Few Changes in Part 111 Final Rule as CBP Adopts New Supervision and Control Approach

CBP is finalizing its new, more flexible regulatory approach to enforcing customs broker responsible supervision and control, applying the standard with an eye to the broker’s size and circumstances and assessing a new list of criteria on a case-by-case basis.

The agency made only minor changes to its proposed Part 111 rewrite in its final rule on customs modernization released Oct. 17. As expected, CBP will eliminate the broker district permit, so brokerages will instead operate on a single, national permit. The new approach to responsible supervision and control is partly the outgrowth of that change, and the resulting dramatic reduction in need for qualifying brokers.

New 19 CFR 111.28(a) now says that a brokerage must employ a “sufficient” number of licensed brokers. Despite some complaints from commenters that the new standard is too vague, CBP provided no further detail in its final rule.

“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,” the final rule said. “Each broker needs to evaluate his or her own business and see what is needed to provide high quality service to the clients.”

“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,” CBP said.

CBP’s broker management officers will monitor whether a brokerage employs enough brokers in the same way that it handles entry filing errors, working with brokers on a plan of action. Though a determination that a brokerage needs more brokers may be challenged by escalating to an officer’s supervisor, the broker will “ultimately … need to follow the plan of action determined necessary by CBP,” the agency said. “Continued failure to do so will warrant escalated CBP remedial actions including, possibly, a penalty, or suspension or revocation of a license.”

CBP said that while the number of employees with a Certified Customs Specialist (CCS) certification will be considered in the agency’s determination of whether a sufficient numbers of brokers is employed, 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,” it said.

Alongside the question of how many brokers should be employed, changes to how CBP applies its responsible supervision and control criteria also generated some controversy among brokers following CBP’s proposed rule in June 2020 (see 2006040037 and 2205030069). Under the old Part 111, CBP had to consider all of a series of 10 criteria when assessing a broker.

CBP is now finalizing those changes so that it now “may” consider each of an expanded list of criteria. “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,” the agency explained. “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.”

Nonetheless, 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,” that doesn’t stop a broker from “presenting in its defense any factors it believes to be mitigating,” CBP said.

“No decisions will be made without a thorough evaluation of the relevant factors present that apply to an individual broker,” the agency said.

Other amendments to Part 111 in CBP’s final rule include increased fees for broker license applications, as well as a remote option for the broker license exam. Another final rule released simultaneously with CBP’s Part 111 rewrite eliminates all references in CBP’s regulations to customs broker district permit fees.

Changes from CBP’s proposal include the consolidation of the 15 proposed responsible supervision and control criteria down to 13 by combining factors related to responsiveness to CBP communications and internal communications. CBP is also softening its approach to the mandated reporting of data breaches, and will allow the broker to make a preliminary report within 72 hours and then submit a full list of compromised importer identification numbers within 10 days. The proposal had required the full list within 72 hours.

CBP declined requests from commenters to revise its definition of customs business. The agency said definitions in the statute and the existing regulations are sufficient, and were recently supplemented in 2017 by a customs ruling that provided “an in-depth analysis of what customs business entails in several different scenarios provided by the ruling requester” (see 1704070045).

The final rule is scheduled for publication in the Federal Register on Oct. 18, and will take effect 60 days after publication, on Dec. 19. CBP has detailed its process for transitioning some 400 brokers still using only district permits to a national permit, and aims to complete the transition by the effective date (see 2206230053). The agency plans to release a package of guidance and supporting documentation on the final rule upon its publication, including a new broker handbook that reflects the regulatory changes (see 2210070057).