[Federal Register: August 11, 2003 (Volume 68, Number 154)]
[Rules and Regulations]
[Page 47455-47460]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11au03-8]
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DEPARTMENT OF HOMELAND SECURITY
Bureau of Customs and Border Protection
19 CFR Part 111
[CBP Dec. 03-15]
RIN 1515-AD14
Performance of Customs Business by Parent and Subsidiary
Corporations
AGENCY: Customs and Border Protection, Department of Homeland Security.
ACTION: Final rule.
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SUMMARY: This document adopts as a final rule, with some changes,
proposed amendments to Customs Regulations to provide that corporate
compliance activity engaged in by related business entities for the
purpose of exercising ``reasonable care'' is not customs business and
therefore is not subject to the customs broker licensing requirements.
The amendments make clear that this corporate compliance activity
concept does not extend to document preparation and filing, which is
customs business subject to licensing requirements. The amendments will
improve the operational efficiency of the affected business entities
and, thereby, enhance their ability to ensure compliance with
applicable customs laws and regulations.
EFFECTIVE DATE: Final rule effective September 10, 2003.
FOR FURTHER INFORMATION CONTACT: Gina Grier, Office of Regulations and
Rulings (202-572-8730).
SUPPLEMENTARY INFORMATION:
Background
Section 641 of the Tariff Act of 1930, as amended (19 U.S.C. 1641),
provides that a person must hold a valid customs broker's license and
permit in order to transact customs business on behalf of others, sets
forth standards for the issuance of broker's licenses and permits,
provides for disciplinary action against brokers in the form of
suspension or revocation of such licenses and permits or assessment of
monetary penalties, and provides for the assessment of monetary
penalties against other persons for conducting customs business without
the required broker's license. Section 641 also provides for the
issuance of 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.
The regulations issued under the authority of section 641 are set
forth in part 111 of the Customs Regulations (19 CFR part 111). Part
111 includes detailed rules regarding the licensing of, and granting of
permits to, persons desiring to transact customs business as customs
brokers, including the qualifications required of applicants and the
procedures for applying for licenses and permits. Part 111 also
prescribes recordkeeping and other duties and responsibilities of
brokers, sets forth in detail the grounds and procedures for the
revocation or suspension of broker licenses and permits and for the
assessment of monetary penalties, and sets forth fee payment
requirements applicable to brokers under section 641 and 19 U.S.C.
58c(a)(7).
Section 111.1 of the Customs Regulations (19 CFR 111.1) sets forth
definitions that apply for purposes of part 111 and includes the
following definition of ``customs business:''
``Customs business'' means those activities involving
transactions with Customs concerning the entry and admissibility of
merchandise, its classification and valuation, the payment of
duties, taxes, or other charges assessed or collected by Customs on
merchandise by reason of its importation, and the refund, rebate, or
drawback of those duties, taxes, or other charges. ``Customs
business'' also includes the preparation, and activities relating to
the preparation, of documents in any format and the electronic
transmission of documents and parts of documents intended to be
filed with Customs in furtherance of any other customs business
activity, whether or not signed or filed by the preparer. However,
``customs business'' does not include the mere electronic
transmission of data received for transmission to Customs.
Section 111.2 of the Customs Regulations (19 CFR 111.2) sets forth
the basic rules regarding when a person (that is, an individual,
partnership, association, or corporation) must obtain a customs broker
license and permit. Paragraph (a)(2) of Sec. 111.2 specifies several
exceptions to the license requirement including, in subparagraph (i),
an exception for an importer or
[[Page 47456]]
exporter (and his authorized regular employees or officers acting only
for him) transacting customs business solely on his own account and in
no sense on behalf of another. Section 111.4 of the Customs Regulations
(19 CFR 111.4) provides that any person who intentionally transacts
customs business, other than as provided in Sec. 111.2(a)(2), without
holding a valid broker's license, will be liable for a monetary penalty
for each such transaction as well as for each violation of any other
provision of section 641.
The scope of ``customs business'' and the broker licensing
requirement took on added importance as a result of the amendments made
in 1993 by the Customs Modernization Act (the Mod Act) provisions of
the North American Free Trade Agreement Implementation Act (Pub. L.
103-182, 107 Stat. 2057). Those Mod Act amendments included a revision
of section 484 of the Tariff Act of 1930 (19 U.S.C. 1484) to, among
other things, add a requirement that an importer of record exercise
``reasonable care'' in connection with the entry requirements under
that section. In order to foster compliance with the customs laws and
regulations under this added statutory responsibility, many importer
groups consisting of a parent corporation and one or more subsidiary
corporations chose to centralize their in-house customs experts into
one corporate entity and to make the services of those experts
available to the group as a whole.
However, when requested to issue an administrative ruling on the
issue, the U.S. Customs Service (Customs, the predecessor agency to the
current Bureau of Customs and Border Protection, referred to hereafter
in this document as CBP) consistently took the position that many of
the activities performed under this type of arrangement would involve
the transaction of ``customs business,'' which would require a broker
license under Sec. 111.2(a)(1). This conclusion was based on the
reasoning that (1) the parent corporation and each subsidiary
corporation is a separate legal ``person,'' and (2) therefore, the
parent or subsidiary corporation in which the customs expertise resides
would be transacting customs business not solely on its own account as
provided under Sec. 111.2(a)(2)(i) but rather on behalf of another
``person.''
Members of the trade community on a number of occasions had
indicated to Customs that the result reached in the administrative
rulings described above was unsatisfactory because it did not afford
importers sufficient opportunity to address multiple related aspects of
an individual customs transaction or groups of transactions. They
believed that this was an impediment to their ensuring that reasonable
care is exercised by all corporate affiliates for purposes of 19 U.S.C.
1484.
In response to the concerns expressed by the trade, Customs on
October 15, 2002, published in the Federal Register (67 FR 63576) a
notice setting forth proposed amendments to the Customs Regulations
that would expand the permissible use of in-house experts by
corporations and their affiliates to include activity that is intended
to meet the corporation's ``reasonable care'' obligations under 19
U.S.C. 1484 and that would not fall within the definition of ``customs
business'' in 19 U.S.C. 1641. The proposed amendments involved the
addition of a new Sec. 111.1 definition for the term ``corporate
compliance activity'' to describe the permissible activities (and with
a specific exclusion for document preparation and filing); the addition
of language at the end of the existing Sec. 111.1 definition of
``customs business'' stating that it does not include a corporate
compliance activity; and the addition of a new paragraph (a)(2)(vii) to
Sec. 111.2 to clarify that a company performing a corporate compliance
activity is not required to be licensed as a broker.
The October 15, 2002, notice invited the submission of public
comments on the proposed regulatory changes, and the public comment
period closed on December 16, 2002. A total of 28 commenters responded
to the solicitation of comments in the notice. The comments submitted
are summarized and responded to below.
Discussion of Comments
Comment: The proposed amendments will benefit the importing
community for several different reasons. For example, divisions and
sister subsidiaries will be better able to meet the standards of
reasonable care. Similarly, subsidiaries will be able to better
leverage and benchmark best practices from within the parent company
and subsidiaries, thereby improving the compliance activities of the
entire corporation. Under the proposed rule, centralized corporate or
affiliate groups can be more flexible in their ability to hire
qualified people to provide common expertise for subsidiary companies
that small divisions may not be able to afford or justify by
themselves. The commenter provided a number of other examples of the
beneficial aspects of this proposed rule.
Response: CBP agrees in principle with the general nature of these
comments which reflect the purpose behind the regulatory proposal.
Comment: The goal of this proposal, which is to enable related
companies to engage in corporate compliance activity on behalf of one
another, could best be achieved through the modification or revocation
of the rulings which created the controversy in the first place.
Response: CBP considered but rejected that option because a
modification or revocation of those rulings might give rise to a false
premise, that is, that the rulings were not legally correct when they
were originally issued. To the extent that the rulings in question are
inconsistent with the Part 111 texts as amended by this final rule
document, those rulings will be considered to be modified or revoked
without further action on the part of CBP--see Sec. 177.12(d)(1)(vi)
of the Customs Regulations (19 CFR 177.12(d)(1)(vi)) which was adopted
in T.D. 02-49, published in the Federal Register (67 FR 53483) on
August 16, 2002.
Comment: The proposed new definition of ``corporate compliance
activity'' in Sec. 111.1 is imprecise and will only create confusion.
By seeming to allow all activities that do not involve the preparation
or filing of documents, the proposed amendment raises concerns that
other inter-corporate activities set forth in the definition of
``customs business'' will be allowed.
Response: CBP does not agree that the definition is imprecise and
will create confusion. The commenter has correctly understood the
effect of the proposed regulatory amendment, that is, that related
companies will be permitted to conduct any activities mentioned in the
definition of ``customs business,'' other than the actual preparation
and filing of documents, so long as those activities fall within the
definition of ``corporate compliance activity.''
Comment: It is improper for CBP to include corporate compliance
activities in 19 CFR 111.2(a)(2) as an exception to the requirement
that a license is required, since it has already been made clear that
these activities do not fall within the definition of ``customs
business.''
Response: On further consideration of this matter, CBP agrees with
the point made by this commenter, because the definition of ``customs
business'' in 19 CFR 111.1 is being amended specifically to exclude
corporate compliance activity from customs business, making an
exception to the license requirement redundant. Accordingly, the
regulatory changes adopted in this final rule
[[Page 47457]]
document do not include the addition of proposed new paragraph
(a)(2)(vii) to Sec. 111.2.
Comment: CBP needs to narrow the definition of ``customs business''
and broaden the definition of ``corporate compliance activity.''
Specifically, the latter definition should not exclude document
preparation and filing.
Response: Document preparation is specifically mentioned as one of
the activities falling within the statutory and regulatory meaning of
``customs business.'' The filing with CBP of those prepared documents
is the logical next step and involves direct representations to the
Government agency responsible for administering the matters to which
those documents pertain. These considerations formed the basis for
excluding document preparation and filing from the definition of
``corporate compliance activity.'' In defining ``corporate compliance
activity,'' CBP endeavored to strike a balance between an importer's
obligation to exercise reasonable care and the licensing requirements
of 19 U.S.C. 1641. This balance is achieved by allowing related
companies to provide advice while at the same time precluding them from
preparing and filing documentation.
Comment: The prohibition against document preparation and filing
should be lifted if steps are taken to ensure that the importer of
record remains liable.
Response: By focusing on the liability of the importer of record,
this comment appears to misconstrue CBP's primary focus in this matter,
which was the customs broker statute and regulations. The exception
regarding document preparation and filing by a related company was
included in the definition of ``corporate compliance activity'' only in
recognition of the explicit terms of 19 U.S.C. 1641 and not in order to
suggest that an importer of record's liability would cease if the
documents were prepared and filed by a related company. The legal
obligations of importers of record, whether contractual under their
bonds or otherwise imposed by other statutes or regulations, will
remain undisturbed by this amendment to the customs broker regulations.
Comment: The regulations pertaining to ``corporate compliance
activity'' should restrict document preparation and filing to those
entry documents that are required to be filed under 19 U.S.C. 1484.
Response: CBP disagrees, because the document preparation and
filing aspect of ``customs business'' extends to preparation and filing
activities performed after the filing of the entry and entry summary.
This rule is reflected in 19 CFR 111.2(b)(2)(i)(D), which provides that
a broker who did not file the entry, but who is appointed by the
importer of record to make written or oral representations to CBP after
entry summary acceptance, must have a national permit if the broker
does not have a district permit where the representations will be made.
Comment: While the proposed amendment will be beneficial both to
the industry and to CBP, it does not make clear whether related parties
can assist each other in responding to Customs Form 28 Requests for
Information or Customs Form 29 Notices of Action, or in preparing or
filing Post Entry Amendments, Supplementary Information Letters,
documents relating to compliance audits or assessments, or certificates
of origin.
Response: The prohibition against preparing and filing documents
under the broker statute and regulations applies not just to the entry
and entry summary, but to all other documents for which preparation and
filing constitutes ``customs business'' or for which no explicit
allowance is made by statute or regulation for preparation or filing by
an ``authorized agent.'' Examples of documents for which there is an
explicit allowance for action by an authorized agent are protests,
ruling requests, and certain drawback documents. Since the proposed
definition of ``corporate compliance activity'' contained no limitation
or exception regarding the scope of document preparation and filing,
the prohibition would apply to those specific examples mentioned by
this commenter to the extent that they involve a customs business
activity. However, a determination on whether a specific action
constitutes a customs business activity can only be made on a case-by-
case basis, for example through the binding ruling process.
Comment: Certain activities should be specifically authorized in
the regulatory text (for example, classifying and valuing goods,
providing advice on origin marking requirements, providing training to
related companies, preparing responses to marking and penalty notices
and prior disclosures, and representing companies before CBP in an
audit). Alternatively, the definition of ``corporate compliance
activity'' should be amended to include offering specific advice on the
classification, valuation, or admissibility of merchandise.
Response: CBP does not believe that it would be advisable to
include specific authorized activities within the regulations, because
it would be impractical to list every conceivable activity that related
companies may perform for each other. Listing some but not others would
potentially create confusion or uncertainty as regards activities not
listed. Some of the responses to comments in this final rule document
may provide guidance on which activities are or are not permissible.
For example, it has already been explained above that advisory
activities will be allowed, while written communications with Customs
in most circumstances would not be permitted. Importers with questions
on a particular activity may request that the matter be resolved
through the binding ruling process.
Comment: It is common for corporations to establish subsidiaries
that have their own boards of directors and officers, but no employees.
An example would be a sales or procurement subsidiary. In such cases,
the parent may be preparing the subsidiary's documentation. The
proposed regulations, with their restrictions on document preparation,
are problematic in this regard.
Response: The preparation of documents under the corporate
organizational scenario described by this commenter would constitute
the performance of customs business in violation of the broker statute.
Adoption of the proposed regulatory amendments would not alter that
fact. The purpose of this rulemaking initiative is to facilitate the
exercise of reasonable care, not to facilitate circumvention of the
statutory obligation to seek the assistance of a licensed broker when a
company, for its own business reasons, chooses not to have employees
who can prepare and file documents with CBP.
Comment: CBP needs to further define what constitutes
``preparation'' within the context of a corporate compliance activity.
Does the gathering and organization of information fall within the
definition? Does it include the preparation of background documentation
whose contents will be reflected on the entry?
Response: The proposed definition of ``corporate compliance
activity,'' which precludes the ``actual preparation or filing of the
documents or their electronic equivalents,'' in effect addresses the
issue raised in this comment. The word ``actual'' is intended to
emphasize that the documents in question are those that will be filed
with CBP. Therefore, any work performed in anticipation of document
preparation, including the gathering and organizing of information and
its recordation on background paperwork, will be allowed under this
provision.
[[Page 47458]]
Comment: It is unclear whether employees of a corporate compliance
office will be able to discuss with CBP issues concerning a related
company's import transactions.
Response: Discussions with CBP regarding import transactions may
amount to the transaction of customs business given that the statutory
definition of ``customs business'' includes ``those activities
involving transactions with the Customs Service * * *'' However, CBP
recognizes that preventing communication between corporate compliance
offices and CBP would frustrate the primary purpose of such an office,
that is, to provide accurate advice to the related company. In another
example of making an accommodation between broker licensing and
reasonable care requirements, CBP has determined that representatives
of corporate compliance offices may communicate directly with CBP on
behalf of related companies regarding the activities performed by the
corporate compliance office to ensure that reasonable care was used in
connection with preparation and filing of Customs documents. However,
they should be prepared to demonstrate their authority to represent the
interests of the related companies by presentation of a power of
attorney or other letter of authorization.
Comment: It is unclear whether there would be a violation of the
proposed rule if a corporate compliance office were to supply specific
tariff information in writing to a related company. This needs to be
clarified, as do questions arising over whether related companies can
file ruling requests or protests on behalf of each other.
Response: No violation would occur if the compliance office were
simply supplying the specific tariff information to the related
company. The related company importer could then use the information to
fill out the documentation to be filed with CBP, or turn it over to a
broker for that purpose. On the issue of ruling requests and protests,
19 CFR 177.1(c) and 19 CFR 174.12(a)(6), respectively, permit an
``authorized agent'' to file those documents.
Comment: Please explain why companies that employ in-house customs
brokers cannot provide advice, or prepare and file documents, on behalf
of related companies. Such centralization would help to achieve high
compliance rates.
Response: The broker statute makes provision for various types of
broker's licenses: individual, corporate, association, or partnership.
While the mere providing of advice to a related company may present no
problem, if a corporation wishes to transact customs business (for
example, prepare and file documents) for others, it must obtain a
corporate license of its own. This requirement does not disappear
simply because the corporation has a person on its payroll who is
individually licensed, because the employee's licensed status does not
confer a similar status on the employer. Furthermore, the actions of
the employee performed during the regular course of his employment will
be attributed to his employer, not to him individually. An analogy may
be drawn to the situation in which an insurance company hires an
attorney to work in its policy underwriting department: the employment
of the attorney does not entitle the insurance company to practice law.
Comment: Most corporations with centralized customs compliance
functions have put into place standard operating procedures (``SOPs'')
for responding to CBP inquiries, submitting documents to CBP, and
working with their various customs brokers. If CBP takes a strict
approach to what constitutes the actual preparation and filing of
documents, corporations will be forced to redesign their SOPs to limit
their compliance activities. Such changes would probably include a
restructuring of the corporation's relationship with its customs
brokers to ensure that in-house customs compliance personnel only
provide information to customs brokers and, perhaps, review any
documents to be filed with CBP. Restricting the in-house compliance
activities in this manner does not advance the policy goal of fostering
reasonable care under the Mod Act.
Response: A reference to document ``preparation'' was added to the
definition of ``customs business'' in the broker statute by section 648
of the Mod Act, and this statutory change has been in effect since
December 8, 1993. The proposed regulatory changes at issue here did not
attempt to impose a change in the meaning of document preparation.
Moreover, as already pointed out in this comment discussion, the
reference to ``actual'' preparation in the proposed regulatory text was
intended to clarify that permissible corporate compliance activities
include activities leading up to, but not in fact directly involving,
document preparation. Therefore, to the extent that a corporation has
been in compliance with the statutory standard since the adoption of
the Mod Act amendment in 1993, the proposed regulatory amendments would
not require any change in the corporation's SOPs as regards compliance
activities.
Although the Mod Act amended 19 U.S.C. 1484 by imposing a
reasonable care responsibility on importers of record, it did not
eliminate or modify the requirement in 19 U.S.C. 1641 that a person
have a broker's license to conduct customs business on behalf of
others. The Mod Act also made no changes to the identity of the persons
who, pursuant to 19 U.S.C. 1484, have the right to make entry. Those
persons are the owner or purchaser of the imported merchandise, or a
licensed broker who has been appointed by the owner, purchaser or
consignee. Consequently, CBP in defining ``corporate compliance
activity'' had to take into account the requirements of the broker and
entry statutes. By proposing the addition of an explicit provision
allowing related companies to have centralized compliance departments
whose role would be advisory in nature, CBP attempted to strike a
balance between an importer's reasonable care obligations and the
proscription regarding the performance of customs business on behalf of
others without a broker's license. It is the position of CBP that the
proposed amendments are not restrictive in their effect and that they
will foster compliance with importers' reasonable care obligations.
Comment: The development of the Automated Commercial Environment
(ACE), and the possibility that future entries will be filed over the
Internet, provides the perfect opportunity for CBP to look at changing
practices. ACE will allow all parties to a customs transaction the
ability to input information about the transaction. It is out of step
for CBP to restrict these activities to independent customs brokers.
Response: The proposed regulations would enhance, not restrict, the
ability of related companies (including those that have in-house
brokers) to engage in certain activities that previously under the
broker regulations were restricted to importers or their appointed
brokers. The liberalization in the proposed regulatory changes had to
stop at document preparation and filing in order to ensure the most
appropriate balance between reasonable care obligations and the terms
of the broker statute.
Comment: CBP has recognized that the effectiveness of its new
security measures (for example, C-TPAT, Account Management, Importer
Self-Assessment) are enhanced by corporate centralization of customs
functions, yet the proposed rule limits the ability of
[[Page 47459]]
companies to effectively centralize import operations.
Response: As stated throughout this comment discussion, both CBP
and importers must operate within the confines of existing law. In this
case due regard must be given to the entry and broker provisions of 19
U.S.C. 1484 and 1641. CBP believes that the proposed regulatory changes
will enhance, rather than limit, the ability of related companies to
centralize their import operations. To the extent that the proposed
amendments may not go as far as the commenter would like, that is a
function of the limits imposed by the statutory provisions in question.
Comment: As an alternative to the suggested changes, the definition
of ``person'' in 19 CFR 111.1 could be changed so that the
parenthetical phrase ``(including subsidiaries and sister companies)''
is added after the word ``corporation.'' With a definition such as
this, corporations could conduct the same activities for subsidiaries
as they do for themselves.
Response: CBP examined but rejected this approach when drafting the
proposed regulations. Altering the definition of ``person'' in such a
manner that subsidiaries are considered to be the same person as their
parent would have consequences that go beyond the corporate compliance
issue at hand. This is because the new definition will apply to
everything that takes place under part 111 of the Customs Regulations,
not just to corporate compliance activities. Since a person must obtain
a license to conduct customs business as a broker, questions would
inevitably arise whenever a parent or subsidiary corporation applied
for a license. For example, would a license granted to a parent also
cover its subsidiaries, since by definition they would be one and the
same person? Or would a subsidiary even have the right to apply for a
license in its own name, given that its identity had been subsumed into
that of the parent? Furthermore, the legal separation between parent
and subsidiary corporations is recognized elsewhere in the Customs
Regulations, and thus the elimination of that separation from the
broker regulations would not only create a legal inconsistency but
would also have the potential to create confusion in other regulatory
contexts.
Comment: A better approach would be to change the definition of
``for one's own account'' to clearly encompass the transaction of
customs business on behalf of subsidiary companies. In this manner, the
definition of ``customs business'' could remain unchanged, and it would
be unnecessary to carve out limited exceptions when interpreting the
definition.
Response: CBP also considered this option when formulating the
regulatory proposals. However, for essentially the same reasons stated
in the preceding comment response for not changing the definition of a
``person,'' CBP decided not to adopt this approach.
Comment: The proposed rule does not clarify the distinction between
the assigning of a Harmonized Tariff Schedule number to inbound items
for entry submission to CBP and the review of internal classification
databases. The former is a part of the entry process, and is thus
customs business, while the latter is merely a corporate compliance
activity.
Response: While CBP agrees that the tariff classification of items
to be entered may constitute a customs business activity depending on
the context in which it is done, this regulatory initiative also
recognizes that some accommodation must be made to enable companies to
meet their reasonable care obligations. To this end, the proposed
regulations would allow a compliance department to provide tariff
classification advice to a sister or parent entity for all purposes,
including advice regarding the assigning of tariff numbers for
placement on an entry. However, that compliance department may not
prepare the actual entry document.
Comment: The proposed definitions of eligible related parties are
clear and do not create any particular problems.
Response: CBP agrees that the definitions are clear. However, as
indicated later in this comment discussion, some adjustments to the
proposed text are made in this final rule document in response to
concerns raised in other comments.
Comment: CBP should replace the proposed related party definition
with the related party standard employed for customs valuation
purposes. One commenter specifically suggested that CBP should resort
to the more limited related party definition as expressed in 19 U.S.C.
1401a(g)(1)(G).
Response: CBP believes that the related party definition used
generally for valuation purposes is too broad for application in the
context under review here. For example, the valuation definition
includes relationships between family members. Its wholesale adoption
would thus be inappropriate.
The narrower suggestion, that CBP use the more limited related
party definition as set forth in 19 U.S.C. 1401a(g)(1)(G), is also
unacceptable. That provision confers a relationship on ``[t]wo or more
persons directly or indirectly controlling, controlled by, or under
common control with, any person.'' According to a notice entitled
``Transfer Pricing; Related Party Transactions'' published in the
Federal Register (58 FR 5445) on January 21, 1993, determinations of
``control'' must be made on a case by case basis within the context of
the administrative review procedures available to the importing public
under parts 174 and 177 of the Customs Regulations. The adoption of a
definition that requires the issuance of a protest review decision or a
ruling to determine if a party qualifies would be difficult to
administer, and, as such, would not be appropriate in the present
regulatory context.
Comment: As an alternative to the 50 percent ownership requirement,
the rule should allow ownership of some equity or voting shares coupled
with proof of the retention of substantive management rights, such as
the right to designate officers or directors. Such a standard would
take into account modern forms of corporate organization while also
assuring that only those entities exerting control were engaged in
permissible compliance activity.
Response: Receiving accurate information from importers is crucial
to CBP's mission. The agency fosters accuracy through the issuance of
informed compliance publications and binding rulings and by offering
outreach programs to the importing community. It also makes use of the
procedures that enable it to seek redress against persons who file
inaccurate or incomplete entry documentation. Among its options in this
regard, CBP can assess liquidated damages against an importer of record
for a breach of the basic importation bond, or discipline licensed
brokers pursuant to 19 U.S.C. 1641. Corporate compliance offices under
this new regulatory scheme will not be subject to similar actions by
CBP, because they will not be importers of record or, in most cases,
licensed brokers. Absent some assurance of accountability, CBP would be
reluctant to allow an unlicensed third party to participate in the
entry process, because the accuracy of the information generated by
that third party may be questionable. CBP, in imposing a substantial
ownership standard (that is, more than 50 percent of the voting
shares), seeks to establish what might be best described as cascading
accountability by ensuring that entities offering compliance services
are accountable to importers who are, in turn, accountable to CBP.
Accordingly, the proposed standard is retained in the final rule. With
regard to the point concerning modern forms of corporate organization,
see the response to the next comment, which also
[[Page 47460]]
discusses the replacement of the reference to ``voting shares.''
Comment: The proposed definition of related parties only refers to
voting shares of corporations and does not address other voting
interests such as joint ventures, partnerships, limited partnerships,
limited liability companies, or any other legal structure now or
hereafter existing. Such situations should be considered, and all
possible business entities should be addressed, by the regulations.
Response: Even though CBP believes that the 50 percent ownership
standard should be retained as stated above, CBP also recognizes that
in today's business environment relationships may be forged between
companies that fall outside of the traditional corporate parent/
subsidiary structure. Accordingly, in the regulatory text adopted in
this final rule document, references to parent, subsidiary, and sister
corporations are replaced with the more generic terms ``business
entity'' and ``related business entity or entities,'' with ``business
entity'' defined as ``an entity that is registered or otherwise on
record with an appropriate governmental authority for business
licensing, taxation, or other legal purposes.'' In addition, because
voting shares are not the exclusive basis for determining the ownership
level in a business, the references to ``more than 50 percent of the
voting shares'' have been replaced in the final regulatory text with
more general references to ``more than a 50 percent ownership
interest.''
Comment: CBP should adopt a regulation to allow those entities
transacting customs business on behalf of related affiliates to certify
to CBP, upon request, that the entity exercises ``responsible
supervision and control'' over the affiliate's customs activity.
Response: CBP is uncertain as to the purpose behind this
suggestion. The exercise of responsible supervision and control is a
concept that applies to licensed customs brokers, upon whom that duty
falls whenever they engage in customs brokerage activities. A broker
can be sanctioned by CBP for failing to exercise responsible
supervision and control. Since compliance departments will not be
required to have broker licenses in cases covered by this new
regulatory provision, the suggestion of this commenter does not appear
to be relevant to the present exercise. For this reason, CBP declines
to adopt the suggested certification procedure.
Conclusion
Based on the comments received and the analysis of those comments
as set forth above, CBP believes that the proposed regulatory
amendments should be adopted as a final rule with the changes discussed
above.
Executive Order 12866
This document does not meet the criteria for a ``significant
regulatory action'' as specified in E.O. 12866.
Regulatory Flexibility Act
Pursuant to the provisions of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), it is certified that the amendments will not have
a significant economic impact on a substantial number of small
entities. CBP believes that the amendments will have only a minimal
impact on overall customs broker operations because they do not
authorize the preparation of documents and the filing of documents with
CBP, which constitute the bulk of customs business services provided by
brokers. CBP also believes that the amendments will provide positive
economic and related benefits to other members of the import community.
Accordingly, the amendments are not subject to the regulatory analysis
or other requirements of 5 U.S.C. 603 and 604.
Drafting Information
The principal author of this document was Francis W. Foote, Office
of Regulations and Rulings, Bureau of Customs and Border Protection.
However, personnel from other offices participated in its development.
List of Subjects in 19 CFR Part 111
Administrative practice and procedure, Brokers, Customs duties and
inspection, Imports, Licensing, Penalties, Reporting and recordkeeping
requirements.
Amendments to the Regulations
0
For the reasons stated in the preamble, part 111 of the Customs
Regulations (19 CFR part 111) is amended as set forth below.
PART 111--CUSTOMS BROKERS
0
1. The general authority citation for Part 111 continues to read as
follows:
Authority: 19 U.S.C. 66, 1202 (General Note 23, Harmonized
Tariff Schedule of the United States), 1624, 1641.
* * * * *
0
2. In Sec. 111.1:
0
a. The definition of ``customs business'' is amended by adding at the
end of the last sentence before the period the words ``and does not
include a corporate compliance activity''; and
0
b. A new definition of ``corporate compliance activity'' is added in
appropriate alphabetical order to read as follows:
Sec. 111.1 Definitions.
* * * * *
Corporate compliance activity. ``Corporate compliance activity''
means activity performed by a business entity to ensure that documents
for a related business entity or entities are prepared and filed with
Customs using ``reasonable care'', but such activity does not extend to
the actual preparation or filing of the documents or their electronic
equivalents. For purposes of this definition, a ``business entity'' is
an entity that is registered or otherwise on record with an appropriate
governmental authority for business licensing, taxation, or other legal
purposes, and the term ``related business entity or entities''
encompasses a business entity that has more than a 50 percent ownership
interest in another business entity, a business entity in which another
business entity has more than a 50 percent ownership interest, and two
or more business entities in which the same business entity has more
than a 50 percent ownership interest.
* * * * *
Robert C. Bonner,
Commissioner, Customs and Border Protection.
[FR Doc. 03-20327 Filed 8-8-03; 8:45 am]
BILLING CODE 4820-02-P