New Broker-Client Termination Reporting Regs May Complicate Prior Disclosures, Lawyer Says

A recent change to CBP's Part 111 customs broker regulations that requires client termination and reporting to CBP of intentional attempts by the client to defraud the government could conflict with existing prior disclosure laws and put the broker-importer relationship into conflict, Sandra Bell, a DLA Piper trade lawyer and former CBP official, said in a March 9 blog post.

Put in place by CBP's October customs broker modernization final rule (see 2210170071), amended 19 CFR 111.32 prohibits the broker from filing false statements but now also requires the broker to "document and report to CBP when the broker separates from or cancels representation of a client" if they discover the client is "intentionally attempting to use the broker to defraud the U.S. Government or commit any criminal act against the U.S. Government."

In combination with the prior disclosure process, that means "brokers and their importer clients may face a number of issues when they first realize that a false statement may have been made in entries already filed with CBP," Bell said. "Brokers would like to ensure they do not violate the customs laws nor the broker law and implementing regulations. On the other hand, importers would like to be able to assess the full circumstances relating to the discovery, and then after such review disclose the circumstances of any possible violations to CBP," she said.

Prior disclosures aren't an option for importers if CBP is already investigating the violation, but correcting the relevant violations could cause CBP to look into the issue. If the importer informs its broker of the error, "should the broker terminate its relationship if the importer wishes to delay making corrections until after it has made a prior disclosure because of the importer’s stated belief that such corrections might trigger an investigation before it has made such disclosure?" Bell said. "In this situation, should the broker assume that the later filings will be intentional violations?"

Bell also asked whether the broker would trigger the reporting requirement if they ended the relationship because the importer wanted to hold off on correcting the problems until after the prior disclosure. In that scenario, Bell also wondered whether such a report would trigger a CBP investigation, preventing the importer from filing a prior disclosure.

"These scenarios likely already exist in the real world," Bell said. "Practitioners representing both brokers and importers must be mindful of these circumstances in order to avoid disrupting the relationships between two essential characters in the international trade and customs world -- the importer and the customs broker -- while remaining in compliance with U.S. customs laws," she said.

While this does create potential problems, Bell argues that brokers and importers can overcome challenges "if the two parties continue doing what they have historically done: working hand in hand to ensure they both are not just meeting but exceeding the bar for U.S. customs and international trade compliance." CBP didn't immediately comment.