This article explores the limits of when a licensed customs broker, who does not hold a permit from a Customs port director, may render an international trade advice (“customs business” advice) as a consultant or an independent contractor. This question relates to many talented trade professionals who got displaced from their small and medium sized businesses due to a general customhouse sector trend toward consolidation under the umbrella of a large corporate logistics enterprise. Many of these professionals continue to maintain their customs broker licenses, but do not maintain a port or a national permit.
A licensed customs broker working for a large corporation may wish to engage in independent consulting work as a way to generate some extra income (hopefully without running afoul with the non-compete provisions of its large corporate employer). Also, there are those folks who have been affected by corporate reductions and look for ways to generate some consulting revenue. Since this article is written with licensed customs brokers in mind, it does not pertain to other issues, such as referrals under 19 C.F.R. §111.36.
To understand the threshold of a “licensed” activity, regulations provide a good starting point. Regulations state that unless you are an employee, doing business for your own account, making a “marine transaction,” doing in-bond transportation, FTZ or non-commercial activity, you “must obtain the license provided for in this part in order to transact customs business as a broker.” 19 C.F.R. §111.2(a). Furthermore, you are also required to obtain a district permit for “each district in which a broker conducts customs business.” 19 C.F.R. §111.2(b). Thus, you must have a license and you must have a permit. That requirement, however, applies only for “customs business.” Accordingly, if you are not engaged in “customs business,” neither the license nor the permit are required.
Statutory definition of “customs business” is provided under 19 U.S.C. §1641(a)(2). Customs, through regulation found in 19 C.F.R. §111.1, refined the definition to include: “activities involving transactions with CBP concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges assessed or collected by CBP on merchandise by reason of its importation, and the refund, rebate, or drawback of those duties, taxes, or other charges. ‘Customs business’ also includes the preparation, and activities relating to the preparation, of documents in any format and the electronic transmission of documents and parts of documents intended to be filed with CBP in furtherance of any other customs business activity, whether or not signed or filed by the preparer. However, ‘customs business’ does not include the mere electronic transmission of data received for transmission to CBP and does not include a corporate compliance activity.”
In HQ 224768 (1993), Customs dealt with the issue of “whether a consultant who is not a licensed customs broker may assist businesses in complying with the entry and record keeping requirements of the Customs Regulations.” Specifically, the non-licensed consultant would: train on manifesting, invoicing and immediate delivery application procedures; prepare and submit to U.S. Customs requests for classification determinations signed by either importer of record or the consultant himself; prepare entry summaries, but have the importer of record or importer’s agent sign them; file and keep records for the importer of record. At the time the ruling, in 1993, “customs business” was defined as “activities involving transactions with the Customs Service concerning the entry and admissibility of merchandise, its classification and valuation, the payment of duties, taxes, or other charges assessed or collected by the Customs Service upon merchandise by reason of its importation, or the refund, rebate, or drawback thereof.” HQ 224768 (1993). Thus, the ruling still excluded the provisions added in 1993 pursuant to the Customs Modernization Act: “[c]ustoms business also includes the preparation, and activities relating to the preparation, of documents in any format and the electronic transmission of documents and parts of documents intended to be filed with CBP in furtherance of any other customs business activity, whether or not signed or filed by the preparer.” Prior to Customs Modernization Act, Customs Service explicitly limited the definition of “customs business” to “those situations where a person is dealing directly with a Customs official at the customhouse on behalf of a client.” See id. citing HQ 221598 (1989) (emphasis added). Customs did not find any direct dealing in the aforementioned activities, and therefore held that unlicensed consultant’s services were outside the meaning of the “customs business.”
In HQ 114404 (1999), with Modernization Act amendments present, Customs ruled on general training activities: “It is Customs position that the giving of general advice on how to classify, value or mark merchandise does not fall under the definition of “customs business.” However, Customs drew a line on classification of “merchandise that is going to be the subject of an entry filed with Customs.” Id. Additionally, on the issue of client representation, Customs stated that “only licensed brokers, or in some cases attorneys, may represent a client before Customs on issues involving customs business without the client being present.” Id. Furthermore, Customs held that “preparation and signing of NAFTA certificates of origin, whether for export or import purposes, are not activities falling within the definition of “customs business.” Id. HQ 114404 (1999) clarified HQ 224768 (1993) interpretation with respect to entry summary preparation as an old law. Now, business of preparation or assisting a client in preparing documents and forms intended to be filed with the Customs in furtherance of any customs business activity is limited only to licensed customs brokers. Id. (“preparation and filing of Customs entry documents thus fall squarely within the intended meaning of customs business”). HQ 114404 (1999) had also settled the issue with exports, holding that “customs business” licensing requirements only pertain to importation of merchandise.
In 1999, Customs extended “customs business” interpretation to include the advice on marking of the merchandise, in addition to classification and appraisement. HQ 114654 (1999).
Although preparation of documents and forms fell within the licensed realm, the exception is carved out for protests with valid power of attorney. 19 CFR 174.3 provides for “an exception to the rule that prohibits the involvement of unlicensed consultants in actual transactions with Customs.” HQ 114199 (1998).
In 2004, Customs affirmed that the messenger service, which includes the “filing of the CF 3461 and other entry documents in order to effectuate the release of merchandise falls squarely within the intended meaning of customs business, and as such, may only be done for others by a licensed broker.” HQ 116189 (2004). The same year, Customs clarified the meaning of the “corporate compliance activity” under 19 C.F.R. §111.1. The “corporate compliance activity” clause focuses on related business entities: “activity performed by a business entity to ensure that documents for a related business entity or entities are prepared and filed with Customs using ‘reasonable care.'” HQ 116220 (2004). Customs permits related business entity (i.e. one with more than 50% ownership interest) to provide classification and valuation information and advice, which the other entity may or may not adopt, but does not allow classification and valuation undertaking on behalf of the related entity. Id.
In light of these developments, a licensed customs broker without a port or a national permit, apparently may engage in training and general educational activities that are related to Customs transactions. Furthermore, that broker is not required to hold a permit for consultations related to export activities. Customs broker does not need a permit for preparation and signing of NAFTA, and apparently other Free Trade Agreements, certificates of origin, because Customs held that such activity is not “customs business.” Additionally, the broker without a permit may prepare entry protests, so long as a valid power of attorney is executed. For many other activities, the customs broker probably needs to obtain a district permit from a port director.
A lay customs broker (i.e. one that is not an attorney) should be vary, however, of engaging in those activities that fall outside of customs business because those activities may be interpreted as an “unauthorized practice of law.” So long as a licensed customs broker is engaged in a “customs business,” even if that customs business constitutes the practice of law, that licensed broker is protected. In other words, even if customs business includes the practice of law, nonlawyer customs broker can engage in customs business. The protection comes from the federal statute 19 U.S.C. §1641 and the United States Supreme Court Decision Sperry v. Florida, 373 U.S. 379 (1963).
Sperry decision dealt with the U.S. Patent Office authorizing nonlawyer patent agents to engage, in words of Florida Supreme Court, the “unauthorized” practice of law. Essentially, the Court held that Congress can constitutionally authorize nonlawyers to practice law before administrative agency, so long as the authorized nonlawyer conduct is regulated. Regulations includes rule promulgation, as well as, registration, testing, and high standards of integrity. It is also argued that Adiminstrative Procedures Act gives federal agencies a discretion in determining whether nonlawyes can perform duties that would otherwise be an unauthorized practice of law. See International Trade Reporter, pp. 7-8 (March 3, 2011) citing 5 U.S.C. §500.
Customs brokers, like patent agents, are required to pass test, register, and adhere to high integrity standards (e.g. exercise responsible supervision, financial control, and refrain from certain conduct). Therefore, nonlawyer licensed customs brokers is authorized to engage in customs business by federal law, notwithstanding the state conflict with “unauthorized practice of law” as defined in many state jurisdictions. That federal protection, however, may not extend to non-“customs business” activities. Federal protections to non-“customs business” trade related consultations may extend through other federal agencies, such as ones adopted by the U.S. Department of Commerce. See International Trade Reporter, fn. 43 (March 3, 2011) (mentioning 19 C.F.R. §201.9(e) that states “[e]ach document filed with the Commission … shall be signed by the party filing the document or by a duly authorized officer, attorney, or agent of such party.”; 19 C.F.R. §351.303(g) (“[a] person must file with each submission containing factual information the certification … and, in addition, if the person has legal counsel or another representative, the [following] certification.”) (emphasis added).
On the export side, Bureau of Industry and Security allows representation by “other representative.” 15 C.F.R. 766. Directorate of Defense Trade Controls also has a provision for brokers. 22 C.F.R. 129(2)(b) (“brokering activities … includes the financing, transportation, freight forwarding, or taking of any other action that facilitates the manufacture, export, or import or a defense article or defense service, irrespective of its origin.” Furthermore, federal protections for nonlawyers engaged in practice of law may come directly from the Bar. District of Columbia Сourt of Appeals Rule 49(c)(2) provides for what is known “federal agency exception,” allowing nonlawyers to “provide legal services before an agency of the United States,” subject to certain conditions.
Thus, a nonlawyer licensed broker, should first look for federal agency protection before engaging in the activities that do not constitute customs business. If none exist, that person should check the meaning of unauthorized practice of law in his or her jurisdiction, which is generally very expansive. In New York, for example, pursuant to N.Y. Jud. Law §484 unauthorized practice of law includes “appearing as an attorney in a court of record in New York, rendering legal services, or holding himself or herself out as being entitled to practice law.” This includes preparation of legal instruments of all kinds, all advice to clients, and all actions taken for clients in matters connected with the law. 77 Fordham L. Rev. 577, 590 (2009) citing El Gemayel v. Seaman, 533 N.E.2d 245, 248 (N.Y. 1988); Spivak v. Sachs, 211 N.E.2d 329 (N.Y. 1965). If a nonlawyer licensed broker finds no federal protection, bar exception, and a broad definition for unauthorized practice of law, that nonlawyer should refrain from his or her consultation practice.