CBP proposes a new rule to formalize the process used by Customs Brokers of verifying the identity of their clients, specifically importers and nonresident importers. CBP believes the broker is uniquely situated to collect the information necessary to authenticate an importer’s identity at the time a Power of Attorney is obtained. The purpose of placing a verification burden on brokers is to ensure that importers are conducting legitimate trade transactions. The Federal Register Notice announcing the proposed rule clearly states brokers are subject to hefty monetary penalty for failure to collect the required information. If you have comments or concerns, now is the time to speak up! Brokers, importers, and the general public, have until October 15 to submit comments on the proposed rule.
The Current Process
The current process a majority of brokers undertake to verify the identity of a prospective importer is limited to enough information to verify the information on the required Power of Attorney is accurate, which includes:
- verify the importer’s existence and identity,
- validate an importer’s identity in order to protect the broker’s business interests, reduce identity theft, and help to prevent the use of shell or shelf companies to further a business fraud scheme.
- the registration of the importer’s business with a state government and the Articles of Incorporation under which that business is formed.
CBP guidance to brokers on how to validate importers when they obtain a POA provides, whenever possible, to:
- Complete POAs in-person and review personal identification (driver’s license, passport, etc.);
- Check applicable websites to verify the business registration with State authorities;
- Confirm business’s trade or fictitious names that may appear on the POA;
- Verify that the importer’s name, importer number, and Employer Identification Number (EIN) (also known as the Federal Tax Identification Number) on the POA match what is in CBP’s Automated Commercial Environment (ACE);
- Check whether an importer is named as a sanctioned or restricted person or entity by the U.S. Government.
The Proposed New Requirements
The proposed rule would bind brokers to take-on the process of verifying their client’s identity on an annual basis. CBP seeks to use brokers as a tool to prevent commercial fraud, protect revenue, and help prevent the use of shell or shelf companies by importers who attempt to evade the customs laws of the U.S.
If the proposed rule becomes final it will be entitled Importer Identity Verification and it will be codified in 19 CFR 111.43 (the same regulation requiring brokers to display their licenses and permits). 19 CFR 11.43(c) will have the following proposed rule data elements the broker must get at the time the POA is obtained:
(2) if an individual, date of birth;
(3) if a partnership, corporation, or association, the grantor’s date of birth;
(4) if a partnership, corporation, or association, the client’s trade or fictitious name;
(5) address of physical location and phone number;
(6) email and business website;
(7) a copy of grantor’s unexpired government issued photo identification;
(8) client’s IRS number, employer identification number (EIN), or importer of record (IOR) number;
(9) client’s publicly available business identification number;
(10) a recent credit report;
(11) a copy of client’s business registration and license with state authorities; and
(12) the grantor’s authorization to execute power of attorney on behalf of client.
Why Is This Proposed Change Needed?
CBP estimates that five percent of importers are “not currently verified or are only minimally verified.” CBP states that it is best for both parties, the broker and importer, if the broker collect all the information for identity verification at the time the broker obtains a valid POA. Therefore, the broker must gather all the client’s identity information in CBP’s proposed rules, before the broker can act on behalf of the importer in conducting trade transactions.
By requiring the broker to gather all of the information above, the proposed rule would eliminate the ability for prospective clients to “broker shop,” meaning that potential importers will go from broker to broker looking for the one who will require the least amount of the importer’s information.
When Would the New Requirements Become Effective?
Not only do brokers have to verify the identity of prospective clients, they MUST also verify the identity for an already established client! The following are the effective dates for verification:
- For new, unverified, clients – brokers would be required to comply with the proposed rule as of the effective date of the final rule.
- For brokers who have a power of attorney issued by a partnership with existing clients, the broker would have two years from the effective date of the final rule to verify the client’s identity and to update the necessary records (because a POA issued by a partnership is limited to a period not to exceed two years from the date of execution. See 19 CFR 141.34. Thereafter broker’s would have to reverify the partnership on an annual basis).
- For all other already existing clients, the broker would have three years from the effective date of the final rule to verify the client’s identity and update the necessary verification records.
All reverifications must be done on an annual basis. CBP estimates that the cost of identity verification for brokers to be about $59.52, assuming an hourly rate of $29.76 for brokers.
According to CBP, there are about 350,000 importers actively transacting customs business with the agency through about 2,090 permitted customs brokers. CBP estimates that the customs broker industry will collectively spend about $22.3 million from 2019 to 2023 to comply with the new rule, once it’s implemented.
Amy Magnus, President of the National Customs Brokers and Forwarders Association of America, Inc. (NCBFAA) commented on the verification process for importers who have established a long-term working relationship with a Customs Broker. Magnus said “[T]he requirement that we do this for all our existing customers within a three-year period and update all clients every year may be a challenge for some of our members.”
On February 24, 2016, Congress passed the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), which amended section 641 of the Tariff Act of 1930. Section 116 of TFTEA requires the Secretary to set minimum standards for brokers and the process through which they verify their client’s identity. TFTEA required Customs to develop regulations setting minimum standards for brokers to:
- Identify information an importer or nonresident importer is required to submit, and a broker is required to collect to verify the identity of the importer;
- Identify verification procedures a broker is required to follow in order to verify the authenticity of the information collected from the importer; and
- Require the broker to maintain records collected by the broker to substantiate the importer’s identity.
Should a broker fail to collect the client’s biographical data, or verify, secure, retain, update, or make available for inspection, CBP may assess a monetary penalty against the broker that may not exceed $10,000 per client. Each violation found against the broker may also introduce a penalty not to exceed $10,000. The penalty may also include the revocation or suspension of the broker’s license or permit.
DTL has assisted clients in submitting comments to proposed rules. Contact us today to start drafting your comment and ensure CBP hears your concerns! Call 305-456-3830 or email email@example.com to speak with one of our Customs and International Trade Law attorneys.