Modernization of the Customs Broker Regulations

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.

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

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,

melba.hubbard@cbp.dhs.gov.

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.

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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.

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

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 § 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.

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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

https://www.cbp.gov/document/technical-documentation/entry-summary-createupdate-catair

and the chapter entitled Cargo Release, which is available online at

https://www.cbp.gov/document/guidance/ace-catair-cargo-release-chapter.

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.

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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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Information regarding the customs broker license exam, especially the remotely-proctored exam, may be found online at

https://www.cbp.gov/trade/programs-administration/customs-brokers/license-examination-notice-examination.

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 § 111.53 as a ground for suspension or revocation of a license or permit. Commenters also supported the proposed removal of the

requirement to submit an answer in duplicate to the charges against the broker in § 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 § 111.16, the addition of required information or arguments in support of an application during review of the denial of the application in § 111.19, and a new reporting requirement in § 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.

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The BMO contact information for the 41 port locations may be found online at

https://www.cbp.gov/trade/programs-administration/customs-brokers

by clicking on the tab titled “Broker Management Officer (BMO) Contact Information”.

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 § 111.12(a) and applications for a national permit under § 111.19(b) for an individual, partnership, association, or corporation, as well as submissions required in part 111 by already-licensed brokers.

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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

brokers' applications and submissions, without any changes for the brokers.

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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.

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 § 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 § 111.27. Moreover, the primary location is also the address that is provided in the application for a national permit and

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 § 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

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 § 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 § 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.

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The ruling serves as guidance to other brokers who encounter the same scenarios. CBP does not believe that further explanations or clarifications are needed.

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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

https://rulings.cbp.gov/home.

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 § 111.3, concerning customs business, and § 111.2(a)(2) concerning transactions for which a customs broker's license is not required. The commenters stated that the proposed § 111.3 only mentions the customs broker's location and point of contact, along with a reference to § 111.1 for the definition of customs business. Meanwhile, § 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 § 111.2(a)(2) that the listed transactions are not considered customs business or list the specific transactions in § 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 § 111.3 that customs business must be conducted within the U.S. customs territory, as opposed to the transactions listed in § 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 § 111.1 is considered customs business can be determined by requesting a ruling, as mentioned above. CBP cannot exhaustively list all transactions that are

(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 § 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 § 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 § 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 § 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;

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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 §§ 111.28(a) and 111.39(b).

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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 § 111.28(a) and the “due diligence” standard of § 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 § 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 § 111.28(a). The due diligence standard in revised paragraph (b) of § 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 § 111.28(a), or

that CBP provide additional guidance as to adequate sampling methods.

Comment:

One commenter stated that CBP should confirm that § 111.3(a) does not require that any activity falling within the definition of “corporate compliance activity” in § 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 § 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 § 111.12 as they eliminate certain outdated requirements for broker license applicants. However, one commenter recommended changing the requirement under § 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 § 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.

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Instructions on how to appeal may be found online at

https://www.cbp.gov/trade/programs-administration/customs-brokers/how-appeal.

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 § 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 § 111.14 should be included in the requirements to apply for a license in § 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 § 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, § 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 § 111.16(b). The commenter wrote that no due

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 § 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 § 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 § 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 § 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 § 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 § 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 § 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 § 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 § 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 § 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 § 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 § 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 § 111.19(b)(3).

Comment:

More than one commenter maintained that the proposed requirement for a supervision plan in § 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

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 § 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 § 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 § 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 § 111.11(c)(2) to have at least one officer in an association or corporation, or at least one member in a partnership under § 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 § 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 § 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 § 111.19 to state that a reason for the denial will be provided, merely because of comparable language in § 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 § 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” (§ 111.21) and “responsible supervision and control” (§ 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 § 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 § 111.21(a), “records” include documents reflecting

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

cbpsoc@cbp.dhs.gov,

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 § 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 § 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 § 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 § 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 § 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

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 § 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 § 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 § 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 § 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 § 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, § 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

DHS agencies could fall under the catch-all phrase “other duly accredited officers or agents of the United States” in § 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 § 111.26, in the context of interference with the examination of records. By revising §§ 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 § 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 § 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 § 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 § 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 § 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 § 143.1, rendering the confidentiality requirement set forth in § 143.4 inapplicable.

Comment:

A few commenters stated that the proposed standard of making the records available at a location specified by DHS in § 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

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 § 163.5, without having to request written authorization.

Response:

CBP disagrees with the first two commenters' request to repeal § 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 § 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

§ 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 § 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

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 § 111.1, to the word “may” in § 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

https://cite.case.law/f3d/575/1376/.

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

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 § 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 § 111.1, and move it to § 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 § 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 § 111.28(a). In the meantime, brokers may find additional information and guides on CBP's website at

https://www.cbp.gov/trade/programs-administration/customs-brokers

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 § 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 § 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

in the regulation. The reject rate for the various customs transactions historically has been a factor in § 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 § 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 § 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

https://www.cbp.gov/sites/default/files/documents/3550-067_3.pdf.

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

https://www.cbp.gov/document/technical-documentation/ace-catair-appendix-h-census-codes.

With respect to the second commenter, the reject rate pursuant to § 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

https://www.cbp.gov/document/guidance/ace-catair-error-dictionary.

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

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 § 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 § 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 § 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 § 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 § 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

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 § 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 § 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 § 111.28, dealing with the reporting of employee information and change in broker ownership, to § 111.30. The commenters argued that while these paragraphs indirectly pertain to supervision and control, their placement in § 111.28 is confusing as they represent regulatory requirements regarding administrative issues more akin to those set forth in § 111.30.

Response:

CBP disagrees with the two commenters and believes that paragraphs (b) through (e) fit appropriately in § 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, § 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 § 111.19(f) and proposed § 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 § 111.19(f) talks about “the individual broker who qualifies for the national permit”, whereas proposed § 111.28(a) talks about “every licensed officer”. In § 111.19, the primary responsibility rests with the individual broker designated as qualifying for a national permit, whereas in § 111.28, every licensed officer is included in the definition of responsibility. The commenter suggested to amend § 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 § 111.28(a), whereas a national permit holder is held to the responsibility stated in § 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 § 111.19(f), which also refers to § 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 § 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 § 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 § 111.28.

Comment:

One commenter noted that § 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 § 111.28(e), just as there is no time frame for the background investigation for a license application pursuant to § 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 § 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 § 111.28(b).

Response:

CBP disagrees with the commenters and will keep the time frame for reporting an address change at

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 § 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 § 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 § 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 § 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 § 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 § 111.32 to require this information in the report. CBP proposed the change in § 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 § 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

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 § 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 CBP.gov 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 § 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 § 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 § 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 § 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, an

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