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by John Goodrich
I was having fun the other day rereading the Customs regulations. Yeah, you heard me correctly. Fun! Anyway, I was having fun reading the Customs regulations when I ran across the following in Section 111, the regulations relating to Customhouse Brokers.
19CFR §111.29(b)
(b) Notice to client of method of payment—
(1) All brokers must provide their clients with the following written notification:
If you are the importer of record, payment to the broker will not relieve you of liability for customs charges (duties, taxes, or other debts owed CBP) in the event the charges are not paid by the broker. Therefore, if you pay by check, customs charges may be paid with a separate check payable to the ‘‘U.S. Customs and Border Protection’’ which will be delivered to CBP by the broker.
(2) The written notification set forth in paragraph (b)(1) of this section must be provided by brokers as follows:
(i) On, or attached to, any power of attorney provided by the broker to a client for execution on or after September 27, 1982; and
(ii) To each active client no later than February 28, 1983, and at least once at any time within each 12-month period after that date. An active client means a client from whom a broker has obtained a power of attorney and for whom the broker has transacted customs business on at least two occasions within the 12-month period preceding notification.
If you are working in a brokerage firm are you aware if your company is meeting its obligations under this regulation? Importers, do you recall receiving this notification from your broker? More importantly, why would CBP include this requirement in its regulations?
The simple answer is money. CBP wants to be certain that it receives all revenue owed to the government. This regulation is also a reminder that customhouse brokers are not representatives of the government; they are business agents representing the importer.
This regulation reminds me of an event that occurred early in my career. I worked for an importer that used a local, reputable, family-run brokerage firm. Remember, dear readers, this was in the Stone Age, when large national brokerage firms were just beginning to emerge. Like many family firms, management was being passed along to the next generation, in this case to the grandson of the founder. As can happen in a family business, the third generation was not prepared to operate the company and drove the business into bankruptcy. (There is a longer, more colorful story here, the details of which are documented in multiple law suits that subsequently ensued.) In brief, the scoundrel absconded with sizeable duty payments and failed to pay Customs on our behalf.
Imagine our surprise when we received a call from our bonding agent that CBP had drawn against our customs bond for payment. Imagine our dismay as we had to dig deeply into the company coffers to make the duty payments a second time. Imagine my boss’s discomfort when he had to explain to management why his hand-picked broker turned out to be a fraud.
What are the lessons learned from this experience?
Pay CBP directly.
You can issue a separate check as is suggested by the regulation above. Alternatively you could enroll in the automated clearinghouse (ACH) process that permits you to make funds transfers directly to the government. Details for enrolling in variations of ACH are available at the CBP website.
Pay your broker timely.
Your broker must submit duties and fees by the 10th business day following the date of entry. If you are paying late, you are forcing your broker to use its own credit line to cover your debt. Brokers commonly charge a finance fee for this privilege that far exceeds your company’s cost of capital. While your accounting department may think it is a good policy to pay on 30 or 60-day terms they are being short-sighted.
Remember that your broker has no regulatory obligation to pay your duty obligations on your behalf out of their own funds. They are doing so as a commercial courtesy and, perhaps, out of commercial expediency.
Monitor your payments through ACE.
Keep on top of your payments through your ACE portal account. While this is not a fool-proof method of ensuring payment, it should raise awareness of any payment irregularities sooner, rather than later. Won’t my broker be upset if I pay CBP directly?
On the contrary! Your broker should not feel slighted in any way. This is not an issue of trust; rather it’s an issue of good business practice. Reputable brokers will be relieved not to have to be your banker. If you pay CBP directly, they might even be more flexible when it comes to negotiating their service fees. At the very least, they should drop their finance charges.
Consider this. It may be a warning sign to you if your broker resists your participation in a direct payment option. A cash-strapped broker might be using your duty payments as operating capital to run their own business. Worse yet, he could be hopping a plane to Vegas and gambling your payments away.
This is all fine and good, John, but we are no longer in the Stone Age. Brokers are much better funded and secure today.
Oh, so you’ve been monitoring your broker’s balance sheet and routinely reviewing their credit report? Admittedly, your broker is financially sound today. That is not to say, however, that they are immune from the economic and business cycles that other businesses must navigate. A solid brokerage firm might deteriorate.
This is not intended, however, to be a critique of the brokerage industry’s financial solvency. It is, rather, intended to pose the question: Why put your broker between you and your obligations to the government when a simple, more secure method of payment exists? Wouldn’t you rather sleep more soundly knowing that your customs payments were made timely and in full by using a direct payment option? It makes sense for you and for your broker.
| Product Model | Inside Diameter | Outside Diameter | Thickness |
| NJ2315E NACHI | 75 | 160 | 55 |
| NJ2315 NACHI | 75 | 160 | 55 |