Permissible Sharing of Client Records by Customs Brokers, 66050-66054 [2010-27106]

Agencies

• DEPARTMENT OF HOMELAND SECURITY
• U.S. Customs and Border Protection

[Federal Register Volume 75, Number 207 (Wednesday, October 27, 2010)]
[Proposed Rules]
[Pages 66050-66054]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-27106]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection

19 CFR Part 111

[Docket No. USCBP-2010-0038]
RIN 1651-AA80


Permissible Sharing of Client Records by Customs Brokers

AGENCIES:  Customs and Border Protection, Department of Homeland 
Security.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document proposes to amend Customs and Border Protection 
(CBP) regulations in title 19 of the Code of Federal Regulations (CFR) 
pertaining to the obligations of customs brokers to keep clients' 
information confidential. The proposed amendment would allow brokers, 
upon the client's consent in a written authorization, to share client 
information with affiliated entities related to the broker so that 
these entities may offer non-customs business services to the broker's 
clients. The proposed amendment would also allow customs brokers to use 
a third-party to perform photocopying, scanning, and delivery of client 
records for the broker. These proposed changes are intended to update 
the regulation to reflect modern business practices, while protecting 
the confidentiality of client (importer) information. In addition, the 
proposed changes would align the regulations with CBP's previously 
published rulings concerning brokers' confidentiality of client 
information.

DATES: Comments must be received on or before December 27, 2010.

ADDRESSES: You may submit comments, identified by docket number, by one 
of the following methods:
     Federal eRulemaking Portal: https://www.regulations.gov. 
Follow the instructions for submitting comments via docket number 
USCBP-2010-0038.
     Mail: Trade and Commercial Regulations Branch, U.S. 
Customs and Border Protection, 799 9th Street, NW. (Mint Annex), 
Washington, DC 20229-1179.
    Instructions: All submissions received must include the agency name 
and docket number for this rulemaking. All

[[Page 66051]]

comments received will be posted without change to https://www.regulations.gov, including any personal information provided. For 
detailed instructions on submitting comments and additional information 
on the rulemaking process, see the ``Public Participation'' heading of 
the SUPPLEMENTARY INFORMATION section of this document.
    Docket: For access to the docket to read background documents or 
comments received, go to https://www.regulations.gov. Submitted comments 
may also be inspected on regular business days between the hours of 9 
a.m. and 4:30 p.m. at the Trade and Commercial Regulations Branch, 
Regulations and Rulings, Office of International Trade, U.S. Customs 
and Border Protection, 799 9th Street, NW. (5th Floor), Washington, DC. 
Arrangements to inspect submitted comments should be made in advance by 
calling Mr. Joseph Clark at (202) 325-0118.

FOR FURTHER INFORMATION CONTACT: For legal aspects, Carrie Owens, 
Chief, Entry Process & Duty Refunds Branch, Regulations and Rulings, 
Office of International Trade, (202) 325-0266. For operational aspects, 
Anita Harris, Chief, Broker Compliance Branch, Trade Policy and 
Programs, Office of International Trade, (202) 863-6069.

SUPPLEMENTARY INFORMATION: 

Public Participation

    Interested persons are invited to participate in this rulemaking by 
submitting written data, views, or arguments on any aspect of the 
proposed rule. Customs and Border Protection (CBP) also invites 
comments that relate to the economic, environmental, or federalism 
effects that might result from this proposal. If appropriate to a 
specific comment, the commenter should reference the specific portion 
of the proposed rule, explain the reason for any recommended change, 
and include data, information, or authority that support such 
recommended change.

Background

    The statutory provision governing customs brokers is found in 
section 641, Tariff Act of 1930, as amended (19 U.S.C. 1641). 
Specifically, section 641(f) authorizes CBP to promulgate ``rules and 
regulations relating to the customs business of customs brokers as the 
Secretary * * * considers necessary to protect importers and the 
revenue of the United States * * * including rules and regulations 
governing * * * the keeping of * * * records by customs brokers * * * 
'' See 19 U.S.C. 1641(f). The implementing regulations issued under the 
authority of Sec.  641 are set forth in part 111 of title 19 of the 
Code of Federal Regulations (19 CFR part 111).
    In order to meet its obligations to protect the revenue and enforce 
the customs laws, it is essential that CBP receive full and complete 
information from importers with respect to their customs transactions. 
These transactions contain confidential business information, the 
unauthorized disclosure of which could cause competitive harm to the 
importer or other companies. Brokers occupy a unique role as conduits 
with respect to import transactions. As entities that are licensed and 
regulated by the U.S. government, brokers act as intermediaries between 
importers and CBP to assure that complete and accurate information is 
provided. Thus, a special relationship exists between the broker, its 
client (the importer), and CBP. The duties and responsibilities of 
customs brokers in transacting customs business on behalf of their 
clients, and, in particular, the confidential treatment that brokers 
must accord their records of such transactions, are governed by the 
regulations in 19 CFR part 111 issued under the authority of 19 U.S.C. 
1641(f).
    It is well settled that customs brokers have a fiduciary duty to 
protect client information. As such, brokers are subject to certain 
recordkeeping requirements set forth in part 111 of 19 CFR. In that 
regard, part 111 requires, among other things, that a broker maintain 
records of transactions (19 CFR 111.21), retain records (19 CFR 
111.23), and make records available for official CBP inspection (19 CFR 
111.25). Additionally, in carrying out its duties and responsibilities, 
a broker is required to exercise responsible supervision and control 
over the transaction of customs business (19 CFR 111.28(a)) (see also 
19 U.S.C. 1641(b)(4)), and exercise due diligence in handling customs 
business matters (19 CFR 111.29(a)). Further, a broker is precluded 
from entering into an agreement with an unlicensed person to transact 
customs business if the fees generated from the transaction would inure 
to the benefit of the unlicensed person (19 CFR 111.36(b)).
    Another significant requirement set forth in part 111 is that 
brokers maintain the confidentiality of client records. See 19 CFR 
111.24. Section 111.24 of CBP regulations (19 CFR 111.24) covers a 
broad range of records as defined in Sec.  163.1(a) (19 CFR 163.1(a)), 
and protects client records and the information contained in those 
records. Specifically, Sec.  111.24 currently provides that with the 
exception of certain accredited officers or agents of the United States 
and the surety involved in a particular transaction, brokers may not 
disclose client information to third persons except when ordered to by 
a court. The purpose of the regulation is to prevent a broker from 
disclosing information it receives from a client to a third-party 
without the consent of the broker's client. It is noted that when a 
broker is issued its license by CBP, it agrees to abide by the rules 
governing brokers, including rules pertaining to the confidentiality of 
client records. To overcome this confidentiality requirement, a broker 
need merely request, and receive, a written release from the client 
authorizing disclosure of that client's information. Absent such a 
release, a broker who engages in information sharing is subject to 
disciplinary action for violating the confidentiality requirements of 
19 CFR 111.24.
    The issue of whether brokers may share client information with 
third-party business entities has previously been considered by CBP in 
the form of published rulings. CBP's longstanding position on this 
matter is that absent written client consent, a broker may not share 
client information. Specifically, in Headquarters ruling letters (HQ) 
116025 (September 29, 2003) and HQ 116190 (June 14, 2004), CBP was 
asked whether a broker within a family of companies (such as related 
affiliates, subsidiaries, and parent companies) may share certain 
client background or aggregate revenue information with related 
affiliates who were not licensed brokers, but who were separately-
incorporated and owned by the same parent company. CBP has consistently 
held that separately-incorporated companies constitute separate legal 
entities under the law, notwithstanding common ownership (see HQ 223804 
(June 29, 1992); HQ 114166 (February 2, 1998); HQ 115248 (August 28, 
2001)). Therefore, CBP found that absent a written release from the 
client authorizing disclosure of client information, section 111.24 
precludes a broker from sharing client information with separately-
incorporated affiliates of the same parent company. In CBP's view, 
client background and aggregate revenue information is collected and 
compiled from, and connected with, records pertaining to the business 
of clients serviced by the broker. As such, that information falls 
within the protection of Sec.  111.24. CBP's position is that brokers 
can secure waivers of confidentiality from their clients in order not 
to violate the confidentiality requirements of section 111.24.

[[Page 66052]]

    Similarly, in HQ 114404 (March 16, 1999), CBP held that a licensed 
broker must ensure that it will not disclose its clients' records to a 
parent company, unless disclosure is authorized by the client.
    In HQ 114758 (November 7, 2000), the question presented was whether 
a licensed broker may transfer its ancillary financial functions to a 
related or affiliated company that is not a licensed broker. In that 
instance, CBP reiterated its position that disclosure to an 
unauthorized party of any information emanating from a transaction with 
a client of the broker would constitute a violation, and would subject 
the violating broker to possible penalty or other disciplinary action. 
CBP found that outsourcing ancillary financial and administrative 
services would run afoul of the broker confidentiality provisions, 
since the records sought to be outsourced would contain financial data 
or information derived from clients' files pertaining to customs 
business.
    In that ruling, however, CBP acknowledged that there may be 
situations in which a broker may legitimately transfer some of its 
business operations to another company. For instance, in HQ 114411 
(November 22, 1999), CBP had allowed a broker to outsource its human 
resources department to an employee leasing company on the condition 
that the leasing company would have no access to, or involvement in, 
the actual customs business work of the broker, and that the records of 
the clients of the broker would be kept confidential from the leasing 
company. Relying on HQ 114411, CBP held in HQ 114758 that a broker may 
outsource ancillary financial and administrative functions provided 
that the same safeguards are in place. Specifically, the broker would 
be allowed to outsource financial or administrative functions, provided 
the new service provider had no access to, or involvement in, the 
actual customs business work of the broker client. This meant that the 
new service provider could not perform any functions that would be 
dependent on information or data derived from client files. The broker 
could only outsource the aforementioned functions provided that the 
records of the broker's clients, and the information contained in those 
records would not be disclosed to the new service provider.
    Finally, in determining whether a broker is meeting the 
requirements to keep clients' records confidential, CBP considers how 
the broker is exercising responsible supervision and control over the 
customs business it conducts pursuant to 19 U.S.C. 1641(b)(4). See HQ 
225006 (February 15, 1994).
    CBP continues to believe that protection of the client's business 
information remains a paramount concern. At the same time, however, CBP 
recognizes that the development of more modern and efficient business 
practices, brought about by the changing structure and environment of 
the business community, has rendered the blanket prohibition of the 
current regulation somewhat antiquated. In particular, CBP understands 
that in an effort to streamline business practices, a broker may need 
to use a third-party service provider to perform the tasks of 
photocopying, scanning, and delivering client documents to support the 
business functions of the brokerage services. CBP further acknowledges 
that a broker may have a legitimate financial interest in providing its 
clients additional non-customs business services which are offered by 
affiliated entities related to the broker.
    To that end, CBP believes policy reasons favor amending Sec.  
111.24 to update the regulation to reflect modern business practices, 
while protecting the confidentiality of client (importer) information. 
Therefore, consistent with the holdings in CBP's previously published 
rulings, this document proposes to amend the CBP regulations to align 
them with its rulings.

Explanation of Proposed Amendments

Permissible Sharing With Client Consent/Written Authorization

    With respect to a broker's interest in providing additional non-
customs business services to its clients, CBP proposes to permit a 
broker to share client information with affiliated entities related to 
the broker so that the related affiliate may offer non-customs business 
services to the broker's client only on the condition that the client 
provides its express consent in a written authorization. The written 
authorization must specify the information the client authorizes the 
broker to share outside of the brokerage with affiliated entities 
related to the broker or with a party bound by contract to the broker. 
Requiring such consent would balance CBP's interest in the broker's 
maintaining confidentiality of importers' records with the business 
interest of the broker to offer additional non-customs business 
services to its clients.

Other Third-Party Services

    Photocopying and Scanning. CBP proposes to amend 19 CFR 111.24 to 
permit a broker to use a third-party service provider for the limited 
routine non-customs functions of photocopying and scanning for the 
broker without violating Sec.  111.24, because these two functions are 
ancillary to the conduct of ``customs business.'' It is noted, however, 
that even in providing the administrative tasks of photocopying and 
scanning, business information pertaining to the broker's client would 
be revealed in the process. Therefore, in order to achieve a balance 
between the broker's need for a streamlined business process, and the 
requirement to maintain the confidentiality of client information, 
safeguards must be in place to ensure that the requirements arising 
from 19 U.S.C. 1641 and 19 CFR 111.24 are not compromised.
    In that regard, the proposed amendment requires that the broker, 
consistent with its obligations under Sec.  111.29(a), exercise due 
diligence in the selection of the third-party service provider. The 
broker must ensure that the requirements in Sec.  111.36(b) pertaining 
to a broker's relations with unlicensed persons are complied with. 
Moreover, in accordance with Sec.  111.28(a), a broker is required to 
exercise responsible supervision and control over its brokerage 
business. Thus, the broker must ensure that the party to whom records 
will be provided for photocopying or scanning will safeguard the 
information it obtains in the course of providing the subject services. 
Accordingly, the proposed amendment requires that the broker enter into 
a non-disclosure agreement with the third-party service provider that 
requires the third-party to keep the contents and information contained 
in any records pertaining to the broker's client confidential.
    The written consent and the non-disclosure agreement as 
contemplated in the proposed amendment will be subject to the 
recordkeeping requirements prescribed for brokers as set forth in 
Sec. Sec.  111.21(a), 111.23, and 111.25.
    The proposed amendment in this document is designed to codify CBP's 
previously published rulings and to update the regulation so that it is 
streamlined with modern and efficient business practices, while 
protecting the confidentiality of client (importer) information.
    Messenger Delivery Services. Because messenger/delivery services 
are also ancillary to the conduct of ``customs business,'' CBP proposes 
to further amend 19 CFR 111.24 to provide that a broker may use a 
third-party messenger service for transporting and/or delivering client 
documents on the broker's behalf, if the broker safeguards

[[Page 66053]]

the clients' records by sealing the documents so that the messenger 
cannot view, alter, or amend them.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires 
Federal agencies to examine the impact a rule would have on small 
entities. A small entity may be a small business (defined as any 
independently owned and operated business not dominant in its field 
that qualifies as a small business per the Small Business Act); a small 
not-for-profit organization; or a small governmental jurisdiction 
(locality with fewer than 50,000 people).
    This rule proposes to allow a broker, upon the client's consent in 
a written authorization, to share client (importer) information with 
affiliated entities related to the broker in order to offer non-customs 
business services to its clients. If brokers choose to share client 
(importer) information with an affiliated entity related to the broker, 
the changes to the regulation would potentially benefit the broker's 
client (importer) through the availability and access to additional 
non-customs business services. This rule also proposes to allow a 
broker to outsource its photocopying and scanning tasks to a third-
party service provider, and to use a third-party messenger service 
provider for transport and delivery of client records. To the extent 
that brokers would use third-parties for copying, scanning and 
messenger services, the changes to the regulation would confer a 
benefit to the broker by allowing it to streamline its business.
    The entities affected by this proposed amendment are brokers, 
importers, and third-party service providers and would likely consist 
of a broad range of large, medium, and small businesses; thus, the 
number of entities subject to this proposed rule would be considered 
``substantial.'' The effects of this amendment, however, would not rise 
to the level of being considered a ``significant'' economic impact.
    Accordingly, CBP believes that the proposed amendment, if adopted, 
would not have a significant economic impact on a substantial number of 
small entities within the meaning of the Regulatory Flexibility Act. 
However, we welcome comments on that assumption. The most helpful 
comments are those that can give us specific information or examples of 
a direct impact on small entities. If we do not receive comments that 
demonstrate that the rule causes small entities to incur significant 
direct costs, CBP may, during the process of drafting the final rule, 
certify that this action does not have a significant economic impact on 
a substantial number of small entities.

Executive Order 12866

    The proposed amendment in this document does not meet the criteria 
for a ``significant regulatory action'' as specified in Executive Order 
12866 because it will not result in expenditures totaling $100 million 
or more in any one year. The Office of Management and Budget (OMB) has 
not reviewed this regulation under that order. To the extent that 
licensed customs brokers are able to use lower cost third-party service 
providers to perform limited administrative tasks, this rule, if 
finalized, should confer benefits to brokers. Please see the Regulatory 
Flexibility Act section of this preamble for additional information 
regarding the potential economic impact of this proposed rule.

The Paperwork Reduction Act

    The information collected under the provisions of this proposed 
rule has been submitted for approval by the Office of Management and 
Budget (OMB) under OMB control number 1651-0034. Under the Paperwork 
Reduction Act, an agency may not conduct or sponsor, and a person is 
not required to respond to, a collection of information unless it 
displays a valid control number assigned by OMB. The burden estimates 
for recordkeeping for the non-disclosure agreement as well as the 
client consent/written authorization are presented below:

Non-Disclosure Agreement

    Estimated Number of Recordkeepers: 11,986.
    Estimated Number of Responses per Recordkeeper: 1.
    Estimated Number of Total Annual Responses: 11,986.
    Estimated Time per Response: 1 hour.
    Estimated Total Annual Burden Hours: 11,986.

Client Consent/Written Authorization

    Estimated Number of Recordkeepers: 711,000.
    Estimated Number of Responses per Recordkeeper: 1.
    Estimated Number of Total Annual Responses: 711,000.
    Estimated Time per Response: 1 hour.
    Estimated Total Annual Burden Hours: 711,000.
    Comments concerning the accuracy of this burden estimate and 
suggestions for reducing this burden should be directed to the Office 
of Management and Budget, Attention: Desk Officer for the Department of 
Homeland Security, Office of Information and Regulatory Affairs, 
Washington, DC 20503. A copy should also be sent to the Trade and 
Commercial Regulations Branch, Regulations and Rulings, Office of 
International Trade, U.S. Customs and Border Protection, 799 9th 
Street, NW. (5th Floor), Washington, DC 20229-1179.
    Comments are invited on:
    (a) Whether the recordkeeping is necessary for the proper 
performance of the functions of the agency, including whether the 
information will have practical utility;
    (b) The accuracy of the agency's estimate of the burden of the 
recordkeeping;
    (c) Ways to enhance the quality, utility, and clarity of the 
recordkeeping;
    (d) Ways to minimize the burden of the recordkeeping on 
respondents, including through the use of automated recordkeeping 
techniques or other forms of information technology; and
    (e) Estimates of capital or startup costs and costs of operations, 
maintenance, and purchases of services to provide recordkeeping.

Unfunded Mandates Reform Act of 1995

    This notice of proposed rulemaking will not impose an unfunded 
mandate under the Unfunded Mandates Reform Act of 1995. It will not 
result in costs of $100 million or more, in the aggregate, to any of 
the following: State, local, or Native American Tribal governments, or 
the private sector.

Executive Order 13132

    In accordance with the principles and criteria contained in 
Executive Order 13132 (Federalism), this notice of proposed rulemaking 
will have no substantial effect on the States, the current Federal-
State relationship, or on the current distribution of power and 
responsibilities among local officials.

Signing Authority

    This document is being issued in accordance with 19 CFR 0.2(a), 
which provides that the authority of the Secretary of the Treasury with 
respect to CBP regulations that are not related to customs revenue 
functions was transferred to the Secretary of Homeland Security 
pursuant to section 403(1) of the Homeland Security Act of 2002 and 
that such regulations are signed by the Secretary of Homeland Security 
(or her delegate).

List of Subjects in 19 CFR Part 111

    Customs brokers, Duties and responsibilities, Records confidential.

[[Page 66054]]

Proposed Amendments to the CBP Regulations

    For the reasons stated above, it is proposed to amend part 111 of 
title 19 of the CFR (19 CFR part 111) as set forth below.

PART 111--CUSTOMS BROKERS

    1. The general authority citation for part 111 continues to read as 
follows:

    Authority:  19 U.S.C. 66, 1202 (General Note 3(i), Harmonized 
Tariff Schedule of the United States (HTSUS)), 1624, 1641.
* * * * *
    2. Section 111.24 is revised to read as follows:


Sec.  111.24  Records confidential.

    (a) Client Records. The records referred to in this part and 
pertaining to the business of the clients serviced by the broker are 
considered confidential. Except as provided in paragraphs (b) and (c) 
of this section, the broker must not disclose the contents or any 
information connected with client records to any persons other than 
those clients, their surety on a particular entry, and the Field 
Director, Office of International Trade, Regulatory Audit, the CBP port 
director, the Immigration and Customs Enforcement agent, or other duly 
accredited officers or agents of the United States, except on subpoena 
by a court of competent jurisdiction.
    (b) Disclosure to Affiliated Entity Related to Broker. Upon the 
client's consent in a written authorization to share client information 
outside the brokerage, a broker may disclose only to an affiliated 
entity related to the broker, information specified in the written 
authorization pertaining to the customs business of that client so that 
the affiliated entity may offer non-customs business services to the 
broker's client.
    (c) Other Third-Party Service Providers--(1) Photocopying and 
Scanning Services. A broker may provide its clients' records to a 
third-party service provider for photocopying and/or scanning without 
violating the prohibitions set forth in the provisions of this part 
pertaining to confidentiality, provided that:
    (i) The broker exercises due diligence in accordance with Sec.  
111.29(a) of this part in the selection of the third-party service 
provider for photocopying and/or scanning by ensuring that its 
association with the third-party does not violate the provisions in 
Sec.  111.36(b) of this part; and
    (ii) The broker enters into a non-disclosure agreement with the 
third-party service provider for photocopying and/or scanning that 
requires the third-party to keep the information contained in any 
records pertaining to the broker's client confidential.
    (2) Messenger Services. A broker may provide its clients' records 
to a third-party messenger service provider for transport and delivery 
without violating the prohibitions set forth in the provisions of this 
part pertaining to confidentiality, provided that the clients' records 
are sealed in such a manner so that the third-party messenger service 
provider may not view, alter, or amend the documents to be delivered.

    Dated: October 21, 2010.
David V. Aguilar,
Acting Commissioner, U.S. Customs and Border Protection.
[FR Doc. 2010-27106 Filed 10-26-10; 8:45 am]
BILLING CODE 9111-14-P