Originalyl published by the Journal of Commerce in March 2012

A pressing issue currently confronting the customs brokerage community is what will the industry look like in the future? The corresponding issue facing Customs and Border Protection (CBP) is how to finally get to the point where there is a true partnership with the brokerage community. Often the two sides view each other with great trepidation. From the CBP perspective, the feeling often hinted at is the broker is aiding its importers to get around the law. Brokers are concerned if they advocate too strongly on behalf of their importers, CBP will retaliate. Undoubtedly, there are those instances where retaliation does happen, but the incidents are generally few and typically occur in smaller ports. There are also admittedly situations where brokers should do a better job of educating their customers and themselves. However, the attempt by some large trademark holders to seek damages from customs brokers on the grounds they are abetting the importation of counterfeit goods by supposedly not doing enough vetting of their customers is highly questionable and frankly, when the right case comes alone, i.e., one involving a company with sufficient means or an insurance company that finally wants to confront the issue, the likelihood is such efforts will be rebuffed by the courts. In the meantime, these lawsuits keep getting filed by one prominent shoe company and an equally prominent handbag company.

Instead of addressing the issue at the crux of that dispute, and setting standards customs brokers should (not might) follow when it comes to vetting powers of attorney, CBP is going in the opposite direction. The only guidance CBP published about the steps brokers could take when it comes to validating powers of attorney was posted to the agency’s website on September 4, 2009. It states:

“Here are some ways the broker can validate a Power of Attorney:

To the greatest extent possible, have POAs [powers of attorney] completed in person so the grantor’s personal identification (driver’s license, passport, etc.) can be reviewed.

• Check applicable Web sites to verify the POA grantor’s business and registration with State authorities.

• If the principal uses a trade or fictitious name in doing business, confirm that the name appears on the POA.

• Verify that the importer’s name, importer number and Employer Identification Number (also known as the Federal Tax Identification Number) on the POA match what is in ACS.

• Check whether the POA grantor is named as a sanctioned or restricted person or entity by the U.S. Government… [and then provides a link to the lists to be checked] [emphasis added].”

So, what happens if you do all of that and the person who signed the POA turns out to have stolen someone’s identity or a third party conspired with him/her? What else will rights holders say the broker should have done? Further, notice that none of these requirements is mandatory. At the same time, rights holders say if the importer gives the customs broker a cell number instead of a land line, or an email address not associated with the company URL (e.g., yahoo.com or gmail.com), those are red flags. Rights holders also argue if the broker does not check the company’s website to make sure the person signing is listed as an employee (and how often are all the “right” people listed on a website?), that is another failing. Leaving aside the obvious question of what are trademark holders and their lawyers doing trying to set the standard of care for customs brokers, this is a situation crying out for resolution, and CBP seems determined to avoid the controversy. If a Customs Directive setting out the minimum requirements when powers of attorney are vetted were published, all customs brokers would play by the same rules and if one did not, it would rightly be liable for the consequence of its miscues. Such criteria would also eliminate the nonsensical conclusion in some broker audit reports where even CBP says if the broker had only more thoroughly vetted the customer, it would have discovered the counterfeit goods being imported. Since CBP has access to more and better data much earlier in the process and can’t find all the counterfeit goods, it is ludicrous to suggest the broker can do a better job when it only sees the paperwork strictly related to the individual shipment. Why not address this POA vetting issue head-on and do so promptly and fully? Instead, what does CBP do? It sets out to redesign the broker regulations as a whole. Specifically, CBP says:

“Current broker regulations have not kept up with advancements in technology and CBP’s facilitation goals. CBP is attempting to address this through amendments to the regulations that will (a) clarify brokers’ responsibilities related to importer validation and provide greater visibility of importers; (b) modernize the regulations to align with current electronic capabilities and business practices, which could result in decreased administrative costs for both CBP and customs brokers; and (c) reinforce the broker’s responsibility to exercise due diligence in conducting business and to “professionalize” the customs broker by introducing a continuing education requirement.”

No doubt it is true the regulations do need updating, and some of the ideas associated with this rewrite are good, timely ones. For example, CBP proposes to speed up the process for the approval and issuance of individual broker licenses. Why not also speed up the process for the issuance of corporate licenses? Further, automating the triennial report requirement so all such reports are filed in ACE and shortening the reporting period are both good ideas. When it comes to vetting importers, the discussion focuses on how brokers can help qualify importers for CBP programs, a laudable goal, but one which fails to address the POA vetting issue. At the same time, the continuing education concept has some controversy associated with it. Few oppose requiring continuing education, but CBP appears to be doing all it can to avoid administering the program. As a result, there are lots of critical questions which remain open. Who will decide how much continuing education per year is enough? What topics must be included in a valid program? Will CBP qualify providers and then each provider administers a program itself? Will those who are licensed but not working for customs brokers, such as importer employees or consultants, have the same requirements imposed on them as those actively conducting brokerage business? If administration of the program is in the hands of a few providers and is not overseen by CBP, will those employed by importers or working as consultants (or even as attorneys) have an equal opportunity to access continuing education as those who are actively employed by brokers?

CBP is also planning what it calls ISA-PC.  ISA stands for the Importer Self-Assessment program. PC refers to pre-certification.  CBP describes its approach as:

“Brokers who apply and are accepted into the Importer Self Assessment Pre-Certification Program (ISA-PC) will perform the comprehensive review of the ISA applicant’s package and evaluate the applicant’s readiness to self-govern and participate in the ISA program. The accredited broker will draft a final report on the applicant’s ISA readiness and submit it the Partnership Programs Branch for processing and validation. If there are no anomalies, the report will be scheduled for ISA Review Board approval/certification.”

While a perhaps reasonable way to partner with the brokerage community, here, too, some of the requirements raise more questions than they answer. For example, only customs brokers who file entries are said to be allowed to participate. What about licensed brokers who provide professional, high quality consulting? Why are they ineligible? Certainly in the legal community, there are questions about why the lawyers have been left out, the feeling being that a tool often beneficial to the importer is the attorney-client privilege. During the qualification process, as with at all other times, the importer should be permitted to clear up any mistakes through its counsel without the customs broker being worried an all too aggressive CBP staffer will go overboard trying to find out what the broker learned absent the privilege!

Just as things keep changing for importers, so too do they change for customs brokers. The industry clearly wants to be professional and keep up with the times. However, let’s add one more issue into the mix – what is all of this going to cost? Will brokers have any choice but to raise their fees to their customers to make up for all the added requirements being put on them by both business and regulatory demands?