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Trade is Concerned with CBP's Proposed Rule on Brokers' Sharing of Importer Info

January 11, 2011 by Cindy Arevalo|Top News

On October 27, 2010, U.S. Customs and Border Protection issued a proposed rule to amend 19 CFR 111.24 regarding the disclosure of client (importer) information and records by customs brokers.

The proposed amendment would state that brokers, upon the client’s consent in a written authorization, could share client information with affiliated entities related to the broker so that these entities may offer non-customs business services to the broker’s clients.

The proposed amendment would also state that customs brokers could use a third-party to perform photocopying, scanning, and delivery of client records for the broker.

Comments on CBP’s proposed rule were due by December 27, 2010.

Comments Submitted by Brokers, Importers, Sureties, ECOs, Etc.

CBP received 17 comments in response to its proposed rule. What follows are highlights from the comments submitted by:

Brokers

CBP Should Withdraw and Reconsider Proposed Rule

Both the NCBFAA and PCC urge CBP to withdraw its proposed rule, and reconsider it in the broader context with more input from the trade. According to NCBFAA, CBP is proposing discrete changes to an existing regulation when a holistic reconsideration of the regulatory framework relating to the confidentiality of importer records is required.

UPS calls on CBP to withdraw its proposed rule and recommence an effort to align the regulation with modern business and supply chain requirements.

Need to Recognize Number of Players Involved

According to NCBFAA, today’s reality is that terminal operators, truckers, warehouse proprietors, and others involved in the release and delivery of imported merchandise routinely receive importer information from brokers as a result of existing regulation and CBP driven process. NCBFAA argues that the proposed rule does not recognize this reality or provide guidance on how brokers should manage this aspect of their business.

NCBFAA states that this issue could be dealt with by clarifying that brokers are permitted to share such client information with parties who are required to receive such information in order to facilitate the clearance and delivery of the importer’s cargo.

Client Record Confidentiality Requirements too Broad

In its comments, NCBFAA notes that both the existing and proposed amended regulation provide that “the records referred to in this part and pertaining to the business of the clients serviced by the broker are to be considered confidential,” language it characterizes as overly broad. NCBFAA further notes that CBP only has the authority to deem confidential those records “pertaining to the customs business of the clients serviced by the broker” and the proposed regulations should be amended accordingly.

Brokers Should Be Able to Share Info with More than Affiliated Entities

NCBFAA also states that proposed 19 CFR 111.24(b) suggests that with the client’s written authorization, a broker may share client information specified in the written authorization with an affiliated entity so that the affiliated entity can offer non-customs business services to the broker’s client. Among other things, NCBFAA argues that not every broker has an affiliated entity and brokers should have the ability to work with third party providers without regard to corporate affiliation.

Provision of Records to 3rd Parties Should Go Beyond Copying/Scanning

NCBFAA state that with regard to the proposal that brokers may provide client records to third parties providing photocopying/scanning services without written consent of the client provided the broker complies with 19 CFR 111.29(a) and enters into a non-disclosure agreement with the third party service provider to keep the client records and information contained therein confidential, it recommends that this be expanded beyond photocopying/scanning services.

NY/NJ FFFBA argues that there is no point in limiting the proposed rule to certain types of third-party service providers.

FedEx Trade Networks recommends that the proposed regulation should include other ancillary services such as filing, document storage, audit services, etc.

Sharing Info with Counsel, Insurer Should be O.K. in Certain Cases

NCBFAA requests that proposed 19 CFR 111.24(c)(1) clarify that it is permissible for a broker to share client information and records with outside counsel and the broker’s insurance carrier in the context of defending the broker against a claim for damages by that client.

PCC notes that brokers need to protect themselves legally and that confidentiality in these matters should be dealt with in any review of 19 CFR 111.24.

Sealing for Messenger-Transported Documents Unnecessary

NCBFAA, PCC, and NY/NJ FFFBA also object to proposed 19 CFR 111.24(c)(2), which NCBFAA says suggests that a broker be permitted to utilize a third party messenger service to transport client documents provided such records are sealed so that the messenger cannot view, alter, or amend the documents being delivered.

PCC warns that there is currently no requirement stipulating that a broker can use a messenger service only if the messenger uses sealed envelopes and imposing such a requirement would create radical changes in entry processing at the ports.

NY/NJ FFFBA states that this proposed requirement would be an unnecessary precaution based on the nature of the services provided by messengers.

FedEx Trade Networks notes that this provision would impose additional restrictions on what is now a common practice in the industry and is a departure from CBP’s current practice in many ports.

COAC Advice on Record Sharing Should be Reviewed

FedEx Express urges CBP to review the 2005 COAC recommendations on record sharing by Customs brokers and revise the proposal to include a more reasonable and realistic provision for sharing between a Customs broker and related entities involved in providing integrated services to importer clients.

Rule Would Hamper Supply Chain Security Efforts

UPS notes that the proposed rule hampers the industry’s ability to identify and prevent supply chain security incidences.

Express Consignment Operators

Proposed Rule Fails to Provide Meaningful Expansion of Ability to Share Information

In its comments, EAA expressed disappointment with the limited scope of the changes to the existing regulatory environment in the proposed rule. According to EAA, the proposed rule provides no meaningful expansion of the capability to share information by customs brokers. EAA states that express consignment operators (ECOs) meet very high standards for ensuring the confidentiality of their customers’ information, and the set of firewalls imposed around the customs brokerage by the current regulations, which would not be changed significantly by the proposed rule, represent an anachronism.

Sureties

Rulemaking is Burdensome and Unnecessary

The International Trade Surety Association opposes adoption of the proposed rule, characterizing it as unnecessary and overly burdensome.

Any Rulemaking Should Require Brokers to Provide Records to Sureties

The International Trade Surety Association recommends that if CBP moves forward with an amendment to 19 CFR 111.24, it should include a revision which specifically requires licensed customhouse brokers to provide records to the client’s surety upon request by that surety.

Importers

Proposed Rule Should Not Move Forward as Written

Honeywell requests that CBP not move forward with its proposed rule as written and revisit the proposed rule, if necessary, once the appropriate safeguards to protect importers are adequately addressed.

More Safeguards on Importer Information Needed

Honeywell states that, as currently written, the proposed rule will allow customs brokers to share client information with third party suppliers without the necessary safeguard to ensure clients’ information remains confidential while it is in third party suppliers’ possession.

Rule Should Reference Broker Penalties for Third Party Sharing/Selling of Info

Honeywell also notes that the proposed amendment, as it is currently written, does not include language regarding any penalties or consequences that the customs broker will be subject to should a third party violate the proposed regulations by sharing or selling a client’s confidential information. According to Honeywell, the proposed regulations should make clear to the customs brokers the steps CBP will take in the event of a breach of confidentiality.

Need to Define “Affiliated or “Related” Company

Pfizer expresses concern that the proposed rule fails to define what is meant by “affiliated” or “related” company. According to Pfizer, such lack of definition may be detrimental to the importer’s interests. For example, Pfizer questions whether acquiring a licensed broker would give the acquiring company access to the confidential business information of a direct competitor of the client.

No Compelling Case Made to Overturn Existing Rules

Pfizer notes that prior rulings have well established the need for and justification for the protection of confidential business information (CBI) and believes those restraints should be reaffirmed given the fact that no compelling case has been made to overturn existing rules.

(See ITT’s Online Archives or 10/26/10 news, 10102714, for BP summary on CBP’s proposed rule.)

Comments on CBP’s proposed rule are available here.