A U.S. Customs and Border Protection (CBP) proposed rule requires brokers to verify Importer IDs. CBP estimates that about 350,000 importers do business with them every year through one of over 2,000 licensed customs brokers in the country. Importers are required to have a power of attorney with the broker before the broker can act on behalf of the client. Brokers not only facilitate cargo clearance for importers, they also play an important role in fraud identification and prevention. Because of their visibility into a client’s business, brokers are in a unique position to verify whether importers are legitimate or not.
Many brokers verify client information as a matter of principle, but others do not because CBP’s guidance is non-binding and not all brokers follow it. Those who do verify are at a disadvantage because verification can be time-consuming and expensive, while those who do not verify make it easier for fraudulent activity to happen.
To address this issue, CBP is publishing a proposed rule that requires customs brokers to collect data from importers in order to verify their identity. This includes non-resident importers or those outside the U.S. The proposal is an amendment to CBP regulations pursuant to section 116 of the Trade Facilitation and Trade Enforcement Act of 2015 (TFTEA), which allows CBP to enforce rules requiring brokers to verify importer identity. CBP is now accepting comments, reactions and arguments on the rule by mail or the Federal eRulemaking Portal at http://www.regulations.gov. Comments can be submitted until October 13, 2019.
Data Requirements in Proposed CBP Rule that Requires Brokers to Verify Importer IDs
Licensed customs brokers are authorized representatives of importers in or outside the U.S. Brokers are responsible for filing shipment and importer information to CBP, as well as accounting documentation. They can also pay duties and fees, track shipments, maintain records of transactions and help clients comply with trade regulations.
Before a broker can do business on behalf of a client, the broker needs a power of attorney (POA), a written authorization allowing the broker to be the client’s agent. A POA may be limited (issued for a part of the client’s business) or general (covering all transactions). CBP Form 5291 may be used to establish a POA, while a general POA with unlimited authority may be executed in any format.
At the moment, customs brokers provide limited information to Customs to obtain a power of attorney and act on behalf of importers. A valid POA requires the importer to provide the following information:
- Importer statement authorizing the broker to act as their agent and file entries/entry summaries
- Name of the individual or authorized representative of the sole proprietorship, partnership, or corporation executing the POA
- Name and address of the individual or business on whose behalf the POA is being executed
Due to the limited requirements, some importers have outright refused the request for information and switched to other brokers that don’t ask for this data. This scenario can increase the use of shell or shelf companies among brokers. Shell companies are legal on paper but do not engage in business for a period of time before they are sold, thus serving to mask buyer identity and transactions.
CBP stated that preventing the use of shell companies by importers would reduce the risk of misclassified merchandise that avoids duties. It would also reduce unsafe or high risk imports, minimize antidumping/countervailing duty problems and protect against intellectual property violations.
The proposed rule would require customs brokers to collect the following data from the client, if applicable:
- Importer name and date of birth for individuals
- Trade name and grantor’s (individual executing the POA) date of birth for partnerships and corporations
- Physical Address
- Phone number
- Email address
- Business website
- Client’s IRS number, employer identification number or importer of record number
- Business identification number, such as a data universal numbering system number
- Recent credit report
- Business registration and license with state authorities
- Grantor’s valid government-issued photo ID
- Grantor’s authorization to execute power of attorney on client’s behalf
- The information is required at the time a broker obtains a POA on behalf of the importer.
Some information can be difficult to get depending on the type of importer, so CBP has stated that only those applicable to the individual, partnership or corporation are required. For example, the broker is not required to collect a recent credit report if this is not provided by the foreign jurisdiction.
Verifying Importer Information
CBP requires submitted importer data to be complete and accurate. Customs brokers can verify the authenticity of the information in multiple ways: in-person verification, review of the grantor/broker’s authorization to execute the POA, and research using available public, federal agency and state government sources.
For instance, the broker can verify an importer’s name, address, phone number, website, email, and trade names through the Automated Broker Interface (ABI) in the Automated Commercial Environment (ACE). Government photo IDs can be checked using the licensing databases, business information databases, and credit report agencies.
Physical addresses can be cross-checked against public websites (incomplete addresses or a post office box can be warning signs), while email and phone numbers can be verified with phone calls and return emails. IRS, EIN or IOR numbers can be verified through government databases or the client's tax forms. Finally, the broker can visit the importer’s place of business in person and check for red flags.
Brokers must use as many verification methods as needed to be certain that the importer is who they say they are. They must also check if the client is authorized to do business in the U.S. or if they are prohibited from doing so.
CBP Requirements for Brokers and Importers
Brokers have two years from the mandatory date to verify information of clients with a POA issued by a partnership. For other clients, brokers have three years from the final rule date to verify identities and update IDs and verification records. Brokers must re-verify the importer’s identity every year after initial verification. Reverification will improve the broker’s knowledge of their clients, according to CBP.
In terms of record keeping, brokers would be required to retain all ID and verification documents and methods, results of discrepancy resolution and other similar actions, the name of the verifier and date of verification for a certain period of time, usually the same rule as for POA. Brokers should be ready to present documents to CBP at any time for examination.
Importers should expect their brokers to ask for more information when the proposed rule becomes final and mandatory. Importers should prepare supporting documents in advance and be open to verification checks and annual re-verification by the broker.
CBP Rule Requires Brokers to Verify Importer IDs: Optimizing Compliance
Failure to comply with the proposed rule can mean monetary penalties up to $10,000 per client or suspension of the customs broker’s license. This can take a toll especially on small importers and brokers who represent only a few clients. To ensure compliance and avoid penalties, it’s important to prepare well before the final rule enforcement date. Brokers and importers should keep communication lines open to facilitate data sharing, and technology should be used to integrate systems and streamline processing. Global eTrade Services (GeTS) can help brokers and importers optimize compliance to the proposed CBP rule with cloud-based trade facilitation software. To learn more, visit our CBP filing solutions page or contact us today.
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