NCBFAA Broker Known Importer Program Has Benefits, Also Liability for Customs Brokers, Say Panelists

LAS VEGAS -- The Broker-Known Importer Program will at least start as an industry initiative because of restrictive rules on how CBP can launch official pilot programs, said Alan Klestadt during a panel discussion April 9 at the annual conference of the National Customs Brokers & Forwarders Association of America (NCBFAA). The association last year suggested that CBP adopt the program, which is meant to leverage some basic information brokers collect about their clients. The NCBFAA is coming up with the verification criteria and will open the program up to both association and non-association participants. In return, the NCBFAA is asking CBP to create an entry flag and incentivize importer participation. Klestadt says the NCBFAA wants CBP will conduct a survey 14 months into the program to see how it’s working. Eventually, the NCBFAA hopes CBP will formalize the program through regulations or a policy document.

Under Office of Management and Budget rules, CBP is limited to only nine participants per pilot program, too few to get a good look at how well the program functions, he said. But to work, the program has to be available to as many participants as possible, he said. “Nine participants to me is a non-starter,” he said.

CBP is currently in ongoing communication with NCBFAA and is considering the proposal, said Heather Sykes, branch chief, broker management at CBP . “CBP and the NCBFAA have had several meetings on this proposal,” she said. “The most recent conversation was held in New York just two weeks ago,” she said. CBP headquarters and field operations staff are currently reviewing the proposal, and the agency is “looking at potential benefits we could provide the program participants and the level of risk that CBP is willing to accept.”

The benefits of participating in the proposed Broker-Known Importer Program would also come with some additional liability, said Klestadt. Brokers verifying the legitimacy of their importer clients would be subject to the same standards of responsible supervision and control and reasonable care that apply to any other type of customs business, he said. It will be important to keep adequate records to establish a trail that demonstrates the customs broker fulfilled its obligations, said Klestadt. And while “nothing comes without some risk,” Klestadt said the program will have benefits for the business side of customs brokerages.

Recordkeeping requirements will be central to the Broker-Known Importer program. “The concept is there’s some kind of documentation which you will retain, which will demonstrate that you’ve had this conversation with your customer [and] that you have reviewed these issues,” said Klestadt. Because the review relates to customs documentation, Broker-Known Importer activities would be considered customs business and customs brokers would be expected to exercise responsible supervision and control and reasonable care over their statements to CBP. In the event that a broker turns out to be wrong about the legitimacy or compliance of an importer, the broker’s records would allow it to demonstrate that its judgment was reasonable based on the information provided.

Brokers that flag importers as verified but don’t keep documentation will expose themselves to liability, said Klestadt. “You do so at your own risk, because chances are at some point you’re going to be asked to demonstrate why you didn’t know about” an importer's violation, said Klestadt. “You’re going to define your exposure to the [customs] agent by your level of care that you exert.”

As announced by the association last year, NCBFAA’s Broker-Known Importer Program would allow brokers to flag entries for clients that have gone over a questionnaire providing to the broker various information on their importing practices (see 13041124). The flag would allow the importer to obtain benefits from CBP, possibly including targeting. It wouldn't guarantee compliance, but would say to CBP that the broker and client have gone over that information, says NCBFAA. The absence of a flag wouldn't be considered a negative on an entry, but instead would just mean that the broker hasn’t yet spent time with a particular importer.

The NCBFAA has now developed a draft questionnaire for brokers to give their importer clients under the program, said Klestadt, who is NCBFAA’s customs counsel. The questionnaire is based on intake documents from various brokers, and has already been shared with CBP. It would only serve as a baseline, said Klestadt, and brokers would be free to supplement or revise it.

According to NCBFAA President Darrell Sekin, brokers would also visit their clients to verify that they are legitimate importers. The review would continue on a recurring basis, with customs brokers having to verify the legitimacy of the brokers every year, said Sekin. Brokers would touch on issues like assists, marking, antidumping duties, and intellectual property rights, he said. Given the potential costs, visits would not have to be done in person, said Mary Jo Muoio, chairwoman of NCBFAA’s customs committee. They could also be conducted by phone or by email, for example. The review wouldn’t necessarily have to be conducted by a licensed individual, but it would “have to be someone with experience to understand the issues,” said Klestadt.

Benefits for Brokers, Importers and CBP

Once it’s up and running, the NCBFAA anticipates benefits for CBP, importers, and brokers. For CBP, Broker-Known Importer will give the agency information about “another cross-section” of importers that currently isn’t captured by programs like Customs-Trade Partnership Against Terrorism (C-TPAT) and Importer Self-Assessment (ISA), said Klestadt. For importers, benefits for participating could include things like targeting segmentation, mitigation of penalties, or establishing eligibility for other trusted trader programs.

For brokers, the program is an opportunity to deepen relationships with clients and improve broker services. “It gives us as the customs broker the opportunity to reach out to that customer every year, get in front of them, talk to them about it, let them know how much you know, and that you’re on top of their importing procedures,” said Sekin. Staying on top of clients’ compliance issues could save both brokers and importers money, said Muoio. “If you really do go through this onboarding exercise with your clients, chances are you’ll have an easier time doing their entries. You’ll make fewer mistakes,” she said. “The hope and the vision is that we’ll be better brokers and we’ll be doing better work, and that’s cheaper for us in the long run,” said Muoio.

Broker-Known Importer will benefit brokers financially too, said Klestadt. “My personal belief is there is a lot of value for everybody in this room,” he said. “If I get into a room with an importer, and I have a chance to talk to them and ask them a bunch of questions … I’m going to find a way to sell them more services,” said Klestadt. “Or what will happen is, because you spent the time, they now know you on a different level than they’ve known you before, and they now feel better doing business with you and your company.”

The program could also serve as a backstop against the ongoing trend of intellectual property rights lawsuits against customs brokers, said Sekin. Over the last few years, brokers have been getting sued after “getting snagged into situations that were just really dicey,” often involving a fraudulent importer. “Hopefully it would keep you from getting into a situation because you ask some of the questions and don’t fall into that trap,” said Sekin. “Criminals are going to do what they’re going to do, and innocent people get sucked into it sometimes.” But brokers participating in Broker-Known Importer would at least have something to show they did what they could. “It might be just that extra deal in your pocket, that maybe the intellectual property rights-holder might look at and say this guy got suckered in, we won’t sue him. Customs also might look at it and say the broker was not complicit in this,” said Sekin.

Concern Over Disadvantages, Eventually Mandatory Participation

Several lawyers and customs brokers raised concerns about the proposed Broker-Known Importer Program in questions and comments that followed the panel discussion. In comments later echoed by San Francisco-based customs lawyer George Tuttle, one customs broker said he was worried potential clients would look to other brokers if faced with strict verification requirements. According to Tuttle, “for the broker that does do this process, they are at somewhat of a disadvantage with many types of importers that say my other broker never did that, or another broker might not ask any of those questions. Many brokers view that as a disadvantage.”

Tuttle also expressed concern that the program might become the industry standard, and CBP officials might start expecting customs brokers to participate. That could potentially open brokers that don’t participate up to penalties. “If it is going to be mandatory, we should probably start talking about it as that to begin with. Give yourself an Informed compliance period. Bring everybody up to speed so you have a level playing field,” said Tuttle.

And although the NCBFAA panelists said the questionnaire would not have to be followed to the letter, Los Angeles-based lawyer Susan Kohn Ross said changing it may expose brokers to liability. “If this is the prescribed format of questions, don’t muck with it,” said Kohn Ross. The minute a broker changes it, CBP may turn around and say that broker didn’t use the standard, and fell below it, she said. On the whole, Kohn Ross called the NCBFAA’s effort “commendable,” but told the panel that there are some issues that need to be worked out. ”There are a number of areas to be concerned about,” she said. “You do need to roll this out, [but] you do need to make this as positive as possible."