focus CBP's trade expertise on industry-specific issues and
provide tailored support for importers. This permanent shift to Centers
was made in order to facilitate trade, reduce transaction costs,
increase compliance with applicable import laws, and achieve uniformity
of treatment at the ports of entry for the identified industries. The
interim final rule transferred to the Centers and Center directors a
variety of post-release trade functions that were handled by port
directors, including decisions and processing related to entry
summaries; decisions and processing related to all types of protests;
suspension and extension of liquidations; decisions and processing
concerning free trade agreements and duty preference programs;
decisions concerning warehouse withdrawals wherein the goods are
entered into the commerce of

[[Page 63269]]

the United States; all functions and decisions concerning country of
origin marking issues; functions concerning informal entries; and,
classification and appraisement of merchandise. With the transfer of
trade functions to the Centers, a significant portion of these
activities, including entry summary and post-summary, are now handled
directly by the Centers. The Center structure is based on subject
matter expertise, as opposed to geographic location, placing the
Centers outside of the district system. Consequently, the existing
broker regulations based on the district system do not fully reflect
how trade functions are currently being processed by CBP.
The other relevant major development was the creation of ACE. In an
effort to modernize the business processes essential to securing U.S.
borders, facilitating the flow of legitimate shipments, and targeting
illicit goods pursuant to the Customs Modernization Act (Mod Act)
(passed as part of the North American Free Trade Agreement
Implementation Act (NAFTA), Pub. L. 103-182 Sec. 623 (1993)), and the
Security and Accountability for Every (SAFE) Port Act of 2006 (Pub. L.
109-347, 120 Stat. 1884), CBP developed ACE to ultimately replace the
Automated Commercial System (ACS) as the CBP-authorized electronic data
interchange (EDI) system.\2\
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\2\ Pursuant to 19 CFR 143.32(b), an authorized EDI is defined
as any established mechanism approved by the Commissioner of CBP
through which information can be transferred electronically. In
addition to ACE, which is the system through which the trade
community reports imports and exports, and the government determines
admissibility, the ACE Secure Data Portal (ACE Portal), the
electronic Customs and Border Protection (eCBP) portal and the
Automated Broker Interface (ABI) are examples of such authorized
EDIs. The ACE Portal is a web-based entry point for ACE to connect
CBP, trade representatives and government agencies who are involved
in importing goods into the United States. The eCBP portal,
developed as part of CBP's Revenue Modernization (Rev Mod) program,
is currently the access point for a new system for electronic
payments of licensed customs broker fees. When fully implemented,
the eCBP portal will allow for easy collection of many types of
duties, taxes, and fees. Lastly, ABI is a functionality that allows
entry filers to transmit immediate delivery, entry and entry summary
data electronically to, and receive electronic messaging from, CBP
and receive transmissions from ACE or any other CBP-authorized EDI
system. See 19 CFR 143.32(a). It is a voluntary program available to
brokers, importers, carriers, port authorities and independent
service centers. For additional information regarding the
transmission of entry summary and cargo release data via an EDI, see
the CBP and Trade Automated Interface Requirements (CATAIR),
specifically the chapter entitled Entry Summary Create/Update, which
is available online at <a href="https://www.cbp.gov/document/technical-documentation/entry-summary-createupdate-catair">https://www.cbp.gov/document/technical-documentation/entry-summary-createupdate-catair</a> and the chapter
entitled Cargo Release, which is available online at <a href="https://www.cbp.gov/document/guidance/ace-catair-cargo-release-chapter">https://www.cbp.gov/document/guidance/ace-catair-cargo-release-chapter</a>.
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On October 13, 2015, CBP published an interim final rule in the
Federal Register (80 FR 61278) that designated ACE as a CBP-authorized
EDI system, effective November 1, 2015. ACE now offers the operational
capabilities necessary to enable users to transmit a harmonized set of
import data elements, via a ``single window,'' to obtain the release
and clearance of goods. As a result, the International Trade Data
System (ITDS) eliminates redundant reporting requirements and
facilitates the transition from paper-based reporting and other
procedures to faster and more cost-effective electronic submissions to,
and communication among, government agencies. These electronic
capabilities that allow brokers to file entry information in ACE reduce
the need for brokers to be physically close to the ports of entry, as
required under the district permit regulations.

The Availability of a Remote Option for the Customs Broker License
Examination

On April 21, 2021, the bi-annual customs broker license exam was
administered at over 120 testing locations, and for the first time, via
remote proctor delivery. CBP provided information regarding system
requirements for the remote testing option, testing room requirements,
and other general exam information on its website for prospective exam
applicants.\3\ CBP continues to offer a remotely proctored exam if the
exam provider is equipped to administer such type of testing. CBP does
want to emphasize, however, that the availability of a remote
examination is at CBP's sole discretion. If a remote exam is available,
applicants who prefer to take the exam in a remote setting for
convenience or to avoid travel may select the remote option at the time
of registration for the exam. However, a remote examination cannot be
requested, a spot might not be assured due to limited capacity, and the
lack of availability of a remote exam cannot be appealed. CBP will
notify prospective applicants of whether the remote option is available
at the time the exam is announced on CBP's website.
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\3\ Information regarding the customs broker license exam,
especially the remotely-proctored exam, may be found online at
<a href="https://www.cbp.gov/trade/programs-administration/customs-brokers/license-examination-notice-examination">https://www.cbp.gov/trade/programs-administration/customs-brokers/license-examination-notice-examination</a>.
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Proposed Rulemaking To Modernize the Customs Broker Regulations

On June 5, 2020, CBP published a notice of proposed rulemaking
(NPRM) in the Federal Register (85 FR 34836) proposing to modernize the
customs broker regulations in part 111 of the CFR to align with the
development of CBP trade initiatives, including ACE and the Centers,
and reflect the changes to a more automated commercial environment for
both customs brokers and importers. Specifically, CBP proposed to
eliminate broker districts and district permits, and transition all
brokers who hold only a district permit to a national permit. Further,
CBP proposed to expand the scope of the national permit authority to
allow all national permit holders to conduct business throughout the
customs territory of the United States. In addition, CBP proposed to
increase the license application fee in order to recover some of CBP's
costs for reviewing license applications and vetting applicants. The
NPRM provided for a 60-day comment period, which ended on August 4,
2020. Concurrently, CBP published an NPRM in the Federal Register (85
FR 34549) proposing the elimination of customs broker district permit
user fees to conform with the proposed elimination of broker districts
and district permits. CBP received no comments to the latter NPRM.

II. Discussion of Comments

CBP received 55 documents in response to the publication of the
part 111 NPRM, two of which were duplicate submissions, and one of
which was a two-part submission by one commenter discussing the same
issue. In effect, 52 different documents were received. Commenters
raised some concerns about the proposed changes and recommended changes
for improvement, but overall expressed support of CBP's effort to
modernize customs broker regulations, and welcomed the changes being
made to reflect the reality of a rapidly changing world of
international trade for both brokers and CBP. Commenters expressed
appreciation for CBP's recognizing the broker community's needs to have
clarity as to their duties and minimal regulatory burdens to target the
essential needs to protect the revenue and enforce the relevant laws.
The commenters further acknowledged CBP's efforts in providing the
least bureaucratic framework over the years and collaborating with the
broker community, including the latest effort in modernizing some of
the outdated reporting requirements. For instance, one commenter
welcomed the addition of specific language to cover convictions of
committing or conspiring to commit an act of terrorism in Sec. 111.53
as a ground for suspension or revocation of a license or permit.
Commenters also supported the proposed removal of the

[[Page 63270]]

requirement to submit an answer in duplicate to the charges against the
broker in Sec. 111.62(e) as this change aligns with the current
electronic business environment.
CBP recognizes a licensed broker's vital role in the international
trade environment and in interactions with clients and CBP. A broker is
tasked with the responsibility to exercise the highest level of
accuracy and knowledge when filing entries, navigate the complex nature
of international trade, ensure that the clients' needs are met timely
and accurately, and facilitate the movement of legitimate cargo.
Brokers need to be knowledgeable about the governing rules and
regulations as well as any changes, maintain a good relationship with
clients, and provide a high-quality service to their clients. CBP
determined that it was important to modernize customs broker
regulations and clarify existing regulations since the creation of
Centers and the increasingly automated environment have changed the way
customs business is conducted. Due to those changes, a broker may need
to make contact with CBP personnel in parts of the customs territory
that are not within the broker's district. The elimination of district
permits and expansion of the scope of activities allowed under a
national permit will provide brokers with the flexibility to easily
conduct customs business anywhere within the customs territory of the
United States. In addition, the elimination of district permits also
eliminates the burden on brokers of maintaining permits for multiple
districts or appointing subagents in districts in which they do not
have permits. This change also provides cost savings for CBP when it
comes to the processing of license and permit applications.
The changes made to the broker regulations will increase efficiency
and flexibility as submission requirements are updated, additional
electronic submission options are provided, and electronic
communication options for certain submissions are added. This update of
the regulations will further increase a broker's professionalism due to
the addition of grounds to justify the denial of license in Sec.
111.16, the addition of required information or arguments in support of
an application during review of the denial of the application in Sec.
111.19, and a new reporting requirement in Sec. 111.30 for inactive
brokers.
The submissions received in response to the NPRM contained comments
on multiple topics regarding the proposed regulations. The public
comments, together with CBP's analysis, were grouped by topic within a
subpart of part 111, and are set forth below:

Subpart A. General Provisions.

Comment: CBP proposed adding a new term ``Designated Center'' for
the submission of applications for a broker's license by an individual,
partnership, association, or corporation. Several commenters expressed
concern with the use of this term as the structure of Centers is not
necessarily conducive to broker management, nor were the Centers
designed to include brokers filing entries on a broad range of
commodities. The commenters requested that CBP maintain a dedicated
Broker Management Division or unit with offices reporting to CBP
Headquarters, including full-time, dedicated personnel on a national
level, with each broker assigned to one team or office for management
purposes (as suggested by Commercial Customs Operations Advisory
Committee (COAC) recommendation No. 10048 (April 27, 2016)). The
commenters reasoned that this approach would ensure a uniform and
efficient process for both CBP and brokers, and thus proposed to change
the term ``Designated Center'' to ``Designated Broker Management
Office'' to better reflect the structure that is more suitable for
broker matters. Ideally, according to some commenters, CBP would create
a new Center for broker licensing and management issues only or expand
the broker management division in CBP's Office of Trade.
Response: CBP appreciates the opportunity to clarify that brokers
will not be assigned to a specific Center, and CBP will not create a
Center solely for broker licensing and management issues. Brokers
operate within a unique business model as their clientele have
different Center interests, thus, an assignment to one specific Center
would not be beneficial to brokers' business filings concerning
different commodities. In addition, to prevent any disruption of
dealings with brokers in case of personnel changes or workload
distributions within Centers, CBP does not see a benefit to assigning a
broker to a particular Center. Broker management officers (BMOs), who
are Center personnel at 41 port locations throughout the U.S. customs
territory, will handle the administration of all activities conducted
under a broker's license and permit. Prior to the creation of Centers,
these BMOs were assigned to a port and managed broker applications and
other submissions. With the transition of certain trade functions from
ports to Centers, the assignment of BMOs transitioned as well. Thus,
Center personnel will process new applications for licenses and permits
and will also manage submissions provided by already-licensed brokers.
A current broker will continue to contact the BMO at a location where
the broker's license was issued. After the effective date of this final
rule, a BMO will also process any matters relating to a national permit
of a broker at that same location. A district permit holder whose
permit is transitioned to a national permit will continue to contact
the BMO at the location where the broker's license was issued. Any new
applicant for a permit or license should contact a BMO in the
geographic area where the applicant is located and/or intends to do
customs business. CBP has published a chart with all of the locations
and contact information for BMOs on its website.\4\
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\4\ The BMO contact information for the 41 port locations may be
found online at <a href="https://www.cbp.gov/trade/programs-administration/customs-brokers">https://www.cbp.gov/trade/programs-administration/customs-brokers</a> by clicking on the tab titled ``Broker Management
Officer (BMO) Contact Information''.
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In order to better describe CBP's responsibilities for broker
licensing and management issues, CBP changed the proposed term
``Designated Center'' to ``Processing Center'' in this final rule. A
``Processing Center'' means the broker management operations of a
Center that processes applications for a license under Sec. 111.12(a)
and applications for a national permit under Sec. 111.19(b) for an
individual, partnership, association, or corporation, as well as
submissions required in part 111 by already-licensed brokers.\5\ The
revision of the proposed language clarifies that brokers are not
assigned to a specific Center, and that Center personnel at any of the
41 port locations may process applications and submissions, depending
on the broker's filings and location. All references to ``Designated
Center'' in the proposed regulations are updated in this final rule to
reference ``Processing Center.'' In addition, CBP removed any
references to ``director of'' a Center throughout part 111 to simply
state ``Processing Center'', keeping the regulatory language more
general. This change aligns with the statutory language in 19 U.S.C.
1641 that references ``employees of U.S. Customs and Border
Protection'' or ``duly accredited officers'' without pointing out a
specific title or position within CBP. This change also provides the
agency more flexibility in processing

[[Page 63271]]

brokers' applications and submissions, without any changes for the
brokers.
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\5\ In this document, CBP uses ``Processing Center'' in quotes
to denote a replacement of the proposed term ``Designated Center'';
when the words ``processing Center'' without quotation marks are
used, CBP is referring to the Center of Excellence and Expertise
that is actually performing a processing function.
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Comment: Two commenters asked for clarification as to how brokers
would be assigned to a Center, including contact information for the
designated Center. Another commenter sought further clarification on
the process that CBP will use to assign brokers with existing national
permits to a specific Center. One commenter suggested that a primary
point of contact be assigned for each of the ten (10) Centers.
Commenters also asked that CBP have a reporting structure in place
to allow for an escalation process so brokers could properly address a
designated broker management office. Some commenters argued that a
broker should also have the opportunity to request a specific Center to
align with the broker's business model familiar with the commodities,
transactions and types of entry processes by the broker. Additionally,
some commenters suggested that there should be an avenue for a broker
to request re-assignment to a specific Center.
Response: As there will be no designated Centers, there will be no
assignment to a Center by CBP, and brokers will not have to request an
assignment to a specific Center or a re-assignment to another Center.
As mentioned above, BMOs who are currently managing broker submissions
and questions will continue to do so. If a broker is unsatisfied with
the handling of a matter by a BMO, a broker may escalate an issue to
the supervisor of the BMO. The names of the Assistant Center Directors,
who may be contacted for purposes of escalation, are listed on the
contact information chart mentioned above.
Comment: One commenter suggested that ``certain functions,'' as
mentioned in the NPRM, that were previously performed by the port
director and transitioned to the Center director, should be clarified
in the ``Broker Management Handbook'' and the ``Centers of Excellence
and Expertise Trade Process Document'' to provide clear policy
direction to CBP and the trade community in order to assist with a
smooth transition to a Center. The commenter further stated that CBP
must consider a full transition of all brokers to a designated Center
versus a staged approach. The commenter recommended further that the
Centers prepare for the transition and implement their oversight at the
same time, ensuring a fair and consistent treatment of brokers. The
commenter also strongly recommended that CBP consider a broker working
group which would provide feedback to the Centers on operational trade
and post-summary functions, mirroring the current working group in
place today.
Response: The ``Centers of Excellence and Expertise Trade Process
Document'' already includes most of the information regarding the
transition from ports to Centers. Any updates made with this final rule
will be communicated to the broker community on CBP's website.
Additionally, CBP has created a guidance document containing
operational information regarding the regulatory changes, as well as
general information on various broker matters. This document will be
published concurrently with the publication of this final rule. In time
for the publication of this final rule, CBP will issue additional
specific operational guidance regarding certain regulatory changes on
CBP's website.
As mentioned above, current license and permit holders will
continue to contact the BMO who has been processing brokers' licensing
and permitting matters. Center personnel are ready and able to continue
to do so. To ensure uniformity among Center personnel and efficiency in
handling broker matters, BMOs at the various locations will continue to
receive guidance from CBP Headquarters regarding the implementation of
any updates or changes to current processes. CBP will continue to
exercise oversight over the BMO locations to ensure that BMOs apply the
same standards, and process broker submissions and respond to questions
from brokers consistently and uniformly.
Regarding the request for CBP to consider a working group, CBP will
continue general broker outreach and keep the broker community informed
of any changes through various channels, such as Cargo System Messaging
Service (CSMS) messages, webinars, and postings on CBP's website.
Accordingly, a specific working group is not needed at this time.
Comment: Another commenter acknowledged the importance of building
a strong connection between the Centers and brokers but stressed that
it is crucial that CBP avoid severing the relationship between brokers
and port directors entirely. The commenter stated that a strong
relationship is key in the efficient facilitation of cargo and
merchandise. As there is no proposed regulatory language regarding any
administrative actions that include port directors, the commenter asked
that CBP clarify this point in the final rule.
Response: CBP recognizes the importance of the relationship between
the brokers and port directors and assures the trade community that
port directors will continue to be involved. Port directors or their
designees will present the brokers' licenses in locations where there
is no Center director, or Assistant Center director, and CBP will
ensure that the port and Center management maintain open communications
regarding local broker issues. However, ultimately, Center directors
maintain the final authority over any decisions pertaining to broker
issues. CBP does not believe that the regulation needs to be amended.
Comment: One commenter agreed that reliable channels of
communication between CBP and the brokers are essential but disagreed
with the requirement to designate a primary location pursuant to the
proposed definition of ``broker's office of record'' in Sec. 111.1 for
overseeing the administration of the part 111 provisions. The commenter
proposed to revise the definition to include language which clarifies
that the office of record is the primary location that acts as the
point of contact (emphasis added) for the administration of the
provisions of part 111 because businesses may not always have one
location that oversees all the activities conducted under a national
permit.
Another commenter suggested that CBP utilize electronic reporting
systems as the method of communication rather than designating a
specific location. The commenter argued that flexibility of
administration and effective communication are not dependent on
location.
Response: CBP disagrees with the first commenter's request to
modify the definition of the broker's office of record. CBP determined
that the proposed definition should be adopted because the primary
office that oversees the administration of all activities conducted
under a national permit may be different from the primary office that
acts as the point of contact. The addition of the words suggested by
the commenter would change CBP's intended meaning of this definition.
As district offices will no longer exist, CBP needs to not only know
the point of contact for the administration of the part 111
regulations, but also the location that has been identified as the
office overseeing the transactions occurring under the national permit.
This may not be the only location through which broker activities
occur, but it would be the primary location to which CBP would send
correspondence and where CBP would conduct a physical inspection
pursuant to Sec. 111.27. Moreover, the primary location is also the
address that is provided in the application for a national permit and

[[Page 63272]]

must be kept up to date for so long as a broker holds a license and
permit.
In response to the second commenter, CBP is already utilizing
electronic reporting tools, such as ACE and the eCBP portal, and is
using email when corresponding with a broker. The eCBP portal is CBP's
new payment and submission system, streamlining the payment and
submission process for broker examination applications and triennial
status reports. Additional reporting capabilities for brokers will
follow, as discussed in more detail below in Section IV. Despite the
availability of the above-mentioned electronic reporting tools, a
broker has the responsibility to establish an actual location for
purposes of visits and audits but is free to determine where to
establish his or her office(s) within the U.S. customs territory. CBP
understands that flexibility is needed when it comes to establishing a
primary office, especially during the COVID-19 pandemic, which caused
many brokers to work from home. Thus, CBP appreciates the opportunity
to clarify that the primary location does not have to be an office
location but can be the broker's home as long as there is a physical
location at which the broker can be reached.
Comment: One commenter suggested that CBP make a small change in
the definition of ``permit'' in Sec. 111.1 by replacing the word
``any'' with ``a'' to clarify that CBP requires only one permit per
business, even if a business operates a drawback business and a
consulting business, or an entry business.
Response: CBP agrees with the commenter. In the NPRM, CBP already
proposed this change, and now finalized this change to clarify that
there is only one national permit that a broker needs to hold in order
to conduct customs business within the U.S. customs territory.
Comment: Several commenters expressed support for the elimination
of the district permits as it reflects a shift toward modern practice
of working with the Centers and filing entries in ACE. However, one
commenter requested clarification of CBP's statements in the preamble
of the NPRM that the granting of a national permit to current district
permit holders would be automatic, but that CBP would, at the same
time, provide guidance regarding the permit transition upon the
adoption of the final regulations. The commenter stated that the need
to provide further instructions as to the transition did not seem to
make the transition ``automatic''. In addition, the commenter asked
whether there would be a grace period to ensure an uninterrupted and
smooth transition. Lastly, the commenter also stated that the
grandfathering rules should be included in the regulation, and not
merely in the preamble, as they are critical to a smooth transition.
Response: CBP appreciates the opportunity to clarify that the
transition for a district permit holder to a national permit will be
automatic, without any actions to be taken by the brokers. CBP will use
the ACE data that is on file for each district permit holder who or
which does not already have a national permit and automatically create
a national permit for each current district permit holder. In addition,
to ensure an uninterrupted transition, active district permits will not
be cancelled until all national permits have been issued. District
permit holders will be able to continue to conduct customs business
without any interruptions or delays. CBP will notify current district
permit holders by email (if an email address is on file with CBP) that
a new national permit will be issued; otherwise, CBP will notify by
mail at the permit holder's business location on file. The transition
of permits will occur between the date of publication of this final
rule and the date of effectiveness of the final regulations, which will
be 60 days after publication. In addition to the notification of the
permit holders by email or mail, CBP will issue a CSMS message
informing district permit holders of the transition to national
permits.
With regard to the transition of the district permits to national
permits, it is a one-time event and, thus, there is no need for
including the transition to national permits in the regulations. Any
new applicants for a national permit will apply pursuant to the final
regulations.
Comment: Three commenters expressed disagreement with CBP's
proposal to eliminate the district permits. One commenter argued that
eliminating the district permits would drastically affect the broker's
ability to provide optimum responsible supervision and control over
brokerage operations. Brokers should at least have one permit holder
per district. The commenter explained that in some cases, a face-to
face meeting with a national permit holder might be impossible, so the
district permit holder would be able to have such a meeting. It would
also be more convenient and more time efficient to resolve questions
quickly with a district permit holder who is located closer to a CBP
office. In addition, a local expert is more familiar with the port
nuances, staff, and different hours of operations, to name a few. With
the proposed elimination, a district permit holder might consider not
renewing the individual license, which could lead to the elimination of
hundreds, if not thousands, of licenses, which in a time when import
volumes are increasing seems unreasonable.
Response: CBP understands that the transition from a district
permit system requiring multiple local permits to a single national
permit may raise new or unique concerns for customs brokers in ensuring
proper exercise of responsible supervision and control over the customs
business they conduct. However, CBP disagrees with the commenter that
responsible supervision and control will be more difficult to maintain
because customs brokers will no longer need to expend time and
resources monitoring several district offices. Brokers may consolidate
operations and focus on a single nationally permitted office to ensure
that optimal responsible supervision and control is maintained. Under
the national permit system, customs brokers may also choose to continue
to operate locally by liaising with the port where entries are filed
and imports are released from customs custody, while conducting customs
business and engaging with clients at a national level. Regardless of
whether a broker decides to eliminate offices or personnel in a
particular location or continues to conduct customs business in its
current locations, brokers remain responsible for the customs business
they perform and over which they have supervision no matter where that
is occurring under the purview of their license. Existing
responsibilities of a broker do not disappear simply because district
permits are eliminated. In addition, prior to the publication of the
NPRM, CBP had conducted outreach to the broker community through
webinars, port meetings, and broker association meetings to solicit
feedback on brokerage needs in the modern business environment. COAC
had recommended that CBP enable brokers to operate through a single,
national permit, in light of the changes to CBP's operational structure
and growing technological capabilities. CBP incorporated the broker
community's feedback and COAC's recommendation in the final
regulations, reflecting the modern technological and business
environment of customs brokers, and highlighting the importance of
electronic process advancements to communicate with local ports, and to
submit broker information and entry filings.
It is CBP's goal to ensure that the communication between brokers
and CBP (ports and Centers) is easy and

[[Page 63273]]

efficient. CBP always strives to improve the dialogue with brokers, as
exemplified by CBP's ongoing effort to utilize electronic tools for
reporting and communicating. If in-person meetings are not possible due
to timing or distance, meetings can be held via video conferencing to
quickly and efficiently resolve any questions or concerns. A current
district permit holder who does not hold a national permit prior to the
transition to national permits will possibly have to familiarize
himself or herself with the nuances of a particular port, hours of
operation and particular staff. However, the benefits gained from the
elimination of district permits and the transition to one national
permit will outweigh the initial inconveniences that some brokers may
experience.
Comment: One commenter argued that because customs business is
generally conducted in connection with logistics and handling of cargo,
both customs business and logistics would become more consolidated
outside the ports without any consideration for the local ports'
interests, including revenue in connection with those services. In
addition, responsible supervision and control of customs business would
change and prove much more difficult in a remote setting. The commenter
is of the opinion that if a broker wishes to perform customs business
in a certain physical location, he or she should be required to have a
permit issued by that local port.
Response: CBP does not agree with the commenter's concern. When it
comes to logistics and cargo handling, local ports will still be
involved. Revenue collection will continue to be carried out at the
ports. Supervision over employees who are not local will continue to be
exercised, especially in light of the updated responsible supervision
and control standards, adding, among other factors, the requirement
that brokerage firms employ a sufficient number of licensed brokers to
satisfy the supervision standard, and the requirement for new permit
holders to have a supervision plan in place to ensure that reasonable
supervision and control is exercised over the customs business
conducted under a national permit. In response to this comment, CBP
further wishes to emphasize the importance of the accuracy and
completeness of broker submissions to ensure that CBP has sufficient
information available to exercise its oversight over broker operations.
National permits cover local ports across the U.S. customs
territory; thus, a broker may still perform customs business in a
specific location if the broker so chooses. The national permit allows
customs business within the entire U.S. customs territory and for
brokers to perform any activities allowed under the permit, thus
providing a broker with the choice of where to perform customs business
and lessening the burden on a broker to work within the scope of a
district permit for a geographic area. These regulatory changes will
benefit the customs broker community without CBP's losing oversight
over broker entities responsible for supervising their employees.
Comment: Several commenters recommended that CBP define ``customs
business'' in Sec. 111.3 and explain when a license is required and
when it is not. One commenter stated that the term ``customs business''
should be redefined to reflect the commercial activities and the roles
the individual parties play in a transaction. The commenter explained
that customs business can mean something different for different
brokers, depending on what role the broker plays in a transaction, from
the mere gathering of data for submission to assisting an importer with
the entire importation process.
Response: CBP disagrees with the commenters that a revised
definition of customs business is needed, as the applicable statute and
regulations already provide extensive definitions. Section 1641(a)(2)
of title 19 of the United States Code defines ``customs business'' as
those activities involving transactions with CBP concerning the entry
and admissibility of merchandise, its classification and valuation, the
payment of duties, taxes, or other charges assessed or collection by
CBP upon merchandise by reason of its importation, or the refund,
rebate, or drawback thereof. ``Customs business'' also includes the
preparation, and activities relating to the preparation, of documents
or forms, the electronic transmission of such documents, invoices,
bills, or parts thereof, which are intended to be filed with CBP in
furtherance of such activities. The regulatory definition in Sec.
111.1 mirrors the statutory definition in section 1641(a)(2), except
for the additional explanation that ``corporate compliance activity''
is not considered customs business. In addition, CBP issued a
Headquarters Ruling Letter (Headquarters ruling) H272798 (January 26,
2017), which provided an in-depth analysis of what customs business
entails in several different scenarios provided by the ruling
requester.\6\ The ruling serves as guidance to other brokers who
encounter the same scenarios. CBP does not believe that further
explanations or clarifications are needed.
---------------------------------------------------------------------------

\6\ The cited Headquarters ruling, and other Headquarters
rulings mentioned in this final rule, may be viewed in CBP's
searchable database, the Customs Rulings Online Search System
(CROSS), which may be found on CBP's website at <a href="https://rulings.cbp.gov/home">https://rulings.cbp.gov/home</a>.
---------------------------------------------------------------------------

The commenter correctly pointed out that the role of a broker in a
specific transaction depends on the broker's involvement and knowledge
of the facts, thus, decisions as to what constitutes customs business
are made in a case-by-case analysis to take into account the specific
facts and circumstances. If a broker is unsure whether a certain
transaction is considered customs business, he or she can request a
ruling pursuant to 19 CFR 177.1.
Comment: Several commenters raised concerns with respect to the
interaction of Sec. 111.3, concerning customs business, and Sec.
111.2(a)(2) concerning transactions for which a customs broker's
license is not required. The commenters stated that the proposed Sec.
111.3 only mentions the customs broker's location and point of contact,
along with a reference to Sec. 111.1 for the definition of customs
business. Meanwhile, Sec. 111.2(a)(2) lists transactions for which a
license is not required, and thus, which fall outside of the customs
business definition. The commenters suggested that, in order to avoid
any confusion, CBP either state in Sec. 111.2(a)(2) that the listed
transactions are not considered customs business or list the specific
transactions in Sec. 111.3 and clarify that because they do not
constitute customs business, they do not require a license. One
commenter asserted that CBP should make it clear in Sec. 111.3 that
customs business must be conducted within the U.S. customs territory,
as opposed to the transactions listed in Sec. 111.2(a)(2), which may
be conducted outside of the U.S. customs territory.
Response: CBP disagrees with the commenters' suggestion to cross-
reference the two mentioned regulations. CBP believes that the
regulations, as written, make clear that a customs broker's license is
required to conduct customs business, and that customs business must be
conducted within the U.S. customs territory. Whether a transaction that
is not specifically mentioned in the statutory definition of section
1641(a)(2) or in the regulatory definition in Sec. 111.1 is considered
customs business can be determined by requesting a ruling, as mentioned
above. CBP cannot exhaustively list all transactions that are

[[Page 63274]]

(or are not) covered by the customs business definition. A
determination as to whether a specific activity is considered customs
business is based on a fact-specific analysis, which is better
addressed in a CBP ruling letter than a regulation.
Comment: Two commenters expressed disagreement with the requirement
in Sec. 111.3(b) for a broker's designation of a knowledgeable point
of contact to be available to CBP ``outside of normal operating
hours''. One commenter argued that this requirement goes beyond the
requirements set forth in 19 U.S.C. 1641. Another commenter argued that
this requirement should only pertain to cargo security matters, such as
Customs Trade Partnership Against Terrorism (CTPAT) matters, and CBP
should clarify that in the regulation.
Response: CBP disagrees with the commenters. Due to the shift from
multiple district permits (and multiple points of contact) to one
national permit (and one point of contact), the one individual who is a
knowledgeable point of contact for a broker needs to be available to
cover all the ports of entry where the brokerage enters goods, which
could mean coverage beyond normal operating hours of any one port of
entry. Although CBP does not require 24-hour availability, CBP does
need one point of contact to cover the operating hours across all time
zones to address situations where a port may need to contact an
importer regarding the release of goods. While questions relating to
the CTPAT program may certainly occur outside of normal operating
hours, those are not the only situations that are covered.
Comment: One commenter stated that Sec. 111.3(a) does not address
the use of offshore resources to assist importers and/or licensed
brokers with the classification process under the Harmonized Tariff
Schedule of the United States (HTSUS). The commenter requested
clarification on three scenarios: (1) whether Sec. 111.3(a) prohibits
the classification of goods either at the four- or six-digit HTSUS
levels by unlicensed offshore resources located outside of the customs
territory, if the HTSUS codes will be used for the purpose of making
customs entry globally, including in the United States (and whether the
answer would be different if the offshore resources were employees of a
U.S. importer or U.S. licensed broker); (2) whether Sec. 111.3(a)
prohibits the classification of goods either at the eight- or ten-digit
HTSUS levels by unlicensed offshore resources/persons located outside
of the customs territory if a U.S. importer or U.S. licensed broker
only uses this classification as a resource to determine the
classification of goods consistent with Headquarters ruling H272798;
\7\ and, (3) whether a U.S. licensed broker is permitted to use
acceptable sampling methods to review the classification determinations
undertaken by its employees (or unlicensed offshore resources if
scenarios (1) or (2) above are permissible) to assist with satisfying
the ``responsible supervision and control'' and ``due diligence''
standards in Sec. Sec. 111.28(a) and 111.39(b).
---------------------------------------------------------------------------

\7\ Headquarters ruling H272798 held that a company would not be
unlawfully engaged in the conduct of ``customs business'' by
creating a tariff classification database to be used by a licensed
broker in preparing to file an entry so long as the company issues a
disclaimer cautioning clients that the specific tariff
classification to be filed for an entry of merchandise must be
determined by a licensed customs broker. The disclaimer must also
caution that the opinion of the broker takes priority over the
proposed classification in the database. Creation of a
classification database is permissible only if the database is used
as a resource and will not direct a client or a licensed customs
broker in the preparation or filing of a specific entry.
---------------------------------------------------------------------------

With regard to the third scenario, the commenter noted that the use
of statistical sampling methods is explicitly codified in the customs
regulations, for instance, in 19 CFR 162.74(j), with respect to prior
disclosures, and 19 CFR 163.11(c) with respect to customs audits. Thus,
the regulations in part 111 would benefit from the inclusion of
specific guidance regarding the acceptability of statistical sampling
methods for the purposes of satisfying the responsible supervision and
control standard of Sec. 111.28(a) and the ``due diligence'' standard
of Sec. 111.39(b). The commenter further suggested to add the adequacy
of a satisfying technique as a 16th factor for responsible supervision
and control in Sec. 111.28(a) that CBP may consider, and the final
rule should also include specific guidance addressing the sampling
methods that would be acceptable to CBP.
Response: CBP has clarified in Headquarters ruling H045695 (October
15, 2010) that classification at the six-digit HTSUS level does not
constitute customs business. In addition, classification at a level
lower than six digits, such as the four-digit HTSUS level, is not
considered customs business either. Even though CBP neither regulates
non-customs business, nor whether a domestic importing company uses
foreign staff to conduct non-customs business, U.S. licensed brokers
are required to exercise special caution to ensure that any unlicensed
contractor or employee operating on behalf of the brokerage abroad does
not perform any tasks that may cross the line into conducting customs
business. See Headquarters ruling H302355 (January 29, 2019).
Regarding scenario (2), generally, classification determinations at
the eight- and ten-digit HTSUS levels are considered customs business,
and customs business must be conducted by a licensed broker. The term
``resources'' used by the commenter is vague and CBP is not able to
fully respond to this comment as to whether such advice would
constitute impermissible engagement in customs business. The commenter
should seek a ruling to determine whether the specific proposal is
permissible. However, in Headquarters ruling H272798 (January 27,
2018), CBP cautioned a requester, citing Headquarters ruling H115248
(August 28, 2011), that ``even when there is a `possibility' that
classification information will end up on an entry, a broker's license
is required `to gather classification data which will be reflected on
the entry.' ''
To respond to the commenter's third scenario, in general, the use
of sampling methods is an adequate technique, but it depends on the
circumstances of a particular situation whether a specific sampling
technique is sufficient to ensure responsible supervision and control
pursuant to Sec. 111.28(a). The due diligence standard in revised
paragraph (b) of Sec. 111.39 requires that a broker ascertain the
correctness of any information which the broker imparts to a client,
thus, certain sampling techniques may or may not be appropriate to
exercise due diligence, depending on the facts of the specific
situation.
The commenter points to 19 CFR 162.74(j), which states that a
private party may use statistical sampling to ``disclose the
circumstances of a violation'' and for calculation of lost duties,
taxes, and fees or lost revenue for purposes of prior disclosure,
provided that the statistical sampling satisfies the criteria in 19 CFR
163.11(c)(3). Section 163.11 generally sets forth the ``audit
procedures'' for CBP auditors pursuant to 19 U.S.C. 1509(b). CBP
believes that those cited regulations are not geared towards broker
audits; the notable difference being that the sampling results are
submitted to CBP in a prior disclosure, whereas the results of a
broker's own compliance activities (e.g., review of classification
determinations) are not submitted to CBP. CBP does not have any
obligation to instruct brokers on how to conduct their own audits, and,
thus, CBP does not agree that the use of adequate sampling methods be
added as a 16th factor in paragraph Sec. 111.28(a), or

[[Page 63275]]

that CBP provide additional guidance as to adequate sampling methods.
Comment: One commenter stated that CBP should confirm that Sec.
111.3(a) does not require that any activity falling within the
definition of ``corporate compliance activity'' in Sec. 111.1,
including potential classification support by a related business
entity, be conducted within the U.S. customs territory.
Response: The last sentence of the ``customs business'' definition
in Sec. 111.1 specifically states that ``corporate compliance
activity'' is not considered customs business. Section 111.3(a) states
that customs business must be conducted within the U.S. customs
territory, meaning non-customs business need not be conducted within
the U.S. customs territory. CBP believes that the regulations are clear
and additional clarification is not needed.

Subpart B--Procedure To Obtain License or Permit

Comment: Several commenters expressed support for the proposed
changes in Sec. 111.12 as they eliminate certain outdated requirements
for broker license applicants. However, one commenter recommended
changing the requirement under Sec. 111.12(a) to provide documentation
regarding the applicant's authority to use a trade or fictitious name
in one or more states in which the applicant plans to operate. The
commenter argued that under a port-based system, where ports lacked
access to a centralized database and asked for documentation regarding
the applicant's authority to use a trade or fictitious name in a state
other than the applicant's home state, that was a reasonable request;
however, in an automated world with a single license and national
permit and where the broker's filer code is linked to the broker's
information in ACE, this is no longer practical or necessary. Other
than with respect to the license and the broker's office of record
state, documentation showing that a broker is operating in additional
states purportedly has no impact on CBP's statutory or regulatory
authority over brokers. Therefore, the commenter proposed to delete the
advance notice requirement with respect to trade names both with
respect to licenses and permits.
Response: CBP disagrees with the commenter. If an applicant
proposes to operate under a trade or fictitious name in one or more
states, evidence of the applicant's authority to use the name in each
of those states must accompany the application. CBP needs to know in
which states the applicant is doing customs business, along with the
name associated with the applicant's business. If the address provided
by the broker for the national permit office is in a different state
from the address provided for the national license office, then CBP
requires documentation for both the license and permit. If they are one
and the same and the broker only operates in one state, then only
documentation for that state is required.
Comment: One commenter raised the concern that the CBP examination
results letters do not always notify examinees of their right to appeal
the examination results or mention the 60-day deadline to file an
appeal, pursuant to paragraphs (e) and (f) of Sec. 111.13. The
commenter pointed out that the preamble of the NPRM states that
examinees who wish to appeal the examination results should submit
those requests in accordance with the instructions provided in the
results letter. The commenter asked that CBP make sure that the results
letters always notify applicants of the reasons for the denial and the
right to appeal within 60 days.
The commenter also asked CBP to clarify in the regulations that
applicants may be represented in their appeals by an attorney or other
agents. The commenter stated that CBP recently eliminated language that
appeals must be written in the applicant's own words; however, there is
still confusion as to whether an applicant may contract with an
attorney or others to assist with the appeal.
Response: Regarding the commenter's first point, CBP will continue
to ensure that the examination results letters contain information as
to the examinee's right to file an appeal, along with instructions on
how to file, and the 60-day deadline to submit an appeal. The results
letters contain the examinee's score, as well as the minimum passing
score. The results letters for the October 2020 examination also
included an electronic filing option for appeals, which was proposed in
the NPRM, and has been included in the final regulation. Additionally,
examinees may find instructions on how to appeal the exam results on
CBP's website.\8\
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\8\ Instructions on how to appeal may be found online at <a href="https://www.cbp.gov/trade/programs-administration/customs-brokers/how-appeal">https://www.cbp.gov/trade/programs-administration/customs-brokers/how-appeal</a>.
---------------------------------------------------------------------------

With respect to the ``own words'' language that the commenter
refers to, results letters still include language that states that the
examinee has to submit a compelling argument (``in your own words'')
explaining why the examinee's answer is better than CBP's official
answer, or why the appealed question has no possible correct answer.
CBP continues to use this language in the results letters because it is
expected that an applicant has the knowledge to draft the appeal
document and provide arguments that support the appeal for a particular
question. The focus of the appeal is of course on the articulation of
why the answer provided by the examinee on the exam should be given
credit. The written examination is a test of the applicant's knowledge
of the pertinent material, not someone else's knowledge. A third person
should not be the one to write the appeal on behalf of the examinee;
CBP understands, however, that in some instances a third person may
assist with formulating and/or submitting the appeal.
Comment: One commenter expressed support of the scope expansion for
the background investigation in Sec. 111.14 to include the financial
responsibility of an applicant, and any association with any
individuals or groups that may present a risk to the security or to the
revenue collection of the United States, but also noted that the facts
to be investigated under Sec. 111.14 should be included in the
requirements to apply for a license in Sec. 111.12.
Response: CBP disagrees with the commenter's suggestion to include
the non-exhaustive list of factors used in the background investigation
pursuant to Sec. 111.14 as requirements for the application for a
license. Section 111.12 describes the formalities of the application
process, which includes the submission of CBP Form 3124 (Application
for Customs Broker License or Permit), along with the application fee,
and any additional required documentation pursuant to paragraph (a). In
contrast, Sec. 111.14 lists facts and circumstances that CBP will
ascertain during the background investigation to determine whether an
applicant is qualified to hold a license. The background investigation
is a separate step in the application process that follows the
submission of the application and fee, and the scope of each
investigation depends on the facts and circumstances presented by the
applicant and of which CBP becomes aware during its investigation.
Including all the considerations that are part of CBP's background
investigation as part of the general application process would confuse
the requirements for the basic application process with the
requirements to qualify for a license after a thorough investigation of
more information by CBP.
Comment: One commenter objected to the addition of new grounds to
justify the denial of a license in Sec. 111.16(b). The commenter wrote
that no due

[[Page 63276]]

process opportunity is provided to challenge CBP's denial of a license.
Response: CBP disagrees with the commenter. CBP always provides a
reason in the denial notice as to why the license was not issued;
decisions are not made arbitrarily. Section 111.17 further provides the
applicant the opportunity to have the denial of the application
reviewed, and upon the affirmation of the denial of the license, the
applicant has a second opportunity to request an additional review by
the Executive Assistant Commissioner, Office of Trade, and a third
opportunity to appeal the decision to the Court of International Trade.
Revised Sec. 111.17(a) provides greater flexibility to the applicant
and CBP by allowing the applicant to file additional information or
arguments in support of the license application, and request to appear
in person, by telephone, or other acceptable means of communication by
which an applicant may provide further information to CBP. These
avenues provide sufficient notice and due process to an applicant under
the regulations.
Comment: Several commenters expressed concern with the proposed
term ``financial responsibility'' in Sec. 111.16(b)(3) and argued that
it should not be a factor in the determination whether a license should
be denied, especially during the COVID-19 pandemic. One commenter
argued that CBP could conceivably deny a license based on a blemish on
an applicant's credit history, which would be unfair. One commenter
asked CBP to provide a clear definition of ``pertinent facts'' in Sec.
111.16(b)(5) if CBP wished to penalize an applicant for the omission of
pertinent facts in the application or interview. Commenters also
expressed confusion as to what constitutes ``detrimental'' commercial
transactions in Sec. 111.16(b)(6), especially to whom the transactions
have to be detrimental, and whether the term could include poor
business decisions that are unrelated to a brokerage or customs
business but are detrimental to the individual making the decision. One
commenter expressed great concern with the grounds for denial of a
license in paragraph Sec. 111.16(b)(8) that includes ``any other
relevant information uncovered over the course of the background
investigation'' as it is over-reaching, which the commenter equated to
CBP's being able to deny a license for any reason.
Response: CBP appreciates the opportunity to clarify that the
financial responsibility of a license applicant has always been an
expectation when determining an applicant's qualification to hold a
license, as part of the business integrity requirement in Sec.
111.16(b)(3). A business integrity evaluation includes the provision of
financial reports, which reflect upon the financial responsibility of
an individual. By expressly including this factor in the final
regulation, CBP confirms that the financial responsibility of an
applicant is part of the determination whether a license is issued or
denied. Nonetheless, CBP has always taken into account the personal
circumstances of an applicant when making a decision. It has been CBP's
practice to follow up with the applicant with any questions or concerns
that arise during the review of the provided information and request
additional information and/or request information regarding an
applicant's plan to mitigate any debt or other financial difficulties,
before making the determination to deny a license.
``Pertinent facts'' in Sec. 111.16(b)(5) are those facts that are
requested on CBP Form 3124 when applying for a license, the facts
gathered during the interview with the applicant, and during the
background investigation. These are the same pertinent facts about
which an applicant should not make a willful misstatement under the
existing regulations. Those same facts should not be omitted, as the
omission of those may be just as significant as a misstatement of those
facts. The addition of the word ``detrimental'' along with the word
``unfair'' in Sec. 111.16(b)(6) better reflects CBP's intent of
including not only unfair transactions but also those that would be
detrimental, e.g., those that may cause financial harm, to a client,
CBP, or any other individual or entity implicated in a commercial
transaction. Whether an applicant's conduct is deemed detrimental is
determined on a case-by-case basis, considering the circumstances
surrounding the commercial transaction.
Lastly, CBP included a catch-all provision in Sec. 111.16(b)(8) to
account for any other relevant information that CBP uncovers over the
course of the investigation that may influence CBP's decision to accept
or deny a license application, but that is not mentioned in the non-
exhaustive list in Sec. 111.16(b)(1) through (7). Each application is
reviewed individually, and because factors (1) through (7) do not cover
every aspect that could lead to a denial of a license, a provision that
covers any other relevant information is necessary to assist with CBP's
determination.
Comment: One commenter stated that the requirement to provide a
copy of the documentation issued by a State or local government that
establishes the legal status and reserves the business name of the
entity pursuant to Sec. 111.19(b)(3) is already on file with respect
to the license. Given that there is now unity between the scope of the
license and permit, this requirement appears redundant. Moreover,
another commenter argued that there is no regulatory reason for other
offices covered by the national permit to supply such information when
the broker's office of record is provided. Therefore, the commenter
proposed to delete this requirement.
Response: While it is true that a license applicant who proposes to
operate under a trade or fictitious name in one or more states has to
provide evidence of the applicant's authority to use the name in each
of those states pursuant to Sec. 111.12(a), and that information is
already in CBP's records, it is possible that a broker has an office in
one state under which the license application was filed, but then later
applies for a national permit and provides a different office in a
different state with a different trade or fictitious name. In this
scenario, CBP would not know about a broker's second office if the
broker did not provide this information. Due to the elimination of
district permits and a district permit holder's responsibility to
provide information for the local office, CBP needs to ensure that all
the information regarding the broker's various offices, which could be
operating in different states, potentially under different names, is
provided to CBP. Having this information available enables CBP to
exercise oversight over a broker's customs business and verify whether
the broker is exercising responsible supervision and control in each of
the broker's customs business locations. Thus, CBP disagrees with the
elimination of the requirement in Sec. 111.19(b)(3).
Comment: More than one commenter maintained that the proposed
requirement for a supervision plan in Sec. 111.19(b)(8) is vague and
CBP does not describe what such a plan would include. Therefore, CBP
should provide at least minimum criteria for brokers to be able to
determine what such a plan should look like. Another commenter stated
that it is not clear from the proposed regulation whether a current
national permit holder is required to submit a supervision plan, and
whether a current national permit holder is subject to cancellation of
the permit if CBP deems the supervision plan unacceptable, or whether
there is a grace period for the broker to adjust the plan. The
commenter also noted that the NPRM did not state whether single port or
single office brokers are also subject to filing a supervision plan
even though

[[Page 63277]]

effectively they are operating as though they had a single port permit.
Response: What a supervision plan should look like depends, among
other things, on the size of a broker entity, the experience of the
employees overseen by a licensed broker, the complexity of the customs
business, and the types of transactions that a broker entity handles.
CBP believes it is prudent for a broker entity to have more
supervision, i.e., more licensed brokers and/or more training, and
guidance for employees, in place if the broker entity is large and
deals with complex business transactions. CBP agrees with the
commenters that general guidance on expectations for a supervision plan
is helpful, and, thus, CBP will provide such guidance on its website
and/or through other electronic forms of communication, such as CSMS
messages.
Further, CBP welcomes the opportunity to clarify that current
national permit holders are not required to provide a supervision plan
pursuant to the new Sec. 111.19(b)(8), however, CBP wishes to
emphasize that having a supervision plan in place is highly encouraged
and should be a best practice for every permit holder. The same applies
to current district permit holders whose district permit will be
transitioned to a national permit. As for single port or single office
brokers who currently hold a district permit, or a national permit, a
supervision plan is not required pursuant to the new regulations, but
will be required of new permit applicants, even if they only have a
single office or work at a single port.
Comment: Two commenters stated that they disagreed with CBP's
proposal to eliminate the requirement that an applicant for a license
on behalf of an association or corporation be an officer (and not only
a licensed broker). The commenters argued that the broker and CBP are
best served when an officer of an association or corporation
demonstrates knowledge of customs regulations through its licensed
customs broker designation. The commenters believe that the current
requirement under Sec. 111.11(c)(2) should remain in place.
Response: CBP agrees with the commenter that it is important to
have at least one officer in an association or corporation, and at
least one member in a partnership who is a licensed broker. CBP did not
propose to eliminate this requirement in Sec. 111.11(c)(2). CBP stated
in the preamble of the NPRM that if the application is on behalf of an
association, corporation, or partnership, then the applicant is not
required to be an officer but is required to be a licensed broker. This
relaxation of CBP's prior practice provides the broker entity with
flexibility as to who may submit the application for a national permit,
but it does not eliminate the requirement under Sec. 111.11(c)(2) to
have at least one officer in an association or corporation, or at least
one member in a partnership under Sec. 111.11(b), who is a licensed
broker. It is further important to note that the individual applying
for and obtaining the license on behalf of the entity must be delegated
the proper agency authority to obtain the license and serve as the
license qualifier, thus, binding the entity with respect to the customs
business it later performs.
Comment: One commenter pointed to Sec. 111.16, pursuant to which
CBP is required to specify the reasons for denial of a license and
stated that there is no comparable requirement to specify a reason for
denial of a permit based upon the adequacy of a supervision plan under
Sec. 111.19. The commenter recommended that a permit denial include a
detailed explanation of the reason(s) for denial, so a broker has clear
direction as to what needs to be addressed.
Response: CBP includes a reason as to why a permit application is
denied when issuing a denial letter to an applicant. CBP does not agree
that there is a need to include language in Sec. 111.19 to state that
a reason for the denial will be provided, merely because of comparable
language in Sec. 111.16.
Comment: Three commenters suggested that CBP allow brokers to have
multiple national permits if they maintain separate, although related,
business entities and allow for more than one licensed broker to
qualify for the permit. The commenters reasoned that in case of any
issues with one national permit, the broker could continue to work
under a separate national permit for a related entity.
Response: CBP disagrees with the commenters. CBP moved from the
district permit system to a national permit system in order to provide
brokers with the flexibility to conduct customs business within the
entire U.S. territory with just one license and one permit. Allowing
more than one national permit for related business entities defeats the
purpose of eliminating multiple district permits in favor of one
national permit per broker. The concern that one entity under a parent
company is not exercising responsible supervision and control and
potentially putting other related entities at risk, needs to be
addressed within the entity itself. CBP will not provide more than one
national permit to an entity so that a broker may have a backup permit
for a related entity in case that entity is not exercising responsible
supervision and control or not complying with other laws and
requirements.
Additionally, it is CBP's practice to send an informed compliance
or warning letter to a broker who is not complying with regulations.
Usually, CBP provides the broker an opportunity to address any issues
that CBP had raised as a concern before revoking a permit. A broker
will usually not lose a permit upon one incident of noncompliance
unless the incident was so grave that CBP determines that a broker is
no longer qualified to hold a license to exercise customs business.

Subpart C--Duties and Responsibilities of Customs Brokers

Comment: Several commenters stated that the use of the term
``breach'' in Sec. 111.21(b) is vague and overbroad and should be
defined. One commenter asked whether only breaches that involve
customer data are included in the regulation. Some commenters stated
that the proposed regulation does not clarify the types of breaches
that are included, and whether any breaches need to be reported or only
material/serious breaches. Several commenters suggested to hold brokers
to the CTPAT cybersecurity standards, and simply indicate in the
regulations regarding ``record of transactions'' (Sec. 111.21) and
``responsible supervision and control'' (Sec. 111.28) that brokers
need to have a procedure in place to address data breaches and to
report them to CBP as appropriate. Some commenters also noted that the
proposed regulation is silent on how a breach should be reported to
CBP.
Response: CBP intends for the common meaning of `breach' to apply
and does not believe a regulatory definition is necessary. Some
considerations underlying this new regulatory provision, however, are
things such as a physical or electronic intrusion into the broker's
records whereby any information is compromised, but particularly
confidential information of the broker's clients that might have been
viewed, copied, or used without permission. Proposed Sec. 111.21(b)
specifically states that records relating to a broker's customs
business are at issue. The proposed regulation further states that
``any'' known breach that affects customer data, physical or
electronic, will have to be reported. The regulation does not
distinguish between a material/serious and non-material/non-serious
breach. Pursuant to Sec. 111.21(a), ``records'' include documents
reflecting

[[Page 63278]]

financial transactions as a broker. Any breach that affects those
records that are maintained in a broker's customs business needs to be
reported as part of CBP's overall risk management to prevent identity
theft.
CBP disagrees with the use of the CTPAT standard in this context.
The CTPAT standard applies mainly to importers and cargo carriers who
are partners of the CTPAT program. Very few brokers are CTPAT partners,
therefore, this standard would not be applicable to the majority of
brokers. Lastly, CBP wishes to take the opportunity to clarify that
security incidents, such as a breach discussed here, that have any
effect on the security posture of CBP must be reported electronically
to the CBP Office of Information Technology (OIT) Security Operations
Center (CBP SOC) at <a href="/cdn-cgi/l/email-protection#13707163607c70537071633d777b603d747c65"><span class="__cf_email__" data-cfemail="d5b6b7a5a6bab695b6b7a5fbb1bda6fbb2baa3">[email&#160;protected]</span></a>, and not the broker's designated
Center, as proposed in the NPRM. Brokers may call CBP SOC at 703-921-
6507 with questions as to the reporting of the breach, if any guidance
is needed or if brokers are unable to send an electronic notification
due to the breach. In addition, CBP added the email address to Sec.
111.21 as the method for reporting a breach, and added the CBP SOC as
the appropriate location for reporting a breach.
Comment: Several commenters disagreed with the proposed requirement
in Sec. 111.21(b) to provide notification to CBP within 72 hours of
discovery of any known breach with a list of all compromised importer
identification numbers as it is unreasonable. One commenter argued that
if the breach were to happen on a weekend followed by a holiday, the
broker would already be outside of the window of time allotted by CBP.
Other commenters pointed out that this requirement is especially
challenging for brokers who use third-party information technology (IT)
providers. Such a short time frame may also lead to incomplete reports.
Also, one commenter argued that the risk of a data breach seems to be
minimal given CBP's advance targeting system detecting anomalies in
shipping patterns.
Different commenters suggested different approaches as an
alternative to the 72-hour requirement, such as an agreed upon time
frame after the initial reporting of the fact that a breach occurred;
reporting ``as soon as practicable''; or, allowing for two weeks or ten
(10) business days for the investigation and notification of the breach
from the time of discovery. Another suggestion was to allow for a
process similar to the one set forth in 19 CFR 162.74(b)(4) in the
context of prior disclosures, providing information within 30 days of
the initial disclosure date.
Response: As identify theft is a major concern, CBP requires
brokers to provide any known breach of importer identification numbers
within a short time frame to CBP. Receiving the compromised importer
identification numbers soon after the discovery of the breach will
allow for a better targeting analysis and, thus, enhance CBP's overall
risk management. However, CBP understands that 72 hours may in some
instances not be sufficient to provide CBP with the complete
information regarding the breach. Therefore, CBP revised the proposed
requirement for brokers to provide electronic notification of the fact
that a breach occurred and any known compromised importer
identification numbers within 72 hours of discovery. In addition,
within ten (10) business days of the notification, a broker must
electronically provide an updated list of any additional known
compromised importer identification numbers. To the extent that
additional information is discovered, a broker must electronically
provide that information within 72 hours of discovery. The broker is
encouraged to work with CBP to gather the remaining information as
quickly as possible from the broker's own system or a third-party
software vendor to provide a comprehensive report. CBP believes that
the revision of the proposed language should provide sufficient time to
provide CBP with the breach information, but also satisfy CBP's need to
gather and analyze any breach information soon after its discovery.
Comment: One commenter stated that the requirement pursuant to
Sec. 111.21(b) to identify affected records in the electronic system
is far beyond most brokers' capability and should instead be imposed on
the software vendors that CBP certifies. Most brokers use third-party
software and most smaller brokers use software hosted by the provider.
The software interfacing with CBP is approved by CBP and, therefore,
CBP should be requiring these interdiction tools as part of their
certification requirements. Unless a broker is using custom software,
identification of a breach and the affected records should be the
responsibility of the CBP-approved software vendor.
Response: CBP agrees that an agreement between CBP and a CBP-
approved software vendor imposes the requirement on the software vendor
to report any security incidents that have any effect on the security
posture of CBP. However, a broker has an independent responsibility to
notify CBP of any breach that compromised importer identification
numbers, as discussed above. Also, brokers who do not engage a CBP-
approved software vendor have the responsibility to provide the breach
information either from their own server or from a third-party software
vendor that the broker employed. Regardless of where the broker's
information is stored and maintained, CBP's revision of the time frame
for the reporting requirement, as mentioned above, should allow
sufficient time for a broker to provide the required information.
Comment: One commenter stated that the notification of the breach
to CBP should be treated as confidential information because making the
breach public may subject an entity to undue harm.
Response: CBP treats information received from brokers as
confidential within the Department of Homeland Security (DHS), however,
information may be analyzed and possibly released under the rules
pertaining to the Freedom of Information Act (FOIA), as amended (5
U.S.C. 552). Section 103.21 of 19 CFR sets forth the procedures with
respect to the production or disclosure of any documents contained in
CBP files, or any information relating to material contained in CBP
files, in all federal, state, local and foreign proceedings when a
subpoena, notice of deposition, order, or demand of a court,
administrative agency or other authority is issued for such
information. Notifications by brokers of a breach would be covered
under these provisions.
Comment: One commenter stated that many companies do not designate
one individual as the party responsible for brokerage-wide
recordkeeping requirements, as proposed in Sec. 111.21(d). In most
cases, multiple individuals are responsible for records management of
policy, legal and operational matters. Another commenter stated that
CBP should understand that brokers may provide group mailboxes and
centralized contact information, monitored by multiple
``knowledgeable'' persons, which should satisfy the recordkeeping
requirement in Sec. 111.21(d).
Response: CBP understands that within a broker entity, different
individuals may be responsible for different reporting matters,
however, CBP needs the contact information for one knowledgeable
employee as the party responsible for brokerage-wide recordkeeping
requirements in case CBP has any questions or concerns. The designated
individual may contact other

[[Page 63279]]

individuals within the broker entity who have the knowledge on a
particular recordkeeping matter to address CBP's question or concern.
Under the new national permit framework, it will be especially
important to maintain a current broker point of contact to facilitate
efficient processing of entries and entry summaries. As to the second
question, a general email address or group mailbox along with an
individual's name as the point of contact is sufficient under Sec.
111.21(d).
Comment: Commenters agree that paper or hard copy documents, as
well as electronic documents maintained on a broker's privately owned,
leased, or controlled server, should be located in the United States.
However, where a broker uses a public third party to externally
maintain or host the data, CBP should allow such a party to maintain or
host the data outside of the United States, so long as that party is an
entity operating and incorporated in the United States for
jurisdictional purposes. This will provide a broker with the necessary
flexibility to maintain data, while assuring CBP that the broker
possesses the necessary authority to obtain such documents, when
necessary. One commenter argued that so long as the information is kept
securely, it should not matter if the information is kept within the
U.S. customs territory or not, referring to Headquarters ruling H292868
(March 10, 2020). Another commenter argued that software programs exist
that allow a company to file entries and declarations for multiple
countries while the broker still works in the United States. The system
being used could be securely accessed using a website and housed in
another country where the broker entity may have its corporate
entities. Such systems allow for enhanced corporate reporting and
visibility into their customers' supply chains.
Response: A broker's paper and electronic records must be stored
within the customs territory of the United States pursuant to proposed
Sec. 111.23(a). CBP has addressed the particular issue of maintaining
copies and backups of a U.S. customs broker's digital records outside
of the U.S. customs territory in Headquarters ruling H292868 (March 10,
2020). CBP determined in this ruling that a broker's electronic records
hosted and maintained by a third-party software vendor must be
maintained on a server physically located within the U.S. customs
territory. Section 111.23(a) dictates that a licensed customs broker
may maintain records relating to its customs transactions ``at any
location within the customs territory of the United States'' in
accordance with 19 CFR part 163. It is clear from the governing
statutes (19 U.S.C. 1508, 1509(a)(2)) and regulations that a broker's
electronic records must be maintained on a server physically located
within the U.S. customs territory because this is where CBP has
jurisdiction to issue a summons and inspect records. Nonetheless, CBP's
Headquarters ruling also emphasized that a broker's duplicate or backup
records may be stored outside of U.S. customs territory, so long as the
recordkeeping requirements for the original records are satisfied.
However, to make this position clearer in Sec. 111.23(a), CBP added
the words ``originals of'' before the word ``records'' to clarify that
the requirement to maintain records in the U.S. customs territory
pertains to original records, not backup records. This clarification
does not change any of the substantive regulatory requirements and is
consistent with CBP's prior rulings.
Comment: One commenter asked CBP to provide greater clarity as to
what constitutes ``records''. The commenter argued that certain
commercial circumstances dictate the disclosure of information that may
not be permissible under the current proposed language in Sec. 111.24,
such as collections, banking, or financial matters. The commenter
claimed that CBP should allow for more business-friendly flexibility,
so that a broker should not have to obtain a waiver to perform normal
business activities that are incidental to its provision of customs
business; limiting disclosable information would possibly place
additional liability on the broker in an unforeseen manner. Several
commenters suggested that a revision of the regulation to include
certain information, e.g., necessary for screening or transportation of
a client's cargo, would better reflect how data and information are
transmitted and used by brokers in the commercial environment and their
business dealings. One of the commenters argued that without such
language, brokers would question whether they are complying with their
obligation to maintain the confidentiality of their clients'
information.
Response: The term ``records'' is used throughout part 111 to refer
to those records that are kept in a customs broker's ordinary course of
business and that pertain to certain activities, including information
required in connection with any importation, declaration or entry. A
more general definition of ``records'' can be found in 19 CFR
163.1(a)(1) and encompasses a wide range of information that is made or
normally kept in the ordinary course of business that pertains to any
activity listed in 19 CFR 163.1(a)(2).
CBP does not agree with expanding the scope of disclosure of
confidential information to additional scenarios. CBP cannot give
advance authorization for the disclosure of importer records, as that
authority lies with the client (importer). A broker is merely an agent
of the importer, and the broker must obtain a written release from a
client allowing for the sharing of client information with third
parties for certain purposes, as the scope of client information to be
shared is determined by the client. Written authorization for specific
disclosures may be granted by the client to the broker as part of a
power of attorney, or as a separate release.
Comment: One of the commenters referred to Headquarters ruling
H221355 (November 21, 2012) in which CBP determined that a broker is
prohibited from disclosing the name and address of a client to a third
party for security verification purposes. The commenter asked CBP to
revise Sec. 111.24 to provide that a broker is not precluded from
disclosing client information to other third parties.
Response: CBP does not agree with the commenter's request. CBP
continues its interpretation that, absent client consent, Sec. 111.24
prevents the sharing of client contact information with a third party
for security verification or other purposes, as determined in
Headquarters ruling H221355. Any authorization for the broker to use
client information must be set forth in the power of attorney that is
agreed upon between the broker and the client or obtained in a separate
written release. The confidentiality of a client's business information
remains a paramount concern for CBP, but a client can always authorize
the broker in writing to share information with third parties for
certain purposes.
Comment: Several commenters asked CBP to consider revising the
exemption that allows brokers to disclose information to
representatives of DHS and limit the disclosure to representatives of
CBP and U.S. Immigration and Customs Enforcement (ICE). The commenters
argued that the agencies most directly involved with the business of
the clients serviced by brokers are CBP and ICE, and only those
agencies should be specified in the regulation. The commenters
suggested to add the phrase ``or as requested, in writing, by employees
of other government agencies as necessary and appropriate.'' to include
DHS representatives. Alternatively, other

[[Page 63280]]

DHS agencies could fall under the catch-all phrase ``other duly
accredited officers or agents of the United States'' in Sec. 111.24.
One commenter pointed out that the proposed regulation does not
contemplate that a broker may need to consult with an outside party,
such as an attorney or consultant, or insurance underwriter/broker. The
broker asserted that the broker should be able to discuss, and more
importantly, disclose details of an incident, to an outside third party
in the context of a damages claim by the client against the broker due
to the broker's alleged error or omission.
Response: CBP proposed to replace the list of specific covered
government employees to whom the broker records may be disclosed with a
general reference to DHS representatives in order to include any
government entity within DHS who may be involved in a broker matter.
This language maintains CBP's flexibility to involve other entities
within DHS, if deemed necessary. It is important to note that within
DHS, all agencies are bound by the same information sharing rules to
properly protect confidential information. Thus, CBP does not agree
with limiting the general rule of disclosure of client information to
CBP and ICE.
Additionally, DHS representatives are specifically mentioned in
current Sec. 111.26, in the context of interference with the
examination of records. By revising Sec. Sec. 111.24 and 111.25 and
adding a reference to DHS, CBP is creating consistency among the
regulations that deal with a broker's recordkeeping responsibilities.
Comment: One commenter, who expressed support for the addition of
exemptions that permit information sharing, stated that the exemptions
do not extend far enough to meet the needs of the modern business
community. The commenter argued that many businesses have separate
operating entities under one parent company that offers a broad set of
services to customers. In a situation where one company acts as a
broker, it should be allowed to share customer data within the larger
corporate structure, assuming certain ownership and control metrics are
met. Another commenter added that, at a minimum, the regulation should
permit data sharing with a related corporate entity, such as a
transportation provider, where the related entity originally provided
the customs information to the broker.
Response: CBP disagrees with the commenter's suggestion to expand
the scope of exemptions in Sec. 111.24. Related entities within a
larger corporate structure are still separate legal persons (see
Headquarters ruling 116025 (September 29, 2003)), and no information
may be shared among those related entities without a client's consent.
As mentioned above, a client may consent to a broker's sharing client
information within the larger corporate structure but consent to share
information with related entities cannot be assumed, and it cannot be
mandated by CBP.
Comment: One commenter, a surety association, asked CBP to amend
Sec. 111.24 to add an affirmative obligation to provide information to
those entities specifically identified in that section, i.e., when
disclosure is allowed, it should be compulsory. The commenter argued
that, as the regulation is written, the broker does not have an
affirmative requirement to provide information to the client's surety
on a particular entry. Even though a surety continues to be named as an
exception to a list of parties to whom disclosure may be allowed,
brokers do not always read that language as compulsory. The commenter
proposed to add language indicating that a broker ``must'' disclose the
contents of the records, or any information connected with the records
to those clients to the entities listed in proposed Sec. 111.24, or,
in the alternative, add language to state that information may be
disclosed if an unexpected or unanticipated matter arises and the
broker considers it necessary to consult, inform, or engage with third-
party experts.
Response: CBP does not agree with the commenter's suggestion and
will not change the regulatory language to reflect that a broker
``must'' disclose client information to a surety. CBP will not mandate
that brokers share confidential client information with the third
parties listed in Sec. 111.24. CBP maintains that sureties are third
parties, incidental to the relationship between a broker and his or her
client. Moreover, the surety is in a contractual relationship with its
own client and should be able to establish an exchange of information
with that client under the terms of their business relationship. It is
therefore not appropriate for CBP to authorize in regulations the
transmission of data to sureties pertaining to relations with
unlicensed persons.
Comment: One commenter stated that the proposed regulations have
not addressed a significant issue surrounding Sec. 111.24, namely the
storage of broker client data with cloud-based third-party providers.
The commenter stated that CBP had addressed this issue with ``service
bureaus'' in 19 CFR 143.4, but not with software service companies to
whom brokers entrust the storage and security of client data and posed
the question of whether data storage companies are considered ``service
bureaus''.
Response: Service bureaus are software providers that provide
communications facilities and data processing services for brokers and
importers, but which do not engage in the conduct of customs business,
pursuant to 19 CFR 143.1(a)(3), 143.4. Service bureaus transmit
electronic data to CBP as part of a service provided to the broker, and
this data is considered confidential and may not be disclosed to any
persons other than the filer or CBP. Companies that provide data
storage (whether cloud-based or otherwise) contract with the broker. In
such a setting, the security requirements are based on an agreement
between the company and the broker, and CBP is not involved in this
arrangement. Thus, a third-party data storage company is not considered
a ``service bureau'' pursuant to Sec. 143.1, rendering the
confidentiality requirement set forth in Sec. 143.4 inapplicable.
Comment: A few commenters stated that the proposed standard of
making the records available at a location specified by DHS in Sec.
111.25(b) is vague and CBP should provide a clarification. The
commenters suggested that CBP should specify that a broker shall make
records available at its designated broker management unit within the
appropriate Center, or at an alternative location mutually agreed upon
by the broker and CBP. The regulation should further clarify that
either paper or electronic copies of documents may be provided to
ensure that neither the broker's physical presence nor any travel is
necessary.
Response: It is CBP's current practice that the location for the
inspection of records is either the broker's office or a CBP office,
and CBP will continue to allow those two locations for the inspection
of records. In addition, CBP welcomes the opportunity to clarify that
CBP accepts both paper and electronic records for inspection purposes.
In fact, CBP has been accepting electronic records in cases of audits
and otherwise during the COVID-19 pandemic. However, CBP reserves the
right to request original versions of documents if deemed necessary.
Comment: Two commenters stated that CBP should consider repealing
19 CFR 163.5, which requires advance written notification of an
alternative storage method for records. In today's highly automated and
virtual environment, such a notification should not be required and is
an administrative

[[Page 63281]]

burden for both the trade and CBP. Two other commenters argued that the
final rule should include the freedom to allow a broker to maintain
electronic records of its brokerage tasks, as well as any other related
documents, as long as these documents can be readily retrieved and are
properly backed up to comply with the time period mandated under Sec.
163.5, without having to request written authorization.
Response: CBP disagrees with the first two commenters' request to
repeal Sec. 163.5. Section 111.25(c) refers to part 163, setting forth
the provisions for the maintenance, production, inspection, and
examination of records. Section 163.5 deals with recordkeeping
requirements in general, and applies not only to brokers, but also
owners, brokers, consignees, entry filers or agents of those persons
mentioned in Sec. 163.2. Brokers mentioned in this section are only
one of the groups of persons to which the recordkeeping requirements
apply. For these reasons, CBP will not repeal this section.
Part 111 sets forth the specific recordkeeping requirements
applicable to brokers, and the records that each customs broker must
create and maintain, and make available for CBP examination, in
addition to the requirements in part 163. As explained above, CBP will
continue its current practice of requiring that original records be
maintained within the U.S. customs territory, in a manner that they may
be readily inspected. The regulations permit either paper or electronic
storage of original records, such that any other method is deemed
alternative and requires written authorization. See Sec. 163.5(a).
Backup records may be kept outside of the U.S. customs territory
because CBP does not regulate these duplicate records.
Comment: Several commenters stated that the proposed standard in
paragraph Sec. 111.28(a) that a sole proprietorship, partnership,
association, or corporation must employ a sufficient number of licensed
brokers is vague, and a definition is needed for the term
``sufficient''. The commenters stated that CBP should not require a
``sufficient number'' of brokers as a factor, but rather set best
practices as guidance for brokers in a revised Broker Management
Handbook. Commenters stated that best practices would allow for an
administrable and enforceable standard for brokers and CBP, as it is
unclear under the proposed language how CBP would evaluate this
obligatory standard (``must employ'') and how it is meant to complement
the enumerated factors. A few commenters raised the same concerns with
respect to proposed factor (6) in paragraph (a) requiring the
availability of a sufficient number of individually licensed brokers
for necessary consultation with employees of the broker. These
commenters argued that the language should be revised with simpler
language to require only the availability of licensed brokers for
necessary consultation with employees of the broker.
One commenter recommended to delete ``sufficient'' and replace the
language with a standard number that can be applied to all brokers. For
example, if an office had more than 15 employees conducting customs
business, then an additional broker would be required to maintain
proper supervision and control. Another commenter suggested to have a
certain number of brokers per number of employees conducting customs
business.
Response: CBP does not agree that the term ``sufficient'' needs to
be revised or removed. Allowing a broker entity to determine what is a
sufficient number of licensed brokers gives the entity flexibility as
to how to exercise responsible supervision and control. The sufficiency
of licensed brokers employed by a sole proprietorship, partnership,
association, or corporation is a fact-specific determination. CBP does
not want to mandate a certain number of licensed brokers or a ratio of
employees to licensed brokers, as the sufficiency of licensed brokers
depends on multiple factors, such as the size of the broker entity, the
skills and abilities of the employees and supervising employees, and
the complexity and similarity of tasks that need to be completed. Each
broker needs to evaluate his or her own business and see what is needed
to provide high quality service to the clients. During the broker's
internal reviews and audits, the broker entity will assess the
sufficient number of licensed brokers required for the proper conduct
of customs business. For example, if an entity has a lot of new
employees, more licensed brokers may be necessary for oversight; a
larger entity with many clients will most likely need more licensed
brokers than a smaller entity with fewer clients. All determinations
concerning sufficiency are fact-specific, and CBP does not want to
specify a certain number of brokers that is required for a certain size
of business. In addition, the Broker Management Branch at CBP
Headquarters engages with the brokers to answer questions and resolve
any issues as they arise, and thus, brokers may contact CBP if there
are any questions. Additionally, with the inclusion of the ``sufficient
number'' language in the proposed regulation, CBP incorporated COAC's
recommendation to employ an adequate number of licensed brokers to
ensure responsible supervision and control, as part of its
recommendation to move to a national permit framework.
Comment: One commenter expressed the concern that the language
``sufficient number'' could be interpreted differently by different
Centers. The commenter also asked what time frame would be provided for
broker entities to come into compliance should a Center determine that
the current number of brokers is not sufficient. Lastly, the commenter
asked whether there would be ways to challenge a Center's decision, or
at least challenge the methodology used to determine, for example, the
adequacy of licensed brokers to entry writers.
Response: As mentioned above, CBP Headquarters provides guidance to
all BMOs to ensure that brokers receive consistent answers to
questions. CBP will continue to do so regarding any changes brought
about by the final regulations, including the requirement to have a
sufficient number of licensed brokers. Regarding the time frame for
compliance in case CBP determines that a broker entity does not employ
a sufficient number of licensed brokers, CBP will handle this matter in
the same fashion as other broker matters where CBP might detect an
error in entry filings or other submissions by the broker. CBP will
address the issue (in this case, the insufficient number of licensed
brokers) with the broker and state that action needs to be taken by the
broker to correct the issue, such as additional licensed brokers to
exercise responsible supervision and control. Then the broker will have
an opportunity to address the issue and CBP will work with the broker
on a plan of action to resolve the issue. If the broker does not follow
the plan of action, then CBP will issue a warning. A decision by the
BMO regarding the sufficiency of licensed brokers may be challenged by
escalating the issue to a BMO's supervisor, the Assistant Center
Director. Ultimately, however, the broker will need to follow the plan
of action determined necessary by CBP. Continued failure to do so will
warrant escalated CBP remedial actions including, possibly, a penalty,
or suspension or revocation of a license. When the processes for a
penalty, suspension, or revocation are invoked, the broker has the due
process opportunities already afforded by CBP regulations.
Comment: One commenter stated that CBP should consider the number
of

[[Page 63282]]

employees with a Certified Customs Specialist designation as a means to
meet the responsible supervision and control requirement.
Response: CBP disagrees with the commenter's suggestion. The
privately offered Certified Customs Specialist (CCS) certification must
be distinguished from the profession of a licensed customs broker. To
become a CCS, an individual must take the CCS course and an exam at the
end of the course, and have at least one year of customs experience,
but is not required to be a licensed customs broker. A CCS's position
cannot be elevated to that of a licensed customs broker, and therefore,
having a certain number of CCSs in a broker entity will not satisfy the
responsible supervision and control standard. However, the fact that a
broker entity employs numerous CCSs might affect CBP's evaluation of
whether the entity employs a sufficient number of licensed customs
brokers.
Comment: One commenter stated that CBP must provide guidance as to
the responsible supervision and control standard for the broker
community since a failure to comply with the standard could lead to
penalties and suspension or revocation. Any guidance would encourage
brokers to incorporate these standards into their compliance programs.
The commenter further recommended that CBP create a procedure where
brokers can get clearance on whether the number of licensed brokers is
sufficient for a particular broker entity before any change in the
number of brokers requirement is imposed, and create a program, which
would permit brokers to get clearance on this question after the
requirement is imposed.
One commenter stated that the regulation must be clarified, or
otherwise removed, and added that even though CBP stated it will be
providing guidance, this guidance would not be subject to review and
comment, depriving the broker of any input on this issue.
Response: CBP disagrees with the first commenter's request that CBP
should provide prior clearance on the issue of sufficient number of
licensed brokers, or approval of the number of licensed brokers after
employment of a set number of brokers. Prior clearance cannot be given
to a broker entity because it is impossible for CBP to evaluate
beforehand whether a certain number of licensed brokers will be
sufficient to exercise responsible supervision and control. Such a
determination depends on specific facts and circumstances of the
individual broker's or broker entity's customs business. CBP assesses
the sufficiency of licensed brokers in the context of the broker's
business dealings; it is not an abstract decision that can be made.
Further, CBP does not believe that creating a program to provide prior
approval of a set number of licensed brokers for a broker entity would
be beneficial. As with prior clearance, approval after the fact is not
feasible because CBP would not know whether the broker entity will
function properly and exercise responsible supervision and control
until the entity is in fact conducting customs business.
Before CBP issues a suspension or revocation there is usually a
history of a broker's failure to meet the supervision standard; in most
cases, CBP does not automatically suspend or revoke a broker's license.
There will be communication between the broker and CBP regarding the
broker's failure to meet the supervision standard, and ways to mitigate
that failure.
One of the commenters asked that any regulatory changes based on
public comments be subject to review and comment by the public for a
second time. CBP disagrees with this request. Pursuant to the
Administrative Procedure Act (APA) (5 U.S.C. 551 et seq.), CBP
solicited comments from the public regarding the proposed changes to
part 111 and provided a 60-day comment period. Any change from the
proposed regulations is either based on a public comment, a
clarification of the proposed or current regulations, or a change that
results in a benefit or convenience to the broker community without
detriment to existing rights, such as additional automation of certain
processes. CBP will not implement any major changes without seeking
public input first. Thus, CBP does not see the need to provide a second
opportunity for public comments on any guidance that CBP will issue
before finalizing the proposed regulations.
Comment: Several commenters expressed a concern with respect to the
change from the word ``will'', which used to be part of the definition
of responsible supervision and control in Sec. 111.1, to the word
``may'' in Sec. 111.28(a). The commenters stated that this change
indicates that CBP is no longer required to take into consideration all
the listed factors when determining whether a broker exercises
responsible supervision and control, and thus removes the protection
from a broker by not obligating CBP to consider broker compliance
efforts in their totality. One mistake could seemingly result in a
broker penalty without regard to the other factors.
Several commenters urged CBP to continue to consider all enumerated
factors in assessing responsible supervision and control to avoid any
arbitrary and capricious determinations and prevent inconsistent
decisions by different CBP officers. The commenters argued that keeping
``will'' in the regulation provides transparency and uniformity for
brokers in executing operations and procedures, as well as for CBP
officers in administering and enforcing this standard. A change to
``may'' would allow CBP to focus on whichever factor it deems
appropriate to the exclusion of additional factors that are clearly
relevant as to whether a broker is exercising responsible supervision
and control. CBP should be required to review all factors in order to
ensure that a broker receives a full and fair evaluation.
Response: CBP disagrees with the commenters. CBP needs flexibility
in determining whether a broker is exercising responsible supervision
and control over the customs business that it conducts, as this is a
fact-specific assessment. It has been CBP's practice to give greater
weight to the factors that are implicated in a broker's exercise of
responsible supervision and control when making a determination. There
may be instances where one or more factors will be more relevant than
others in determining whether a broker did or did not exercise
responsible supervision and control. While it is possible that CBP's
determination that a customs broker has failed to exercise responsible
supervision and control may be predicated on fewer factors, but ones
that CBP considers relevant, this does not prevent the broker from
presenting in its defense any factors it believes to be mitigating.
Comment: A few of the commenters stated that the change from
``will'' to ``may'' would be contrary to judicial precedent, citing a
court case, United States v. UPS Customhouse Brokerage, Inc., 575 F.3d
1376, 1382 (Fed. Cir. 2009), in which the court decided that CBP's
failure to consider all ten factors to determine whether a broker
exercised responsible supervision and control was improper.\9\ In
addition, a commenter argued that the proposed language is in violation
of Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984), because agencies
cannot implement regulations that are arbitrary and capricious.
---------------------------------------------------------------------------

\9\ The cited court case may be found online at <a href="https://cite.case.law/f3d/575/1376/">https://cite.case.law/f3d/575/1376/</a>.
---------------------------------------------------------------------------

Response: CBP disagrees with the commenters. CBP may only be bound
by judicial precedent if the same regulatory language is still in
place. If CBP decides

[[Page 63283]]

to change the regulation through a process allowed by the APA, judicial
precedent no longer binds CBP in making that change. Further, the
proposed language in Sec. 111.28(a) is not arbitrary and capricious.
CBP proposed in the NPRM to keep the list of factors to determine
responsible supervision and control set forth in Sec. 111.1, and move
it to Sec. 111.28(a), along with some additions and modifications to
reflect the changes brought about by the transition to a national
permit framework. CBP further proposed to consider the relevant factors
from among those listed on a case-by-case basis. No decisions will be
made without a thorough evaluation of the relevant factors present that
apply to an individual broker.
Comment: Several commenters stated that the newly proposed factors
in Sec. 111.28(a)(11) through (15) are vague and decrease a broker's
certainty in adopting and executing the necessary processes to meet the
supervision standard. The commenters suggested that the factors either
be removed or at least incorporated into one general factor, for
instance into factor (10), as an indication that an individually
licensed broker has a real interest in the operations of a broker. In
addition, commenters requested that any guidance as to the factors be
provided as best practices in the Broker Management Handbook.
A few commenters suggested to remove the new factors because the
current ten factors are adequate to determine that a licensed broker
has a real interest in the operations. One commenter referred to COAC
recommendation No. 010021 (April 27, 2016), which recommends that CBP
provide guidance to brokers regarding the ten factors demonstrating
responsible supervision and control, such as how to properly train
employees, issue appropriate written instructions and internal
controls, maintain an adequate ratio of employees to licensed brokers
based on certain factors, and engage in supervisory contact, audit and
review operations. The commenter is of the opinion that CBP has not
done so in the NPRM.
Response: CBP disagrees with the comments to either remove or
consolidate the proposed factors (a)(11) through (15) into existing
factor (10). First, including all proposed factors in one factor would
make the language complex and difficult to follow and enforce. Second,
CBP added factors that reflect their importance in the modern brokerage
environment and their importance in evidencing the proper transaction
of customs business. For instance, filing entries late, paying the
government late, or not returning client or CBP communications, are all
evidence of a broker's failure to exercise responsible supervision and
control. CBP provided an explanation as to each proposed change in the
NPRM, and as mentioned above, has worked with the broker community in
the past and has taken into account their recommendations. As mentioned
above, a new guidance document, that will be published concurrently
with the publication of this final rule, will include information as to
the listed factors in Sec. 111.28(a). In the meantime, brokers may
find additional information and guides on CBP's website at <a href="https://www.cbp.gov/trade/programs-administration/customs-brokers">https://www.cbp.gov/trade/programs-administration/customs-brokers</a> regarding the
broker license exam, triennial status reporting requirements for
current brokers, as well as additional information and resources for
brokers.
Comment: One commenter raised a concern regarding proposed factor
(11), i.e., the broker's timeliness of processing entries and payments
of duty, tax, or other debts owed to the government. Two commenters
stated that a broker is not obligated to pay on behalf of an importer
and asked how the timeliness factor can be judged in such a situation.
Both commenters stated that the term ``timeliness'' is vague and does
not provide a benchmark to which a broker can develop and execute
processes, nor can CBP uniformly and transparently evaluate and enforce
the standard. The same concern as to vagueness was raised for the term
``responsiveness'' in proposed factors (13) and (15).
Lastly, commenters stated that the term ``communications'' in
proposed factors (12) (communications between CBP and the broker) and
(14) (communications between the broker and its officer(s)) is too
broad. One commenter explained that proposed factors (12) and (13) (the
broker's responsiveness and action to communications, direction, and
notices from CBP) do not explain what type of communication is covered,
and proposed factors (14) and (15) (the broker's responsiveness and
action to communications and direction from its officer(s)) cover
communications between parties to which CBP would have no visibility.
One commenter posed the question whether CBP will regularly make
available to customs brokers examples of communications relevant for
verification and training purposes.
Response: CBP disagrees that these proposed terms need to be
further defined in the regulation. The timeliness factor looks at a
broker's repeated failures to timely file entries and/or duties, taxes
or other debts owed to the government, not just one incident alone.
``Timely'' generally means doing something by the time it is required
to be done in statute or regulation, which is not a vague concept. If a
broker frequently fails to timely submit entries and/or payments, CBP
will consider the failure to comply with factor (11) in its
determination as to whether a broker is exercising responsible
supervision and control.
With respect to the term ``responsiveness'' in factors (13) and
(15), a broker's failure to respond to any communications, direction
and notices from CBP, and to communication and direction from its
officer(s) or member(s) (i.e., not returning phone calls or emails,
etc.) will reflect negatively on whether a broker is exercising
responsible supervision and control.
The term ``communications'' in the context of responsible
supervision and control is used to assess how well and timely a broker
is communicating with its officer(s) or member(s), and with CBP. CBP
does not agree that examples of communications need to be provided to
brokers for verification and training purposes. Brokers should be able
to determine what, if any, communication is needed in a particular
situation with CBP and officer(s) or member(s) of the broker entity.
To make the proposed language in Sec. 111.28(a) more concise, CBP
combined factors (12) and (13) into one new factor (12), which deals
with the broker-CBP relationship, and combined factors (14) and (15)
into one new factor (13), relating to the broker-officer/member
relationship. In addition, CBP added a reference to ``member(s)'' in
the new factor (13) to account for partnerships, in addition to
associations and corporations as a type of broker entity.
Comment: Several commenters stated that it is unclear what the
terms ``reject rate'' and ``various'' in proposed factor (4) of Sec.
111.28(a) mean under the new supervision standard and argued that,
without clarity, this metric is misleading and could be highly
prejudicial. One commenter stated that the factor should be eliminated
because it appears to be intended to account for a broker's mistakes
(versus an importer's or other third party's mistake). Clear guidelines
are necessary as to what CBP considers an actionable rejection, and
only those instances where the broker is at fault (and not the third-
party importer) should be taken into consideration.
Response: CBP does not agree with the commenters that the terms
``reject rate'' and ``various'' need to be clarified

[[Page 63284]]

in the regulation. The reject rate for the various customs transactions
historically has been a factor in Sec. 111.1 in the definition of
responsible supervision and control. ``Various'' means not just one
rejection, but several, over the course of time. CBP proposed to add
language to this factor when moving it to factor (4) in Sec. 111.28(a)
to clarify that CBP looks at the reject rate by comparing the number of
rejections with the broker's overall volume of entries. This revised
language provides a better context to evaluate the quality of
responsible supervision and control as CBP looks at the totality of the
transactions conducted by the broker to determine whether the broker is
properly filing entries. In addition, CBP relied on COAC recommendation
No. 010020, which suggested a clarification of existing factor (4) to
state that the reject rate resulting from entries or entry summaries be
expressed as a percentage of the broker's overall business for the
various customs transactions, when making this change to the original
factor.
CBP agrees with the commenter who states that this factor is
intended to account for a broker's mistakes, however, a broker's
responsibility includes a duty to verify any information received from
an importer. The broker must exercise due diligence and make sure that
the data from the importer is correct, e.g., that the classification of
goods is correct. The broker must further verify, depending on the
specific facts and circumstances, whether the importer has experience
in gathering and providing the necessary information to the broker,
whether the importer is a new client, and may need more assistance, or
whether the client is experienced in providing the necessary
information. CBP has no way to determine once a filing is made whether
a mistake (and reject) was due to a broker's mistake, or due to
incorrect information provided by the importer. Moreover, any type of
rejection will be communicated to the broker, and the broker has the
opportunity to make a clarification.
Comment: Further, several commenters requested that not all system
rejects in Automated Broker Interface (ABI) should be considered as
rejects as they are often due to contributory factors, such as system
outages, delays in HTSUS updates, and programming changes for Partner
Government Agencies (PGAs) and in the CBP and Trade Automated Interface
Requirements (CATAIR) with short deployment time frames and highly
complex filings causing numerous system rejects. One commenter added
that ACE is too new and there have been problems with CBP processing,
especially drawback filings, thus, this factor (4) in Sec. 111.28(a)
is not appropriate.
Response: In case of system outages or delays, where the broker is
unable to file in ACE, the broker does not receive a reject. A reject
occurs only if the broker successfully submitted a filing in ACE, which
is considered filed, and because of the lack of accuracy of the filing,
is rejected. As to the comment that ACE is too new, ACE has been the
system of record since November 1, 2015, as mentioned above. Both CBP
and the trade community have gained extensive experience over the last
several years working with and in ACE. As to the commenter's second
point, CBP usually announces programming changes, either in a Federal
Register notice, or via a CSMS message, with guidance for the changes
or updates to the process and provides additional time (usually 30
days) after the publication of a notice as to when announced changes or
updates become operational. Lastly, drawback claims have been
successfully filed in ACE since February 2018. The ACE drawback module
has been enhanced significantly to include expanded filing capabilities
for claimants, refined validations that reflect current import
practices, and updated bonding policies for accelerated payments. In
addition, CBP maintains extensive customer service resources for
existing and new drawback filers.
Comment: Another commenter requested clarity about census warnings
and asked that they not constitute rejects. Another commenter stated
that the term ``reject rate'' lacks specificity and asked whether the
term is the same as used in Customs Directive 099-3550-67.\10\
---------------------------------------------------------------------------

\10\ The Customs Directive may be found online at <a href="https://www.cbp.gov/sites/default/files/documents/3550-067_3.pdf">https://www.cbp.gov/sites/default/files/documents/3550-067_3.pdf</a>.
---------------------------------------------------------------------------

Response: Census warnings are informational messages that are part
of the entry validation process. The U.S. Census Bureau (Census)
provides CBP with specific data ranges at the HTSUS level that ACE uses
to validate a variety of data elements (e.g., line value, charge). If a
line is transmitted that falls outside of the Census parameters, ACE
will return a warning message to the filer. These warnings are
described in the Appendix H of the CATAIR.\11\ A Census warning is not
a reject, as the entry summary is not incorrect, but the information
provided is unlikely to be accurate, given Census' parameters. The
filer is then required to submit the corrected line data or if the data
is found to be correct as entered, submit the reason code for a Census
``override.''
---------------------------------------------------------------------------

\11\ Appendix H provides a detailed resolution on each warning
so that the party receiving the warning will know what elements are
considered to be ``unlikely'' to be accurate. The appendix may be
found online at <a href="https://www.cbp.gov/document/technical-documentation/ace-catair-appendix-h-census-codes">https://www.cbp.gov/document/technical-documentation/ace-catair-appendix-h-census-codes</a>.
---------------------------------------------------------------------------

With respect to the second commenter, the reject rate pursuant to
Sec. 111.28(a)(4) covers rejections of entry summaries as discussed in
the Customs Directive mentioned above, even though some of the items in
this Directive have become obsolete.
Comment: Another commenter suggested that rejects should only be
counted after a broker has had the opportunity to agree or provide
proof that the originally filed entry was correct. Another commenter
asked whether CBP would consider listing rejected entries in ACE to
allow the broker to review these entries for verification and training
purposes. Lastly, one commenter stated that multiple rejects due to one
problem should not be counted as multiple rejects.
Response: CBP does not agree with these comments. A filer receives
an error message in ACE if there are any issues when filing. If the
submission is rejected, comments are provided as to corrective action
that is necessary. Whether a reject is a system reject or a manual
reject by a CBP employee, the filer is notified either way as to the
reason for the reject. With system rejects, an error code is provided,
and the error codes are described in the ACE CATAIR Error Dictionary
\12\ for the filer to refer to and correct the error. For a manual
reject, a CBP employee enters a message in an ACE user interface
``Notes'' field describing the error, along with instructions as to how
to re-transmit the filing in proper form. This message is transmitted
to the filer in ACE. For either type of reject, the filer is given
sufficient information to re-submit the correct filing, thus, CBP does
not believe that it is necessary for the filer to agree or provide
proof that the originally filed entry was correct.
---------------------------------------------------------------------------

\12\ The ACE CATAIR Error Dictionary is available online at
<a href="https://www.cbp.gov/document/guidance/ace-catair-error-dictionary">https://www.cbp.gov/document/guidance/ace-catair-error-dictionary</a>.
---------------------------------------------------------------------------

Lastly, if a filer makes multiple filings, based on the same
incorrect information, the system does count each instance of filing as
a reject. CBP notes that if a broker makes the same mistake in several
filings and receives the same error code or message, and the filings
are rejected, the broker should be aware for future filings as to the
error and how to properly submit an entry. Additionally, the broker may
always

[[Page 63285]]

contact CBP to ask for clarification as to a rejected submission, if
necessary.
Comment: Some commenters stated that CBP should adjust the proposed
language in factor (7) (supervisory visits) and factor (8) (audits and
reviews) for Sec. 111.28(a) to include virtual options for supervisory
visits by an individually licensed broker of another office that does
not have a licensed broker, as well as audits and reviews of the
customs transactions that are handled by an employee of the broker in
order to better reflect today's often virtual business environment. In
addition, one commenter stated that CBP needs to define ``frequency'',
otherwise, a broker cannot ensure compliance.
Response: Virtual options for supervisory visits, and for audits
and reviews, are permissible. The factors, as written in the proposed
regulation, do not limit supervisory visits, and audits and reviews, to
a physical option. CBP understands, especially in the changed
environment brought about by the COVID-19 pandemic, and the move from
district permits to national permits, that both physical and virtual
presence should be allowed for supervisory visits, as well as audits
and reviews. However, whether a virtual supervisory visit or audit and
review is sufficient in any given case to exercise responsible
supervision and control depends on the specific circumstances of a
broker's business, such as the size and complexity of a broker entity
or the type of transactions that are handled by an employee. In
addition, the term ``frequency'' is a fact-specific determination. As
mentioned above, whether a broker exercises responsible supervision and
control depends on how a broker conducts its customs business, and it
is the broker's responsibility to determine how frequent the
supervisory visits, audits and reviews should be. For example, more
supervisory visits, and audits and reviews, may be necessary for new
employees, or employees tasked with more complex transactions.
Comment: Several commenters did not agree with the proposed
requirement in Sec. 111.28(b) that a permit holder submit a list of
the names of persons currently employed by the broker as this
requirement may be too burdensome, especially on large companies. The
commenters argued that CBP should require a list of names only of those
employees who are engaged in customs business, given that the
regulation specifically relates to supervision and control over the
transaction of the customs business. For the same reasons, two
commenters stated that the term ``broker employees'' used in paragraphs
(a) and (b) of Sec. 111.28 should be changed to ``employees who
conduct customs business'' because the term ``broker employees'' could
relate to any employee of the broker, regardless of the employee's
responsibility, and those employees should not be included in the
reporting requirement.
Response: CBP does not agree with the commenters. First, customs
brokers are required to exercise responsible supervision and control
over all of their employees, and in particular any of their employees
who assist with the customs business and transactions of the brokerage.
Requiring the customs broker to identify to CBP all of its employees
contributes to both the customs brokers' and CBP's knowledge and
awareness of the employees' status. Second, CBP requires the
comprehensive information for all persons employed by a broker in order
to be aware of all potential risks that any employee might present to
the revenue of the United States or the public. Only by obtaining
information on all employees can CBP properly engage in a dialogue with
the customs broker to determine that none of the employees of the
broker occupy a position within the brokerage that presents a risk to
the revenue or the public. It is important to note that this final rule
is not changing the reporting requirement for brokers. Brokers already
have an obligation to submit a list of names of persons employed by a
broker, and this obligation continues with this final rule, with the
only change being that brokers have to report less information on their
employees pursuant to the final regulation.
Comment: Two commenters stated that CBP should enhance ACE to
better facilitate the electronic reporting of employee information,
improve the reporting of information included in the triennial
reporting process and the submission of payment of various broker fees.
Specifically, the commenters suggested the addition of a section in the
ACE portal where updates can be easily made for new employees,
terminated employees, or a change of address. Another commenter stated
that the electronic data reporting system within ACE is cumbersome and
CBP should not adopt the proposed language in Sec. 111.28(b) regarding
the use of a CBP-authorized EDI in the final rule until a more modern
system and interface are available, such as blockchain.
Response: Electronic employee reporting for new and terminated
employees has been in place within ACE for several years. At this time,
brokers have several capabilities in ACE to add, remove or edit certain
information related to the license and permit. CBP agrees that the
automation of the broker submission could be further enhanced, and CBP
is continuing to work on technological advancements to streamline and
facilitate the processing of broker submissions. However, it is
important to note that the system is currently functional to receive
employee information from brokers.
In addition, as mentioned above, CBP deployed a new portal for the
electronic submission of and payment for the broker examination
application, and the submission of the triennial report and payment of
the triennial fee. In the case of the triennial reporting, if a broker
files the status report and pays the required fee in the eCBP portal,
CBP will send by email a receipt to the broker (if an email address is
on file) evidencing the completion of the required reporting. A copy of
the receipt and the filed report is maintained in the eCBP portal for
the broker to access at any time. To provide all brokers the ability to
receive an electronic receipt of the completion of the triennial
reporting requirement, CBP added a broker's email address as a
reporting requirement in Sec. 111.30. Specifically, CBP added ``email
address'' in the first sentence of paragraph (a) and added parentheses
after ``address information'' in the third sentence to clarify that the
office of record address, mailing address and email address are all
required for purposes of reporting a change of address. CBP also added
the email address requirement in paragraphs (d)(2)(i)(A) and (d)(2)(ii)
for individual brokers, both actively engaged and not actively engaged.
CBP further included the requirement of an email address for each
licensed member or licensed officer in case of partnership,
corporation, or association reporting in paragraph (d)(3)(i).
During the 2020/2021 triennial reporting period, approximately 90%
of the licensed brokers filed the required report and paid the required
fee through the new reporting tool. During that triennial reporting
period, a broker had to choose to either pay online through the eCBP
portal or at the port and had to submit both the report and the payment
through one of the chosen options; a broker could not submit the report
online and pay the fee at the port, or vice versa. For the next
triennial reporting period in 2023/2024, CBP will continue with the
same practice.
A broker who chooses to pay the fee at a processing Center, i.e.,
at one of the

[[Page 63286]]

41 BMO locations, may either complete the status report in the eCBP
portal and print the draft report or complete a paper copy of the
report, and then submit the report to a processing Center, along with
the payment of the fee. A BMO at a processing Center will accept the
required report and payment and provide a cash receipt. The BMO will
manually enter the information on the report in ACE for the triennial
reporting to be completed.
Comment: One commenter stated that the 30-calendar day requirement
in Sec. 111.28(b)(2) to provide the social security number (SSN) for a
new employee from a foreign country is difficult to comply with as it
typically takes longer for the new employee to receive an SSN, and ACE
does not accept any employee data without also providing the SSN. The
commenters asked CBP to allow the submission of employee information in
ACE without the SSN if it is not available at the time of the
reporting.
Response: Pursuant to the proposed regulation in Sec.
111.28(b)(2), a national permit holder must submit a list of new
employees within thirty (30) calendar days of the start of employment
to a CBP-authorized EDI system. In the rare instance, where an SSN is
not available for a new employee at the time of reporting, the broker
must submit the new employee information to the processing Center,
indicating that the SSN is still missing and that it will be reported
as soon as it is available.
Comment: Two commenters suggested to move paragraphs (b) through
(e) of Sec. 111.28, dealing with the reporting of employee information
and change in broker ownership, to Sec. 111.30. The commenters argued
that while these paragraphs indirectly pertain to supervision and
control, their placement in Sec. 111.28 is confusing as they represent
regulatory requirements regarding administrative issues more akin to
those set forth in Sec. 111.30.
Response: CBP disagrees with the two commenters and believes that
paragraphs (b) through (e) fit appropriately in Sec. 111.28. The
aspect of employee reporting falls under the responsible supervision
and control standard, as CBP will take into consideration a broker's
proper employee reporting when looking at whether the broker exercises
responsible supervision and control. In contrast, Sec. 111.30 includes
instructions for how and when to notify and report to CBP, and what
information to include in the notification and report.
Comment: One commenter stated that the responsibilities in proposed
Sec. 111.19(f) and proposed Sec. 111.28(a) are not consistent and it
is not clear which individual broker has to comply with the responsible
supervision and control standard. Proposed Sec. 111.19(f) talks about
``the individual broker who qualifies for the national permit'',
whereas proposed Sec. 111.28(a) talks about ``every licensed
officer''. In Sec. 111.19, the primary responsibility rests with the
individual broker designated as qualifying for a national permit,
whereas in Sec. 111.28, every licensed officer is included in the
definition of responsibility. The commenter suggested to amend Sec.
111.28 to conform with other sections and limit responsibility to the
specifically designated person as being responsible.
Response: CBP does not agree with the commenter. A license holder
and a national permit holder could be two different individuals
conducting customs business, meaning that the license holder is bound
by Sec. 111.28(a), whereas a national permit holder is held to the
responsibility stated in Sec. 111.19(f). Both requirements are
applicable to different designated individuals. If the license holder
is the same individual as the national permit holder, then that
individual is bound by the standard in Sec. 111.19(f), which also
refers to Sec. 111.28(a) and includes the same standard. This cross-
reference would not cause such an individual to have two types of
responsibilities.
Comment: One commenter asked CBP to define the phrases ``physical
proximity of subordinates'' and ``abilities and skills'' of employees
and managers'' set forth in Sec. 111.28(a). The commenter explained
that the pandemic has resulted in many licensed brokers working from
home, so the physical proximity of subordinates was not always
feasible. Another commenter stated that there should be full alignment
of the modernization efforts under the national permit framework,
meaning that CBP should remove the requirement for a sole
proprietorship, partnership, association, or corporation, to employ
licensed brokers relative to the physical proximity of subordinates
under the responsible supervision and control standard in Sec.
111.28(a).
Response: CBP disagrees with the commenters. Both phrases,
``physical proximity of subordinates'' and ``abilities and skills of
employees'', help a broker entity determine how many licensed brokers
are needed to exercise responsible supervision and control. Physical
proximity pertains to the aspect of an employee being physically
located in the same or different office close to a broker entity to
ensure proper supervision of a subordinate. The level of supervision
and the number of supervising employees depends on the ability and
skill level of each employee within a broker entity. To comply with the
responsible supervision and control standard, a broker entity must take
into consideration the experience, training, and skills of an employee
to make the determination as to how many licensed brokers are needed.
This determination is fact-specific and takes into account the various
factors listed in paragraph (a) of Sec. 111.28.
Comment: One commenter noted that Sec. 111.28(e) does not set
forth any time frames for CBP to make a decision as to whether CBP
wishes to investigate a new principal or render a decision as to the
acceptability of the new principal and notification of the transferring
broker. Without set time frames, a legal transfer of ownership of a
brokerage business could be voided. The commenter added that if the
sale is to another broker or to an employee that CBP had previous
notice of, there should not be an investigation.
Response: CBP will not add a time frame for completing a background
investigation pursuant to Sec. 111.28(e), just as there is no time
frame for the background investigation for a license application
pursuant to Sec. 111.14(a). CBP reserves the right to conduct a
background investigation on a new principal, if deemed necessary. That
said, if the new principal is a current employee of the broker and CBP
had recently completed a background investigation on that particular
individual, then CBP may not complete another investigation, but it is
in CBP's discretion to make that decision. It is important to note that
the new principal does not have to wait to conduct customs business
until CBP completes the background investigation and renders a decision
as to whether the new principal is approved. The new principal may
start conducting customs business as soon as the change of ownership is
completed. If CBP finds a problem during the background investigation,
CBP will address it with the new principal.
Comment: Several commenters asked that CBP change the deadline in
Sec. 111.30(a) for reporting of a broker's address to ten (10)
business days, instead of only ten (10) calendar days, to provide
flexibility with weekends and holidays, or simply unavailability of a
party that provides such information. One commenter suggested that
thirty (30) calendar days would be preferable to align with the
requirement in Sec. 111.28(b).
Response: CBP disagrees with the commenters and will keep the time
frame for reporting an address change at

[[Page 63287]]

ten (10) calendar days. CBP believes that a broker would know at least
ten (10) calendar days in advance when a business address is changing.
Moreover, CBP already added flexibility by changing the requirement
from an immediate written notice to ten (10) calendar days to inform
CBP. CBP believes that this is a sufficient time frame.
Comment: One commenter stated that when a broker changes his or her
name, pursuant to Sec. 111.30(c), the notice of the name change can be
provided to CBP after the fact, but a broker must notify CBP in advance
when he or she proposes to use a trade name in one or more states. The
commenter argued that providing this information in advance was helpful
when there were port licenses and manual records maintained at
individual ports because the port had no way of knowing that a trade
name was the pseudonym for a licensed entity. However, today, the filer
code in ACE represents the licensed entity, thus making this
requirement unnecessary.
The commenter recommended that to the extent that CBP asserts that
this documentation is still required, the regulation should be amended
to be more consistent by requiring submission of both the name change
and fictitious name authorization after the fact, rather than prior to
use, and the requirement should apply only to the licensee's state of
incorporation and office of record.
Response: It is CBP's practice to require proof of a broker's name
change or proposed trade name change prior to issuing a new license
reflecting the new name. While it is true that in many instances, an
individual broker does not provide evidence of a name change (e.g., due
to marriage, divorce, etc.) prior to the actual name change, CBP
believes that a broker entity who is planning on using a trade or
fictitious name for conducting business in one or more states will know
in advance what the new trade or fictitious name will be, thus,
reporting to CBP in advance, along with documentation to be filed in
those states, is not an unreasonable request. That said, in both
instances (the broker's name change and the proposed trade name
change), the broker will not be able to practice under the new name or
trade name until the license reflecting the new name is issued to the
broker. As mentioned in response to a comment above, CBP needs to know
in what state(s) a broker is conducting customs business to be able to
maintain oversight over the broker's business.
Comment: One commenter stated that the failure to file the
triennial report and pay the status report fee pursuant to Sec.
111.30(d)(4) should not result in forfeiture of the right to conduct
customs business, absent an opportunity to cure the failure. The
commenter argued that filing the triennial report is essentially a
ministerial activity with limited impact on CBP operations or revenue,
yet the failure to timely file the report and/or pay seems to have the
same effect of terminating a broker's ability to conduct business, even
if only temporarily. In the case of a violation of a more substantive
regulatory provision, the broker is given an opportunity to address the
violation before the imposition of a penalty, suspension or revocation,
however, the same opportunity is not afforded to the broker who failed
to complete the triennial reporting requirement.
Response: The suspension of a license by operation of law for
failure to timely file the status report in the month of February of
the reporting year pursuant to Sec. 111.30(d)(4) is prescribed by
statute. Section 1641 of 19 U.S.C. states that if a license holder
fails to file the required report by March 1 of the reporting year, the
license is suspended, and may be thereafter revoked under certain
circumstances. Therefore, CBP cannot modify the regulation to allow
brokers an opportunity to address the failure to timely fulfill the
status reporting requirements before a suspension is issued.
Comment: Some commenters stated that the proposed requirement in
Sec. 111.32 that a broker must not give, or solicit, or procure the
giving of, any information or testimony that the broker knew or should
have known was false or misleading in any matter pending before DHS is
a very subjective standard and provides CBP with too much discretion.
The commenters asked that CBP provide some criteria to determine what
the broker should have known, what is considered misleading, and
whether a misunderstanding qualifies.
Response: CBP cannot provide a comprehensive list of facts and
circumstances that a broker should have known. What a broker should
have known is based on a reasonable person standard. Based on a
broker's customs business, and the information the broker has before
him or her, the broker should be able to make the assessment whether
certain information is false or misleading and whether the broker
should have known. ``Misleading'' information is information that could
be deceptive, confusing, misrepresentative or just false. Whether a
misunderstanding qualifies as the broker's having filed, solicited, or
procured the giving of false or misleading information depends on the
facts and circumstances of a broker's knowledge, expertise, and
actions.
Comment: One commenter asked whether a broker must report to CBP
under Sec. 111.32 the mere fact of a separation from or cancellation
of representation of a client as a result of the determination that the
client is intentionally attempting to defraud or otherwise commit any
criminal act against the U.S. Government, or also provide details of
the suspected or known wrongdoing by the client. The commenter argued
that this proposed language goes against the goal of encouraging
confidential communication and effective collaboration with the client,
and improved compliance. Secondly, the commenter asked whether this
notification would be confidential.
Response: CBP needs to not only know the fact that a separation
from or cancellation of representation of the client occurred, but also
the client name, date of separation or cancellation, and the reason(s)
for the separation or cancellation, so CBP can exercise its due
diligence and perform an investigation of the importer's dealings.
Accordingly, CBP amended Sec. 111.32 to require this information in
the report. CBP proposed the change in Sec. 111.32 to ensure that a
broker not only advise a client after discovery that the client has not
complied with the law or made errors or omissions in documents, but
also document and report to CBP when a broker terminates the
representation of the client who directs the broker to continue the
noncompliance, error, or omission. In addition, pursuant to paragraph
(f) of section 1641, CBP has the ability to fill in gaps in the
regulations that CBP considers necessary to protect the revenue of the
United States, specifically, regulations relating to documents and
correspondence, and the furnishing by customs brokers of any other
information relating to their customs business to CBP. As to the second
question, information submitted to CBP is kept confidential within DHS,
and all the components within DHS follow the same information-sharing
rules. CBP will not put information received from brokers on its
website or otherwise publicize it without lawful authority to do so. As
mentioned above, the FOIA rules apply when it comes to disclosure of
such information under certain circumstances.
Comment: A few commenters asked whether a broker's duty to report
under Sec. 111.32 would deprive an importer of the ability to file a
prior disclosure pursuant to 19 U.S.C. 1592(d). One commenter stated
that a broker already

[[Page 63288]]

has the responsibility to advise a client as to any errors and how they
must be corrected, thus, this new requirement goes beyond 19 U.S.C.
1641.
Response: If an importer discloses the circumstances of a violation
under 19 U.S.C. 1592(a) before, or without knowledge of, the
commencement of a formal investigation of such violation (which could
be triggered by a broker's report), then full benefits of prior
disclosure treatment will be afforded. As to the second commenter, a
broker has a general duty to disclose any information that he or she
has learned while exercising customs business which indicates that a
client is attempting to defraud the government. If a broker learns of
any noncompliance or errors, then the broker must not keep this
information to himself or herself but must report it to CBP, which will
assist in combating fraud and other schemes against the government.
Comment: One commenter referred to section 3.5 (`Termination of
Client Relationship') of the economic analysis in the NPRM, where CBP
stated that it is expected that in many cases the report by the broker
under Sec. 111.32 would be drafted by an attorney. The commenter
argued that CBP is recognizing that this process is characteristic of
an ad hoc legal proceeding, evidencing that this reporting
responsibility is more of a legal one and should not be enforced by a
broker. Another commenter stated that the requirement would add a
burden essentially requiring brokers to adjudicate an importer's
actions, which is not the responsibility of a broker.
Response: CBP does not agree with the commenter's reasoning.
Brokers should be knowledgeable enough to identify when a client is
attempting to defraud the government or otherwise commit a criminal act
against the government. CBP is not asking brokers to adjudicate a
client's actions, but if brokers see any wrongdoing on the part of
their clients, and they separate from or cancel representation of their
clients as a result of having identified any wrongdoing, then brokers
must alert CBP. As discussed in the economic analysis further below,
the reporting requirement will cause a minor increase in the burden on
brokers.
Comment: One commenter suggested that the e-Allegations portal on
<a href="http://CBP.gov">CBP.gov</a> be used for reporting potential violations of law instead of
imposing a requirement on the broker.
Response: Submitting an allegation online through the e-Allegations
portal is one way of reporting a trade violation, but it is not the
best reporting tool in the broker context. Also, the option to submit
an allegation online does not relieve a broker of the responsibility to
report any information or a client's actions if the broker determines
that the client is attempting to violate the customs laws and
regulations. Brokers should report any attempted violation of customs
laws and regulations to a supervisory point of contact at the
importer's/client's assigned Center as the assigned Center handles all
processes associated with an assigned importer.
Comment: Another commenter stated that the proposed revisions to
Sec. 111.32 appear to exclude civil or non-criminal violations, and if
that was CBP's intent, CBP should clarify the regulation. Also, CBP
should include ``customs laws'' in the regulatory text of Sec. 111.32
to make it clear that the documenting requirement does not include all
Federal law (such as tax law, security laws etc.), but only those laws
with which a broker can be expected to be familiar.
Response: The proposed language of Sec. 111.32 includes civil
actions, such as fraud, as well as criminal acts against the U.S.
Government. To clarify CBP's intent, CBP modified the third sentence to
state that the broker has the duty to document and report if the broker
determines that the client intentionally attempted to use the broker
``to defraud the U.S. Government or commit any criminal act against the
U.S. Government''.
CBP disagrees with the commenter's second request to limit a
broker's responsibility to customs laws and exclude any other laws. A
broker must be knowledgeable as to international trade laws, customs
laws and regulations, and general customs practices that concern entry
filings, admissibility, classification, valuation of merchandise, as
well as duty rates for imported merchandise, and excise tax, among
other areas of expertise. In conducting its business, the customs
broker might become aware of the attempted importation of illegal
merchandise or perhaps import/export schemes violating certain laws,
that reach beyond what might traditionally be thought of as `customs'
laws.
Comment: Two commenters stated that the proposed change in Sec.
111.36(c)(3) to require a power of attorney directly from the importer
or drawback claimant, and not via a freight forwarder, is unreasonable.
The commenters argued that a lot of brokers use their forwarding
divisions to break down language barriers for non-resident importers or
delivery duty paid shipments.
Response: CBP does not prohibit a broker from working with the
forwarding division of a broker entity. The proposed regulation
precludes a broker from obtaining a power of attorney from someone
other than an importer or drawback claimant. The intent of this
proposed provision is to clarify that a freight forwarder cannot serve
as a barrier to communications between the broker and importer or
drawback claimant, to address issues of identity theft, supply chain
security, fee transparency, and to help ensure that an unlicensed
person is not benefitting from the customs business conducted by the
broker. However, a freight forwarder may be included as a third party
in a power of attorney between the broker and the importer or drawback
claimant. CBP does not regulate whether a broker uses foreign agents to
perform work that is not customs business, but CBP does strictly ensure
that persons not actually employed or supervised by a broker do not get
paid a portion of the fee derived from customs business services; such
persons may instead be paid by a flat fee.
Comment: One commenter supported the change to require a power of
attorney directly from the importer but asked that the language in
Sec. 111.36(c)(2)(i) and (ii) align with the proposed language in
(c)(3) for power of attorneys by including the drawback filer in
(c)(2).
Response: CBP does not agree that the language in paragraph (c)(2)
needs to be amended to include drawback claimants. Drawback claimants
are included in the phrase ``or other party in interest''. The term
``drawback claimant'' was specifically included in the proposed
sentence in (c)(3) to emphasize that a broker must execute and obtain a
power of attorney directly from either the importer of record or
drawback claimant, and not a freight forwarder or other third party
that is not part of the broker-importer/drawback claimant relationship.
Comment: Another commenter, a surety association, stated that when
an importer fails to file an entry summary or reconciliation entry or
fails to re-deliver goods, the surety is held responsible; but, the
surety is not authorized to take action to bring the defaulting bond
principal into compliance. Thus, the regulation should allow for a
surety to complete an action initiated by, but also abandoned by, its
bond principal. The commenter recommended to identify sureties, along
with importers and exporters, as parties authorized to file on their
own account under Sec. 111.2(a)(2)(i), and as one of the

[[Page 63289]]

parties from whom brokers may obtain powers of attorney (Sec. 111.36).
Response: CBP does not agree with the commenter's request to
include sureties in Sec. 111.2(a)(2)(i) as a party to file on their
own account, or in Sec. 111.36 as a party from whom brokers may obtain
a power of attorney. It appears from the commenter's reference to Sec.
111.1(a)(2)(i) that the commenter believes that a surety is acting on
behalf of a principal (importer), akin to an importer's authorized
employee/officer, but that is legally not the case. A surety and
importer have rights against each other on a bond. Therefore, sureties
may not be included in Sec. 111.2(a)(2)(i) as a party to file on their
own account.
Although CBP regulates the general requirements applicable to
bonds, which must be met by either the bond principal or the surety,
CBP does not regulate the terms of the relationship between the bond
principal and the surety, and thus a surety is not included as a party
from whom a broker may obtain a power of attorney under Sec. 111.36.
The function of the bond regulations is to protect the revenue and
ensure compliance with the laws and relevant regulations. The
contractual terms agreed upon by a surety and the bond principal, which
relate to matters other than bond coverage, bond conditions etc., are
beyond the purview of CBP. Information sharing between bond principals
and sureties, and their rights against each other over a particular
entry, are thus to be decided by contract, and not by the terms of
customs regulations pertaining to bonds (part 113) or brokers (part
111).
Comment: One commenter stated that CBP should clarify that in a
case where an importer directly provides a broker with a power of
attorney, the broker would not be precluded, in turn, to assign that
power of attorney to another broker in accordance with the original
power of attorney. One of the commenters pointed to the ``Broker A-
Broker B'' process described in the Broker Management Handbook.
Response: A power of attorney must be executed between the importer
of record or drawback claimant and the broker. A power of attorney
cannot be executed between the importer of record or drawback claimant
and the freight forwarder who in turn assigns the power of attorney to
a broker. The reason behind CBP's proposed language in Sec.
111.36(c)(3) is the addition of paragraph (i) in section 1641, based on
section 116 of the Trade Facilitation and Trade Enforcement Act of 2015
(TFTEA),\13\ for CBP to promulgate regulations to require brokers to
verify the identity of the client, and the notion that a broker should
know his or her client. However, the proposed language does not exclude
the assignment of a power of attorney from one broker to another
broker. Assignments of powers of attorney are permissible as long as
the original power of attorney is executed between the importer of
record or drawback claimant and the broker, and Broker A designates
Broker B to act on behalf of the client (importer or drawback claimant)
in accordance with the terms of the original power of attorney. In
other words, a designation by Broker A of Broker B is permitted so long
as the client consented to this designation in the original power of
attorney. Pursuant to Sec. 141.46, a power of attorney must be in
place before a broker acts on behalf of the client. Accordingly, to
clarify CBP's intent, paragraph (c)(3) was slightly modified by
removing the word ``obtain'' and replacing it with ``execute'' in the
first sentence.
---------------------------------------------------------------------------

\13\ Public Law 114-125, 130 Stat. 122 (February 24, 2016).
---------------------------------------------------------------------------

Comment: One commenter asked CBP to confirm that electronic
signatures are permissible on powers of attorney.
Response: CBP recently issued Headquarters ruling H297978 (July 16,
2021), responding to a requester on this same question. CBP determined
that whether an electronic signature is permitted for use on a customs
broker power of attorney is determined by the applicable state's law
governing the execution of powers of attorney. In addition, CBP stated
in the Headquarters ruling that neither the applicable customs statute
nor regulations prohibit the use of an electronic signature on a power
of attorney, provided that it otherwise constitutes a valid power of
attorney between the broker and client and may be produced upon CBP's
request.
Comment: One commenter supported the changes in Sec. 111.36(c)(3)
but asked for additional changes in paragraphs (a), (b), and (c). The
commenter asked CBP to add language in paragraph (a) that sets forth
that the broker and importer or drawback claimant come to an agreement
as to how documents will be transmitted to the importer or drawback
claimant, and as to how payments will be made for services and other
expenses, and to add a sentence at the end of paragraph (b) stating
that nothing in the regulation would prohibit brokers from compensating
sales representatives in a manner that is agreeable to both. The
commenter further suggested to revise paragraph (c)(2) to state that
the broker shall transmit directly to the importer or drawback claimant
a copy of the power of attorney and terms and conditions to be signed
and returned to the broker, and to revise paragraph (c)(3) to provide
that the broker, freight forwarder, and importer or drawback claimant,
shall make arrangements as to how documents and payments will be made
for services and other expenses.
Response: CBP does not agree with the commenter's suggestion to
change paragraph (a). This paragraph sets forth an affirmative
obligation for the broker to provide a detailed statement to the
importer of the services rendered. This obligation is in place to
prevent misfeasance and fraud. CBP further does not agree with an
additional sentence in paragraph (b) to allow for the compensation of
sales representatives who are unlicensed in a manner that is agreeable
to both. Such an arrangement would prevent transparency of the billing
of services rendered and goes against the overarching principle that
brokers must not share fees generated from customs business with
unlicensed parties.
In addition, CBP does not agree with the suggested revisions to
paragraph (c)(2). Existing paragraphs (c)(2)(i) and (ii) set forth
minimum requirements for a broker to communicate certain information to
an importer or other party in interest to allow for transparent
billing. These requirements may be included in an agreement between the
parties involved in a transaction, but also need to be spelled out in
the regulation to emphasize that the conditions regarding the
compensation of a freight forwarder for referring a brokerage business
need to be made known and available to the importer. Lastly, CBP does
not agree with the revision in paragraph (c)(3) for the reasons
mentioned above. Brokers must fulfill the requirements in the
regulations; the conditions as to document submission and payments to
the broker may be spelled out in an agreement between the parties, but
it is important to have regulatory requirements that bind parties.
Comment: One commenter stated that the fee-splitting requirements
are antiquated, unclear and unrealistic. CBP should consider revoking
the fee-splitting prohibitions in (b) and the conditions under (c), but
at the very least create an additional carveout to (b) for ``unlicensed
related business entities of the broker whether located in the United
States or a foreign country''.
Response: CBP does not agree with the commenter. Brokers are
prohibited from creating fee arrangements whereby

[[Page 63290]]

the fees or other benefits resulting from the customs business services
rendered by a broker will directly benefit an unlicensed person or
entity. Thus, agreements wherein unlicensed persons acting as
independent agents receive a commission for marketing or selling
customs services on behalf of a brokerage company are generally
prohibited. However, in Headquarters ruling H302355 (January 29, 2019),
CBP had carved out a distinction between a commission paid to
unlicensed independent agents contracted by a broker, and the
unlicensed employees of a broker. The function of this distinction is
to preserve the regulation's underlying policy concern of preventing
unlicensed persons from improperly benefitting from the transaction of
customs business. Commission payments to an employee are permitted, but
not to independent agents who may or may not be operating outside of
the United States. Instead, a flat fee, not tied to a particular
transaction, would be permissible to compensate third-party agents for
selling customs services.
Comment: One commenter pointed out that according to language in
the preamble of the NPRM, a broker is required to have direct
communication with the importer. The commenter hoped that CBP
understands that, at times, clients/importers designate third parties,
e.g., attorneys and consultants, to engage with the brokers. As such,
brokers may communicate directly with third parties that represent the
importer and such circumstances, controlled by the importer's
preference, should be compliant and sufficient.
Response: CBP wants to clarify that there is no prohibition on the
communication between the broker and third parties that the client has
designated, but there is a prohibition on brokers executing a power of
attorney with a third party acting as an intermediary instead of
directly with the client. As mentioned above, CBP clarified the
distinction between clients/brokers and third parties/brokers and
replaced the word ``obtain'' with the word ``execute''. In addition, to
provide more clarity, CBP added a reference to ``other third party''
after ``and not via a freight forwarder''.
Comment: One commenter stated that the proposed change in Sec.
111.39(c) to require the broker to advise the client on a proper
corrective action and retain a record of the communication with the
client, in addition to the existing duty to advise the client if the
broker knows that the client has not complied with the law or has made
an error, is a shift of responsibility from the importer to the broker
who does not possess the same information that the importer does.
Another commenter stated that the proposed language in Sec. 111.39(c)
greatly increases a broker's responsibilities in an area that should be
the domain of the importer and pointed to 19 U.S.C. 1484 and 19 CFR
141.1(b) that place the responsibility for corrective action and
liability for duties and other debt on the importer. Accordingly, the
commenter is of the opinion that the proposed regulation is in conflict
with the cited law and regulation, and, thus, should be removed.
Response: CBP does not agree that the proposed regulation imposes
an additional burden on brokers. Brokers have an existing duty pursuant
to Sec. 111.39(b) to advise a client promptly of noncompliance, an
error or an omission of which the broker has knowledge. If a broker
continues to engage in customs business which then repeats such
noncompliance, error or omission, then a broker is violating Sec.
111.32 because a broker is now filing documents with CBP that the
broker knows contain false information. In addition, brokers should
already have a good practice in place for documenting any communication
with a client, and specifically any advice provided to a client on a
corrective action. Adding this proposed language in the regulation is
merely clarifying and codifying this responsibility.
Comment: Several commenters asked for clarification as to what type
of record must be retained as evidence of a corrective action, what
should be included in the ``communication'' with the client, and what
constitutes ``corrective action.'' The commenters suggested to add a
sentence to paragraph (c) to state that a copy of a corrected entry
demonstrating and/or communication explaining specific corrective
action(s) shall serve as an adequate record of such communication.
Response: CBP disagrees with the suggested sentence that a copy of
a corrected entry or communication could be sufficient to show that the
broker has advised its client of a corrective action. CBP does not want
to limit the types of records that qualify as evidence that the broker
advised the client of a corrective action. The record could be an email
or letter sent by the broker, or a written note summarizing a phone
call between the broker and client, to name a few. CBP is open to
accepting any record that the broker thinks would be sufficient in
evidencing the communication that took place between the broker and
client. Corrective action is the action that the broker took to
remediate the noncompliance or error; an action that the broker in his
or her good judgment understands needs to be taken.
Comment: One commenter referenced a statement in the economic
analysis in the NPRM (page 34848, 1st row in the table listing Sec.
111.39), which stated that the change in Sec. 111.39(c) is considered
neutral as it reflects CBP's current practice. The commenter disagreed
with that statement, noting that current part 111 does not explicitly
require customs brokers to provide clients with corrective action
measures reflective of the client's errors/violations.
Response: CBP believes that the statement in the economic analysis
is correct. A broker has an existing responsibility to advise the
client of any noncompliance and errors and suggest a corrective action,
even though it has not been stated expressly in the regulation.
Advising a client and documenting such advice should be a broker's good
practice, to protect the client's as well as the broker's interests, in
case of any litigation or complaint by the client. Further, a broker
has the responsibility pursuant to Sec. 111.21(a) to document any
correspondence with the client, which includes the documentation of any
corrective action(s) that the broker advised the client to take. CBP
wishes to take the opportunity to make clear that this communication
from the broker to the client is a record under Sec. 111.21. Thus, CBP
considers this responsibility a current practice, and determined that
the proposed language in Sec. 111.39(c) is deemed neutral in the
economic analysis.
Comment: Two commenters stated that brokers frequently refer
clients to consultants or attorneys for a proper course of action, and
CBP should recognize that a referral to a more qualified expert may be
the proper corrective action and should reflect that in the regulation.
Response: CBP understands that part of a broker's normal business
practice, in some situations where corrective action is needed, could
be a referral to a more qualified expert with regard to certain
corrective actions. However, that does not mean that a referral is the
only proper course of action. It is a reasonable person standard that
the broker must employ to determine what type of corrective action is
appropriate in a specific situation.
Comment: One commenter stated that the requirement that a broker
document the advice to a client under Sec. 111.39(c) serves no purpose
to CBP. If CBP has a concern with a broker's performance, then CBP
should conduct an audit. The commenter requested that CBP create a
standard reporting requirement and advise the importing community of
its

[[Page 63291]]

intention of collecting data and how the benefits of the data
collection do not cause the broker or importer to act without conflict
in its importing partnership with the importer of record.
Response: CBP disagrees with the commenter. The documentation
requirement does serve a purpose, which is evidencing that the broker
provided advice to the client, and that documentation is considered a
record pursuant to Sec. 111.21. The second sentence of Sec. 111.21(a)
states that a broker must keep and maintain on file copies of all of
his or her correspondence and other records relating to the customs
business. This is a recordkeeping requirement for all brokers; the
requirement in proposed paragraph (c) of Sec. 111.39 is merely
reiterating that a broker must keep a record of communication with the
client regarding the advice on a corrective action. To make this
existing requirement clearer, CBP included a reference to Sec. 111.21
in addition to the reference to Sec. 111.23 in paragraph (c) of Sec.
111.39. Since there are recordkeeping requirements in place, CBP
believes that there is no need for an additional reporting requirement.
Comment: Several commenters stated that CBP should allow for an
extension of time, extenuating circumstances, or an opportunity to
mitigate pursuant to Sec. 111.45 if the broker can show a good faith
effort to prevent the revocation of the license and permit. The
commenters argued that the effect of losing a single national permit is
much more detrimental than losing a district permit. The commenters
suggested language to add at the end of the first two sentences of
paragraph (a), preventing a suspension or revocation if a broker
demonstrates good cause or commits to corrective action, warranting an
extension of time.
Response: The statutory requirements in paragraphs (b)(5) and
(c)(3) of section 1641 set forth the reasons for a lapse of a broker's
license and permit. If a broker entity that is licensed as a
corporation, association or partnership fails to have, for any
continuous period of 120 days, at least one licensed officer of the
corporation or association, or at least one licensed member of the
partnership, the entity's license will be revoked by operation of law
under paragraph (b)(5). If a broker who was granted a permit fails to
employ, for any continuous period of 180 days, at least one individual
who is licensed, the permit will be revoked by operation of law under
paragraph (c)(3). Neither paragraph in the statute provides for a good
cause exception. Thus, the regulation, which mirrors the language in
the statute and mandates a revocation by operation of law, cannot be
changed to include such an exception. Moreover, CBP already provides
for the possibility for reinstatement of a license once the triennial
status report and associated fee are filed as required, as well as for
reinstatement of a permit. Moreover, there is no prejudice to a broker
if a license or permit is suspended or revoked by operation of law;
brokers are not barred from reapplying.
Comment: Other commenters suggested that there be an administrative
process prior to revoking a license and permit, such as providing prior
notice in case of a failure to pay the annual broker permit fee in
Sec. 111.45(b). Such process would allow for a less burdensome
resolution if the failure to pay was due to an administrative or
clerical mistake.
Response: The broker permit user fee is an annual fee that brokers
must pay for each permit they hold. CBP issues a Federal Register
notice to announce the amount of the fee, as well as the deadline to
pay the fee, on an annual basis. CBP also posts this information on its
website. CBP believes that there is sufficient notice for a broker to
timely pay the permit user fee. In addition, with the effectiveness of
the final rule, there will be only one permit user fee to pay per year
for a broker's national permit. Thus, CBP does not believe that the
timely payment of the fee is burdensome.

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

CBP received supporting comments regarding the proposed changes to
subpart D of part 111. Specifically, one commenter supported the
proposal in Sec. 111.53 to add a new paragraph (g) to provide an
additional ground for the suspension or revocation of a license or
permit to cover convictions of committing or conspiring to commit an
act of terrorism as described in section 2332b of title 18 of the
United States Code (see 19 U.S.C. 1641(d)(1)(G)). Another commenter
supported the proposal in Sec. 111.62(e) to remove the requirement for
the broker to file his or her verified answer in duplicate prior to a
suspension or revocation hearing as it better reflects the current
electronic business environment. In addition, a commenter supported the
proposal in Sec. 111.76 to remove the requirement for a broker to file
an application to CBP to reopen a case in writing and in duplicate, if
an appeal is not filed, and instead to allow for electronic
communication.

Subpart E--Monetary Penalty and Payment of Fees

Comment: One commenter voiced the concern that the increase of the
license application fee will deter individuals from applying for a
broker's license.
Response: CBP conducted a fee study on the costs associated with
the broker license application, and CBP determined that the current
fees are no longer sufficient to cover the costs of servicing brokers.
The fee study showed that a fee of $463 for individuals and $815 for
business entities would be necessary to recover the costs associated
with the review of the license application and the necessary vetting
for individuals and business entities. However, to minimize the
financial burden on prospective brokers and not disincentivize those
who are pursuing a career as a broker, while also recovering some of
the increasing costs, CBP proposed to not increase the fees to the
level of cost needed, but to increase the application fee to $300 for
individuals and $500 for business entities. The economic analysis
explains the reasons for the increase of the application fee and
emphasizes the cost savings as a result of eliminating the district
permit requirement and other changes to part 111. Once the final
regulations are effective, a national permit applicant has to pay for
only one permit application to be able to conduct customs business
throughout the U.S. customs territory, in addition to the annual permit
user fee for only one national permit.
Comment: One commenter expressed disagreement with the increase of
the permit fee, pointing to CBP's ACE system and other electronic
platforms used for receiving payments and submissions of information
and argued that the use of those tools should reduce costs. In
addition, the commenter noted that the automatic transition from
district permits to national permits should not cause any additional
cost.
Response: As mentioned above, CBP proposed to increase the license
application fee to cover expenses related to the review of license
applications and vetting of applicants. CBP did not propose to change
the amount of the permit fee, and this final rule is not changing the
fee of $100 for a broker to apply for a national permit. In response to
the second comment, CBP is transitioning the district permits to
national permits at no cost to brokers.
Comment: One commenter stated that CBP should consider automating
the fee collection and management functions, and charge a set fee per
port, not district. The commenter further noted

[[Page 63292]]

that ``district'' is a term used by CBP, which is not as relevant for
brokers filing entries, thus, districts should be disregarded when
charging fees.
Response: CBP did not propose to change the current fee structure
for filing entries, moreover, the commenter's suggestion is not
considered a natural outgrowth of the NPRM's proposals. Therefore, CBP
is not adopting a new fee structure based on port activity.

Other General Comments

Comment: One commenter stated that CBP did not provide sufficient
notice of the proposed amendments as they were not mentioned on CBP's
website, but only announced in the Federal Register. The commenter
further maintained that the NPRM did not mention whether CBP had
reached out to the trade for input on specific issues. In addition, the
commenter asked that CBP provide a fuller explanation of the proposed
changes and provide further opportunities for public comment before
finalizing the regulations. Another commenter suggested to issue a
revised NPRM, or, at least, hold a public hearing to discuss the
proposed changes.
Response: Pursuant to the APA, CBP published the NPRM to propose
changes in an effort to modernize the customs broker regulations. The
NPRM provided 60 days for public comment, in compliance with the APA.
In addition, CBP announced the publication of the NPRM (as well as the
concurrent NPRM proposing the elimination of broker district permit
user fees) on CBP's website.\14\ Moreover, CBP had been socializing the
proposed changes to part 111 for numerous years at many public forums,
including COAC meetings and various broker association meetings. As
mentioned in the preamble of the NPRM, CBP had conducted outreach to
the broker community through webinars, port meetings and broker
association meetings to solicit feedback on various broker matters and
the modern business environment. The trade community had many
opportunities to share their opinions, throughout the outreach as well
as during the 60-day public comment period. CBP does not believe that
there is a need for a public hearing or a revised NPRM to provide a
fuller explanation of the proposed changes, other than the explanations
included in this final rule.
---------------------------------------------------------------------------

\14\ The announcement of the NPRMs, as well as COAC's
recommendations regarding the modernization, may be found online on
CBP's website at <a href="https://www.cbp.gov/trade/programs-administration/customs-brokers">https://www.cbp.gov/trade/programs-administration/customs-brokers</a> by clicking on the tab titled ``Modernization of the
Customs Broker Regulations''.
---------------------------------------------------------------------------

Comment: One commenter recommended a minimum percentage of U.S.
ownership in a brokerage. The commenter explained that CBP Form 3124
does require the notation of all officers who are licensed, as well as
other officers and principals with controlling interest who are not
licensed.
Response: CBP thanks the commenter for its contribution but
believes that this comment is outside of the scope of this final rule
as there is no U.S. ownership requirement in 19 U.S.C. 1641 or the
corresponding regulations in 19 CFR part 111.
Comment: One commenter strongly recommended that CBP establish a
dedicated, independent ombudsman-type position with the Office of Trade
Relations to ensure that customs brokers are treated the same as CBP
employees would be treated for similar types of mistakes. The commenter
argued that this would be especially important considering the
increased level of responsibility continually being transferred from
CBP to customs brokers.
Response: CBP does not believe that the creation of an ombudsman-
type position is necessary. CBP disagrees that a broker's mistake
should be treated in the same fashion as a CBP official's mistake.
Brokers are not Federal employees, so different paths are available for
brokers and CBP officials to take in case of mistakes. Brokers have the
opportunity to appeal certain decisions by CBP if brokers are of the
opinion that those decisions are erroneous, such as the rejection of a
license or permit, the suspension/revocation of a license or permit, or
the imposition of a penalty. Other applicable avenues are in place for
Federal employees.
Comment: Three commenters urged CBP, especially in light of
Executive Order 13924 (May 19, 2020), which instructed the government
to provide regulatory relief and flexibility on a temporary, as well
as, permanent basis, where appropriate, and due to the current
challenges businesses are facing during the pandemic, to grant the
brokerage industry at least one year, and upon showing of need,
additional time beyond the one-year period to comply with the new
regulations. The commenters argued that brokers will need time to
adjust, and in some cases, restructure their businesses, to the new
national permit framework and the new criteria for responsible
supervision and control.
Response: CBP does not believe that one year is necessary to
implement the final regulations to allow a broker to adjust, and maybe
even restructure, its business. A lot of the changes that are being
implemented with this final rule are simplifying processes or updating
or clarifying regulations. For instance, the updated supervision
framework is simply codifying what brokers should have already been
doing, such as the employment of sufficient licensed brokers, broker's
responsiveness to CBP's communications and notices, as well as to the
partner's or member's communication and direction, and updated
recordkeeping requirements. None of these changes is significant in the
sense that it would require brokers to re-structure their businesses. A
lot of the requirements that are being codified in the regulations
should have been best practices already for brokers to provide high
quality service to their clients.
However, CBP does agree that a 60-day delayed effective date is
beneficial for both the brokers to make any needed changes to the
business, and for CBP to transition all district permit holders to a
national permit and to ensure that CBP personnel are aware of and ready
to work with the new changes imposed by the final rule.
In the NPRM, CBP proposed to revise Sec. 111.2(b) by removing the
four exceptions to the district permit requirement in order to
transition to a national permit system. As part of the proposed
revision, CBP will remove the cross-reference in Sec.
111.2(b)(2)(i)(C) to subpart B of part 143 of the CBP regulations,
which sets forth the regulations regarding remote location filing
(RLF). No comments were submitted by the public regarding these
proposed changes, whereby the use of a national permit would obviate
the need for standalone RLF regulations. It should be noted that the
RLF requirements that are mandated by 19 U.S.C. 1414 are captured in
the proposed transition to national permits for all licensed brokers,
as the national permit framework includes the expansion of the scope of
a national permit to all customs business within the United States and
would allow filings to be made electronically from anywhere in the
United States. Once the final rule becomes effective, customs brokers
will not be subject to the RLF regulations and, in a future rulemaking,
CBP will propose amending the standalone RLF regulations in subpart B
of part 143 to remove those provisions which have become moot and make
any other changes that may be needed.

[[Page 63293]]

III. Technical Changes and Clarifications to the Existing Regulations

In reviewing the proposed changes to the regulations, as well as
existing regulations, CBP identified certain technical changes that
would provide more flexibility to the

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This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.