Modernization of the Customs Broker Regulations, 63267-63321 [2022-22445]

Agencies

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

[Federal Register Volume 87, Number 200 (Tuesday, October 18, 2022)]
[Rules and Regulations]
[Pages 63267-63321]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-22445]


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DEPARTMENT OF HOMELAND SECURITY

U.S. Customs and Border Protection

DEPARTMENT OF THE TREASURY

19 CFR Parts 24 and 111

[USCBP-2020-0009;CBP Dec. 22-21]
RIN 1651-AB16


Modernization of the Customs Broker Regulations

AGENCY: U.S. Customs and Border Protection, Department of Homeland 
Security, Department of the Treasury.

ACTION: Final rule.

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SUMMARY: This document adopts as final, with changes, proposed 
amendments to the U.S. Customs and Border Protection (CBP) regulations 
modernizing the customs broker regulations. CBP is transitioning all 
customs brokers to a single national permit and expanding the scope of 
the national permit authority to allow national permit holders to 
conduct any type of customs business throughout the customs territory 
of the United States. To accomplish this, CBP is eliminating broker 
districts and district permits, which in turn removes the need for the 
maintenance of district offices, and district permit waivers. CBP is 
also updating, among other changes, the responsible supervision and 
control oversight framework, ensuring that customs business is 
conducted within the United States, and requiring that a customs broker 
have direct communication with an importer. These changes are designed 
to enable customs brokers to meet the challenges of the modern 
operating environment while maintaining a high level of service in 
customs business. Further, CBP is increasing fees for the broker 
license application to recover some of the costs associated with the 
review of customs

[[Page 63268]]

broker license applications and the necessary vetting of individuals 
and business entities (i.e., partnerships, associations, and 
corporations). Additionally, CBP is announcing the deployment of a new 
online system, the eCBP Portal, for processing broker submissions and 
electronic payments. Lastly, CBP is publishing a concurrent final rule 
document to eliminate all references to customs broker district permit 
user fees (see ``Elimination of Customs Broker District Permit Fee'' 
RIN 1515-AE43) to align with the changes made in this final rule 
document.

DATES: This final rule is effective December 19, 2022.

FOR FURTHER INFORMATION CONTACT: Melba Hubbard, Chief, Broker 
Management Branch, (202) 325-6986, [email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Background
II. Discussion of Comments
    Subpart A. General Provisions
    Subpart B. Procedure to Obtain License or Permit
    Subpart C. Duties and Responsibilities of Customs Brokers
    Subpart D. Cancellation, Suspension, or Revocation of License or 
Permit, and Monetary Penalty in Lieu of Suspension or Revocation
    Subpart E. Monetary Penalty and Payment of Fees
III. Other Changes
IV. The Benefits of CBP's New Payment and Submission System, the 
eCBP Portal, for Licensed Customs Brokers
V. Conclusion
VI. Statutory and Regulatory Requirements
    A. Executive Orders 13563 and 12866
    B. Regulatory Flexibility Act
    C. Paperwork Reduction Act
VII. Signing Authority
List of Subjects
Regulatory Amendments

I. Background

The Role of Licensed Customs Brokers in Conducting Customs Business

    Section 641 of the Tariff Act of 1930, as amended (19 U.S.C. 1641), 
provides that individuals and business entities must hold a valid 
customs broker's license and permit to transact customs business on 
behalf of others. The statute also sets forth standards for the 
issuance of broker licenses and permits; provides for disciplinary 
action against brokers in the form of suspension or revocation of such 
licenses and permits, or assessment of monetary penalties; and, 
provides for the assessment of monetary penalties against other persons 
for conducting customs business without the required broker's license. 
Section 641 authorizes the Secretary of the Treasury to prescribe rules 
and regulations relating to the customs business of brokers as may be 
necessary to protect importers and the revenue of the United States and 
to carry out the provisions of section 641.\1\
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    \1\ The Homeland Security Act of 2002 generally transferred the 
functions of the U.S. Customs Service from the Department of the 
Treasury to the Secretary of the Department of Homeland Security 
(DHS). See Public Law 107-296, 116 Stat. 2142. The Act provides that 
the Secretary of the Treasury retains the customs revenue functions 
unless delegated to the Secretary of DHS. The regulation of customs 
brokers is encompassed within the customs revenue functions set 
forth in section 412 of the Homeland Security Act. On May 15, 2003, 
the Secretary of the Treasury delegated authority related to the 
customs revenue functions to the Secretary of DHS subject to certain 
exceptions. See Treasury Order No. 100-16 (Appendix to 19 CFR part 
0). Because the authority to prescribe the rules and regulations 
related to customs brokers is not listed as one of the exceptions, 
this authority now resides with the Secretary of DHS. However, the 
regulation of user fees is encompassed within the customs revenue 
functions set forth in section 412 of the Act. See Appendix to 19 
CFR part 0.
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    The regulations issued under the authority of section 641 are set 
forth in part 111 of title 19 of the Code of Federal Regulations (19 
CFR part 111) and provide for, among other things, the rules for 
license and permit requirements; recordkeeping and other duties and 
responsibilities of brokers; the grounds and procedures for the 
cancellation, suspension or revocation of broker licenses and permits, 
and monetary penalties in lieu of suspension or revocation; and, rules 
pertaining to the imposition of a monetary penalty, and fee payment 
requirements applicable to brokers under section 641 and 19 U.S.C. 
58c(a)(7).
    Customs brokers are private individuals and/or business entities 
(partnerships, associations, or corporations) that are licensed and 
regulated by U.S. Customs and Border Protection (CBP) to assist 
importers in conducting customs business. Customs brokers have an 
enormous responsibility to their clients and to CBP, which requires 
them to properly prepare importation documents, file these documents 
timely and accurately, classify and value goods properly, pay duties, 
taxes, and fees, safeguard their clients' information, and protect 
their licenses from misuse.
    The existing customs broker regulations are based on the district 
system. A district is the geographic area covered by a customs broker 
permit other than a national permit. Customs brokers are currently 
required to maintain a physical presence within a district so that the 
broker is physically close to the ports of entry within the district in 
order to file any paperwork associated with an entry, entry summary, or 
post-summary activity. Entry, entry summary, and certain post-summary 
activities are customs business activities for which a district permit 
is required. See 19 CFR 111.1; 111.2(b)(1). As a rule, all merchandise 
imported into the United States is required to be entered, unless 
specifically excepted. The act of entering merchandise consists of the 
filing of paper or electronic data with CBP containing sufficient 
information to enable CBP to determine whether imported merchandise may 
be released from CBP custody. See 19 CFR 141.0a(a). Additionally, entry 
summary refers to documentation that enables CBP to assess duties, 
collect statistics on imported merchandise, and determine whether other 
requirements of law or regulation are met. See 19 CFR 141.0a(b). 
Pursuant to the existing regulations, customs business includes certain 
post-summary activities such as the refund, rebate, or drawback of 
duties, taxes, or other charges.

The Impact of the Centers of Excellence and Expertise and the Automated 
Commercial Environment on Licensed Customs Brokers

    Two major developments, the establishment of the Centers of 
Excellence and Expertise (Centers) and the creation of the Automated 
Commercial Environment (ACE), have fundamentally changed the 
traditional ways that customs brokers and CBP interact. After a four-
year transition of operational trade functions from ports of entry and 
port directors to Centers and Center directors, CBP published an 
interim final rule in the Federal Register (81 FR 92978), which 
codified the role of the Centers as strategic locations around the 
country to focus CBP's trade expertise on industry-specific issues and 
provide tailored support for importers. This permanent shift to Centers 
was made in order to facilitate trade, reduce transaction costs, 
increase compliance with applicable import laws, and achieve uniformity 
of treatment at the ports of entry for the identified industries. The 
interim final rule transferred to the Centers and Center directors a 
variety of post-release trade functions that were handled by port 
directors, including decisions and processing related to entry 
summaries; decisions and processing related to all types of protests; 
suspension and extension of liquidations; decisions and processing 
concerning free trade agreements and duty preference programs; 
decisions concerning warehouse withdrawals wherein the goods are 
entered into the commerce of

[[Page 63269]]

the United States; all functions and decisions concerning country of 
origin marking issues; functions concerning informal entries; and, 
classification and appraisement of merchandise. With the transfer of 
trade functions to the Centers, a significant portion of these 
activities, including entry summary and post-summary, are now handled 
directly by the Centers. The Center structure is based on subject 
matter expertise, as opposed to geographic location, placing the 
Centers outside of the district system. Consequently, the existing 
broker regulations based on the district system do not fully reflect 
how trade functions are currently being processed by CBP.
    The other relevant major development was the creation of ACE. In an 
effort to modernize the business processes essential to securing U.S. 
borders, facilitating the flow of legitimate shipments, and targeting 
illicit goods pursuant to the Customs Modernization Act (Mod Act) 
(passed as part of the North American Free Trade Agreement 
Implementation Act (NAFTA), Pub. L. 103-182 Sec.  623 (1993)), and the 
Security and Accountability for Every (SAFE) Port Act of 2006 (Pub. L. 
109-347, 120 Stat. 1884), CBP developed ACE to ultimately replace the 
Automated Commercial System (ACS) as the CBP-authorized electronic data 
interchange (EDI) system.\2\
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    \2\ Pursuant to 19 CFR 143.32(b), an authorized EDI is defined 
as any established mechanism approved by the Commissioner of CBP 
through which information can be transferred electronically. In 
addition to ACE, which is the system through which the trade 
community reports imports and exports, and the government determines 
admissibility, the ACE Secure Data Portal (ACE Portal), the 
electronic Customs and Border Protection (eCBP) portal and the 
Automated Broker Interface (ABI) are examples of such authorized 
EDIs. The ACE Portal is a web-based entry point for ACE to connect 
CBP, trade representatives and government agencies who are involved 
in importing goods into the United States. The eCBP portal, 
developed as part of CBP's Revenue Modernization (Rev Mod) program, 
is currently the access point for a new system for electronic 
payments of licensed customs broker fees. When fully implemented, 
the eCBP portal will allow for easy collection of many types of 
duties, taxes, and fees. Lastly, ABI is a functionality that allows 
entry filers to transmit immediate delivery, entry and entry summary 
data electronically to, and receive electronic messaging from, CBP 
and receive transmissions from ACE or any other CBP-authorized EDI 
system. See 19 CFR 143.32(a). It is a voluntary program available to 
brokers, importers, carriers, port authorities and independent 
service centers. For additional information regarding the 
transmission of entry summary and cargo release data via an EDI, see 
the CBP and Trade Automated Interface Requirements (CATAIR), 
specifically the chapter entitled Entry Summary Create/Update, which 
is available online at https://www.cbp.gov/document/technical-documentation/entry-summary-createupdate-catair and the chapter 
entitled Cargo Release, which is available online at https://www.cbp.gov/document/guidance/ace-catair-cargo-release-chapter.
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    On October 13, 2015, CBP published an interim final rule in the 
Federal Register (80 FR 61278) that designated ACE as a CBP-authorized 
EDI system, effective November 1, 2015. ACE now offers the operational 
capabilities necessary to enable users to transmit a harmonized set of 
import data elements, via a ``single window,'' to obtain the release 
and clearance of goods. As a result, the International Trade Data 
System (ITDS) eliminates redundant reporting requirements and 
facilitates the transition from paper-based reporting and other 
procedures to faster and more cost-effective electronic submissions to, 
and communication among, government agencies. These electronic 
capabilities that allow brokers to file entry information in ACE reduce 
the need for brokers to be physically close to the ports of entry, as 
required under the district permit regulations.

The Availability of a Remote Option for the Customs Broker License 
Examination

    On April 21, 2021, the bi-annual customs broker license exam was 
administered at over 120 testing locations, and for the first time, via 
remote proctor delivery. CBP provided information regarding system 
requirements for the remote testing option, testing room requirements, 
and other general exam information on its website for prospective exam 
applicants.\3\ CBP continues to offer a remotely proctored exam if the 
exam provider is equipped to administer such type of testing. CBP does 
want to emphasize, however, that the availability of a remote 
examination is at CBP's sole discretion. If a remote exam is available, 
applicants who prefer to take the exam in a remote setting for 
convenience or to avoid travel may select the remote option at the time 
of registration for the exam. However, a remote examination cannot be 
requested, a spot might not be assured due to limited capacity, and the 
lack of availability of a remote exam cannot be appealed. CBP will 
notify prospective applicants of whether the remote option is available 
at the time the exam is announced on CBP's website.
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    \3\ Information regarding the customs broker license exam, 
especially the remotely-proctored exam, may be found online at 
https://www.cbp.gov/trade/programs-administration/customs-brokers/license-examination-notice-examination.
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Proposed Rulemaking To Modernize the Customs Broker Regulations

    On June 5, 2020, CBP published a notice of proposed rulemaking 
(NPRM) in the Federal Register (85 FR 34836) proposing to modernize the 
customs broker regulations in part 111 of the CFR to align with the 
development of CBP trade initiatives, including ACE and the Centers, 
and reflect the changes to a more automated commercial environment for 
both customs brokers and importers. Specifically, CBP proposed to 
eliminate broker districts and district permits, and transition all 
brokers who hold only a district permit to a national permit. Further, 
CBP proposed to expand the scope of the national permit authority to 
allow all national permit holders to conduct business throughout the 
customs territory of the United States. In addition, CBP proposed to 
increase the license application fee in order to recover some of CBP's 
costs for reviewing license applications and vetting applicants. The 
NPRM provided for a 60-day comment period, which ended on August 4, 
2020. Concurrently, CBP published an NPRM in the Federal Register (85 
FR 34549) proposing the elimination of customs broker district permit 
user fees to conform with the proposed elimination of broker districts 
and district permits. CBP received no comments to the latter NPRM.

II. Discussion of Comments

    CBP received 55 documents in response to the publication of the 
part 111 NPRM, two of which were duplicate submissions, and one of 
which was a two-part submission by one commenter discussing the same 
issue. In effect, 52 different documents were received. Commenters 
raised some concerns about the proposed changes and recommended changes 
for improvement, but overall expressed support of CBP's effort to 
modernize customs broker regulations, and welcomed the changes being 
made to reflect the reality of a rapidly changing world of 
international trade for both brokers and CBP. Commenters expressed 
appreciation for CBP's recognizing the broker community's needs to have 
clarity as to their duties and minimal regulatory burdens to target the 
essential needs to protect the revenue and enforce the relevant laws. 
The commenters further acknowledged CBP's efforts in providing the 
least bureaucratic framework over the years and collaborating with the 
broker community, including the latest effort in modernizing some of 
the outdated reporting requirements. For instance, one commenter 
welcomed the addition of specific language to cover convictions of 
committing or conspiring to commit an act of terrorism in Sec.  111.53 
as a ground for suspension or revocation of a license or permit. 
Commenters also supported the proposed removal of the

[[Page 63270]]

requirement to submit an answer in duplicate to the charges against the 
broker in Sec.  111.62(e) as this change aligns with the current 
electronic business environment.
    CBP recognizes a licensed broker's vital role in the international 
trade environment and in interactions with clients and CBP. A broker is 
tasked with the responsibility to exercise the highest level of 
accuracy and knowledge when filing entries, navigate the complex nature 
of international trade, ensure that the clients' needs are met timely 
and accurately, and facilitate the movement of legitimate cargo. 
Brokers need to be knowledgeable about the governing rules and 
regulations as well as any changes, maintain a good relationship with 
clients, and provide a high-quality service to their clients. CBP 
determined that it was important to modernize customs broker 
regulations and clarify existing regulations since the creation of 
Centers and the increasingly automated environment have changed the way 
customs business is conducted. Due to those changes, a broker may need 
to make contact with CBP personnel in parts of the customs territory 
that are not within the broker's district. The elimination of district 
permits and expansion of the scope of activities allowed under a 
national permit will provide brokers with the flexibility to easily 
conduct customs business anywhere within the customs territory of the 
United States. In addition, the elimination of district permits also 
eliminates the burden on brokers of maintaining permits for multiple 
districts or appointing subagents in districts in which they do not 
have permits. This change also provides cost savings for CBP when it 
comes to the processing of license and permit applications.
    The changes made to the broker regulations will increase efficiency 
and flexibility as submission requirements are updated, additional 
electronic submission options are provided, and electronic 
communication options for certain submissions are added. This update of 
the regulations will further increase a broker's professionalism due to 
the addition of grounds to justify the denial of license in Sec.  
111.16, the addition of required information or arguments in support of 
an application during review of the denial of the application in Sec.  
111.19, and a new reporting requirement in Sec.  111.30 for inactive 
brokers.
    The submissions received in response to the NPRM contained comments 
on multiple topics regarding the proposed regulations. The public 
comments, together with CBP's analysis, were grouped by topic within a 
subpart of part 111, and are set forth below:

Subpart A. General Provisions.

    Comment: CBP proposed adding a new term ``Designated Center'' for 
the submission of applications for a broker's license by an individual, 
partnership, association, or corporation. Several commenters expressed 
concern with the use of this term as the structure of Centers is not 
necessarily conducive to broker management, nor were the Centers 
designed to include brokers filing entries on a broad range of 
commodities. The commenters requested that CBP maintain a dedicated 
Broker Management Division or unit with offices reporting to CBP 
Headquarters, including full-time, dedicated personnel on a national 
level, with each broker assigned to one team or office for management 
purposes (as suggested by Commercial Customs Operations Advisory 
Committee (COAC) recommendation No. 10048 (April 27, 2016)). The 
commenters reasoned that this approach would ensure a uniform and 
efficient process for both CBP and brokers, and thus proposed to change 
the term ``Designated Center'' to ``Designated Broker Management 
Office'' to better reflect the structure that is more suitable for 
broker matters. Ideally, according to some commenters, CBP would create 
a new Center for broker licensing and management issues only or expand 
the broker management division in CBP's Office of Trade.
    Response: CBP appreciates the opportunity to clarify that brokers 
will not be assigned to a specific Center, and CBP will not create a 
Center solely for broker licensing and management issues. Brokers 
operate within a unique business model as their clientele have 
different Center interests, thus, an assignment to one specific Center 
would not be beneficial to brokers' business filings concerning 
different commodities. In addition, to prevent any disruption of 
dealings with brokers in case of personnel changes or workload 
distributions within Centers, CBP does not see a benefit to assigning a 
broker to a particular Center. Broker management officers (BMOs), who 
are Center personnel at 41 port locations throughout the U.S. customs 
territory, will handle the administration of all activities conducted 
under a broker's license and permit. Prior to the creation of Centers, 
these BMOs were assigned to a port and managed broker applications and 
other submissions. With the transition of certain trade functions from 
ports to Centers, the assignment of BMOs transitioned as well. Thus, 
Center personnel will process new applications for licenses and permits 
and will also manage submissions provided by already-licensed brokers. 
A current broker will continue to contact the BMO at a location where 
the broker's license was issued. After the effective date of this final 
rule, a BMO will also process any matters relating to a national permit 
of a broker at that same location. A district permit holder whose 
permit is transitioned to a national permit will continue to contact 
the BMO at the location where the broker's license was issued. Any new 
applicant for a permit or license should contact a BMO in the 
geographic area where the applicant is located and/or intends to do 
customs business. CBP has published a chart with all of the locations 
and contact information for BMOs on its website.\4\
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    \4\ The BMO contact information for the 41 port locations may be 
found online at https://www.cbp.gov/trade/programs-administration/customs-brokers by clicking on the tab titled ``Broker Management 
Officer (BMO) Contact Information''.
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    In order to better describe CBP's responsibilities for broker 
licensing and management issues, CBP changed the proposed term 
``Designated Center'' to ``Processing Center'' in this final rule. A 
``Processing Center'' means the broker management operations of a 
Center that processes applications for a license under Sec.  111.12(a) 
and applications for a national permit under Sec.  111.19(b) for an 
individual, partnership, association, or corporation, as well as 
submissions required in part 111 by already-licensed brokers.\5\ The 
revision of the proposed language clarifies that brokers are not 
assigned to a specific Center, and that Center personnel at any of the 
41 port locations may process applications and submissions, depending 
on the broker's filings and location. All references to ``Designated 
Center'' in the proposed regulations are updated in this final rule to 
reference ``Processing Center.'' In addition, CBP removed any 
references to ``director of'' a Center throughout part 111 to simply 
state ``Processing Center'', keeping the regulatory language more 
general. This change aligns with the statutory language in 19 U.S.C. 
1641 that references ``employees of U.S. Customs and Border 
Protection'' or ``duly accredited officers'' without pointing out a 
specific title or position within CBP. This change also provides the 
agency more flexibility in processing

[[Page 63271]]

brokers' applications and submissions, without any changes for the 
brokers.
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    \5\ In this document, CBP uses ``Processing Center'' in quotes 
to denote a replacement of the proposed term ``Designated Center''; 
when the words ``processing Center'' without quotation marks are 
used, CBP is referring to the Center of Excellence and Expertise 
that is actually performing a processing function.
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    Comment: Two commenters asked for clarification as to how brokers 
would be assigned to a Center, including contact information for the 
designated Center. Another commenter sought further clarification on 
the process that CBP will use to assign brokers with existing national 
permits to a specific Center. One commenter suggested that a primary 
point of contact be assigned for each of the ten (10) Centers.
    Commenters also asked that CBP have a reporting structure in place 
to allow for an escalation process so brokers could properly address a 
designated broker management office. Some commenters argued that a 
broker should also have the opportunity to request a specific Center to 
align with the broker's business model familiar with the commodities, 
transactions and types of entry processes by the broker. Additionally, 
some commenters suggested that there should be an avenue for a broker 
to request re-assignment to a specific Center.
    Response: As there will be no designated Centers, there will be no 
assignment to a Center by CBP, and brokers will not have to request an 
assignment to a specific Center or a re-assignment to another Center. 
As mentioned above, BMOs who are currently managing broker submissions 
and questions will continue to do so. If a broker is unsatisfied with 
the handling of a matter by a BMO, a broker may escalate an issue to 
the supervisor of the BMO. The names of the Assistant Center Directors, 
who may be contacted for purposes of escalation, are listed on the 
contact information chart mentioned above.
    Comment: One commenter suggested that ``certain functions,'' as 
mentioned in the NPRM, that were previously performed by the port 
director and transitioned to the Center director, should be clarified 
in the ``Broker Management Handbook'' and the ``Centers of Excellence 
and Expertise Trade Process Document'' to provide clear policy 
direction to CBP and the trade community in order to assist with a 
smooth transition to a Center. The commenter further stated that CBP 
must consider a full transition of all brokers to a designated Center 
versus a staged approach. The commenter recommended further that the 
Centers prepare for the transition and implement their oversight at the 
same time, ensuring a fair and consistent treatment of brokers. The 
commenter also strongly recommended that CBP consider a broker working 
group which would provide feedback to the Centers on operational trade 
and post-summary functions, mirroring the current working group in 
place today.
    Response: The ``Centers of Excellence and Expertise Trade Process 
Document'' already includes most of the information regarding the 
transition from ports to Centers. Any updates made with this final rule 
will be communicated to the broker community on CBP's website. 
Additionally, CBP has created a guidance document containing 
operational information regarding the regulatory changes, as well as 
general information on various broker matters. This document will be 
published concurrently with the publication of this final rule. In time 
for the publication of this final rule, CBP will issue additional 
specific operational guidance regarding certain regulatory changes on 
CBP's website.
    As mentioned above, current license and permit holders will 
continue to contact the BMO who has been processing brokers' licensing 
and permitting matters. Center personnel are ready and able to continue 
to do so. To ensure uniformity among Center personnel and efficiency in 
handling broker matters, BMOs at the various locations will continue to 
receive guidance from CBP Headquarters regarding the implementation of 
any updates or changes to current processes. CBP will continue to 
exercise oversight over the BMO locations to ensure that BMOs apply the 
same standards, and process broker submissions and respond to questions 
from brokers consistently and uniformly.
    Regarding the request for CBP to consider a working group, CBP will 
continue general broker outreach and keep the broker community informed 
of any changes through various channels, such as Cargo System Messaging 
Service (CSMS) messages, webinars, and postings on CBP's website. 
Accordingly, a specific working group is not needed at this time.
    Comment: Another commenter acknowledged the importance of building 
a strong connection between the Centers and brokers but stressed that 
it is crucial that CBP avoid severing the relationship between brokers 
and port directors entirely. The commenter stated that a strong 
relationship is key in the efficient facilitation of cargo and 
merchandise. As there is no proposed regulatory language regarding any 
administrative actions that include port directors, the commenter asked 
that CBP clarify this point in the final rule.
    Response: CBP recognizes the importance of the relationship between 
the brokers and port directors and assures the trade community that 
port directors will continue to be involved. Port directors or their 
designees will present the brokers' licenses in locations where there 
is no Center director, or Assistant Center director, and CBP will 
ensure that the port and Center management maintain open communications 
regarding local broker issues. However, ultimately, Center directors 
maintain the final authority over any decisions pertaining to broker 
issues. CBP does not believe that the regulation needs to be amended.
    Comment: One commenter agreed that reliable channels of 
communication between CBP and the brokers are essential but disagreed 
with the requirement to designate a primary location pursuant to the 
proposed definition of ``broker's office of record'' in Sec.  111.1 for 
overseeing the administration of the part 111 provisions. The commenter 
proposed to revise the definition to include language which clarifies 
that the office of record is the primary location that acts as the 
point of contact (emphasis added) for the administration of the 
provisions of part 111 because businesses may not always have one 
location that oversees all the activities conducted under a national 
permit.
    Another commenter suggested that CBP utilize electronic reporting 
systems as the method of communication rather than designating a 
specific location. The commenter argued that flexibility of 
administration and effective communication are not dependent on 
location.
    Response: CBP disagrees with the first commenter's request to 
modify the definition of the broker's office of record. CBP determined 
that the proposed definition should be adopted because the primary 
office that oversees the administration of all activities conducted 
under a national permit may be different from the primary office that 
acts as the point of contact. The addition of the words suggested by 
the commenter would change CBP's intended meaning of this definition. 
As district offices will no longer exist, CBP needs to not only know 
the point of contact for the administration of the part 111 
regulations, but also the location that has been identified as the 
office overseeing the transactions occurring under the national permit. 
This may not be the only location through which broker activities 
occur, but it would be the primary location to which CBP would send 
correspondence and where CBP would conduct a physical inspection 
pursuant to Sec.  111.27. Moreover, the primary location is also the 
address that is provided in the application for a national permit and

[[Page 63272]]

must be kept up to date for so long as a broker holds a license and 
permit.
    In response to the second commenter, CBP is already utilizing 
electronic reporting tools, such as ACE and the eCBP portal, and is 
using email when corresponding with a broker. The eCBP portal is CBP's 
new payment and submission system, streamlining the payment and 
submission process for broker examination applications and triennial 
status reports. Additional reporting capabilities for brokers will 
follow, as discussed in more detail below in Section IV. Despite the 
availability of the above-mentioned electronic reporting tools, a 
broker has the responsibility to establish an actual location for 
purposes of visits and audits but is free to determine where to 
establish his or her office(s) within the U.S. customs territory. CBP 
understands that flexibility is needed when it comes to establishing a 
primary office, especially during the COVID-19 pandemic, which caused 
many brokers to work from home. Thus, CBP appreciates the opportunity 
to clarify that the primary location does not have to be an office 
location but can be the broker's home as long as there is a physical 
location at which the broker can be reached.
    Comment: One commenter suggested that CBP make a small change in 
the definition of ``permit'' in Sec.  111.1 by replacing the word 
``any'' with ``a'' to clarify that CBP requires only one permit per 
business, even if a business operates a drawback business and a 
consulting business, or an entry business.
    Response: CBP agrees with the commenter. In the NPRM, CBP already 
proposed this change, and now finalized this change to clarify that 
there is only one national permit that a broker needs to hold in order 
to conduct customs business within the U.S. customs territory.
    Comment: Several commenters expressed support for the elimination 
of the district permits as it reflects a shift toward modern practice 
of working with the Centers and filing entries in ACE. However, one 
commenter requested clarification of CBP's statements in the preamble 
of the NPRM that the granting of a national permit to current district 
permit holders would be automatic, but that CBP would, at the same 
time, provide guidance regarding the permit transition upon the 
adoption of the final regulations. The commenter stated that the need 
to provide further instructions as to the transition did not seem to 
make the transition ``automatic''. In addition, the commenter asked 
whether there would be a grace period to ensure an uninterrupted and 
smooth transition. Lastly, the commenter also stated that the 
grandfathering rules should be included in the regulation, and not 
merely in the preamble, as they are critical to a smooth transition.
    Response: CBP appreciates the opportunity to clarify that the 
transition for a district permit holder to a national permit will be 
automatic, without any actions to be taken by the brokers. CBP will use 
the ACE data that is on file for each district permit holder who or 
which does not already have a national permit and automatically create 
a national permit for each current district permit holder. In addition, 
to ensure an uninterrupted transition, active district permits will not 
be cancelled until all national permits have been issued. District 
permit holders will be able to continue to conduct customs business 
without any interruptions or delays. CBP will notify current district 
permit holders by email (if an email address is on file with CBP) that 
a new national permit will be issued; otherwise, CBP will notify by 
mail at the permit holder's business location on file. The transition 
of permits will occur between the date of publication of this final 
rule and the date of effectiveness of the final regulations, which will 
be 60 days after publication. In addition to the notification of the 
permit holders by email or mail, CBP will issue a CSMS message 
informing district permit holders of the transition to national 
permits.
    With regard to the transition of the district permits to national 
permits, it is a one-time event and, thus, there is no need for 
including the transition to national permits in the regulations. Any 
new applicants for a national permit will apply pursuant to the final 
regulations.
    Comment: Three commenters expressed disagreement with CBP's 
proposal to eliminate the district permits. One commenter argued that 
eliminating the district permits would drastically affect the broker's 
ability to provide optimum responsible supervision and control over 
brokerage operations. Brokers should at least have one permit holder 
per district. The commenter explained that in some cases, a face-to 
face meeting with a national permit holder might be impossible, so the 
district permit holder would be able to have such a meeting. It would 
also be more convenient and more time efficient to resolve questions 
quickly with a district permit holder who is located closer to a CBP 
office. In addition, a local expert is more familiar with the port 
nuances, staff, and different hours of operations, to name a few. With 
the proposed elimination, a district permit holder might consider not 
renewing the individual license, which could lead to the elimination of 
hundreds, if not thousands, of licenses, which in a time when import 
volumes are increasing seems unreasonable.
    Response: CBP understands that the transition from a district 
permit system requiring multiple local permits to a single national 
permit may raise new or unique concerns for customs brokers in ensuring 
proper exercise of responsible supervision and control over the customs 
business they conduct. However, CBP disagrees with the commenter that 
responsible supervision and control will be more difficult to maintain 
because customs brokers will no longer need to expend time and 
resources monitoring several district offices. Brokers may consolidate 
operations and focus on a single nationally permitted office to ensure 
that optimal responsible supervision and control is maintained. Under 
the national permit system, customs brokers may also choose to continue 
to operate locally by liaising with the port where entries are filed 
and imports are released from customs custody, while conducting customs 
business and engaging with clients at a national level. Regardless of 
whether a broker decides to eliminate offices or personnel in a 
particular location or continues to conduct customs business in its 
current locations, brokers remain responsible for the customs business 
they perform and over which they have supervision no matter where that 
is occurring under the purview of their license. Existing 
responsibilities of a broker do not disappear simply because district 
permits are eliminated. In addition, prior to the publication of the 
NPRM, CBP had conducted outreach to the broker community through 
webinars, port meetings, and broker association meetings to solicit 
feedback on brokerage needs in the modern business environment. COAC 
had recommended that CBP enable brokers to operate through a single, 
national permit, in light of the changes to CBP's operational structure 
and growing technological capabilities. CBP incorporated the broker 
community's feedback and COAC's recommendation in the final 
regulations, reflecting the modern technological and business 
environment of customs brokers, and highlighting the importance of 
electronic process advancements to communicate with local ports, and to 
submit broker information and entry filings.
    It is CBP's goal to ensure that the communication between brokers 
and CBP (ports and Centers) is easy and

[[Page 63273]]

efficient. CBP always strives to improve the dialogue with brokers, as 
exemplified by CBP's ongoing effort to utilize electronic tools for 
reporting and communicating. If in-person meetings are not possible due 
to timing or distance, meetings can be held via video conferencing to 
quickly and efficiently resolve any questions or concerns. A current 
district permit holder who does not hold a national permit prior to the 
transition to national permits will possibly have to familiarize 
himself or herself with the nuances of a particular port, hours of 
operation and particular staff. However, the benefits gained from the 
elimination of district permits and the transition to one national 
permit will outweigh the initial inconveniences that some brokers may 
experience.
    Comment: One commenter argued that because customs business is 
generally conducted in connection with logistics and handling of cargo, 
both customs business and logistics would become more consolidated 
outside the ports without any consideration for the local ports' 
interests, including revenue in connection with those services. In 
addition, responsible supervision and control of customs business would 
change and prove much more difficult in a remote setting. The commenter 
is of the opinion that if a broker wishes to perform customs business 
in a certain physical location, he or she should be required to have a 
permit issued by that local port.
    Response: CBP does not agree with the commenter's concern. When it 
comes to logistics and cargo handling, local ports will still be 
involved. Revenue collection will continue to be carried out at the 
ports. Supervision over employees who are not local will continue to be 
exercised, especially in light of the updated responsible supervision 
and control standards, adding, among other factors, the requirement 
that brokerage firms employ a sufficient number of licensed brokers to 
satisfy the supervision standard, and the requirement for new permit 
holders to have a supervision plan in place to ensure that reasonable 
supervision and control is exercised over the customs business 
conducted under a national permit. In response to this comment, CBP 
further wishes to emphasize the importance of the accuracy and 
completeness of broker submissions to ensure that CBP has sufficient 
information available to exercise its oversight over broker operations.
    National permits cover local ports across the U.S. customs 
territory; thus, a broker may still perform customs business in a 
specific location if the broker so chooses. The national permit allows 
customs business within the entire U.S. customs territory and for 
brokers to perform any activities allowed under the permit, thus 
providing a broker with the choice of where to perform customs business 
and lessening the burden on a broker to work within the scope of a 
district permit for a geographic area. These regulatory changes will 
benefit the customs broker community without CBP's losing oversight 
over broker entities responsible for supervising their employees.
    Comment: Several commenters recommended that CBP define ``customs 
business'' in Sec.  111.3 and explain when a license is required and 
when it is not. One commenter stated that the term ``customs business'' 
should be redefined to reflect the commercial activities and the roles 
the individual parties play in a transaction. The commenter explained 
that customs business can mean something different for different 
brokers, depending on what role the broker plays in a transaction, from 
the mere gathering of data for submission to assisting an importer with 
the entire importation process.
    Response: CBP disagrees with the commenters that a revised 
definition of customs business is needed, as the applicable statute and 
regulations already provide extensive definitions. Section 1641(a)(2) 
of title 19 of the United States Code defines ``customs business'' as 
those 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 collection by 
CBP upon merchandise by reason of its importation, or the refund, 
rebate, or drawback thereof. ``Customs business'' also includes the 
preparation, and activities relating to the preparation, of documents 
or forms, the electronic transmission of such documents, invoices, 
bills, or parts thereof, which are intended to be filed with CBP in 
furtherance of such activities. The regulatory definition in Sec.  
111.1 mirrors the statutory definition in section 1641(a)(2), except 
for the additional explanation that ``corporate compliance activity'' 
is not considered customs business. In addition, CBP issued a 
Headquarters Ruling Letter (Headquarters ruling) H272798 (January 26, 
2017), which provided an in-depth analysis of what customs business 
entails in several different scenarios provided by the ruling 
requester.\6\ The ruling serves as guidance to other brokers who 
encounter the same scenarios. CBP does not believe that further 
explanations or clarifications are needed.
---------------------------------------------------------------------------

    \6\ The cited Headquarters ruling, and other Headquarters 
rulings mentioned in this final rule, may be viewed in CBP's 
searchable database, the Customs Rulings Online Search System 
(CROSS), which may be found on CBP's website at https://rulings.cbp.gov/home.
---------------------------------------------------------------------------

    The commenter correctly pointed out that the role of a broker in a 
specific transaction depends on the broker's involvement and knowledge 
of the facts, thus, decisions as to what constitutes customs business 
are made in a case-by-case analysis to take into account the specific 
facts and circumstances. If a broker is unsure whether a certain 
transaction is considered customs business, he or she can request a 
ruling pursuant to 19 CFR 177.1.
    Comment: Several commenters raised concerns with respect to the 
interaction of Sec.  111.3, concerning customs business, and Sec.  
111.2(a)(2) concerning transactions for which a customs broker's 
license is not required. The commenters stated that the proposed Sec.  
111.3 only mentions the customs broker's location and point of contact, 
along with a reference to Sec.  111.1 for the definition of customs 
business. Meanwhile, Sec.  111.2(a)(2) lists transactions for which a 
license is not required, and thus, which fall outside of the customs 
business definition. The commenters suggested that, in order to avoid 
any confusion, CBP either state in Sec.  111.2(a)(2) that the listed 
transactions are not considered customs business or list the specific 
transactions in Sec.  111.3 and clarify that because they do not 
constitute customs business, they do not require a license. One 
commenter asserted that CBP should make it clear in Sec.  111.3 that 
customs business must be conducted within the U.S. customs territory, 
as opposed to the transactions listed in Sec.  111.2(a)(2), which may 
be conducted outside of the U.S. customs territory.
    Response: CBP disagrees with the commenters' suggestion to cross-
reference the two mentioned regulations. CBP believes that the 
regulations, as written, make clear that a customs broker's license is 
required to conduct customs business, and that customs business must be 
conducted within the U.S. customs territory. Whether a transaction that 
is not specifically mentioned in the statutory definition of section 
1641(a)(2) or in the regulatory definition in Sec.  111.1 is considered 
customs business can be determined by requesting a ruling, as mentioned 
above. CBP cannot exhaustively list all transactions that are

[[Page 63274]]

(or are not) covered by the customs business definition. A 
determination as to whether a specific activity is considered customs 
business is based on a fact-specific analysis, which is better 
addressed in a CBP ruling letter than a regulation.
    Comment: Two commenters expressed disagreement with the requirement 
in Sec.  111.3(b) for a broker's designation of a knowledgeable point 
of contact to be available to CBP ``outside of normal operating 
hours''. One commenter argued that this requirement goes beyond the 
requirements set forth in 19 U.S.C. 1641. Another commenter argued that 
this requirement should only pertain to cargo security matters, such as 
Customs Trade Partnership Against Terrorism (CTPAT) matters, and CBP 
should clarify that in the regulation.
    Response: CBP disagrees with the commenters. Due to the shift from 
multiple district permits (and multiple points of contact) to one 
national permit (and one point of contact), the one individual who is a 
knowledgeable point of contact for a broker needs to be available to 
cover all the ports of entry where the brokerage enters goods, which 
could mean coverage beyond normal operating hours of any one port of 
entry. Although CBP does not require 24-hour availability, CBP does 
need one point of contact to cover the operating hours across all time 
zones to address situations where a port may need to contact an 
importer regarding the release of goods. While questions relating to 
the CTPAT program may certainly occur outside of normal operating 
hours, those are not the only situations that are covered.
    Comment: One commenter stated that Sec.  111.3(a) does not address 
the use of offshore resources to assist importers and/or licensed 
brokers with the classification process under the Harmonized Tariff 
Schedule of the United States (HTSUS). The commenter requested 
clarification on three scenarios: (1) whether Sec.  111.3(a) prohibits 
the classification of goods either at the four- or six-digit HTSUS 
levels by unlicensed offshore resources located outside of the customs 
territory, if the HTSUS codes will be used for the purpose of making 
customs entry globally, including in the United States (and whether the 
answer would be different if the offshore resources were employees of a 
U.S. importer or U.S. licensed broker); (2) whether Sec.  111.3(a) 
prohibits the classification of goods either at the eight- or ten-digit 
HTSUS levels by unlicensed offshore resources/persons located outside 
of the customs territory if a U.S. importer or U.S. licensed broker 
only uses this classification as a resource to determine the 
classification of goods consistent with Headquarters ruling H272798; 
\7\ and, (3) whether a U.S. licensed broker is permitted to use 
acceptable sampling methods to review the classification determinations 
undertaken by its employees (or unlicensed offshore resources if 
scenarios (1) or (2) above are permissible) to assist with satisfying 
the ``responsible supervision and control'' and ``due diligence'' 
standards in Sec. Sec.  111.28(a) and 111.39(b).
---------------------------------------------------------------------------

    \7\ Headquarters ruling H272798 held that a company would not be 
unlawfully engaged in the conduct of ``customs business'' by 
creating a tariff classification database to be used by a licensed 
broker in preparing to file an entry so long as the company issues a 
disclaimer cautioning clients that the specific tariff 
classification to be filed for an entry of merchandise must be 
determined by a licensed customs broker. The disclaimer must also 
caution that the opinion of the broker takes priority over the 
proposed classification in the database. Creation of a 
classification database is permissible only if the database is used 
as a resource and will not direct a client or a licensed customs 
broker in the preparation or filing of a specific entry.
---------------------------------------------------------------------------

    With regard to the third scenario, the commenter noted that the use 
of statistical sampling methods is explicitly codified in the customs 
regulations, for instance, in 19 CFR 162.74(j), with respect to prior 
disclosures, and 19 CFR 163.11(c) with respect to customs audits. Thus, 
the regulations in part 111 would benefit from the inclusion of 
specific guidance regarding the acceptability of statistical sampling 
methods for the purposes of satisfying the responsible supervision and 
control standard of Sec.  111.28(a) and the ``due diligence'' standard 
of Sec.  111.39(b). The commenter further suggested to add the adequacy 
of a satisfying technique as a 16th factor for responsible supervision 
and control in Sec.  111.28(a) that CBP may consider, and the final 
rule should also include specific guidance addressing the sampling 
methods that would be acceptable to CBP.
    Response: CBP has clarified in Headquarters ruling H045695 (October 
15, 2010) that classification at the six-digit HTSUS level does not 
constitute customs business. In addition, classification at a level 
lower than six digits, such as the four-digit HTSUS level, is not 
considered customs business either. Even though CBP neither regulates 
non-customs business, nor whether a domestic importing company uses 
foreign staff to conduct non-customs business, U.S. licensed brokers 
are required to exercise special caution to ensure that any unlicensed 
contractor or employee operating on behalf of the brokerage abroad does 
not perform any tasks that may cross the line into conducting customs 
business. See Headquarters ruling H302355 (January 29, 2019).
    Regarding scenario (2), generally, classification determinations at 
the eight- and ten-digit HTSUS levels are considered customs business, 
and customs business must be conducted by a licensed broker. The term 
``resources'' used by the commenter is vague and CBP is not able to 
fully respond to this comment as to whether such advice would 
constitute impermissible engagement in customs business. The commenter 
should seek a ruling to determine whether the specific proposal is 
permissible. However, in Headquarters ruling H272798 (January 27, 
2018), CBP cautioned a requester, citing Headquarters ruling H115248 
(August 28, 2011), that ``even when there is a `possibility' that 
classification information will end up on an entry, a broker's license 
is required `to gather classification data which will be reflected on 
the entry.' ''
    To respond to the commenter's third scenario, in general, the use 
of sampling methods is an adequate technique, but it depends on the 
circumstances of a particular situation whether a specific sampling 
technique is sufficient to ensure responsible supervision and control 
pursuant to Sec.  111.28(a). The due diligence standard in revised 
paragraph (b) of Sec.  111.39 requires that a broker ascertain the 
correctness of any information which the broker imparts to a client, 
thus, certain sampling techniques may or may not be appropriate to 
exercise due diligence, depending on the facts of the specific 
situation.
    The commenter points to 19 CFR 162.74(j), which states that a 
private party may use statistical sampling to ``disclose the 
circumstances of a violation'' and for calculation of lost duties, 
taxes, and fees or lost revenue for purposes of prior disclosure, 
provided that the statistical sampling satisfies the criteria in 19 CFR 
163.11(c)(3). Section 163.11 generally sets forth the ``audit 
procedures'' for CBP auditors pursuant to 19 U.S.C. 1509(b). CBP 
believes that those cited regulations are not geared towards broker 
audits; the notable difference being that the sampling results are 
submitted to CBP in a prior disclosure, whereas the results of a 
broker's own compliance activities (e.g., review of classification 
determinations) are not submitted to CBP. CBP does not have any 
obligation to instruct brokers on how to conduct their own audits, and, 
thus, CBP does not agree that the use of adequate sampling methods be 
added as a 16th factor in paragraph Sec.  111.28(a), or

[[Page 63275]]

that CBP provide additional guidance as to adequate sampling methods.
    Comment: One commenter stated that CBP should confirm that Sec.  
111.3(a) does not require that any activity falling within the 
definition of ``corporate compliance activity'' in Sec.  111.1, 
including potential classification support by a related business 
entity, be conducted within the U.S. customs territory.
    Response: The last sentence of the ``customs business'' definition 
in Sec.  111.1 specifically states that ``corporate compliance 
activity'' is not considered customs business. Section 111.3(a) states 
that customs business must be conducted within the U.S. customs 
territory, meaning non-customs business need not be conducted within 
the U.S. customs territory. CBP believes that the regulations are clear 
and additional clarification is not needed.

Subpart B--Procedure To Obtain License or Permit

    Comment: Several commenters expressed support for the proposed 
changes in Sec.  111.12 as they eliminate certain outdated requirements 
for broker license applicants. However, one commenter recommended 
changing the requirement under Sec.  111.12(a) to provide documentation 
regarding the applicant's authority to use a trade or fictitious name 
in one or more states in which the applicant plans to operate. The 
commenter argued that under a port-based system, where ports lacked 
access to a centralized database and asked for documentation regarding 
the applicant's authority to use a trade or fictitious name in a state 
other than the applicant's home state, that was a reasonable request; 
however, in an automated world with a single license and national 
permit and where the broker's filer code is linked to the broker's 
information in ACE, this is no longer practical or necessary. Other 
than with respect to the license and the broker's office of record 
state, documentation showing that a broker is operating in additional 
states purportedly has no impact on CBP's statutory or regulatory 
authority over brokers. Therefore, the commenter proposed to delete the 
advance notice requirement with respect to trade names both with 
respect to licenses and permits.
    Response: CBP disagrees with the commenter. If an applicant 
proposes to operate under a trade or fictitious name in one or more 
states, evidence of the applicant's authority to use the name in each 
of those states must accompany the application. CBP needs to know in 
which states the applicant is doing customs business, along with the 
name associated with the applicant's business. If the address provided 
by the broker for the national permit office is in a different state 
from the address provided for the national license office, then CBP 
requires documentation for both the license and permit. If they are one 
and the same and the broker only operates in one state, then only 
documentation for that state is required.
    Comment: One commenter raised the concern that the CBP examination 
results letters do not always notify examinees of their right to appeal 
the examination results or mention the 60-day deadline to file an 
appeal, pursuant to paragraphs (e) and (f) of Sec.  111.13. The 
commenter pointed out that the preamble of the NPRM states that 
examinees who wish to appeal the examination results should submit 
those requests in accordance with the instructions provided in the 
results letter. The commenter asked that CBP make sure that the results 
letters always notify applicants of the reasons for the denial and the 
right to appeal within 60 days.
    The commenter also asked CBP to clarify in the regulations that 
applicants may be represented in their appeals by an attorney or other 
agents. The commenter stated that CBP recently eliminated language that 
appeals must be written in the applicant's own words; however, there is 
still confusion as to whether an applicant may contract with an 
attorney or others to assist with the appeal.
    Response: Regarding the commenter's first point, CBP will continue 
to ensure that the examination results letters contain information as 
to the examinee's right to file an appeal, along with instructions on 
how to file, and the 60-day deadline to submit an appeal. The results 
letters contain the examinee's score, as well as the minimum passing 
score. The results letters for the October 2020 examination also 
included an electronic filing option for appeals, which was proposed in 
the NPRM, and has been included in the final regulation. Additionally, 
examinees may find instructions on how to appeal the exam results on 
CBP's website.\8\
---------------------------------------------------------------------------

    \8\ Instructions on how to appeal may be found online at https://www.cbp.gov/trade/programs-administration/customs-brokers/how-appeal.
---------------------------------------------------------------------------

    With respect to the ``own words'' language that the commenter 
refers to, results letters still include language that states that the 
examinee has to submit a compelling argument (``in your own words'') 
explaining why the examinee's answer is better than CBP's official 
answer, or why the appealed question has no possible correct answer. 
CBP continues to use this language in the results letters because it is 
expected that an applicant has the knowledge to draft the appeal 
document and provide arguments that support the appeal for a particular 
question. The focus of the appeal is of course on the articulation of 
why the answer provided by the examinee on the exam should be given 
credit. The written examination is a test of the applicant's knowledge 
of the pertinent material, not someone else's knowledge. A third person 
should not be the one to write the appeal on behalf of the examinee; 
CBP understands, however, that in some instances a third person may 
assist with formulating and/or submitting the appeal.
    Comment: One commenter expressed support of the scope expansion for 
the background investigation in Sec.  111.14 to include the financial 
responsibility of an applicant, and any association with any 
individuals or groups that may present a risk to the security or to the 
revenue collection of the United States, but also noted that the facts 
to be investigated under Sec.  111.14 should be included in the 
requirements to apply for a license in Sec.  111.12.
    Response: CBP disagrees with the commenter's suggestion to include 
the non-exhaustive list of factors used in the background investigation 
pursuant to Sec.  111.14 as requirements for the application for a 
license. Section 111.12 describes the formalities of the application 
process, which includes the submission of CBP Form 3124 (Application 
for Customs Broker License or Permit), along with the application fee, 
and any additional required documentation pursuant to paragraph (a). In 
contrast, Sec.  111.14 lists facts and circumstances that CBP will 
ascertain during the background investigation to determine whether an 
applicant is qualified to hold a license. The background investigation 
is a separate step in the application process that follows the 
submission of the application and fee, and the scope of each 
investigation depends on the facts and circumstances presented by the 
applicant and of which CBP becomes aware during its investigation. 
Including all the considerations that are part of CBP's background 
investigation as part of the general application process would confuse 
the requirements for the basic application process with the 
requirements to qualify for a license after a thorough investigation of 
more information by CBP.
    Comment: One commenter objected to the addition of new grounds to 
justify the denial of a license in Sec.  111.16(b). The commenter wrote 
that no due

[[Page 63276]]

process opportunity is provided to challenge CBP's denial of a license.
    Response: CBP disagrees with the commenter. CBP always provides a 
reason in the denial notice as to why the license was not issued; 
decisions are not made arbitrarily. Section 111.17 further provides the 
applicant the opportunity to have the denial of the application 
reviewed, and upon the affirmation of the denial of the license, the 
applicant has a second opportunity to request an additional review by 
the Executive Assistant Commissioner, Office of Trade, and a third 
opportunity to appeal the decision to the Court of International Trade. 
Revised Sec.  111.17(a) provides greater flexibility to the applicant 
and CBP by allowing the applicant to file additional information or 
arguments in support of the license application, and request to appear 
in person, by telephone, or other acceptable means of communication by 
which an applicant may provide further information to CBP. These 
avenues provide sufficient notice and due process to an applicant under 
the regulations.
    Comment: Several commenters expressed concern with the proposed 
term ``financial responsibility'' in Sec.  111.16(b)(3) and argued that 
it should not be a factor in the determination whether a license should 
be denied, especially during the COVID-19 pandemic. One commenter 
argued that CBP could conceivably deny a license based on a blemish on 
an applicant's credit history, which would be unfair. One commenter 
asked CBP to provide a clear definition of ``pertinent facts'' in Sec.  
111.16(b)(5) if CBP wished to penalize an applicant for the omission of 
pertinent facts in the application or interview. Commenters also 
expressed confusion as to what constitutes ``detrimental'' commercial 
transactions in Sec.  111.16(b)(6), especially to whom the transactions 
have to be detrimental, and whether the term could include poor 
business decisions that are unrelated to a brokerage or customs 
business but are detrimental to the individual making the decision. One 
commenter expressed great concern with the grounds for denial of a 
license in paragraph Sec.  111.16(b)(8) that includes ``any other 
relevant information uncovered over the course of the background 
investigation'' as it is over-reaching, which the commenter equated to 
CBP's being able to deny a license for any reason.
    Response: CBP appreciates the opportunity to clarify that the 
financial responsibility of a license applicant has always been an 
expectation when determining an applicant's qualification to hold a 
license, as part of the business integrity requirement in Sec.  
111.16(b)(3). A business integrity evaluation includes the provision of 
financial reports, which reflect upon the financial responsibility of 
an individual. By expressly including this factor in the final 
regulation, CBP confirms that the financial responsibility of an 
applicant is part of the determination whether a license is issued or 
denied. Nonetheless, CBP has always taken into account the personal 
circumstances of an applicant when making a decision. It has been CBP's 
practice to follow up with the applicant with any questions or concerns 
that arise during the review of the provided information and request 
additional information and/or request information regarding an 
applicant's plan to mitigate any debt or other financial difficulties, 
before making the determination to deny a license.
    ``Pertinent facts'' in Sec.  111.16(b)(5) are those facts that are 
requested on CBP Form 3124 when applying for a license, the facts 
gathered during the interview with the applicant, and during the 
background investigation. These are the same pertinent facts about 
which an applicant should not make a willful misstatement under the 
existing regulations. Those same facts should not be omitted, as the 
omission of those may be just as significant as a misstatement of those 
facts. The addition of the word ``detrimental'' along with the word 
``unfair'' in Sec.  111.16(b)(6) better reflects CBP's intent of 
including not only unfair transactions but also those that would be 
detrimental, e.g., those that may cause financial harm, to a client, 
CBP, or any other individual or entity implicated in a commercial 
transaction. Whether an applicant's conduct is deemed detrimental is 
determined on a case-by-case basis, considering the circumstances 
surrounding the commercial transaction.
    Lastly, CBP included a catch-all provision in Sec.  111.16(b)(8) to 
account for any other relevant information that CBP uncovers over the 
course of the investigation that may influence CBP's decision to accept 
or deny a license application, but that is not mentioned in the non-
exhaustive list in Sec.  111.16(b)(1) through (7). Each application is 
reviewed individually, and because factors (1) through (7) do not cover 
every aspect that could lead to a denial of a license, a provision that 
covers any other relevant information is necessary to assist with CBP's 
determination.
    Comment: One commenter stated that the requirement to provide a 
copy of the documentation issued by a State or local government that 
establishes the legal status and reserves the business name of the 
entity pursuant to Sec.  111.19(b)(3) is already on file with respect 
to the license. Given that there is now unity between the scope of the 
license and permit, this requirement appears redundant. Moreover, 
another commenter argued that there is no regulatory reason for other 
offices covered by the national permit to supply such information when 
the broker's office of record is provided. Therefore, the commenter 
proposed to delete this requirement.
    Response: While it is true that a license applicant who proposes to 
operate under a trade or fictitious name in one or more states has to 
provide evidence of the applicant's authority to use the name in each 
of those states pursuant to Sec.  111.12(a), and that information is 
already in CBP's records, it is possible that a broker has an office in 
one state under which the license application was filed, but then later 
applies for a national permit and provides a different office in a 
different state with a different trade or fictitious name. In this 
scenario, CBP would not know about a broker's second office if the 
broker did not provide this information. Due to the elimination of 
district permits and a district permit holder's responsibility to 
provide information for the local office, CBP needs to ensure that all 
the information regarding the broker's various offices, which could be 
operating in different states, potentially under different names, is 
provided to CBP. Having this information available enables CBP to 
exercise oversight over a broker's customs business and verify whether 
the broker is exercising responsible supervision and control in each of 
the broker's customs business locations. Thus, CBP disagrees with the 
elimination of the requirement in Sec.  111.19(b)(3).
    Comment: More than one commenter maintained that the proposed 
requirement for a supervision plan in Sec.  111.19(b)(8) is vague and 
CBP does not describe what such a plan would include. Therefore, CBP 
should provide at least minimum criteria for brokers to be able to 
determine what such a plan should look like. Another commenter stated 
that it is not clear from the proposed regulation whether a current 
national permit holder is required to submit a supervision plan, and 
whether a current national permit holder is subject to cancellation of 
the permit if CBP deems the supervision plan unacceptable, or whether 
there is a grace period for the broker to adjust the plan. The 
commenter also noted that the NPRM did not state whether single port or 
single office brokers are also subject to filing a supervision plan 
even though

[[Page 63277]]

effectively they are operating as though they had a single port permit.
    Response: What a supervision plan should look like depends, among 
other things, on the size of a broker entity, the experience of the 
employees overseen by a licensed broker, the complexity of the customs 
business, and the types of transactions that a broker entity handles. 
CBP believes it is prudent for a broker entity to have more 
supervision, i.e., more licensed brokers and/or more training, and 
guidance for employees, in place if the broker entity is large and 
deals with complex business transactions. CBP agrees with the 
commenters that general guidance on expectations for a supervision plan 
is helpful, and, thus, CBP will provide such guidance on its website 
and/or through other electronic forms of communication, such as CSMS 
messages.
    Further, CBP welcomes the opportunity to clarify that current 
national permit holders are not required to provide a supervision plan 
pursuant to the new Sec.  111.19(b)(8), however, CBP wishes to 
emphasize that having a supervision plan in place is highly encouraged 
and should be a best practice for every permit holder. The same applies 
to current district permit holders whose district permit will be 
transitioned to a national permit. As for single port or single office 
brokers who currently hold a district permit, or a national permit, a 
supervision plan is not required pursuant to the new regulations, but 
will be required of new permit applicants, even if they only have a 
single office or work at a single port.
    Comment: Two commenters stated that they disagreed with CBP's 
proposal to eliminate the requirement that an applicant for a license 
on behalf of an association or corporation be an officer (and not only 
a licensed broker). The commenters argued that the broker and CBP are 
best served when an officer of an association or corporation 
demonstrates knowledge of customs regulations through its licensed 
customs broker designation. The commenters believe that the current 
requirement under Sec.  111.11(c)(2) should remain in place.
    Response: CBP agrees with the commenter that it is important to 
have at least one officer in an association or corporation, and at 
least one member in a partnership who is a licensed broker. CBP did not 
propose to eliminate this requirement in Sec.  111.11(c)(2). CBP stated 
in the preamble of the NPRM that if the application is on behalf of an 
association, corporation, or partnership, then the applicant is not 
required to be an officer but is required to be a licensed broker. This 
relaxation of CBP's prior practice provides the broker entity with 
flexibility as to who may submit the application for a national permit, 
but it does not eliminate the requirement under Sec.  111.11(c)(2) to 
have at least one officer in an association or corporation, or at least 
one member in a partnership under Sec.  111.11(b), who is a licensed 
broker. It is further important to note that the individual applying 
for and obtaining the license on behalf of the entity must be delegated 
the proper agency authority to obtain the license and serve as the 
license qualifier, thus, binding the entity with respect to the customs 
business it later performs.
    Comment: One commenter pointed to Sec.  111.16, pursuant to which 
CBP is required to specify the reasons for denial of a license and 
stated that there is no comparable requirement to specify a reason for 
denial of a permit based upon the adequacy of a supervision plan under 
Sec.  111.19. The commenter recommended that a permit denial include a 
detailed explanation of the reason(s) for denial, so a broker has clear 
direction as to what needs to be addressed.
    Response: CBP includes a reason as to why a permit application is 
denied when issuing a denial letter to an applicant. CBP does not agree 
that there is a need to include language in Sec.  111.19 to state that 
a reason for the denial will be provided, merely because of comparable 
language in Sec.  111.16.
    Comment: Three commenters suggested that CBP allow brokers to have 
multiple national permits if they maintain separate, although related, 
business entities and allow for more than one licensed broker to 
qualify for the permit. The commenters reasoned that in case of any 
issues with one national permit, the broker could continue to work 
under a separate national permit for a related entity.
    Response: CBP disagrees with the commenters. CBP moved from the 
district permit system to a national permit system in order to provide 
brokers with the flexibility to conduct customs business within the 
entire U.S. territory with just one license and one permit. Allowing 
more than one national permit for related business entities defeats the 
purpose of eliminating multiple district permits in favor of one 
national permit per broker. The concern that one entity under a parent 
company is not exercising responsible supervision and control and 
potentially putting other related entities at risk, needs to be 
addressed within the entity itself. CBP will not provide more than one 
national permit to an entity so that a broker may have a backup permit 
for a related entity in case that entity is not exercising responsible 
supervision and control or not complying with other laws and 
requirements.
    Additionally, it is CBP's practice to send an informed compliance 
or warning letter to a broker who is not complying with regulations. 
Usually, CBP provides the broker an opportunity to address any issues 
that CBP had raised as a concern before revoking a permit. A broker 
will usually not lose a permit upon one incident of noncompliance 
unless the incident was so grave that CBP determines that a broker is 
no longer qualified to hold a license to exercise customs business.

Subpart C--Duties and Responsibilities of Customs Brokers

    Comment: Several commenters stated that the use of the term 
``breach'' in Sec.  111.21(b) is vague and overbroad and should be 
defined. One commenter asked whether only breaches that involve 
customer data are included in the regulation. Some commenters stated 
that the proposed regulation does not clarify the types of breaches 
that are included, and whether any breaches need to be reported or only 
material/serious breaches. Several commenters suggested to hold brokers 
to the CTPAT cybersecurity standards, and simply indicate in the 
regulations regarding ``record of transactions'' (Sec.  111.21) and 
``responsible supervision and control'' (Sec.  111.28) that brokers 
need to have a procedure in place to address data breaches and to 
report them to CBP as appropriate. Some commenters also noted that the 
proposed regulation is silent on how a breach should be reported to 
CBP.
    Response: CBP intends for the common meaning of `breach' to apply 
and does not believe a regulatory definition is necessary. Some 
considerations underlying this new regulatory provision, however, are 
things such as a physical or electronic intrusion into the broker's 
records whereby any information is compromised, but particularly 
confidential information of the broker's clients that might have been 
viewed, copied, or used without permission. Proposed Sec.  111.21(b) 
specifically states that records relating to a broker's customs 
business are at issue. The proposed regulation further states that 
``any'' known breach that affects customer data, physical or 
electronic, will have to be reported. The regulation does not 
distinguish between a material/serious and non-material/non-serious 
breach. Pursuant to Sec.  111.21(a), ``records'' include documents 
reflecting

[[Page 63278]]

financial transactions as a broker. Any breach that affects those 
records that are maintained in a broker's customs business needs to be 
reported as part of CBP's overall risk management to prevent identity 
theft.
    CBP disagrees with the use of the CTPAT standard in this context. 
The CTPAT standard applies mainly to importers and cargo carriers who 
are partners of the CTPAT program. Very few brokers are CTPAT partners, 
therefore, this standard would not be applicable to the majority of 
brokers. Lastly, CBP wishes to take the opportunity to clarify that 
security incidents, such as a breach discussed here, that have any 
effect on the security posture of CBP must be reported electronically 
to the CBP Office of Information Technology (OIT) Security Operations 
Center (CBP SOC) at [email protected], and not the broker's designated 
Center, as proposed in the NPRM. Brokers may call CBP SOC at 703-921-
6507 with questions as to the reporting of the breach, if any guidance 
is needed or if brokers are unable to send an electronic notification 
due to the breach. In addition, CBP added the email address to Sec.  
111.21 as the method for reporting a breach, and added the CBP SOC as 
the appropriate location for reporting a breach.
    Comment: Several commenters disagreed with the proposed requirement 
in Sec.  111.21(b) to provide notification to CBP within 72 hours of 
discovery of any known breach with a list of all compromised importer 
identification numbers as it is unreasonable. One commenter argued that 
if the breach were to happen on a weekend followed by a holiday, the 
broker would already be outside of the window of time allotted by CBP. 
Other commenters pointed out that this requirement is especially 
challenging for brokers who use third-party information technology (IT) 
providers. Such a short time frame may also lead to incomplete reports. 
Also, one commenter argued that the risk of a data breach seems to be 
minimal given CBP's advance targeting system detecting anomalies in 
shipping patterns.
    Different commenters suggested different approaches as an 
alternative to the 72-hour requirement, such as an agreed upon time 
frame after the initial reporting of the fact that a breach occurred; 
reporting ``as soon as practicable''; or, allowing for two weeks or ten 
(10) business days for the investigation and notification of the breach 
from the time of discovery. Another suggestion was to allow for a 
process similar to the one set forth in 19 CFR 162.74(b)(4) in the 
context of prior disclosures, providing information within 30 days of 
the initial disclosure date.
    Response: As identify theft is a major concern, CBP requires 
brokers to provide any known breach of importer identification numbers 
within a short time frame to CBP. Receiving the compromised importer 
identification numbers soon after the discovery of the breach will 
allow for a better targeting analysis and, thus, enhance CBP's overall 
risk management. However, CBP understands that 72 hours may in some 
instances not be sufficient to provide CBP with the complete 
information regarding the breach. Therefore, CBP revised the proposed 
requirement for brokers to provide electronic notification of the fact 
that a breach occurred and any known compromised importer 
identification numbers within 72 hours of discovery. In addition, 
within ten (10) business days of the notification, a broker must 
electronically provide an updated list of any additional known 
compromised importer identification numbers. To the extent that 
additional information is discovered, a broker must electronically 
provide that information within 72 hours of discovery. The broker is 
encouraged to work with CBP to gather the remaining information as 
quickly as possible from the broker's own system or a third-party 
software vendor to provide a comprehensive report. CBP believes that 
the revision of the proposed language should provide sufficient time to 
provide CBP with the breach information, but also satisfy CBP's need to 
gather and analyze any breach information soon after its discovery.
    Comment: One commenter stated that the requirement pursuant to 
Sec.  111.21(b) to identify affected records in the electronic system 
is far beyond most brokers' capability and should instead be imposed on 
the software vendors that CBP certifies. Most brokers use third-party 
software and most smaller brokers use software hosted by the provider. 
The software interfacing with CBP is approved by CBP and, therefore, 
CBP should be requiring these interdiction tools as part of their 
certification requirements. Unless a broker is using custom software, 
identification of a breach and the affected records should be the 
responsibility of the CBP-approved software vendor.
    Response: CBP agrees that an agreement between CBP and a CBP-
approved software vendor imposes the requirement on the software vendor 
to report any security incidents that have any effect on the security 
posture of CBP. However, a broker has an independent responsibility to 
notify CBP of any breach that compromised importer identification 
numbers, as discussed above. Also, brokers who do not engage a CBP-
approved software vendor have the responsibility to provide the breach 
information either from their own server or from a third-party software 
vendor that the broker employed. Regardless of where the broker's 
information is stored and maintained, CBP's revision of the time frame 
for the reporting requirement, as mentioned above, should allow 
sufficient time for a broker to provide the required information.
    Comment: One commenter stated that the notification of the breach 
to CBP should be treated as confidential information because making the 
breach public may subject an entity to undue harm.
    Response: CBP treats information received from brokers as 
confidential within the Department of Homeland Security (DHS), however, 
information may be analyzed and possibly released under the rules 
pertaining to the Freedom of Information Act (FOIA), as amended (5 
U.S.C. 552). Section 103.21 of 19 CFR sets forth the procedures with 
respect to the production or disclosure of any documents contained in 
CBP files, or any information relating to material contained in CBP 
files, in all federal, state, local and foreign proceedings when a 
subpoena, notice of deposition, order, or demand of a court, 
administrative agency or other authority is issued for such 
information. Notifications by brokers of a breach would be covered 
under these provisions.
    Comment: One commenter stated that many companies do not designate 
one individual as the party responsible for brokerage-wide 
recordkeeping requirements, as proposed in Sec.  111.21(d). In most 
cases, multiple individuals are responsible for records management of 
policy, legal and operational matters. Another commenter stated that 
CBP should understand that brokers may provide group mailboxes and 
centralized contact information, monitored by multiple 
``knowledgeable'' persons, which should satisfy the recordkeeping 
requirement in Sec.  111.21(d).
    Response: CBP understands that within a broker entity, different 
individuals may be responsible for different reporting matters, 
however, CBP needs the contact information for one knowledgeable 
employee as the party responsible for brokerage-wide recordkeeping 
requirements in case CBP has any questions or concerns. The designated 
individual may contact other

[[Page 63279]]

individuals within the broker entity who have the knowledge on a 
particular recordkeeping matter to address CBP's question or concern. 
Under the new national permit framework, it will be especially 
important to maintain a current broker point of contact to facilitate 
efficient processing of entries and entry summaries. As to the second 
question, a general email address or group mailbox along with an 
individual's name as the point of contact is sufficient under Sec.  
111.21(d).
    Comment: Commenters agree that paper or hard copy documents, as 
well as electronic documents maintained on a broker's privately owned, 
leased, or controlled server, should be located in the United States. 
However, where a broker uses a public third party to externally 
maintain or host the data, CBP should allow such a party to maintain or 
host the data outside of the United States, so long as that party is an 
entity operating and incorporated in the United States for 
jurisdictional purposes. This will provide a broker with the necessary 
flexibility to maintain data, while assuring CBP that the broker 
possesses the necessary authority to obtain such documents, when 
necessary. One commenter argued that so long as the information is kept 
securely, it should not matter if the information is kept within the 
U.S. customs territory or not, referring to Headquarters ruling H292868 
(March 10, 2020). Another commenter argued that software programs exist 
that allow a company to file entries and declarations for multiple 
countries while the broker still works in the United States. The system 
being used could be securely accessed using a website and housed in 
another country where the broker entity may have its corporate 
entities. Such systems allow for enhanced corporate reporting and 
visibility into their customers' supply chains.
    Response: A broker's paper and electronic records must be stored 
within the customs territory of the United States pursuant to proposed 
Sec.  111.23(a). CBP has addressed the particular issue of maintaining 
copies and backups of a U.S. customs broker's digital records outside 
of the U.S. customs territory in Headquarters ruling H292868 (March 10, 
2020). CBP determined in this ruling that a broker's electronic records 
hosted and maintained by a third-party software vendor must be 
maintained on a server physically located within the U.S. customs 
territory. Section 111.23(a) dictates that a licensed customs broker 
may maintain records relating to its customs transactions ``at any 
location within the customs territory of the United States'' in 
accordance with 19 CFR part 163. It is clear from the governing 
statutes (19 U.S.C. 1508, 1509(a)(2)) and regulations that a broker's 
electronic records must be maintained on a server physically located 
within the U.S. customs territory because this is where CBP has 
jurisdiction to issue a summons and inspect records. Nonetheless, CBP's 
Headquarters ruling also emphasized that a broker's duplicate or backup 
records may be stored outside of U.S. customs territory, so long as the 
recordkeeping requirements for the original records are satisfied. 
However, to make this position clearer in Sec.  111.23(a), CBP added 
the words ``originals of'' before the word ``records'' to clarify that 
the requirement to maintain records in the U.S. customs territory 
pertains to original records, not backup records. This clarification 
does not change any of the substantive regulatory requirements and is 
consistent with CBP's prior rulings.
    Comment: One commenter asked CBP to provide greater clarity as to 
what constitutes ``records''. The commenter argued that certain 
commercial circumstances dictate the disclosure of information that may 
not be permissible under the current proposed language in Sec.  111.24, 
such as collections, banking, or financial matters. The commenter 
claimed that CBP should allow for more business-friendly flexibility, 
so that a broker should not have to obtain a waiver to perform normal 
business activities that are incidental to its provision of customs 
business; limiting disclosable information would possibly place 
additional liability on the broker in an unforeseen manner. Several 
commenters suggested that a revision of the regulation to include 
certain information, e.g., necessary for screening or transportation of 
a client's cargo, would better reflect how data and information are 
transmitted and used by brokers in the commercial environment and their 
business dealings. One of the commenters argued that without such 
language, brokers would question whether they are complying with their 
obligation to maintain the confidentiality of their clients' 
information.
    Response: The term ``records'' is used throughout part 111 to refer 
to those records that are kept in a customs broker's ordinary course of 
business and that pertain to certain activities, including information 
required in connection with any importation, declaration or entry. A 
more general definition of ``records'' can be found in 19 CFR 
163.1(a)(1) and encompasses a wide range of information that is made or 
normally kept in the ordinary course of business that pertains to any 
activity listed in 19 CFR 163.1(a)(2).
    CBP does not agree with expanding the scope of disclosure of 
confidential information to additional scenarios. CBP cannot give 
advance authorization for the disclosure of importer records, as that 
authority lies with the client (importer). A broker is merely an agent 
of the importer, and the broker must obtain a written release from a 
client allowing for the sharing of client information with third 
parties for certain purposes, as the scope of client information to be 
shared is determined by the client. Written authorization for specific 
disclosures may be granted by the client to the broker as part of a 
power of attorney, or as a separate release.
    Comment: One of the commenters referred to Headquarters ruling 
H221355 (November 21, 2012) in which CBP determined that a broker is 
prohibited from disclosing the name and address of a client to a third 
party for security verification purposes. The commenter asked CBP to 
revise Sec.  111.24 to provide that a broker is not precluded from 
disclosing client information to other third parties.
    Response: CBP does not agree with the commenter's request. CBP 
continues its interpretation that, absent client consent, Sec.  111.24 
prevents the sharing of client contact information with a third party 
for security verification or other purposes, as determined in 
Headquarters ruling H221355. Any authorization for the broker to use 
client information must be set forth in the power of attorney that is 
agreed upon between the broker and the client or obtained in a separate 
written release. The confidentiality of a client's business information 
remains a paramount concern for CBP, but a client can always authorize 
the broker in writing to share information with third parties for 
certain purposes.
    Comment: Several commenters asked CBP to consider revising the 
exemption that allows brokers to disclose information to 
representatives of DHS and limit the disclosure to representatives of 
CBP and U.S. Immigration and Customs Enforcement (ICE). The commenters 
argued that the agencies most directly involved with the business of 
the clients serviced by brokers are CBP and ICE, and only those 
agencies should be specified in the regulation. The commenters 
suggested to add the phrase ``or as requested, in writing, by employees 
of other government agencies as necessary and appropriate.'' to include 
DHS representatives. Alternatively, other

[[Page 63280]]

DHS agencies could fall under the catch-all phrase ``other duly 
accredited officers or agents of the United States'' in Sec.  111.24.
    One commenter pointed out that the proposed regulation does not 
contemplate that a broker may need to consult with an outside party, 
such as an attorney or consultant, or insurance underwriter/broker. The 
broker asserted that the broker should be able to discuss, and more 
importantly, disclose details of an incident, to an outside third party 
in the context of a damages claim by the client against the broker due 
to the broker's alleged error or omission.
    Response: CBP proposed to replace the list of specific covered 
government employees to whom the broker records may be disclosed with a 
general reference to DHS representatives in order to include any 
government entity within DHS who may be involved in a broker matter. 
This language maintains CBP's flexibility to involve other entities 
within DHS, if deemed necessary. It is important to note that within 
DHS, all agencies are bound by the same information sharing rules to 
properly protect confidential information. Thus, CBP does not agree 
with limiting the general rule of disclosure of client information to 
CBP and ICE.
    Additionally, DHS representatives are specifically mentioned in 
current Sec.  111.26, in the context of interference with the 
examination of records. By revising Sec. Sec.  111.24 and 111.25 and 
adding a reference to DHS, CBP is creating consistency among the 
regulations that deal with a broker's recordkeeping responsibilities.
    Comment: One commenter, who expressed support for the addition of 
exemptions that permit information sharing, stated that the exemptions 
do not extend far enough to meet the needs of the modern business 
community. The commenter argued that many businesses have separate 
operating entities under one parent company that offers a broad set of 
services to customers. In a situation where one company acts as a 
broker, it should be allowed to share customer data within the larger 
corporate structure, assuming certain ownership and control metrics are 
met. Another commenter added that, at a minimum, the regulation should 
permit data sharing with a related corporate entity, such as a 
transportation provider, where the related entity originally provided 
the customs information to the broker.
    Response: CBP disagrees with the commenter's suggestion to expand 
the scope of exemptions in Sec.  111.24. Related entities within a 
larger corporate structure are still separate legal persons (see 
Headquarters ruling 116025 (September 29, 2003)), and no information 
may be shared among those related entities without a client's consent. 
As mentioned above, a client may consent to a broker's sharing client 
information within the larger corporate structure but consent to share 
information with related entities cannot be assumed, and it cannot be 
mandated by CBP.
    Comment: One commenter, a surety association, asked CBP to amend 
Sec.  111.24 to add an affirmative obligation to provide information to 
those entities specifically identified in that section, i.e., when 
disclosure is allowed, it should be compulsory. The commenter argued 
that, as the regulation is written, the broker does not have an 
affirmative requirement to provide information to the client's surety 
on a particular entry. Even though a surety continues to be named as an 
exception to a list of parties to whom disclosure may be allowed, 
brokers do not always read that language as compulsory. The commenter 
proposed to add language indicating that a broker ``must'' disclose the 
contents of the records, or any information connected with the records 
to those clients to the entities listed in proposed Sec.  111.24, or, 
in the alternative, add language to state that information may be 
disclosed if an unexpected or unanticipated matter arises and the 
broker considers it necessary to consult, inform, or engage with third-
party experts.
    Response: CBP does not agree with the commenter's suggestion and 
will not change the regulatory language to reflect that a broker 
``must'' disclose client information to a surety. CBP will not mandate 
that brokers share confidential client information with the third 
parties listed in Sec.  111.24. CBP maintains that sureties are third 
parties, incidental to the relationship between a broker and his or her 
client. Moreover, the surety is in a contractual relationship with its 
own client and should be able to establish an exchange of information 
with that client under the terms of their business relationship. It is 
therefore not appropriate for CBP to authorize in regulations the 
transmission of data to sureties pertaining to relations with 
unlicensed persons.
    Comment: One commenter stated that the proposed regulations have 
not addressed a significant issue surrounding Sec.  111.24, namely the 
storage of broker client data with cloud-based third-party providers. 
The commenter stated that CBP had addressed this issue with ``service 
bureaus'' in 19 CFR 143.4, but not with software service companies to 
whom brokers entrust the storage and security of client data and posed 
the question of whether data storage companies are considered ``service 
bureaus''.
    Response: Service bureaus are software providers that provide 
communications facilities and data processing services for brokers and 
importers, but which do not engage in the conduct of customs business, 
pursuant to 19 CFR 143.1(a)(3), 143.4. Service bureaus transmit 
electronic data to CBP as part of a service provided to the broker, and 
this data is considered confidential and may not be disclosed to any 
persons other than the filer or CBP. Companies that provide data 
storage (whether cloud-based or otherwise) contract with the broker. In 
such a setting, the security requirements are based on an agreement 
between the company and the broker, and CBP is not involved in this 
arrangement. Thus, a third-party data storage company is not considered 
a ``service bureau'' pursuant to Sec.  143.1, rendering the 
confidentiality requirement set forth in Sec.  143.4 inapplicable.
    Comment: A few commenters stated that the proposed standard of 
making the records available at a location specified by DHS in Sec.  
111.25(b) is vague and CBP should provide a clarification. The 
commenters suggested that CBP should specify that a broker shall make 
records available at its designated broker management unit within the 
appropriate Center, or at an alternative location mutually agreed upon 
by the broker and CBP. The regulation should further clarify that 
either paper or electronic copies of documents may be provided to 
ensure that neither the broker's physical presence nor any travel is 
necessary.
    Response: It is CBP's current practice that the location for the 
inspection of records is either the broker's office or a CBP office, 
and CBP will continue to allow those two locations for the inspection 
of records. In addition, CBP welcomes the opportunity to clarify that 
CBP accepts both paper and electronic records for inspection purposes. 
In fact, CBP has been accepting electronic records in cases of audits 
and otherwise during the COVID-19 pandemic. However, CBP reserves the 
right to request original versions of documents if deemed necessary.
    Comment: Two commenters stated that CBP should consider repealing 
19 CFR 163.5, which requires advance written notification of an 
alternative storage method for records. In today's highly automated and 
virtual environment, such a notification should not be required and is 
an administrative

[[Page 63281]]

burden for both the trade and CBP. Two other commenters argued that the 
final rule should include the freedom to allow a broker to maintain 
electronic records of its brokerage tasks, as well as any other related 
documents, as long as these documents can be readily retrieved and are 
properly backed up to comply with the time period mandated under Sec.  
163.5, without having to request written authorization.
    Response: CBP disagrees with the first two commenters' request to 
repeal Sec.  163.5. Section 111.25(c) refers to part 163, setting forth 
the provisions for the maintenance, production, inspection, and 
examination of records. Section 163.5 deals with recordkeeping 
requirements in general, and applies not only to brokers, but also 
owners, brokers, consignees, entry filers or agents of those persons 
mentioned in Sec.  163.2. Brokers mentioned in this section are only 
one of the groups of persons to which the recordkeeping requirements 
apply. For these reasons, CBP will not repeal this section.
    Part 111 sets forth the specific recordkeeping requirements 
applicable to brokers, and the records that each customs broker must 
create and maintain, and make available for CBP examination, in 
addition to the requirements in part 163. As explained above, CBP will 
continue its current practice of requiring that original records be 
maintained within the U.S. customs territory, in a manner that they may 
be readily inspected. The regulations permit either paper or electronic 
storage of original records, such that any other method is deemed 
alternative and requires written authorization. See Sec.  163.5(a). 
Backup records may be kept outside of the U.S. customs territory 
because CBP does not regulate these duplicate records.
    Comment: Several commenters stated that the proposed standard in 
paragraph Sec.  111.28(a) that a sole proprietorship, partnership, 
association, or corporation must employ a sufficient number of licensed 
brokers is vague, and a definition is needed for the term 
``sufficient''. The commenters stated that CBP should not require a 
``sufficient number'' of brokers as a factor, but rather set best 
practices as guidance for brokers in a revised Broker Management 
Handbook. Commenters stated that best practices would allow for an 
administrable and enforceable standard for brokers and CBP, as it is 
unclear under the proposed language how CBP would evaluate this 
obligatory standard (``must employ'') and how it is meant to complement 
the enumerated factors. A few commenters raised the same concerns with 
respect to proposed factor (6) in paragraph (a) requiring the 
availability of a sufficient number of individually licensed brokers 
for necessary consultation with employees of the broker. These 
commenters argued that the language should be revised with simpler 
language to require only the availability of licensed brokers for 
necessary consultation with employees of the broker.
    One commenter recommended to delete ``sufficient'' and replace the 
language with a standard number that can be applied to all brokers. For 
example, if an office had more than 15 employees conducting customs 
business, then an additional broker would be required to maintain 
proper supervision and control. Another commenter suggested to have a 
certain number of brokers per number of employees conducting customs 
business.
    Response: CBP does not agree that the term ``sufficient'' needs to 
be revised or removed. Allowing a broker entity to determine what is a 
sufficient number of licensed brokers gives the entity flexibility as 
to how to exercise responsible supervision and control. The sufficiency 
of licensed brokers employed by a sole proprietorship, partnership, 
association, or corporation is a fact-specific determination. CBP does 
not want to mandate a certain number of licensed brokers or a ratio of 
employees to licensed brokers, as the sufficiency of licensed brokers 
depends on multiple factors, such as the size of the broker entity, the 
skills and abilities of the employees and supervising employees, and 
the complexity and similarity of tasks that need to be completed. Each 
broker needs to evaluate his or her own business and see what is needed 
to provide high quality service to the clients. During the broker's 
internal reviews and audits, the broker entity will assess the 
sufficient number of licensed brokers required for the proper conduct 
of customs business. For example, if an entity has a lot of new 
employees, more licensed brokers may be necessary for oversight; a 
larger entity with many clients will most likely need more licensed 
brokers than a smaller entity with fewer clients. All determinations 
concerning sufficiency are fact-specific, and CBP does not want to 
specify a certain number of brokers that is required for a certain size 
of business. In addition, the Broker Management Branch at CBP 
Headquarters engages with the brokers to answer questions and resolve 
any issues as they arise, and thus, brokers may contact CBP if there 
are any questions. Additionally, with the inclusion of the ``sufficient 
number'' language in the proposed regulation, CBP incorporated COAC's 
recommendation to employ an adequate number of licensed brokers to 
ensure responsible supervision and control, as part of its 
recommendation to move to a national permit framework.
    Comment: One commenter expressed the concern that the language 
``sufficient number'' could be interpreted differently by different 
Centers. The commenter also asked what time frame would be provided for 
broker entities to come into compliance should a Center determine that 
the current number of brokers is not sufficient. Lastly, the commenter 
asked whether there would be ways to challenge a Center's decision, or 
at least challenge the methodology used to determine, for example, the 
adequacy of licensed brokers to entry writers.
    Response: As mentioned above, CBP Headquarters provides guidance to 
all BMOs to ensure that brokers receive consistent answers to 
questions. CBP will continue to do so regarding any changes brought 
about by the final regulations, including the requirement to have a 
sufficient number of licensed brokers. Regarding the time frame for 
compliance in case CBP determines that a broker entity does not employ 
a sufficient number of licensed brokers, CBP will handle this matter in 
the same fashion as other broker matters where CBP might detect an 
error in entry filings or other submissions by the broker. CBP will 
address the issue (in this case, the insufficient number of licensed 
brokers) with the broker and state that action needs to be taken by the 
broker to correct the issue, such as additional licensed brokers to 
exercise responsible supervision and control. Then the broker will have 
an opportunity to address the issue and CBP will work with the broker 
on a plan of action to resolve the issue. If the broker does not follow 
the plan of action, then CBP will issue a warning. A decision by the 
BMO regarding the sufficiency of licensed brokers may be challenged by 
escalating the issue to a BMO's supervisor, the Assistant Center 
Director. Ultimately, however, the broker will need to follow the plan 
of action determined necessary by CBP. Continued failure to do so will 
warrant escalated CBP remedial actions including, possibly, a penalty, 
or suspension or revocation of a license. When the processes for a 
penalty, suspension, or revocation are invoked, the broker has the due 
process opportunities already afforded by CBP regulations.
    Comment: One commenter stated that CBP should consider the number 
of

[[Page 63282]]

employees with a Certified Customs Specialist designation as a means to 
meet the responsible supervision and control requirement.
    Response: CBP disagrees with the commenter's suggestion. The 
privately offered Certified Customs Specialist (CCS) certification must 
be distinguished from the profession of a licensed customs broker. To 
become a CCS, an individual must take the CCS course and an exam at the 
end of the course, and have at least one year of customs experience, 
but is not required to be a licensed customs broker. A CCS's position 
cannot be elevated to that of a licensed customs broker, and therefore, 
having a certain number of CCSs in a broker entity will not satisfy the 
responsible supervision and control standard. However, the fact that a 
broker entity employs numerous CCSs might affect CBP's evaluation of 
whether the entity employs a sufficient number of licensed customs 
brokers.
    Comment: One commenter stated that CBP must provide guidance as to 
the responsible supervision and control standard for the broker 
community since a failure to comply with the standard could lead to 
penalties and suspension or revocation. Any guidance would encourage 
brokers to incorporate these standards into their compliance programs. 
The commenter further recommended that CBP create a procedure where 
brokers can get clearance on whether the number of licensed brokers is 
sufficient for a particular broker entity before any change in the 
number of brokers requirement is imposed, and create a program, which 
would permit brokers to get clearance on this question after the 
requirement is imposed.
    One commenter stated that the regulation must be clarified, or 
otherwise removed, and added that even though CBP stated it will be 
providing guidance, this guidance would not be subject to review and 
comment, depriving the broker of any input on this issue.
    Response: CBP disagrees with the first commenter's request that CBP 
should provide prior clearance on the issue of sufficient number of 
licensed brokers, or approval of the number of licensed brokers after 
employment of a set number of brokers. Prior clearance cannot be given 
to a broker entity because it is impossible for CBP to evaluate 
beforehand whether a certain number of licensed brokers will be 
sufficient to exercise responsible supervision and control. Such a 
determination depends on specific facts and circumstances of the 
individual broker's or broker entity's customs business. CBP assesses 
the sufficiency of licensed brokers in the context of the broker's 
business dealings; it is not an abstract decision that can be made. 
Further, CBP does not believe that creating a program to provide prior 
approval of a set number of licensed brokers for a broker entity would 
be beneficial. As with prior clearance, approval after the fact is not 
feasible because CBP would not know whether the broker entity will 
function properly and exercise responsible supervision and control 
until the entity is in fact conducting customs business.
    Before CBP issues a suspension or revocation there is usually a 
history of a broker's failure to meet the supervision standard; in most 
cases, CBP does not automatically suspend or revoke a broker's license. 
There will be communication between the broker and CBP regarding the 
broker's failure to meet the supervision standard, and ways to mitigate 
that failure.
    One of the commenters asked that any regulatory changes based on 
public comments be subject to review and comment by the public for a 
second time. CBP disagrees with this request. Pursuant to the 
Administrative Procedure Act (APA) (5 U.S.C. 551 et seq.), CBP 
solicited comments from the public regarding the proposed changes to 
part 111 and provided a 60-day comment period. Any change from the 
proposed regulations is either based on a public comment, a 
clarification of the proposed or current regulations, or a change that 
results in a benefit or convenience to the broker community without 
detriment to existing rights, such as additional automation of certain 
processes. CBP will not implement any major changes without seeking 
public input first. Thus, CBP does not see the need to provide a second 
opportunity for public comments on any guidance that CBP will issue 
before finalizing the proposed regulations.
    Comment: Several commenters expressed a concern with respect to the 
change from the word ``will'', which used to be part of the definition 
of responsible supervision and control in Sec.  111.1, to the word 
``may'' in Sec.  111.28(a). The commenters stated that this change 
indicates that CBP is no longer required to take into consideration all 
the listed factors when determining whether a broker exercises 
responsible supervision and control, and thus removes the protection 
from a broker by not obligating CBP to consider broker compliance 
efforts in their totality. One mistake could seemingly result in a 
broker penalty without regard to the other factors.
    Several commenters urged CBP to continue to consider all enumerated 
factors in assessing responsible supervision and control to avoid any 
arbitrary and capricious determinations and prevent inconsistent 
decisions by different CBP officers. The commenters argued that keeping 
``will'' in the regulation provides transparency and uniformity for 
brokers in executing operations and procedures, as well as for CBP 
officers in administering and enforcing this standard. A change to 
``may'' would allow CBP to focus on whichever factor it deems 
appropriate to the exclusion of additional factors that are clearly 
relevant as to whether a broker is exercising responsible supervision 
and control. CBP should be required to review all factors in order to 
ensure that a broker receives a full and fair evaluation.
    Response: CBP disagrees with the commenters. CBP needs flexibility 
in determining whether a broker is exercising responsible supervision 
and control over the customs business that it conducts, as this is a 
fact-specific assessment. It has been CBP's practice to give greater 
weight to the factors that are implicated in a broker's exercise of 
responsible supervision and control when making a determination. There 
may be instances where one or more factors will be more relevant than 
others in determining whether a broker did or did not exercise 
responsible supervision and control. While it is possible that CBP's 
determination that a customs broker has failed to exercise responsible 
supervision and control may be predicated on fewer factors, but ones 
that CBP considers relevant, this does not prevent the broker from 
presenting in its defense any factors it believes to be mitigating.
    Comment: A few of the commenters stated that the change from 
``will'' to ``may'' would be contrary to judicial precedent, citing a 
court case, United States v. UPS Customhouse Brokerage, Inc., 575 F.3d 
1376, 1382 (Fed. Cir. 2009), in which the court decided that CBP's 
failure to consider all ten factors to determine whether a broker 
exercised responsible supervision and control was improper.\9\ In 
addition, a commenter argued that the proposed language is in violation 
of Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984), because agencies 
cannot implement regulations that are arbitrary and capricious.
---------------------------------------------------------------------------

    \9\ The cited court case may be found online at https://cite.case.law/f3d/575/1376/.
---------------------------------------------------------------------------

    Response: CBP disagrees with the commenters. CBP may only be bound 
by judicial precedent if the same regulatory language is still in 
place. If CBP decides

[[Page 63283]]

to change the regulation through a process allowed by the APA, judicial 
precedent no longer binds CBP in making that change. Further, the 
proposed language in Sec.  111.28(a) is not arbitrary and capricious. 
CBP proposed in the NPRM to keep the list of factors to determine 
responsible supervision and control set forth in Sec.  111.1, and move 
it to Sec.  111.28(a), along with some additions and modifications to 
reflect the changes brought about by the transition to a national 
permit framework. CBP further proposed to consider the relevant factors 
from among those listed on a case-by-case basis. No decisions will be 
made without a thorough evaluation of the relevant factors present that 
apply to an individual broker.
    Comment: Several commenters stated that the newly proposed factors 
in Sec.  111.28(a)(11) through (15) are vague and decrease a broker's 
certainty in adopting and executing the necessary processes to meet the 
supervision standard. The commenters suggested that the factors either 
be removed or at least incorporated into one general factor, for 
instance into factor (10), as an indication that an individually 
licensed broker has a real interest in the operations of a broker. In 
addition, commenters requested that any guidance as to the factors be 
provided as best practices in the Broker Management Handbook.
    A few commenters suggested to remove the new factors because the 
current ten factors are adequate to determine that a licensed broker 
has a real interest in the operations. One commenter referred to COAC 
recommendation No. 010021 (April 27, 2016), which recommends that CBP 
provide guidance to brokers regarding the ten factors demonstrating 
responsible supervision and control, such as how to properly train 
employees, issue appropriate written instructions and internal 
controls, maintain an adequate ratio of employees to licensed brokers 
based on certain factors, and engage in supervisory contact, audit and 
review operations. The commenter is of the opinion that CBP has not 
done so in the NPRM.
    Response: CBP disagrees with the comments to either remove or 
consolidate the proposed factors (a)(11) through (15) into existing 
factor (10). First, including all proposed factors in one factor would 
make the language complex and difficult to follow and enforce. Second, 
CBP added factors that reflect their importance in the modern brokerage 
environment and their importance in evidencing the proper transaction 
of customs business. For instance, filing entries late, paying the 
government late, or not returning client or CBP communications, are all 
evidence of a broker's failure to exercise responsible supervision and 
control. CBP provided an explanation as to each proposed change in the 
NPRM, and as mentioned above, has worked with the broker community in 
the past and has taken into account their recommendations. As mentioned 
above, a new guidance document, that will be published concurrently 
with the publication of this final rule, will include information as to 
the listed factors in Sec.  111.28(a). In the meantime, brokers may 
find additional information and guides on CBP's website at https://www.cbp.gov/trade/programs-administration/customs-brokers regarding the 
broker license exam, triennial status reporting requirements for 
current brokers, as well as additional information and resources for 
brokers.
    Comment: One commenter raised a concern regarding proposed factor 
(11), i.e., the broker's timeliness of processing entries and payments 
of duty, tax, or other debts owed to the government. Two commenters 
stated that a broker is not obligated to pay on behalf of an importer 
and asked how the timeliness factor can be judged in such a situation. 
Both commenters stated that the term ``timeliness'' is vague and does 
not provide a benchmark to which a broker can develop and execute 
processes, nor can CBP uniformly and transparently evaluate and enforce 
the standard. The same concern as to vagueness was raised for the term 
``responsiveness'' in proposed factors (13) and (15).
    Lastly, commenters stated that the term ``communications'' in 
proposed factors (12) (communications between CBP and the broker) and 
(14) (communications between the broker and its officer(s)) is too 
broad. One commenter explained that proposed factors (12) and (13) (the 
broker's responsiveness and action to communications, direction, and 
notices from CBP) do not explain what type of communication is covered, 
and proposed factors (14) and (15) (the broker's responsiveness and 
action to communications and direction from its officer(s)) cover 
communications between parties to which CBP would have no visibility. 
One commenter posed the question whether CBP will regularly make 
available to customs brokers examples of communications relevant for 
verification and training purposes.
    Response: CBP disagrees that these proposed terms need to be 
further defined in the regulation. The timeliness factor looks at a 
broker's repeated failures to timely file entries and/or duties, taxes 
or other debts owed to the government, not just one incident alone. 
``Timely'' generally means doing something by the time it is required 
to be done in statute or regulation, which is not a vague concept. If a 
broker frequently fails to timely submit entries and/or payments, CBP 
will consider the failure to comply with factor (11) in its 
determination as to whether a broker is exercising responsible 
supervision and control.
    With respect to the term ``responsiveness'' in factors (13) and 
(15), a broker's failure to respond to any communications, direction 
and notices from CBP, and to communication and direction from its 
officer(s) or member(s) (i.e., not returning phone calls or emails, 
etc.) will reflect negatively on whether a broker is exercising 
responsible supervision and control.
    The term ``communications'' in the context of responsible 
supervision and control is used to assess how well and timely a broker 
is communicating with its officer(s) or member(s), and with CBP. CBP 
does not agree that examples of communications need to be provided to 
brokers for verification and training purposes. Brokers should be able 
to determine what, if any, communication is needed in a particular 
situation with CBP and officer(s) or member(s) of the broker entity.
    To make the proposed language in Sec.  111.28(a) more concise, CBP 
combined factors (12) and (13) into one new factor (12), which deals 
with the broker-CBP relationship, and combined factors (14) and (15) 
into one new factor (13), relating to the broker-officer/member 
relationship. In addition, CBP added a reference to ``member(s)'' in 
the new factor (13) to account for partnerships, in addition to 
associations and corporations as a type of broker entity.
    Comment: Several commenters stated that it is unclear what the 
terms ``reject rate'' and ``various'' in proposed factor (4) of Sec.  
111.28(a) mean under the new supervision standard and argued that, 
without clarity, this metric is misleading and could be highly 
prejudicial. One commenter stated that the factor should be eliminated 
because it appears to be intended to account for a broker's mistakes 
(versus an importer's or other third party's mistake). Clear guidelines 
are necessary as to what CBP considers an actionable rejection, and 
only those instances where the broker is at fault (and not the third-
party importer) should be taken into consideration.
    Response: CBP does not agree with the commenters that the terms 
``reject rate'' and ``various'' need to be clarified

[[Page 63284]]

in the regulation. The reject rate for the various customs transactions 
historically has been a factor in Sec.  111.1 in the definition of 
responsible supervision and control. ``Various'' means not just one 
rejection, but several, over the course of time. CBP proposed to add 
language to this factor when moving it to factor (4) in Sec.  111.28(a) 
to clarify that CBP looks at the reject rate by comparing the number of 
rejections with the broker's overall volume of entries. This revised 
language provides a better context to evaluate the quality of 
responsible supervision and control as CBP looks at the totality of the 
transactions conducted by the broker to determine whether the broker is 
properly filing entries. In addition, CBP relied on COAC recommendation 
No. 010020, which suggested a clarification of existing factor (4) to 
state that the reject rate resulting from entries or entry summaries be 
expressed as a percentage of the broker's overall business for the 
various customs transactions, when making this change to the original 
factor.
    CBP agrees with the commenter who states that this factor is 
intended to account for a broker's mistakes, however, a broker's 
responsibility includes a duty to verify any information received from 
an importer. The broker must exercise due diligence and make sure that 
the data from the importer is correct, e.g., that the classification of 
goods is correct. The broker must further verify, depending on the 
specific facts and circumstances, whether the importer has experience 
in gathering and providing the necessary information to the broker, 
whether the importer is a new client, and may need more assistance, or 
whether the client is experienced in providing the necessary 
information. CBP has no way to determine once a filing is made whether 
a mistake (and reject) was due to a broker's mistake, or due to 
incorrect information provided by the importer. Moreover, any type of 
rejection will be communicated to the broker, and the broker has the 
opportunity to make a clarification.
    Comment: Further, several commenters requested that not all system 
rejects in Automated Broker Interface (ABI) should be considered as 
rejects as they are often due to contributory factors, such as system 
outages, delays in HTSUS updates, and programming changes for Partner 
Government Agencies (PGAs) and in the CBP and Trade Automated Interface 
Requirements (CATAIR) with short deployment time frames and highly 
complex filings causing numerous system rejects. One commenter added 
that ACE is too new and there have been problems with CBP processing, 
especially drawback filings, thus, this factor (4) in Sec.  111.28(a) 
is not appropriate.
    Response: In case of system outages or delays, where the broker is 
unable to file in ACE, the broker does not receive a reject. A reject 
occurs only if the broker successfully submitted a filing in ACE, which 
is considered filed, and because of the lack of accuracy of the filing, 
is rejected. As to the comment that ACE is too new, ACE has been the 
system of record since November 1, 2015, as mentioned above. Both CBP 
and the trade community have gained extensive experience over the last 
several years working with and in ACE. As to the commenter's second 
point, CBP usually announces programming changes, either in a Federal 
Register notice, or via a CSMS message, with guidance for the changes 
or updates to the process and provides additional time (usually 30 
days) after the publication of a notice as to when announced changes or 
updates become operational. Lastly, drawback claims have been 
successfully filed in ACE since February 2018. The ACE drawback module 
has been enhanced significantly to include expanded filing capabilities 
for claimants, refined validations that reflect current import 
practices, and updated bonding policies for accelerated payments. In 
addition, CBP maintains extensive customer service resources for 
existing and new drawback filers.
    Comment: Another commenter requested clarity about census warnings 
and asked that they not constitute rejects. Another commenter stated 
that the term ``reject rate'' lacks specificity and asked whether the 
term is the same as used in Customs Directive 099-3550-67.\10\
---------------------------------------------------------------------------

    \10\ The Customs Directive may be found online at https://www.cbp.gov/sites/default/files/documents/3550-067_3.pdf.
---------------------------------------------------------------------------

    Response: Census warnings are informational messages that are part 
of the entry validation process. The U.S. Census Bureau (Census) 
provides CBP with specific data ranges at the HTSUS level that ACE uses 
to validate a variety of data elements (e.g., line value, charge). If a 
line is transmitted that falls outside of the Census parameters, ACE 
will return a warning message to the filer. These warnings are 
described in the Appendix H of the CATAIR.\11\ A Census warning is not 
a reject, as the entry summary is not incorrect, but the information 
provided is unlikely to be accurate, given Census' parameters. The 
filer is then required to submit the corrected line data or if the data 
is found to be correct as entered, submit the reason code for a Census 
``override.''
---------------------------------------------------------------------------

    \11\ Appendix H provides a detailed resolution on each warning 
so that the party receiving the warning will know what elements are 
considered to be ``unlikely'' to be accurate. The appendix may be 
found online at https://www.cbp.gov/document/technical-documentation/ace-catair-appendix-h-census-codes.
---------------------------------------------------------------------------

    With respect to the second commenter, the reject rate pursuant to 
Sec.  111.28(a)(4) covers rejections of entry summaries as discussed in 
the Customs Directive mentioned above, even though some of the items in 
this Directive have become obsolete.
    Comment: Another commenter suggested that rejects should only be 
counted after a broker has had the opportunity to agree or provide 
proof that the originally filed entry was correct. Another commenter 
asked whether CBP would consider listing rejected entries in ACE to 
allow the broker to review these entries for verification and training 
purposes. Lastly, one commenter stated that multiple rejects due to one 
problem should not be counted as multiple rejects.
    Response: CBP does not agree with these comments. A filer receives 
an error message in ACE if there are any issues when filing. If the 
submission is rejected, comments are provided as to corrective action 
that is necessary. Whether a reject is a system reject or a manual 
reject by a CBP employee, the filer is notified either way as to the 
reason for the reject. With system rejects, an error code is provided, 
and the error codes are described in the ACE CATAIR Error Dictionary 
\12\ for the filer to refer to and correct the error. For a manual 
reject, a CBP employee enters a message in an ACE user interface 
``Notes'' field describing the error, along with instructions as to how 
to re-transmit the filing in proper form. This message is transmitted 
to the filer in ACE. For either type of reject, the filer is given 
sufficient information to re-submit the correct filing, thus, CBP does 
not believe that it is necessary for the filer to agree or provide 
proof that the originally filed entry was correct.
---------------------------------------------------------------------------

    \12\ The ACE CATAIR Error Dictionary is available online at 
https://www.cbp.gov/document/guidance/ace-catair-error-dictionary.
---------------------------------------------------------------------------

    Lastly, if a filer makes multiple filings, based on the same 
incorrect information, the system does count each instance of filing as 
a reject. CBP notes that if a broker makes the same mistake in several 
filings and receives the same error code or message, and the filings 
are rejected, the broker should be aware for future filings as to the 
error and how to properly submit an entry. Additionally, the broker may 
always

[[Page 63285]]

contact CBP to ask for clarification as to a rejected submission, if 
necessary.
    Comment: Some commenters stated that CBP should adjust the proposed 
language in factor (7) (supervisory visits) and factor (8) (audits and 
reviews) for Sec.  111.28(a) to include virtual options for supervisory 
visits by an individually licensed broker of another office that does 
not have a licensed broker, as well as audits and reviews of the 
customs transactions that are handled by an employee of the broker in 
order to better reflect today's often virtual business environment. In 
addition, one commenter stated that CBP needs to define ``frequency'', 
otherwise, a broker cannot ensure compliance.
    Response: Virtual options for supervisory visits, and for audits 
and reviews, are permissible. The factors, as written in the proposed 
regulation, do not limit supervisory visits, and audits and reviews, to 
a physical option. CBP understands, especially in the changed 
environment brought about by the COVID-19 pandemic, and the move from 
district permits to national permits, that both physical and virtual 
presence should be allowed for supervisory visits, as well as audits 
and reviews. However, whether a virtual supervisory visit or audit and 
review is sufficient in any given case to exercise responsible 
supervision and control depends on the specific circumstances of a 
broker's business, such as the size and complexity of a broker entity 
or the type of transactions that are handled by an employee. In 
addition, the term ``frequency'' is a fact-specific determination. As 
mentioned above, whether a broker exercises responsible supervision and 
control depends on how a broker conducts its customs business, and it 
is the broker's responsibility to determine how frequent the 
supervisory visits, audits and reviews should be. For example, more 
supervisory visits, and audits and reviews, may be necessary for new 
employees, or employees tasked with more complex transactions.
    Comment: Several commenters did not agree with the proposed 
requirement in Sec.  111.28(b) that a permit holder submit a list of 
the names of persons currently employed by the broker as this 
requirement may be too burdensome, especially on large companies. The 
commenters argued that CBP should require a list of names only of those 
employees who are engaged in customs business, given that the 
regulation specifically relates to supervision and control over the 
transaction of the customs business. For the same reasons, two 
commenters stated that the term ``broker employees'' used in paragraphs 
(a) and (b) of Sec.  111.28 should be changed to ``employees who 
conduct customs business'' because the term ``broker employees'' could 
relate to any employee of the broker, regardless of the employee's 
responsibility, and those employees should not be included in the 
reporting requirement.
    Response: CBP does not agree with the commenters. First, customs 
brokers are required to exercise responsible supervision and control 
over all of their employees, and in particular any of their employees 
who assist with the customs business and transactions of the brokerage. 
Requiring the customs broker to identify to CBP all of its employees 
contributes to both the customs brokers' and CBP's knowledge and 
awareness of the employees' status. Second, CBP requires the 
comprehensive information for all persons employed by a broker in order 
to be aware of all potential risks that any employee might present to 
the revenue of the United States or the public. Only by obtaining 
information on all employees can CBP properly engage in a dialogue with 
the customs broker to determine that none of the employees of the 
broker occupy a position within the brokerage that presents a risk to 
the revenue or the public. It is important to note that this final rule 
is not changing the reporting requirement for brokers. Brokers already 
have an obligation to submit a list of names of persons employed by a 
broker, and this obligation continues with this final rule, with the 
only change being that brokers have to report less information on their 
employees pursuant to the final regulation.
    Comment: Two commenters stated that CBP should enhance ACE to 
better facilitate the electronic reporting of employee information, 
improve the reporting of information included in the triennial 
reporting process and the submission of payment of various broker fees. 
Specifically, the commenters suggested the addition of a section in the 
ACE portal where updates can be easily made for new employees, 
terminated employees, or a change of address. Another commenter stated 
that the electronic data reporting system within ACE is cumbersome and 
CBP should not adopt the proposed language in Sec.  111.28(b) regarding 
the use of a CBP-authorized EDI in the final rule until a more modern 
system and interface are available, such as blockchain.
    Response: Electronic employee reporting for new and terminated 
employees has been in place within ACE for several years. At this time, 
brokers have several capabilities in ACE to add, remove or edit certain 
information related to the license and permit. CBP agrees that the 
automation of the broker submission could be further enhanced, and CBP 
is continuing to work on technological advancements to streamline and 
facilitate the processing of broker submissions. However, it is 
important to note that the system is currently functional to receive 
employee information from brokers.
    In addition, as mentioned above, CBP deployed a new portal for the 
electronic submission of and payment for the broker examination 
application, and the submission of the triennial report and payment of 
the triennial fee. In the case of the triennial reporting, if a broker 
files the status report and pays the required fee in the eCBP portal, 
CBP will send by email a receipt to the broker (if an email address is 
on file) evidencing the completion of the required reporting. A copy of 
the receipt and the filed report is maintained in the eCBP portal for 
the broker to access at any time. To provide all brokers the ability to 
receive an electronic receipt of the completion of the triennial 
reporting requirement, CBP added a broker's email address as a 
reporting requirement in Sec.  111.30. Specifically, CBP added ``email 
address'' in the first sentence of paragraph (a) and added parentheses 
after ``address information'' in the third sentence to clarify that the 
office of record address, mailing address and email address are all 
required for purposes of reporting a change of address. CBP also added 
the email address requirement in paragraphs (d)(2)(i)(A) and (d)(2)(ii) 
for individual brokers, both actively engaged and not actively engaged. 
CBP further included the requirement of an email address for each 
licensed member or licensed officer in case of partnership, 
corporation, or association reporting in paragraph (d)(3)(i).
    During the 2020/2021 triennial reporting period, approximately 90% 
of the licensed brokers filed the required report and paid the required 
fee through the new reporting tool. During that triennial reporting 
period, a broker had to choose to either pay online through the eCBP 
portal or at the port and had to submit both the report and the payment 
through one of the chosen options; a broker could not submit the report 
online and pay the fee at the port, or vice versa. For the next 
triennial reporting period in 2023/2024, CBP will continue with the 
same practice.
    A broker who chooses to pay the fee at a processing Center, i.e., 
at one of the

[[Page 63286]]

41 BMO locations, may either complete the status report in the eCBP 
portal and print the draft report or complete a paper copy of the 
report, and then submit the report to a processing Center, along with 
the payment of the fee. A BMO at a processing Center will accept the 
required report and payment and provide a cash receipt. The BMO will 
manually enter the information on the report in ACE for the triennial 
reporting to be completed.
    Comment: One commenter stated that the 30-calendar day requirement 
in Sec.  111.28(b)(2) to provide the social security number (SSN) for a 
new employee from a foreign country is difficult to comply with as it 
typically takes longer for the new employee to receive an SSN, and ACE 
does not accept any employee data without also providing the SSN. The 
commenters asked CBP to allow the submission of employee information in 
ACE without the SSN if it is not available at the time of the 
reporting.
    Response: Pursuant to the proposed regulation in Sec.  
111.28(b)(2), a national permit holder must submit a list of new 
employees within thirty (30) calendar days of the start of employment 
to a CBP-authorized EDI system. In the rare instance, where an SSN is 
not available for a new employee at the time of reporting, the broker 
must submit the new employee information to the processing Center, 
indicating that the SSN is still missing and that it will be reported 
as soon as it is available.
    Comment: Two commenters suggested to move paragraphs (b) through 
(e) of Sec.  111.28, dealing with the reporting of employee information 
and change in broker ownership, to Sec.  111.30. The commenters argued 
that while these paragraphs indirectly pertain to supervision and 
control, their placement in Sec.  111.28 is confusing as they represent 
regulatory requirements regarding administrative issues more akin to 
those set forth in Sec.  111.30.
    Response: CBP disagrees with the two commenters and believes that 
paragraphs (b) through (e) fit appropriately in Sec.  111.28. The 
aspect of employee reporting falls under the responsible supervision 
and control standard, as CBP will take into consideration a broker's 
proper employee reporting when looking at whether the broker exercises 
responsible supervision and control. In contrast, Sec.  111.30 includes 
instructions for how and when to notify and report to CBP, and what 
information to include in the notification and report.
    Comment: One commenter stated that the responsibilities in proposed 
Sec.  111.19(f) and proposed Sec.  111.28(a) are not consistent and it 
is not clear which individual broker has to comply with the responsible 
supervision and control standard. Proposed Sec.  111.19(f) talks about 
``the individual broker who qualifies for the national permit'', 
whereas proposed Sec.  111.28(a) talks about ``every licensed 
officer''. In Sec.  111.19, the primary responsibility rests with the 
individual broker designated as qualifying for a national permit, 
whereas in Sec.  111.28, every licensed officer is included in the 
definition of responsibility. The commenter suggested to amend Sec.  
111.28 to conform with other sections and limit responsibility to the 
specifically designated person as being responsible.
    Response: CBP does not agree with the commenter. A license holder 
and a national permit holder could be two different individuals 
conducting customs business, meaning that the license holder is bound 
by Sec.  111.28(a), whereas a national permit holder is held to the 
responsibility stated in Sec.  111.19(f). Both requirements are 
applicable to different designated individuals. If the license holder 
is the same individual as the national permit holder, then that 
individual is bound by the standard in Sec.  111.19(f), which also 
refers to Sec.  111.28(a) and includes the same standard. This cross-
reference would not cause such an individual to have two types of 
responsibilities.
    Comment: One commenter asked CBP to define the phrases ``physical 
proximity of subordinates'' and ``abilities and skills'' of employees 
and managers'' set forth in Sec.  111.28(a). The commenter explained 
that the pandemic has resulted in many licensed brokers working from 
home, so the physical proximity of subordinates was not always 
feasible. Another commenter stated that there should be full alignment 
of the modernization efforts under the national permit framework, 
meaning that CBP should remove the requirement for a sole 
proprietorship, partnership, association, or corporation, to employ 
licensed brokers relative to the physical proximity of subordinates 
under the responsible supervision and control standard in Sec.  
111.28(a).
    Response: CBP disagrees with the commenters. Both phrases, 
``physical proximity of subordinates'' and ``abilities and skills of 
employees'', help a broker entity determine how many licensed brokers 
are needed to exercise responsible supervision and control. Physical 
proximity pertains to the aspect of an employee being physically 
located in the same or different office close to a broker entity to 
ensure proper supervision of a subordinate. The level of supervision 
and the number of supervising employees depends on the ability and 
skill level of each employee within a broker entity. To comply with the 
responsible supervision and control standard, a broker entity must take 
into consideration the experience, training, and skills of an employee 
to make the determination as to how many licensed brokers are needed. 
This determination is fact-specific and takes into account the various 
factors listed in paragraph (a) of Sec.  111.28.
    Comment: One commenter noted that Sec.  111.28(e) does not set 
forth any time frames for CBP to make a decision as to whether CBP 
wishes to investigate a new principal or render a decision as to the 
acceptability of the new principal and notification of the transferring 
broker. Without set time frames, a legal transfer of ownership of a 
brokerage business could be voided. The commenter added that if the 
sale is to another broker or to an employee that CBP had previous 
notice of, there should not be an investigation.
    Response: CBP will not add a time frame for completing a background 
investigation pursuant to Sec.  111.28(e), just as there is no time 
frame for the background investigation for a license application 
pursuant to Sec.  111.14(a). CBP reserves the right to conduct a 
background investigation on a new principal, if deemed necessary. That 
said, if the new principal is a current employee of the broker and CBP 
had recently completed a background investigation on that particular 
individual, then CBP may not complete another investigation, but it is 
in CBP's discretion to make that decision. It is important to note that 
the new principal does not have to wait to conduct customs business 
until CBP completes the background investigation and renders a decision 
as to whether the new principal is approved. The new principal may 
start conducting customs business as soon as the change of ownership is 
completed. If CBP finds a problem during the background investigation, 
CBP will address it with the new principal.
    Comment: Several commenters asked that CBP change the deadline in 
Sec.  111.30(a) for reporting of a broker's address to ten (10) 
business days, instead of only ten (10) calendar days, to provide 
flexibility with weekends and holidays, or simply unavailability of a 
party that provides such information. One commenter suggested that 
thirty (30) calendar days would be preferable to align with the 
requirement in Sec.  111.28(b).
    Response: CBP disagrees with the commenters and will keep the time 
frame for reporting an address change at

[[Page 63287]]

ten (10) calendar days. CBP believes that a broker would know at least 
ten (10) calendar days in advance when a business address is changing. 
Moreover, CBP already added flexibility by changing the requirement 
from an immediate written notice to ten (10) calendar days to inform 
CBP. CBP believes that this is a sufficient time frame.
    Comment: One commenter stated that when a broker changes his or her 
name, pursuant to Sec.  111.30(c), the notice of the name change can be 
provided to CBP after the fact, but a broker must notify CBP in advance 
when he or she proposes to use a trade name in one or more states. The 
commenter argued that providing this information in advance was helpful 
when there were port licenses and manual records maintained at 
individual ports because the port had no way of knowing that a trade 
name was the pseudonym for a licensed entity. However, today, the filer 
code in ACE represents the licensed entity, thus making this 
requirement unnecessary.
    The commenter recommended that to the extent that CBP asserts that 
this documentation is still required, the regulation should be amended 
to be more consistent by requiring submission of both the name change 
and fictitious name authorization after the fact, rather than prior to 
use, and the requirement should apply only to the licensee's state of 
incorporation and office of record.
    Response: It is CBP's practice to require proof of a broker's name 
change or proposed trade name change prior to issuing a new license 
reflecting the new name. While it is true that in many instances, an 
individual broker does not provide evidence of a name change (e.g., due 
to marriage, divorce, etc.) prior to the actual name change, CBP 
believes that a broker entity who is planning on using a trade or 
fictitious name for conducting business in one or more states will know 
in advance what the new trade or fictitious name will be, thus, 
reporting to CBP in advance, along with documentation to be filed in 
those states, is not an unreasonable request. That said, in both 
instances (the broker's name change and the proposed trade name 
change), the broker will not be able to practice under the new name or 
trade name until the license reflecting the new name is issued to the 
broker. As mentioned in response to a comment above, CBP needs to know 
in what state(s) a broker is conducting customs business to be able to 
maintain oversight over the broker's business.
    Comment: One commenter stated that the failure to file the 
triennial report and pay the status report fee pursuant to Sec.  
111.30(d)(4) should not result in forfeiture of the right to conduct 
customs business, absent an opportunity to cure the failure. The 
commenter argued that filing the triennial report is essentially a 
ministerial activity with limited impact on CBP operations or revenue, 
yet the failure to timely file the report and/or pay seems to have the 
same effect of terminating a broker's ability to conduct business, even 
if only temporarily. In the case of a violation of a more substantive 
regulatory provision, the broker is given an opportunity to address the 
violation before the imposition of a penalty, suspension or revocation, 
however, the same opportunity is not afforded to the broker who failed 
to complete the triennial reporting requirement.
    Response: The suspension of a license by operation of law for 
failure to timely file the status report in the month of February of 
the reporting year pursuant to Sec.  111.30(d)(4) is prescribed by 
statute. Section 1641 of 19 U.S.C. states that if a license holder 
fails to file the required report by March 1 of the reporting year, the 
license is suspended, and may be thereafter revoked under certain 
circumstances. Therefore, CBP cannot modify the regulation to allow 
brokers an opportunity to address the failure to timely fulfill the 
status reporting requirements before a suspension is issued.
    Comment: Some commenters stated that the proposed requirement in 
Sec.  111.32 that a broker must not give, or solicit, or procure the 
giving of, any information or testimony that the broker knew or should 
have known was false or misleading in any matter pending before DHS is 
a very subjective standard and provides CBP with too much discretion. 
The commenters asked that CBP provide some criteria to determine what 
the broker should have known, what is considered misleading, and 
whether a misunderstanding qualifies.
    Response: CBP cannot provide a comprehensive list of facts and 
circumstances that a broker should have known. What a broker should 
have known is based on a reasonable person standard. Based on a 
broker's customs business, and the information the broker has before 
him or her, the broker should be able to make the assessment whether 
certain information is false or misleading and whether the broker 
should have known. ``Misleading'' information is information that could 
be deceptive, confusing, misrepresentative or just false. Whether a 
misunderstanding qualifies as the broker's having filed, solicited, or 
procured the giving of false or misleading information depends on the 
facts and circumstances of a broker's knowledge, expertise, and 
actions.
    Comment: One commenter asked whether a broker must report to CBP 
under Sec.  111.32 the mere fact of a separation from or cancellation 
of representation of a client as a result of the determination that the 
client is intentionally attempting to defraud or otherwise commit any 
criminal act against the U.S. Government, or also provide details of 
the suspected or known wrongdoing by the client. The commenter argued 
that this proposed language goes against the goal of encouraging 
confidential communication and effective collaboration with the client, 
and improved compliance. Secondly, the commenter asked whether this 
notification would be confidential.
    Response: CBP needs to not only know the fact that a separation 
from or cancellation of representation of the client occurred, but also 
the client name, date of separation or cancellation, and the reason(s) 
for the separation or cancellation, so CBP can exercise its due 
diligence and perform an investigation of the importer's dealings. 
Accordingly, CBP amended Sec.  111.32 to require this information in 
the report. CBP proposed the change in Sec.  111.32 to ensure that a 
broker not only advise a client after discovery that the client has not 
complied with the law or made errors or omissions in documents, but 
also document and report to CBP when a broker terminates the 
representation of the client who directs the broker to continue the 
noncompliance, error, or omission. In addition, pursuant to paragraph 
(f) of section 1641, CBP has the ability to fill in gaps in the 
regulations that CBP considers necessary to protect the revenue of the 
United States, specifically, regulations relating to documents and 
correspondence, and the furnishing by customs brokers of any other 
information relating to their customs business to CBP. As to the second 
question, information submitted to CBP is kept confidential within DHS, 
and all the components within DHS follow the same information-sharing 
rules. CBP will not put information received from brokers on its 
website or otherwise publicize it without lawful authority to do so. As 
mentioned above, the FOIA rules apply when it comes to disclosure of 
such information under certain circumstances.
    Comment: A few commenters asked whether a broker's duty to report 
under Sec.  111.32 would deprive an importer of the ability to file a 
prior disclosure pursuant to 19 U.S.C. 1592(d). One commenter stated 
that a broker already

[[Page 63288]]

has the responsibility to advise a client as to any errors and how they 
must be corrected, thus, this new requirement goes beyond 19 U.S.C. 
1641.
    Response: If an importer discloses the circumstances of a violation 
under 19 U.S.C. 1592(a) before, or without knowledge of, the 
commencement of a formal investigation of such violation (which could 
be triggered by a broker's report), then full benefits of prior 
disclosure treatment will be afforded. As to the second commenter, a 
broker has a general duty to disclose any information that he or she 
has learned while exercising customs business which indicates that a 
client is attempting to defraud the government. If a broker learns of 
any noncompliance or errors, then the broker must not keep this 
information to himself or herself but must report it to CBP, which will 
assist in combating fraud and other schemes against the government.
    Comment: One commenter referred to section 3.5 (`Termination of 
Client Relationship') of the economic analysis in the NPRM, where CBP 
stated that it is expected that in many cases the report by the broker 
under Sec.  111.32 would be drafted by an attorney. The commenter 
argued that CBP is recognizing that this process is characteristic of 
an ad hoc legal proceeding, evidencing that this reporting 
responsibility is more of a legal one and should not be enforced by a 
broker. Another commenter stated that the requirement would add a 
burden essentially requiring brokers to adjudicate an importer's 
actions, which is not the responsibility of a broker.
    Response: CBP does not agree with the commenter's reasoning. 
Brokers should be knowledgeable enough to identify when a client is 
attempting to defraud the government or otherwise commit a criminal act 
against the government. CBP is not asking brokers to adjudicate a 
client's actions, but if brokers see any wrongdoing on the part of 
their clients, and they separate from or cancel representation of their 
clients as a result of having identified any wrongdoing, then brokers 
must alert CBP. As discussed in the economic analysis further below, 
the reporting requirement will cause a minor increase in the burden on 
brokers.
    Comment: One commenter suggested that the e-Allegations portal on 
CBP.gov be used for reporting potential violations of law instead of 
imposing a requirement on the broker.
    Response: Submitting an allegation online through the e-Allegations 
portal is one way of reporting a trade violation, but it is not the 
best reporting tool in the broker context. Also, the option to submit 
an allegation online does not relieve a broker of the responsibility to 
report any information or a client's actions if the broker determines 
that the client is attempting to violate the customs laws and 
regulations. Brokers should report any attempted violation of customs 
laws and regulations to a supervisory point of contact at the 
importer's/client's assigned Center as the assigned Center handles all 
processes associated with an assigned importer.
    Comment: Another commenter stated that the proposed revisions to 
Sec.  111.32 appear to exclude civil or non-criminal violations, and if 
that was CBP's intent, CBP should clarify the regulation. Also, CBP 
should include ``customs laws'' in the regulatory text of Sec.  111.32 
to make it clear that the documenting requirement does not include all 
Federal law (such as tax law, security laws etc.), but only those laws 
with which a broker can be expected to be familiar.
    Response: The proposed language of Sec.  111.32 includes civil 
actions, such as fraud, as well as criminal acts against the U.S. 
Government. To clarify CBP's intent, CBP modified the third sentence to 
state that the broker has the duty to document and report if the broker 
determines that the client intentionally attempted to use the broker 
``to defraud the U.S. Government or commit any criminal act against the 
U.S. Government''.
    CBP disagrees with the commenter's second request to limit a 
broker's responsibility to customs laws and exclude any other laws. A 
broker must be knowledgeable as to international trade laws, customs 
laws and regulations, and general customs practices that concern entry 
filings, admissibility, classification, valuation of merchandise, as 
well as duty rates for imported merchandise, and excise tax, among 
other areas of expertise. In conducting its business, the customs 
broker might become aware of the attempted importation of illegal 
merchandise or perhaps import/export schemes violating certain laws, 
that reach beyond what might traditionally be thought of as `customs' 
laws.
    Comment: Two commenters stated that the proposed change in Sec.  
111.36(c)(3) to require a power of attorney directly from the importer 
or drawback claimant, and not via a freight forwarder, is unreasonable. 
The commenters argued that a lot of brokers use their forwarding 
divisions to break down language barriers for non-resident importers or 
delivery duty paid shipments.
    Response: CBP does not prohibit a broker from working with the 
forwarding division of a broker entity. The proposed regulation 
precludes a broker from obtaining a power of attorney from someone 
other than an importer or drawback claimant. The intent of this 
proposed provision is to clarify that a freight forwarder cannot serve 
as a barrier to communications between the broker and importer or 
drawback claimant, to address issues of identity theft, supply chain 
security, fee transparency, and to help ensure that an unlicensed 
person is not benefitting from the customs business conducted by the 
broker. However, a freight forwarder may be included as a third party 
in a power of attorney between the broker and the importer or drawback 
claimant. CBP does not regulate whether a broker uses foreign agents to 
perform work that is not customs business, but CBP does strictly ensure 
that persons not actually employed or supervised by a broker do not get 
paid a portion of the fee derived from customs business services; such 
persons may instead be paid by a flat fee.
    Comment: One commenter supported the change to require a power of 
attorney directly from the importer but asked that the language in 
Sec.  111.36(c)(2)(i) and (ii) align with the proposed language in 
(c)(3) for power of attorneys by including the drawback filer in 
(c)(2).
    Response: CBP does not agree that the language in paragraph (c)(2) 
needs to be amended to include drawback claimants. Drawback claimants 
are included in the phrase ``or other party in interest''. The term 
``drawback claimant'' was specifically included in the proposed 
sentence in (c)(3) to emphasize that a broker must execute and obtain a 
power of attorney directly from either the importer of record or 
drawback claimant, and not a freight forwarder or other third party 
that is not part of the broker-importer/drawback claimant relationship.
    Comment: Another commenter, a surety association, stated that when 
an importer fails to file an entry summary or reconciliation entry or 
fails to re-deliver goods, the surety is held responsible; but, the 
surety is not authorized to take action to bring the defaulting bond 
principal into compliance. Thus, the regulation should allow for a 
surety to complete an action initiated by, but also abandoned by, its 
bond principal. The commenter recommended to identify sureties, along 
with importers and exporters, as parties authorized to file on their 
own account under Sec.  111.2(a)(2)(i), and as one of the

[[Page 63289]]

parties from whom brokers may obtain powers of attorney (Sec.  111.36).
    Response: CBP does not agree with the commenter's request to 
include sureties in Sec.  111.2(a)(2)(i) as a party to file on their 
own account, or in Sec.  111.36 as a party from whom brokers may obtain 
a power of attorney. It appears from the commenter's reference to Sec.  
111.1(a)(2)(i) that the commenter believes that a surety is acting on 
behalf of a principal (importer), akin to an importer's authorized 
employee/officer, but that is legally not the case. A surety and 
importer have rights against each other on a bond. Therefore, sureties 
may not be included in Sec.  111.2(a)(2)(i) as a party to file on their 
own account.
    Although CBP regulates the general requirements applicable to 
bonds, which must be met by either the bond principal or the surety, 
CBP does not regulate the terms of the relationship between the bond 
principal and the surety, and thus a surety is not included as a party 
from whom a broker may obtain a power of attorney under Sec.  111.36. 
The function of the bond regulations is to protect the revenue and 
ensure compliance with the laws and relevant regulations. The 
contractual terms agreed upon by a surety and the bond principal, which 
relate to matters other than bond coverage, bond conditions etc., are 
beyond the purview of CBP. Information sharing between bond principals 
and sureties, and their rights against each other over a particular 
entry, are thus to be decided by contract, and not by the terms of 
customs regulations pertaining to bonds (part 113) or brokers (part 
111).
    Comment: One commenter stated that CBP should clarify that in a 
case where an importer directly provides a broker with a power of 
attorney, the broker would not be precluded, in turn, to assign that 
power of attorney to another broker in accordance with the original 
power of attorney. One of the commenters pointed to the ``Broker A-
Broker B'' process described in the Broker Management Handbook.
    Response: A power of attorney must be executed between the importer 
of record or drawback claimant and the broker. A power of attorney 
cannot be executed between the importer of record or drawback claimant 
and the freight forwarder who in turn assigns the power of attorney to 
a broker. The reason behind CBP's proposed language in Sec.  
111.36(c)(3) is the addition of paragraph (i) in section 1641, based on 
section 116 of the Trade Facilitation and Trade Enforcement Act of 2015 
(TFTEA),\13\ for CBP to promulgate regulations to require brokers to 
verify the identity of the client, and the notion that a broker should 
know his or her client. However, the proposed language does not exclude 
the assignment of a power of attorney from one broker to another 
broker. Assignments of powers of attorney are permissible as long as 
the original power of attorney is executed between the importer of 
record or drawback claimant and the broker, and Broker A designates 
Broker B to act on behalf of the client (importer or drawback claimant) 
in accordance with the terms of the original power of attorney. In 
other words, a designation by Broker A of Broker B is permitted so long 
as the client consented to this designation in the original power of 
attorney. Pursuant to Sec.  141.46, a power of attorney must be in 
place before a broker acts on behalf of the client. Accordingly, to 
clarify CBP's intent, paragraph (c)(3) was slightly modified by 
removing the word ``obtain'' and replacing it with ``execute'' in the 
first sentence.
---------------------------------------------------------------------------

    \13\ Public Law 114-125, 130 Stat. 122 (February 24, 2016).
---------------------------------------------------------------------------

    Comment: One commenter asked CBP to confirm that electronic 
signatures are permissible on powers of attorney.
    Response: CBP recently issued Headquarters ruling H297978 (July 16, 
2021), responding to a requester on this same question. CBP determined 
that whether an electronic signature is permitted for use on a customs 
broker power of attorney is determined by the applicable state's law 
governing the execution of powers of attorney. In addition, CBP stated 
in the Headquarters ruling that neither the applicable customs statute 
nor regulations prohibit the use of an electronic signature on a power 
of attorney, provided that it otherwise constitutes a valid power of 
attorney between the broker and client and may be produced upon CBP's 
request.
    Comment: One commenter supported the changes in Sec.  111.36(c)(3) 
but asked for additional changes in paragraphs (a), (b), and (c). The 
commenter asked CBP to add language in paragraph (a) that sets forth 
that the broker and importer or drawback claimant come to an agreement 
as to how documents will be transmitted to the importer or drawback 
claimant, and as to how payments will be made for services and other 
expenses, and to add a sentence at the end of paragraph (b) stating 
that nothing in the regulation would prohibit brokers from compensating 
sales representatives in a manner that is agreeable to both. The 
commenter further suggested to revise paragraph (c)(2) to state that 
the broker shall transmit directly to the importer or drawback claimant 
a copy of the power of attorney and terms and conditions to be signed 
and returned to the broker, and to revise paragraph (c)(3) to provide 
that the broker, freight forwarder, and importer or drawback claimant, 
shall make arrangements as to how documents and payments will be made 
for services and other expenses.
    Response: CBP does not agree with the commenter's suggestion to 
change paragraph (a). This paragraph sets forth an affirmative 
obligation for the broker to provide a detailed statement to the 
importer of the services rendered. This obligation is in place to 
prevent misfeasance and fraud. CBP further does not agree with an 
additional sentence in paragraph (b) to allow for the compensation of 
sales representatives who are unlicensed in a manner that is agreeable 
to both. Such an arrangement would prevent transparency of the billing 
of services rendered and goes against the overarching principle that 
brokers must not share fees generated from customs business with 
unlicensed parties.
    In addition, CBP does not agree with the suggested revisions to 
paragraph (c)(2). Existing paragraphs (c)(2)(i) and (ii) set forth 
minimum requirements for a broker to communicate certain information to 
an importer or other party in interest to allow for transparent 
billing. These requirements may be included in an agreement between the 
parties involved in a transaction, but also need to be spelled out in 
the regulation to emphasize that the conditions regarding the 
compensation of a freight forwarder for referring a brokerage business 
need to be made known and available to the importer. Lastly, CBP does 
not agree with the revision in paragraph (c)(3) for the reasons 
mentioned above. Brokers must fulfill the requirements in the 
regulations; the conditions as to document submission and payments to 
the broker may be spelled out in an agreement between the parties, but 
it is important to have regulatory requirements that bind parties.
    Comment: One commenter stated that the fee-splitting requirements 
are antiquated, unclear and unrealistic. CBP should consider revoking 
the fee-splitting prohibitions in (b) and the conditions under (c), but 
at the very least create an additional carveout to (b) for ``unlicensed 
related business entities of the broker whether located in the United 
States or a foreign country''.
    Response: CBP does not agree with the commenter. Brokers are 
prohibited from creating fee arrangements whereby

[[Page 63290]]

the fees or other benefits resulting from the customs business services 
rendered by a broker will directly benefit an unlicensed person or 
entity. Thus, agreements wherein unlicensed persons acting as 
independent agents receive a commission for marketing or selling 
customs services on behalf of a brokerage company are generally 
prohibited. However, in Headquarters ruling H302355 (January 29, 2019), 
CBP had carved out a distinction between a commission paid to 
unlicensed independent agents contracted by a broker, and the 
unlicensed employees of a broker. The function of this distinction is 
to preserve the regulation's underlying policy concern of preventing 
unlicensed persons from improperly benefitting from the transaction of 
customs business. Commission payments to an employee are permitted, but 
not to independent agents who may or may not be operating outside of 
the United States. Instead, a flat fee, not tied to a particular 
transaction, would be permissible to compensate third-party agents for 
selling customs services.
    Comment: One commenter pointed out that according to language in 
the preamble of the NPRM, a broker is required to have direct 
communication with the importer. The commenter hoped that CBP 
understands that, at times, clients/importers designate third parties, 
e.g., attorneys and consultants, to engage with the brokers. As such, 
brokers may communicate directly with third parties that represent the 
importer and such circumstances, controlled by the importer's 
preference, should be compliant and sufficient.
    Response: CBP wants to clarify that there is no prohibition on the 
communication between the broker and third parties that the client has 
designated, but there is a prohibition on brokers executing a power of 
attorney with a third party acting as an intermediary instead of 
directly with the client. As mentioned above, CBP clarified the 
distinction between clients/brokers and third parties/brokers and 
replaced the word ``obtain'' with the word ``execute''. In addition, to 
provide more clarity, CBP added a reference to ``other third party'' 
after ``and not via a freight forwarder''.
    Comment: One commenter stated that the proposed change in Sec.  
111.39(c) to require the broker to advise the client on a proper 
corrective action and retain a record of the communication with the 
client, in addition to the existing duty to advise the client if the 
broker knows that the client has not complied with the law or has made 
an error, is a shift of responsibility from the importer to the broker 
who does not possess the same information that the importer does. 
Another commenter stated that the proposed language in Sec.  111.39(c) 
greatly increases a broker's responsibilities in an area that should be 
the domain of the importer and pointed to 19 U.S.C. 1484 and 19 CFR 
141.1(b) that place the responsibility for corrective action and 
liability for duties and other debt on the importer. Accordingly, the 
commenter is of the opinion that the proposed regulation is in conflict 
with the cited law and regulation, and, thus, should be removed.
    Response: CBP does not agree that the proposed regulation imposes 
an additional burden on brokers. Brokers have an existing duty pursuant 
to Sec.  111.39(b) to advise a client promptly of noncompliance, an 
error or an omission of which the broker has knowledge. If a broker 
continues to engage in customs business which then repeats such 
noncompliance, error or omission, then a broker is violating Sec.  
111.32 because a broker is now filing documents with CBP that the 
broker knows contain false information. In addition, brokers should 
already have a good practice in place for documenting any communication 
with a client, and specifically any advice provided to a client on a 
corrective action. Adding this proposed language in the regulation is 
merely clarifying and codifying this responsibility.
    Comment: Several commenters asked for clarification as to what type 
of record must be retained as evidence of a corrective action, what 
should be included in the ``communication'' with the client, and what 
constitutes ``corrective action.'' The commenters suggested to add a 
sentence to paragraph (c) to state that a copy of a corrected entry 
demonstrating and/or communication explaining specific corrective 
action(s) shall serve as an adequate record of such communication.
    Response: CBP disagrees with the suggested sentence that a copy of 
a corrected entry or communication could be sufficient to show that the 
broker has advised its client of a corrective action. CBP does not want 
to limit the types of records that qualify as evidence that the broker 
advised the client of a corrective action. The record could be an email 
or letter sent by the broker, or a written note summarizing a phone 
call between the broker and client, to name a few. CBP is open to 
accepting any record that the broker thinks would be sufficient in 
evidencing the communication that took place between the broker and 
client. Corrective action is the action that the broker took to 
remediate the noncompliance or error; an action that the broker in his 
or her good judgment understands needs to be taken.
    Comment: One commenter referenced a statement in the economic 
analysis in the NPRM (page 34848, 1st row in the table listing Sec.  
111.39), which stated that the change in Sec.  111.39(c) is considered 
neutral as it reflects CBP's current practice. The commenter disagreed 
with that statement, noting that current part 111 does not explicitly 
require customs brokers to provide clients with corrective action 
measures reflective of the client's errors/violations.
    Response: CBP believes that the statement in the economic analysis 
is correct. A broker has an existing responsibility to advise the 
client of any noncompliance and errors and suggest a corrective action, 
even though it has not been stated expressly in the regulation. 
Advising a client and documenting such advice should be a broker's good 
practice, to protect the client's as well as the broker's interests, in 
case of any litigation or complaint by the client. Further, a broker 
has the responsibility pursuant to Sec.  111.21(a) to document any 
correspondence with the client, which includes the documentation of any 
corrective action(s) that the broker advised the client to take. CBP 
wishes to take the opportunity to make clear that this communication 
from the broker to the client is a record under Sec.  111.21. Thus, CBP 
considers this responsibility a current practice, and determined that 
the proposed language in Sec.  111.39(c) is deemed neutral in the 
economic analysis.
    Comment: Two commenters stated that brokers frequently refer 
clients to consultants or attorneys for a proper course of action, and 
CBP should recognize that a referral to a more qualified expert may be 
the proper corrective action and should reflect that in the regulation.
    Response: CBP understands that part of a broker's normal business 
practice, in some situations where corrective action is needed, could 
be a referral to a more qualified expert with regard to certain 
corrective actions. However, that does not mean that a referral is the 
only proper course of action. It is a reasonable person standard that 
the broker must employ to determine what type of corrective action is 
appropriate in a specific situation.
    Comment: One commenter stated that the requirement that a broker 
document the advice to a client under Sec.  111.39(c) serves no purpose 
to CBP. If CBP has a concern with a broker's performance, then CBP 
should conduct an audit. The commenter requested that CBP create a 
standard reporting requirement and advise the importing community of 
its

[[Page 63291]]

intention of collecting data and how the benefits of the data 
collection do not cause the broker or importer to act without conflict 
in its importing partnership with the importer of record.
    Response: CBP disagrees with the commenter. The documentation 
requirement does serve a purpose, which is evidencing that the broker 
provided advice to the client, and that documentation is considered a 
record pursuant to Sec.  111.21. The second sentence of Sec.  111.21(a) 
states that a broker must keep and maintain on file copies of all of 
his or her correspondence and other records relating to the customs 
business. This is a recordkeeping requirement for all brokers; the 
requirement in proposed paragraph (c) of Sec.  111.39 is merely 
reiterating that a broker must keep a record of communication with the 
client regarding the advice on a corrective action. To make this 
existing requirement clearer, CBP included a reference to Sec.  111.21 
in addition to the reference to Sec.  111.23 in paragraph (c) of Sec.  
111.39. Since there are recordkeeping requirements in place, CBP 
believes that there is no need for an additional reporting requirement.
    Comment: Several commenters stated that CBP should allow for an 
extension of time, extenuating circumstances, or an opportunity to 
mitigate pursuant to Sec.  111.45 if the broker can show a good faith 
effort to prevent the revocation of the license and permit. The 
commenters argued that the effect of losing a single national permit is 
much more detrimental than losing a district permit. The commenters 
suggested language to add at the end of the first two sentences of 
paragraph (a), preventing a suspension or revocation if a broker 
demonstrates good cause or commits to corrective action, warranting an 
extension of time.
    Response: The statutory requirements in paragraphs (b)(5) and 
(c)(3) of section 1641 set forth the reasons for a lapse of a broker's 
license and permit. If a broker entity that is licensed as a 
corporation, association or partnership fails to have, for any 
continuous period of 120 days, at least one licensed officer of the 
corporation or association, or at least one licensed member of the 
partnership, the entity's license will be revoked by operation of law 
under paragraph (b)(5). If a broker who was granted a permit fails to 
employ, for any continuous period of 180 days, at least one individual 
who is licensed, the permit will be revoked by operation of law under 
paragraph (c)(3). Neither paragraph in the statute provides for a good 
cause exception. Thus, the regulation, which mirrors the language in 
the statute and mandates a revocation by operation of law, cannot be 
changed to include such an exception. Moreover, CBP already provides 
for the possibility for reinstatement of a license once the triennial 
status report and associated fee are filed as required, as well as for 
reinstatement of a permit. Moreover, there is no prejudice to a broker 
if a license or permit is suspended or revoked by operation of law; 
brokers are not barred from reapplying.
    Comment: Other commenters suggested that there be an administrative 
process prior to revoking a license and permit, such as providing prior 
notice in case of a failure to pay the annual broker permit fee in 
Sec.  111.45(b). Such process would allow for a less burdensome 
resolution if the failure to pay was due to an administrative or 
clerical mistake.
    Response: The broker permit user fee is an annual fee that brokers 
must pay for each permit they hold. CBP issues a Federal Register 
notice to announce the amount of the fee, as well as the deadline to 
pay the fee, on an annual basis. CBP also posts this information on its 
website. CBP believes that there is sufficient notice for a broker to 
timely pay the permit user fee. In addition, with the effectiveness of 
the final rule, there will be only one permit user fee to pay per year 
for a broker's national permit. Thus, CBP does not believe that the 
timely payment of the fee is burdensome.

Subpart D--Cancellation, Suspension, or Revocation of License or 
Permit, and Monetary Penalty in Lieu of Suspension or Revocation

    CBP received supporting comments regarding the proposed changes to 
subpart D of part 111. Specifically, one commenter supported the 
proposal in Sec.  111.53 to add a new paragraph (g) to provide an 
additional ground for the suspension or revocation of a license or 
permit to cover convictions of committing or conspiring to commit an 
act of terrorism as described in section 2332b of title 18 of the 
United States Code (see 19 U.S.C. 1641(d)(1)(G)). Another commenter 
supported the proposal in Sec.  111.62(e) to remove the requirement for 
the broker to file his or her verified answer in duplicate prior to a 
suspension or revocation hearing as it better reflects the current 
electronic business environment. In addition, a commenter supported the 
proposal in Sec.  111.76 to remove the requirement for a broker to file 
an application to CBP to reopen a case in writing and in duplicate, if 
an appeal is not filed, and instead to allow for electronic 
communication.

Subpart E--Monetary Penalty and Payment of Fees

    Comment: One commenter voiced the concern that the increase of the 
license application fee will deter individuals from applying for a 
broker's license.
    Response: CBP conducted a fee study on the costs associated with 
the broker license application, and CBP determined that the current 
fees are no longer sufficient to cover the costs of servicing brokers. 
The fee study showed that a fee of $463 for individuals and $815 for 
business entities would be necessary to recover the costs associated 
with the review of the license application and the necessary vetting 
for individuals and business entities. However, to minimize the 
financial burden on prospective brokers and not disincentivize those 
who are pursuing a career as a broker, while also recovering some of 
the increasing costs, CBP proposed to not increase the fees to the 
level of cost needed, but to increase the application fee to $300 for 
individuals and $500 for business entities. The economic analysis 
explains the reasons for the increase of the application fee and 
emphasizes the cost savings as a result of eliminating the district 
permit requirement and other changes to part 111. Once the final 
regulations are effective, a national permit applicant has to pay for 
only one permit application to be able to conduct customs business 
throughout the U.S. customs territory, in addition to the annual permit 
user fee for only one national permit.
    Comment: One commenter expressed disagreement with the increase of 
the permit fee, pointing to CBP's ACE system and other electronic 
platforms used for receiving payments and submissions of information 
and argued that the use of those tools should reduce costs. In 
addition, the commenter noted that the automatic transition from 
district permits to national permits should not cause any additional 
cost.
    Response: As mentioned above, CBP proposed to increase the license 
application fee to cover expenses related to the review of license 
applications and vetting of applicants. CBP did not propose to change 
the amount of the permit fee, and this final rule is not changing the 
fee of $100 for a broker to apply for a national permit. In response to 
the second comment, CBP is transitioning the district permits to 
national permits at no cost to brokers.
    Comment: One commenter stated that CBP should consider automating 
the fee collection and management functions, and charge a set fee per 
port, not district. The commenter further noted

[[Page 63292]]

that ``district'' is a term used by CBP, which is not as relevant for 
brokers filing entries, thus, districts should be disregarded when 
charging fees.
    Response: CBP did not propose to change the current fee structure 
for filing entries, moreover, the commenter's suggestion is not 
considered a natural outgrowth of the NPRM's proposals. Therefore, CBP 
is not adopting a new fee structure based on port activity.

Other General Comments

    Comment: One commenter stated that CBP did not provide sufficient 
notice of the proposed amendments as they were not mentioned on CBP's 
website, but only announced in the Federal Register. The commenter 
further maintained that the NPRM did not mention whether CBP had 
reached out to the trade for input on specific issues. In addition, the 
commenter asked that CBP provide a fuller explanation of the proposed 
changes and provide further opportunities for public comment before 
finalizing the regulations. Another commenter suggested to issue a 
revised NPRM, or, at least, hold a public hearing to discuss the 
proposed changes.
    Response: Pursuant to the APA, CBP published the NPRM to propose 
changes in an effort to modernize the customs broker regulations. The 
NPRM provided 60 days for public comment, in compliance with the APA. 
In addition, CBP announced the publication of the NPRM (as well as the 
concurrent NPRM proposing the elimination of broker district permit 
user fees) on CBP's website.\14\ Moreover, CBP had been socializing the 
proposed changes to part 111 for numerous years at many public forums, 
including COAC meetings and various broker association meetings. As 
mentioned in the preamble of the NPRM, CBP had conducted outreach to 
the broker community through webinars, port meetings and broker 
association meetings to solicit feedback on various broker matters and 
the modern business environment. The trade community had many 
opportunities to share their opinions, throughout the outreach as well 
as during the 60-day public comment period. CBP does not believe that 
there is a need for a public hearing or a revised NPRM to provide a 
fuller explanation of the proposed changes, other than the explanations 
included in this final rule.
---------------------------------------------------------------------------

    \14\ The announcement of the NPRMs, as well as COAC's 
recommendations regarding the modernization, may be found online on 
CBP's website at https://www.cbp.gov/trade/programs-administration/customs-brokers by clicking on the tab titled ``Modernization of the 
Customs Broker Regulations''.
---------------------------------------------------------------------------

    Comment: One commenter recommended a minimum percentage of U.S. 
ownership in a brokerage. The commenter explained that CBP Form 3124 
does require the notation of all officers who are licensed, as well as 
other officers and principals with controlling interest who are not 
licensed.
    Response: CBP thanks the commenter for its contribution but 
believes that this comment is outside of the scope of this final rule 
as there is no U.S. ownership requirement in 19 U.S.C. 1641 or the 
corresponding regulations in 19 CFR part 111.
    Comment: One commenter strongly recommended that CBP establish a 
dedicated, independent ombudsman-type position with the Office of Trade 
Relations to ensure that customs brokers are treated the same as CBP 
employees would be treated for similar types of mistakes. The commenter 
argued that this would be especially important considering the 
increased level of responsibility continually being transferred from 
CBP to customs brokers.
    Response: CBP does not believe that the creation of an ombudsman-
type position is necessary. CBP disagrees that a broker's mistake 
should be treated in the same fashion as a CBP official's mistake. 
Brokers are not Federal employees, so different paths are available for 
brokers and CBP officials to take in case of mistakes. Brokers have the 
opportunity to appeal certain decisions by CBP if brokers are of the 
opinion that those decisions are erroneous, such as the rejection of a 
license or permit, the suspension/revocation of a license or permit, or 
the imposition of a penalty. Other applicable avenues are in place for 
Federal employees.
    Comment: Three commenters urged CBP, especially in light of 
Executive Order 13924 (May 19, 2020), which instructed the government 
to provide regulatory relief and flexibility on a temporary, as well 
as, permanent basis, where appropriate, and due to the current 
challenges businesses are facing during the pandemic, to grant the 
brokerage industry at least one year, and upon showing of need, 
additional time beyond the one-year period to comply with the new 
regulations. The commenters argued that brokers will need time to 
adjust, and in some cases, restructure their businesses, to the new 
national permit framework and the new criteria for responsible 
supervision and control.
    Response: CBP does not believe that one year is necessary to 
implement the final regulations to allow a broker to adjust, and maybe 
even restructure, its business. A lot of the changes that are being 
implemented with this final rule are simplifying processes or updating 
or clarifying regulations. For instance, the updated supervision 
framework is simply codifying what brokers should have already been 
doing, such as the employment of sufficient licensed brokers, broker's 
responsiveness to CBP's communications and notices, as well as to the 
partner's or member's communication and direction, and updated 
recordkeeping requirements. None of these changes is significant in the 
sense that it would require brokers to re-structure their businesses. A 
lot of the requirements that are being codified in the regulations 
should have been best practices already for brokers to provide high 
quality service to their clients.
    However, CBP does agree that a 60-day delayed effective date is 
beneficial for both the brokers to make any needed changes to the 
business, and for CBP to transition all district permit holders to a 
national permit and to ensure that CBP personnel are aware of and ready 
to work with the new changes imposed by the final rule.
    In the NPRM, CBP proposed to revise Sec.  111.2(b) by removing the 
four exceptions to the district permit requirement in order to 
transition to a national permit system. As part of the proposed 
revision, CBP will remove the cross-reference in Sec.  
111.2(b)(2)(i)(C) to subpart B of part 143 of the CBP regulations, 
which sets forth the regulations regarding remote location filing 
(RLF). No comments were submitted by the public regarding these 
proposed changes, whereby the use of a national permit would obviate 
the need for standalone RLF regulations. It should be noted that the 
RLF requirements that are mandated by 19 U.S.C. 1414 are captured in 
the proposed transition to national permits for all licensed brokers, 
as the national permit framework includes the expansion of the scope of 
a national permit to all customs business within the United States and 
would allow filings to be made electronically from anywhere in the 
United States. Once the final rule becomes effective, customs brokers 
will not be subject to the RLF regulations and, in a future rulemaking, 
CBP will propose amending the standalone RLF regulations in subpart B 
of part 143 to remove those provisions which have become moot and make 
any other changes that may be needed.

[[Page 63293]]

III. Technical Changes and Clarifications to the Existing Regulations

    In reviewing the proposed changes to the regulations, as well as 
existing regulations, CBP identified certain technical changes that 
would provide more flexibility to the brokers, clarify CBP's intent of 
certain regulatory language, and improve the electronic submission 
process, which are set forth below.
    In Sec.  111.12(a), CBP added the option for electronic submission 
of license applications. CBP is in the process of developing the 
capability for the submission of license applications to the eCBP 
portal and wants the regulatory language to accommodate this future 
change. In addition, CBP added the option for electronic submission of 
withdrawals of license applications in redesignated paragraph (b) as an 
alternative to the current method of submission to the processing 
Center. As soon as CBP deploys this additional capability, applicants 
will have two options for the submission of application withdrawals.
    To reflect in the regulation the option of a remote exam, as 
explained above, CBP modified the language in the last sentence of 
Sec.  111.13(b) to state that CBP will give notice of the exact time 
and place for the examination, including whether alternatives to on-
site testing will be available. In Sec.  111.14(a)(3), CBP corrected a 
minor error that occurred in the published NPRM in the phrase 
``(including a member or a partnership or an officer of an association 
or corporation)''. With this final rule, CBP replaced the first 
instance of ``or'' in the above phrase with the word ``of'' to 
accurately reflect the meaning of the phrase.
    In Sec.  111.17(c), CBP slightly modified the language for clarity 
and replaced ``the date of entry of the Executive Assistant 
Commissioner's decision'' with ``the decision date by the Executive 
Assistant Commissioner''. This technical change does not change the 
meaning or substance of the sentence.
    CBP slightly modified the language in the fifth sentence of Sec.  
111.19(b) to clarify that a broker has two options for submitting the 
permit application, by submitting a letter either to the processing 
Center or electronically through a CBP-approved EDI system.
    In the first sentence of Sec.  111.19(e)(1), CBP replaced the 
phrase ``in support of the denied application'' with the phrase ``in 
support of the application'', removing the word ``denied.'' This 
technical change does not change the meaning or substance of the 
sentence. Moreover, this change better aligns the regulatory language 
in Sec.  111.19(e)(1) with (e)(2). The proposed term ``denied 
application'' is not used anywhere else in the regulation, thus, it is 
replaced for clarity purposes.
    Further, in Sec.  111.19(e)(2), CBP slightly modified the language 
for clarity at the end of the sentence and replaced ``the date of entry 
of the decision'' by the Executive Assistant Commissioner with ``the 
decision date'' by the Executive Assistant Commissioner. This technical 
change does not change the meaning or substance of the sentence.
    In Sec.  111.19(d), CBP added the phrase ``the application'' after 
``will review'' to further clarify that the processing Center that 
receives the application will review the application to determine 
whether the applicant meets the eligibility requirements for a national 
permit to be issued. This clarification does not change the meaning or 
substance of the sentence.
    In Sec.  111.28 (responsible supervision and control), CBP revised 
the language in (a)(3) and (5) to provide more clarity. Factor (3) is 
revised to read as ``The volume and type of business conducted by the 
broker'', and factor (5) is revised to read as ``The level of access a 
broker's employees have to current editions of CBP regulations, the 
Harmonized Tariff Schedule of the United States, and CBP issuances.'' 
There is no change to any of the substantive regulatory requirements 
for customs brokers. In addition, CBP replaced the word ``broker'' with 
``brokerage'' at the end of the sentences in (a)(9) and (a)(10) to 
better reflect the meaning of the factors.
    In Sec.  111.28(b)(2) and (3), CBP replaced the word ``employees'' 
with ``employee(s)'', where appropriate, for consistency throughout the 
two paragraphs. This technical change does not change any of the 
substantive reporting requirements for customs brokers.
    Further, in Sec.  111.30(d)(1), CBP removed the proposed language 
``accompanied by payment or valid proof of payment of the triennial 
status report fee prescribed in Sec.  111.96(d).'' and replaced it with 
simpler language that reflects the current and future process of 
submissions of triennial status reports to CBP, i.e., the status report 
must be filed through a CBP-authorized EDI system. There is no option 
for a broker to attach valid proof of payment in the eCBP portal, or 
when submitting the report at one of the 41 BMO locations. Further, CBP 
added clarifying language that the status report is not considered 
received by CBP until payment of the triennial status report fee 
prescribed in Sec.  111.96(d) is received. This is not a new 
requirement; CBP always required the submission of both the triennial 
status report and the triennial status fee, as evidenced by the 
existing regulatory language ``the report must be accompanied by the 
fee.'' A similar message as the one in the final regulation is 
displayed in the eCBP portal when submitting the triennial report, 
alerting the broker that the filing is not completed until payment of 
the fee has been submitted.
    In addition, CBP did not adopt the proposed language of ``submits 
payment or proof of payment of'' in the third sentence of Sec.  
111.30(d)(4) but kept the existing language of ``pays'' as it better 
reflects CBP's practice, as explained above. CBP added ``and pay the 
required fee'' in the fourth sentence of Sec.  111.30(d)(4) to align 
the language with the language in the prior sentence that talks about 
filing the required report and paying the required fee for the license 
to be reinstated. The fourth sentence sets forth the consequence of 
revocation by operation of law if the broker does not file the required 
report and pay the required fee.
    CBP also amended the first sentence of Sec.  111.30(e) and added 
phone number and email address to the already required information of 
name and address for the individual who has legal custody of the 
records after the termination of the brokerage business. Adding the 
email address and telephone number to the methods for communicating 
with CBP will expedite communication and facilitate resolution of any 
questions. Communication in current times is typically conducted by 
phone or email, thus, adding these two options will benefit both CBP 
and the recordkeeping individual. Moreover, an email address and 
telephone number are often already included when brokers provide 
information to CBP, as those are preferred methods of communication.
    In Sec.  111.39(a), covering advice to a client, in the first 
sentence, CBP added the phrase ``it conducts on behalf of'' for 
clarification, but this change will not have an impact on the 
substantive regulatory requirement for customs brokers to not withhold 
any information relative to the customs business that the broker is 
conducting on behalf of a client.
    In addition, CBP revised the last sentence of paragraph (a) of 
Sec.  111.96 and removed references to a CBP fingerprint processing fee 
since this is not a fee that CBP collects. The only fee that is 
collected for the processing of fingerprints is one charged by the 
Federal Bureau of Investigation.
    CBP simplified the proposed language in Sec.  111.96(d) regarding 
the triennial

[[Page 63294]]

status report fee to state that a fee of $100 is required to defray the 
costs of administering the status reporting requirement prescribed in 
Sec.  111.30(d)(1). The method of submission by a CBP-authorized EDI 
system is already mentioned in Sec.  111.30(d)(1), thus, it is 
sufficient that paragraph (d) of Sec.  111.96 simply deals with the fee 
payment.
    Finally, while the general topic of this rulemaking covers customs 
revenue functions delegated to the Secretary of Homeland Security by 
the Secretary of the Treasury, this document also includes certain fees 
over which the Secretary of the Treasury retains authority, as provided 
for in 19 CFR 0.1(a) and paragraph 1(a)(i) of Treasury Department Order 
100-16. Accordingly, this final rule is also being signed by the 
Secretary of the Treasury (or his or her delegate).

IV. The Benefits of CBP's New Payment and Submission System, the eCBP 
Portal, for Licensed Customs Brokers

    In addition to finalizing the proposed regulations, CBP announces 
in this final rule the deployment of a new payment and submission 
system, the eCBP portal. The development of the eCBP portal is part of 
CBP's Electronic Payment Options (ePO) effort that addresses the 
revenue collections capability gaps of limited payment options, 
inefficient manual processes, and disparate revenue systems. This 
effort's goal is to eliminate manual processes and standardize 
processes, reduce cash and check collections at ports of entry and 
provide more online payment options, integrate data with cargo systems, 
reduce wait times at ports of entry, and provide better and more 
accessible data, all of which aligns with recommendations by COAC and 
other trade stakeholders.
    This new payment and submission system streamlines and validates 
data, which in turn reduces errors and provides data to support 
security-related decision making by CBP personnel. Using the eCBP 
portal means fewer cash transactions, which means lower risk of cash 
losses. Additionally, this technological advancement enhances CBP 
revenue collection capability and permits greater focus on law 
enforcement and trade facilitation.
    The eCBP portal's electronic submission and payment options offer 
brokers the flexibility and convenience to easily and efficiently 
manage their reporting responsibilities. Currently, the eCBP portal is 
being used for the submission and payment of broker examination 
applications and triennial status reports. Additional enhancements, 
such as the electronic submission of and payment for broker license 
applications and permit applications, and the payment of annual user 
permit fees, will follow, and CBP will announce those additional eCBP 
functionalities in the Federal Register, as needed.
    CBP deployed eCBP's functionality to receive broker examination 
applications on August 19, 2019. CBP announced this new payment system 
through CSMS messages, on CBP's website, through tweets, and in 
webinars offered to the broker community. This new payment portal was 
well received by the broker community, and by the end of fiscal year 
2019, CBP had successfully processed more than 1,300 broker examination 
applications in the eCBP portal, resulting in a significant reduction 
of personnel hours in CBP Headquarters and at ports processing 
applications and withdrawals of applications.
    After a successful testing phase between December 2017 and May 
2018, on December 15, 2020, CBP deployed the capability to file the 
triennial status report in the eCBP portal by completing the online 
form and submitting the triennial fee. Approximately 90% of the status 
reports for the 2020/2021 reporting period were submitted 
electronically. It is important to note that with this new 
functionality, customs brokers now have two options to file the 
triennial report and fee: they may use the new portal or submit the 
report and fee at a location where their broker license was issued. An 
additional current functionality of the new eCBP portal is the 
automatic processing of license suspensions and revocations for unpaid 
triennial status reports, which was deployed to the portal in February 
2021. However, even though this is an automatic process, the list of 
unpaid reports is manually validated by CBP personnel prior to 
suspension or revocation. As the eCBP portal is tied to ACE, this new 
interface also allows ACE to receive the triennial report data and 
apply any updates regarding the triennial report information and 
payment information to the broker account in ACE.
    Customs brokers who want to use the eCBP portal, found on CBP's 
website, must create a Login.gov account as a first-time user.\15\ 
Instructions and training resources, such as user and quick reference 
guides, for brokers on how to create a Login.gov account and use the 
eCBP portal can be found on CBP's website.\16\
---------------------------------------------------------------------------

    \15\ The link to the eCBP portal may be found online at https://e.cbp.dhs.gov/brokers/#/home.
    \16\ Resources for brokers on how to use the eCBP portal are 
available online at https://www.cbp.gov/trade/ecbp.
---------------------------------------------------------------------------

V. Conclusion

    Based on the analysis of the comments received and further 
consideration, CBP has decided to adopt as final the proposed 
regulations published in the Federal Register (85 FR 34836) on June 5, 
2020, as modified by the changes noted in the discussion of the 
comments section above.

VI. Statutory and Regulatory Requirements

A. Executive Orders 13563 and 12866

    Executive Orders 13563 and 12866 direct agencies to assess the 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This rule is not a ``significant regulatory action'' under 
section 3(f) of Executive Order 12866. Accordingly, the Office of 
Management and Budget (OMB) has not reviewed this regulation.
    This rule will result in costs to licensed customs brokers in the 
form of additional fees and reporting requirements. CBP estimates that 
these costs total $88,850. This rule will also result in benefits to 
licensed customs brokers in the form of reduced fees and reduced time 
burdens. CBP will also benefit from time savings. CBP estimates that 
the monetized savings of the rule total $1,277,116. The five-year total 
monetized net benefit of the rule ranges from $973,616 discounted at 7 
percent to $1,088,308 discounted at 3 percent. In addition, unmonetized 
benefits include increased professionalism of the broker industry, 
greater clarity for brokers in understanding the rules and regulations 
by which they must abide, better data security, and better reporting of 
potential fraud to CBP.
    As mentioned above, CBP published the proposed rule titled, 
``Modernization of the Customs Brokers Regulations,'' on June 5, 2020, 
and received 55 comments from the public.\17\ CBP adopts the regulatory

[[Page 63295]]

amendments specified in the proposed rule with some changes, outlined 
below. With the adoption of the proposed regulatory amendments, CBP 
applies the 2020 NPRM's economic analysis approach to this rule, 
updating the data as necessary and making certain changes in accordance 
with the public comments.
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    \17\ Both the NPRM (85 FR 34836) and the public comments in 
response to the NPRM may be found online at https://www.regulations.gov/document/USCBP-2020-0009-0001.
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    CBP has prepared the following analysis to help inform stakeholders 
of the impacts of this rule.

                               Table 1--Summary of Changes as a Result of the Rule
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          Provision                       Section                      Change                 Cost/benefit
----------------------------------------------------------------------------------------------------------------
111.1........................  Subpart A....................  Update/eliminate          Neutral--changes reflect
                                                               definitions; change       current practice and
                                                               primary point of          statutory changes.
                                                               contact to processing
                                                               Center.
111.2........................  Subpart A....................  Eliminate district        $122,000 annualized net
                                                               permits and require       benefit. See section
                                                               national permits.         3.11.
111.3........................  Subpart A....................  Requires customs          Neutral--clarifies
                                                               business to be            current regulations and
                                                               conducted within the      reflects current
                                                               customs territory of      practice.
                                                               the US; brokers must
                                                               maintain a point of
                                                               contact.
111.11.......................  Subpart A....................  Adds that the processing  Benefit--increases
                                                               Center may reject an      efficiency.
                                                               incomplete application.
111.12(a)....................  Subpart B....................  Update the place of       Benefit--increases
                                                               submission for            efficiency and reduces
                                                               applications and allows   the burden on
                                                               for electronic            applicants.
                                                               submission or
                                                               withdrawal; removes
                                                               requirement that
                                                               applications are
                                                               submitted under oath.
111.12(b)....................  Subpart B....................  Remove requirement to     Benefit--reduces the
                                                               post notice of            burden on CBP.
                                                               applications.
111.13.......................  Subpart B....................  Revisions to reflect new  Neutral--the costs of
                                                               national permit system;   the new fee system are
                                                               written and electronic    addressed in section
                                                               notification of           3.11.
                                                               examination results;
                                                               remote exam option.
111.14.......................  Subpart B....................  Clarifies that CBP may    Neutral--reflects
                                                               use information from      current practice.
                                                               the interview in
                                                               background
                                                               investigation.
111.16.......................  Subpart B....................  Expansion of the grounds  Benefit--increases
                                                               to justify the denial     professionalism.
                                                               of a license.
111.17.......................  Subpart B....................  Adds new method to        Benefit--greater
                                                               communicate further       flexibility.
                                                               information to CBP for
                                                               appeal of an
                                                               application denial.
111.18.......................  Subpart B....................  Requires applicants to    Benefit--fewer
                                                               provide new or            application appeals
                                                               corrected information     will be rejected for
                                                               when re-applying.         lack of new
                                                                                         information.
                                                                                        Cost--applicants will
                                                                                         need to expend time in
                                                                                         collecting and
                                                                                         submitting information.
111.19.......................  Subpart B....................  Replacing district        $122,000 annualized net
                                                               permits with national     benefit. See section
                                                               permits.                  3.11.
111.19(b)....................  Subpart B....................  Revision of the           Neutral--the process is
                                                               procedures to apply for   very similar, but with
                                                               a permit to account for   a national permit.
                                                               the switch from
                                                               district to national
                                                               permits.
111.19(c)....................  Subpart B....................  Revision of permit fees.  See ``Elimination of
                                                                                         Customs Broker District
                                                                                         Permit Fee'' RIN 1515-
                                                                                         AE43.
111.19(d)....................  Subpart B....................  Elimination of the        Benefit--allows for
                                                               requirement to maintain   greater flexibility and
                                                               a place of business in    efficiency for brokers
                                                               each port where a         and CBP.
                                                               district permit is held.
111.19(e)....................  Subpart B....................  Language updates to       See above.
                                                               reflect the change to
                                                               national permits and
                                                               processing Centers.
111.19(g)....................  Subpart B....................  Clarifies applicants      Benefit--increases
                                                               must provide additional   professionalism and
                                                               information or            decreases time spent by
                                                               arguments in support of   CBP acquiring
                                                               a denied application;     information.
                                                               allows information to    Cost--requires
                                                               be provided through       applicants to expend
                                                               various communication     time in providing
                                                               methods.                  additional information.
111.21.......................  Subpart C....................  Requires brokers to       Benefit--enhances CBP's
                                                               notify CBP of any         risk management
                                                               electronic records        approach. See section
                                                               breach and to provide     3.3/section 3.7.2.
                                                               CBP a designated point
                                                               of contact for
                                                               recordkeeping in
                                                               addition to the current
                                                               contact provided for
                                                               financial queries.
111.23.......................  Subpart C....................  Requires that electronic  Benefit--increases
                                                               records be stored         security. See section
                                                               within the U.S. customs   3.3.
                                                               territory \18\.
111.24.......................  Subpart C....................  Clarifies disclosure      Benefit reduces
                                                               rules.                    confusion. See section
                                                                                         3.7.3.
111.25.......................  Subpart C....................  Revises guidelines for    Neutral--see section
                                                               CBP inspection of         3.4.
                                                               broker records with the
                                                               elimination of broker
                                                               districts.
111.27.......................  Subpart C....................  Update of language to     Neutral--reflects the
                                                               reflect the transition    current environment.
                                                               of responsibilities
                                                               from Treasury to DHS
                                                               following the creation
                                                               of DHS.
111.28.......................  Subpart C....................  Clarifies requirements    Benefit--increases
                                                               in relation to            flexibility. See
                                                               responsible supervision   section 3.7.4.
                                                               and control and allows
                                                               for electronic
                                                               submission of employee
                                                               lists.
111.30.......................  Subpart C....................  Modification to the       Benefit--increases
                                                               timing requirement for    professionalism, keeps
                                                               when a broker notifies    CBP better informed,
                                                               CBP of information        and allows greater
                                                               changes, including a      efficiency for broker's
                                                               new requirement for       changing status.
                                                               inactive brokers to      Cost--inactive brokers
                                                               provide CBP with up-to-   will expend time to
                                                               date contact              submit their
                                                               information.              information.

[[Page 63296]]

 
111.32.......................  Subpart C....................  Places an affirmative     Cost--$8,185 annually.
                                                               burden on the broker to  Benefit--improves CBP's
                                                               report to CBP when a      awareness of potential
                                                               broker terminates a       illegal activity. See
                                                               client relationship as    section 3.5.
                                                               a result of determining
                                                               that the client is
                                                               attempting to defraud
                                                               the U.S. Government.
111.36.......................  Subpart C....................  Modifies the              Neutral--time spent does
                                                               requirements for          not change. See section
                                                               brokers when dealing      3.6.
                                                               with freight forwarders.
111.39.......................  Subpart C....................  Guidelines for how        Neutral--reflects
                                                               brokers may behave with   current practice. See
                                                               clients; requires         section 3.7.4.
                                                               brokers to advise
                                                               clients of corrective
                                                               actions and maintain
                                                               communication records.
111.45.......................  Subpart C....................  Updates to reflect the    Neutral--specifies
                                                               change to national        national permit.
                                                               permits.
111.53.......................  Subpart D....................  Adds conviction of        Benefit--increases
                                                               committing or             professionalism.
                                                               conspiring to commit an
                                                               act of terrorism to the
                                                               grounds for suspension
                                                               or revocation of a
                                                               license or permit.
111.55.......................  Subpart D....................  Updates to reflect the    Neutral--reflects
                                                               current practice of not   current practice.
                                                               referring all
                                                               complaints to a special
                                                               agent.
111.56.......................  Subpart D....................  Updates to reflect        Neutral--reflects
                                                               current practice in the   current practice.
                                                               investigation of a
                                                               complaint.
111.62.......................  Subpart D....................  Updates to requirements   Neutral--reflects
                                                               for notification of       improved technology.
                                                               charges to reflect new
                                                               electronic options.
111.63.......................  Subpart D....................  Removes the requirement   Benefit--increases
                                                               that a return card be     efficiency.
                                                               signed solely by the
                                                               addressee; permits CBP
                                                               to rely upon the
                                                               mailing address
                                                               provided by the broker.
111.67.......................  Subpart D....................  Updates to reflect the    Neutral--reflects
                                                               current practice of       current practice.
                                                               Office of Chief Counsel
                                                               representing the
                                                               Government.
111.74.......................  Subpart D....................  Eliminates the            Neutral--such
                                                               requirement to publish    announcements are
                                                               suspension, revocation,   published in the
                                                               or penalty notices in     Federal Register and
                                                               the Customs Bulletin.     automatically included
                                                                                         in the Customs
                                                                                         Bulletin.
111.76.......................  Subpart D....................  Allows for electronic     Benefit--increases
                                                               communication when        efficiency.
                                                               filing an appeal.
111.77.......................  Subpart D....................  Eliminates the            Neutral--such
                                                               requirement that CBP      announcements are
                                                               provide notice of a       published in the
                                                               vacated or modified       Federal Register and
                                                               order in the Customs      automatically included
                                                               Bulletin.                 in the Customs
                                                                                         Bulletin.
111.81.......................  Subpart D....................  Updates to the signing    Neutral--reflects
                                                               requirement for a         delegation of existing
                                                               settlement to reflect     authority.
                                                               delegation of
                                                               authorities.
111.96.......................  Subpart E....................  Updates to the user       See above.
                                                               application fee.
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    As stated above in Section II, Discussion of Comments, one 
commenter disagreed with CBP's assessment that the change to Sec.  
111.39(c) has a neutral effect on cost, as it reflects current 
practice. CBP believes that this assessment is correct. A broker has an 
existing responsibility to advise the client of any noncompliance and 
errors and suggest a corrective action, even though it has not been 
stated expressly in the regulation. Advising a client and documenting 
such advice should be a broker's good practice, to protect the client's 
as well as the broker's interests, in case of any litigation or 
complaint by the client.
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    \18\ Duplicate or backup records may be stored outside the U.S. 
customs territory so long as the recordkeeping requirements for the 
original records are met. See CBP's Headquarters ruling H292868.
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1. Need and Purpose of Rule
    The primary purpose of this final rule is to formalize recent 
changes in the permitting of licensed customs brokers. To take 
advantage of new technologies and reflect a changing trade environment, 
CBP is switching from a district permit system to a national permit 
system. Licensed brokers who have traditionally been required to apply 
for and operate under a permit for each district in which they do 
business may now work under a single, national permit.
    The rule also finalizes changes in the license application fee 
charged by CBP, which CBP will increase to cover a greater portion of 
the costs CBP has always faced. Because these costs are being moved 
from CBP to brokers, they are considered a transfer. The rule contains 
several provisions meant to professionalize the broker industry, 
formalize current practices into regulations, and adapt regulations to 
reflect technological advancements. Finally, in this final rule, CBP 
announces the deployment of a new payment and submission system, the 
eCBP portal.\19\ Testing initially began in 2017 and continued into 
2020. The eCBP portal allows applicants and brokers to electronically 
submit the broker exam application, the triennial status report and 
associated fees, with additional enhancements to be announced in the 
Federal Register as needed. The majority of brokers already follow many 
of the practices described above, like storing records electronically 
within the customs territory of the United States and reporting clients 
the broker knows have attempted to commit fraud. Furthermore, 80 
percent of applicants and 90 percent of brokers have already adopted 
the eCBP portal. This rule provides better and more concrete guidance 
in these matters, at little or no cost to CBP or customs brokers.
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    \19\ See The Benefits of CBP's New Payment and Submission 
System, the eCBP Portal, for Licensed Customs Brokers above.
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    In this final rule, CBP is making several changes to address 
comments received from the public in response to the NPRM, as well as 
clarifying existing regulatory language. These include:
     Changing the definition of ``Designated Center'' by 
changing the name to ``Processing Center;'' and explaining that 
processing Center means the broker management operations of a Center;
     Removing references to a ``director,'' to reflect the fact 
that other

[[Page 63297]]

Center employees may process broker submissions;
     Updating Sec.  111.12 to allow the electronic submission 
and withdrawal of the customs broker license application;
     Updating Sec.  111.13 to account for a remote option for 
the customs broker exam;
     Updating Sec.  111.21 to require brokers to report a 
breach as well as any known compromised importer identification numbers 
within 72 hours, in addition to requiring submission of any additional 
known compromised importer identification numbers within 10 business 
days;
     Consolidation of proposed responsible supervision and 
control factors 12 and 13 in Sec.  111.28(a) into a single factor (12), 
and factors 14 and 15 into a single factor (13);
     Addition of an email address requirement to Sec.  111.30.
    Monetized costs for customs brokers will result from no longer 
receiving a first district permit concurrent with a broker's license, 
and the requirement for brokers to notify CBP when separating from a 
client relationship due to attempted fraud or criminal acts. Customs 
brokers who do not concurrently receive their first district permit 
with their broker's license will save the cost of district permit fees. 
Additionally, CBP and customs brokers will save time applying for and 
reviewing district permit applications and waivers. The five-year total 
monetized net benefit of the rule ranges from $973,616 discounted at 
seven percent to $1,088,308 discounted at three percent. The annualized 
cost is approximately $237,500 using both three and seven percent.
    Customs brokers are private individuals and/or business entities 
(partnerships, associations, or corporations) licensed and regulated by 
CBP to assist importers in conducting customs business. Customs brokers 
have an enormous responsibility to their clients and to CBP, requiring 
them to properly prepare importation documentation, file documents 
accurately and on-time, correctly classify and value goods, pay duties, 
taxes, and fees, safeguard their clients' information, and protect 
their licenses from misuse.
    In an effort to perform these duties efficiently, customs brokers 
have embraced recent technological advances such as making the 
programming and business process changes necessary to use ACE, thus 
providing a single, centralized access point to connect CBP and the 
trade community. Through ACE, manual processes are streamlined and 
automated, and the international trade community is able to more easily 
and efficiently comply with U.S. laws and regulations.
    CBP has also endeavored to embrace these technological advances to 
not only more efficiently perform its duties of facilitating legitimate 
trade while making sure that proper revenue is collected, but also to 
provide more efficient tools for customs brokers to file and monitor 
the information submissions necessary for a timely and accurate entry 
filing. One of the central developments that will allow CBP to perform 
its operational trade functions more effectively is the transition to 
the Centers.
    Beginning in 2012, CBP developed a test to incrementally transition 
the operational trade functions that traditionally reside with port 
directors to the Centers. The Centers were established in strategic 
locations around the country to focus CBP's trade expertise on 
industry-specific issues and provide tailored support for importers. 
CBP established these Centers to facilitate trade, reduce transaction 
costs, increase compliance with applicable import laws, and achieve 
uniformity of treatment at the ports of entry for the identified 
industries. On December 20, 2016, CBP published an interim final rule 
in the Federal Register (81 FR 92978) ending the Centers test and 
establishing the Centers as a permanent organizational component of 
CBP.
    Current broker regulations are based on a district system in which 
entry, entry summary, and post-summary activity are all handled by the 
ports within a permit district. With the transfer of trade functions to 
the Centers, a significant portion of these activities, including entry 
summary and post-summary, are now handled directly by the Centers. The 
Center structure is based on subject matter expertise, as opposed to 
geographic location, placing them outside of the district system as it 
currently exists. With this rule, CBP will modernize the regulations 
governing customs brokers to better reflect the current work 
environment and streamline the customs broker permitting process.
2. Background
    It is the responsibility of CBP to ensure that only qualified 
individuals and business entities can perform customs business on 
behalf of others. CBP accomplishes this task by only issuing broker 
licenses to individuals and business entities that meet the below 
criteria: \20\
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    \20\ See 19 CFR part 111.
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     Must submit a customs broker license application within 
three years of taking and passing the customs broker license 
examination;
     Must be a U.S. citizen and attain the age of 21 prior to 
submitting the license application;
     Must possess good moral character; and
     Must pay the requisite fee.
    Business entity customs broker license eligibility:

Partnerships
     Must have at least one member of the partnership who is a 
licensed customs broker; and
     Must pay the requisite fee.
Associations and Corporations
     Must have at least one officer who is a licensed customs 
broker;
     Must be empowered under its articles of association or 
articles of incorporation to transact customs business as a broker; and
     Must pay the requisite fee.

    Currently, CBP requires all prospective brokers, both individuals 
and business entities, to submit CBP Form 3124: Application for Customs 
Broker License to the port of entry at which they intend to conduct 
customs business. CBP Form 3124 is used to verify that prospective 
customs brokers satisfy the requirements for receiving a customs 
broker's license.
    The customs territory of the United States is divided into seven 
customs regions. Within each region, the customs territory of the 
United States is further divided into districts; there are currently 
approximately 40 customs districts.\21\ Currently, a district permit is 
required for each district in which a customs broker intends to conduct 
customs business. Each district permit requires a one-time permit fee 
of $100 and an annual user fee.\22\ A customs

[[Page 63298]]

broker has the option of receiving his/her first district permit 
concurrently with the receipt of the customs broker license, in which 
case the $100 permit fee is waived. Even if this option is used, the 
customs broker is still responsible for the annual user fee. However, 
this option is not exercised often for individual customs broker 
license holders. Currently, according to a CBP Broker Management Branch 
estimate, approximately two percent of individual customs broker 
license holders get their first district permit concurrently issued 
with the receipt of their broker's license. The majority of individuals 
do not take advantage of this benefit. Most licensed brokers file 
exclusively under a corporate permit and do not need to get an 
individual permit, saving them the annual user fee. On the other hand, 
according to CBP's Broker Management Branch, 100 percent of current 
corporate license holders get their first district permit concurrently 
issued with their customs broker license.
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    \21\ Customs districts are not evenly divided amongst the seven 
customs regions (one region may have more or fewer customs districts 
than another). In addition to the 40 geographically defined customs 
districts, there are three special districts that are responsible 
for specific types of imported merchandise. According to the Broker 
Management Branch, these special districts include districts 60, 70 
and 80. District 60 refers to entries made by vessels under their 
own power. District 70 refers to shipments with a value under $800. 
District 80 refers to mail shipments. These three special districts 
do not require the use of a licensed broker with a specific district 
permit and as a result are not affected by this provision.
    \22\ The annual user fee payable for calendar year 2022 is 
$153.19 (86 FR 66573). Information on the fee can be found in 19 CFR 
24.22(h). The user fee is subject to adjustment based on inflation. 
Amendments to the regulatory provisions regarding the district 
permit user fee are found in the companion Department of the 
Treasury final rule entitled, ``Elimination of Customs Broker 
District Permit Fee.'' RIN 1515-AE43.
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    A broker who intends to conduct customs business at a port within a 
district for which the broker does not have a permit must submit an 
application for a district permit in a letter to the director of the 
port at which the broker intends to conduct customs business. Each 
application for a district permit must set forth or attach the 
following:
     The applicant's broker license number and date of 
issuance;
     The address where the applicant's office will be located 
within the district and the email address and telephone number of that 
office;
     A copy of a document which reserves the applicant's 
business name with the State or local government;
     The name, broker license number, office address(es), 
telephone number, and email address of the individual broker who will 
exercise responsible supervision and control over the customs business 
transacted in the district;
     A list of all other districts for which the applicant has 
a permit to transact customs business;
     The place where the applicant's brokerage records will be 
retained and the name of the applicant's designated recordkeeping 
contact; and
     A list of all persons who the applicant knows will be 
employed in the district with all the required employee information.
    The applicant for the district permit must have a place of business 
at the port where the application is filed or must have made firm 
arrangements satisfactory to the port director to establish a place of 
business and must exercise responsible supervision and control of that 
place of business once the permit is granted. Instead of a customs 
broker getting multiple district permits, he or she could also apply 
for a national permit for the purpose of transacting customs business 
in all districts within the customs territory of the United States as 
defined in 19 CFR 101.1. The national permit application may be 
submitted concurrently with or after the submission of an application 
for a broker's license.
    CBP first introduced national permits in 2000 to allow a broker to 
conduct a limited set of activities in districts for which the broker 
does not have a district permit. When it was first introduced, a 
national permit allowed licensed brokers to place an employee in the 
facility of a client for whom the broker is conducting customs 
business; file electronic drawback claims; participate in remote 
location filing; and make representations after the entry summary has 
been accepted. In the years since the national permit was introduced, 
and with the full implementation of ACE, almost every activity 
performed under a district permit was added to the national permit. 
Only those activities, such as the filing of paper entries and certain 
payment submissions that require physical presence at a port, currently 
require a district permit instead of a national permit. With the 
national permit system, these restrictions will no longer apply. This 
rule will allow a national permit holder to conduct any type of customs 
business in all districts within the customs territory of the United 
States. This represents a full expansion of the activities allowed 
under a national permit. CBP has determined that in the increasingly 
automated environment brokers may need to make contact with CBP 
personnel across the customs territory and there is no longer a reason 
to restrict national permit holders.
    Currently, an applicant for a national permit must submit payment 
of the application fee and user fee to the port where the license was 
issued, and then submit the national permit application in the form of 
a letter, including evidence of payment, to the Broker Management 
Branch.\23\ An applicant has to further include the following:
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    \23\ In the published NPRM, CBP incorrectly stated the current 
submission process of a national permit application (submission to 
the director of the designated Center), but this technical error did 
not have an impact on the outcome of the economic analysis. See the 
published NPRM (85 FR 34836), at page 34850.
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     The applicant's broker license number and date of 
issuance;
     If the applicant is a partnership, association, or 
corporation, the name and title of the national permit qualifier;
     The address, telephone number, and email address of the 
office designated by the applicant as the broker's office of record; 
that office will be noted in the national permit when issued;
     A copy of a document which reserves the applicant's 
business name with the State or local government;
     The name, telephone number, and email address of the 
licensed broker or knowledgeable employee to be available to CBP to 
respond to issues related to the transaction of customs business;
     The name, broker license number (if designated), office 
address, telephone number, and email address of each individual broker 
who will exercise responsible supervision and control over the customs 
business of the applicant under the national permit;
     A supervision plan describing how the broker will exercise 
responsible supervision and control, including compliance with Sec.  
111.28 (see 19 CFR 111.28);
     The place where the applicant's brokerage records relating 
to customs business conducted under the national permit will be 
retained and the name of the applicant's designated recordkeeping 
contact (see 19 CFR 111.22 and 111.23);
     The name, telephone number, and email address of the 
knowledgeable employee responsible for broker-wide records maintenance 
and financial recordkeeping requirements;
     A list of all employees of the broker, together with the 
specific employee information prescribed in Sec.  111.28(b) for each of 
those employees (19 CFR 111.28(b)); and
     A receipt or other evidence showing that the fees 
specified in Sec.  111.96(b) and (c) have been paid (19 CFR 111.96(b) 
and (c)).
    In an effort to modernize the permitting process for customs 
brokers, this rule eliminates the district permitting process and 
automatically grants each current district permit holder a national 
permit.\24\ Upon adoption of this final rule, the transition for a 
district permit holder to become a national permit will be a one-time, 
automatic process, without any actions

[[Page 63299]]

to be taken by the permit holders. Using data from ACE, CBP will 
automatically create a national permit for each broker currently 
holding a district permit and not yet holding a national permit, though 
CBP will not cancel active district permits until all national permits 
are issued. Permit holders will be notified via email, or mail, that a 
new national permit will be issued. These notifications will be part of 
the day-to-day work of the Broker Management Branch and will not add to 
the cost of the rule.
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    \24\ For more information, see the clarification above in 
Subpart A. General Provisions.
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    Currently, customs brokers who do not have a national permit must 
maintain an office and have a separate district permit for each 
district in which the broker wants to conduct customs business. For 
some brokers, this means having many small offices across the country. 
This rule removes the requirement to have a separate local office in 
each district in which customs brokers do business. Since, under a 
national permitting structure, customs brokers are no longer required 
to have a representative in each district in which they conduct customs 
business, brokers could organize themselves to better suit their 
specific business needs. While some brokers may consolidate their 
office locations and save on overhead costs, which may also involve 
laying off local staff, others may expand their business operations or 
staffing needs as they will now be able to serve more ports without 
needing a local office. CBP cannot predict whether customs brokers as 
whole would experience net savings as a result of these changes. For 
the purposes of this analysis, CBP does not believe that brokers will 
greatly expand or contract their holdings as a result of the rule. In 
the case that some brokers do ultimately close offices, they will 
likely experience cost savings and the net benefit estimated in this 
analysis would increase. Since national permits were first issued, 
there has not been a noticeable change in the number of brokers hired 
as a result of national permits, so CBP does not believe there will be 
a significant change due to this rule.
    In response to the NPRM, one commenter predicted that a national 
permit system would lead to reduced competition and lost revenue at 
ports. However, because this rule will not reduce the volume of trade, 
and goods must still physically arrive at various ports, CBP does not 
believe this to be the case. Another commenter noted that a national 
permit system would devalue the broker license and force small 
businesses to close. CBP disagrees with this assertion. In fact, small 
businesses may benefit more from a national permit, allowing them to 
work in ports across the country and in which they could not previously 
afford to maintain a physical presence. Brokers who find they are more 
competitive with a physical presence at a given port may still maintain 
a local office.
Projection of Customs Broker Licenses and Permits
    CBP's Broker Management Branch provided historical data from 2015-
2021. As of January 2022, there are 15,226 active, licensed customs 
brokers. CBP also issued new broker licenses each year to both 
individuals and corporations.\25\ From 2015 to 2019, the annual number 
of licenses issued has declined by one percent for corporate licenses 
while from 2017 to 2021, the annual number of licenses declined by four 
percent for individual licenses (see Table 2).\26\
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    \25\ A partnership or association may also hold a corporate 
permit. At least one member of the licensed organization must hold 
an individual broker license.
    \26\ The closures and delays related to the COVID-19 pandemic 
resulted in anomalous data for corporate licenses in 2020 and 2021. 
The number of licenses issued in 2020 was significantly smaller than 
previous trends, while 2021 represented a catch-up year and saw an 
inordinately high number of corporate licenses issued. Therefore, to 
calculate the corporate license growth rate, CBP used data from 
2015-2019, which we believe more accurately reflects future growth. 
Individual licenses, while also affected by the COVID-19 pandemic, 
returned to previous trends in 2021, allowing CBP to use a standard 
5-year period from 2017-2021.

                                          Table 2--Historical Licensing
----------------------------------------------------------------------------------------------------------------
                                                                  Total licenses     Corporate      Individual
                              Year                                    issued         licenses        licenses
----------------------------------------------------------------------------------------------------------------
2015............................................................             770              16             754
2016............................................................             653              21             632
2017............................................................             580              16             564
2018............................................................             558              27             531
2019............................................................             464              15             449
2020............................................................             187               7             180
2021............................................................             496              31             465
----------------------------------------------------------------------------------------------------------------

    As of January 2022, there are 2,365 permitted brokers holding a 
combined total of 3,345 active district permits. These 2,365 brokers 
represent about 15.5 percent of all brokers, as the majority of brokers 
never apply for their own permit and work under the auspices of a 
corporate permit. Approximately two percent of brokers hold a corporate 
permit, meaning 13.5 percent of brokers hold individual permits. The 
brokers who do hold permits average approximately 1.4 district permits 
per permit holder. Using these figures and historic rates of decline, 
we can project how many licenses and district permits licensed brokers 
will be issued over the period of the analysis, under the baseline 
condition (i.e., if this rule is not promulgated). This is shown in 
Table 3 below.

                           Table 3--Projection of New Individual and Corporate Permits
----------------------------------------------------------------------------------------------------------------
                                        New corporate      New corporate                           Individual
                                       licenses issued    permits (100% of    New individual   permits (13.5% of
                Year                      (1% annual       new  corporate      licenses (4%        individual
                                           decline)       licenses * 1.4)        decline)       licenses * 1.4)
----------------------------------------------------------------------------------------------------------------
2022................................                 15                 21                447                 86

[[Page 63300]]

 
2023................................                 15                 21                430                 82
2024................................                 15                 21                414                 79
2025................................                 15                 21                398                 76
2026................................                 15                 21                383                 73
                                     ---------------------------------------------------------------------------
    Total...........................                 75                105              2,072                396
----------------------------------------------------------------------------------------------------------------
Note: Values may not sum to total due to rounding.

3. Rule Amendments: Costs, Benefits, and Transfer Payments
    In this rule, CBP is finalizing regulatory changes that include: 
increasing fees for the customs broker license application; eliminating 
district permits so each customs broker only needs one national permit 
to conduct customs business; mandating that each broker must provide 
notification to CBP of any known breach of records within 72 hours of 
discovery; \27\ requiring that upon request by CBP to examine records, 
brokers make all records available to CBP within thirty (30) calendar 
days at the location specified by CBP; requiring that customs brokers 
obtain a customs power of attorney directly from the importer of record 
or drawback claimant--not a freight forwarder or other third party--to 
transact customs business for that importer or drawback claimant; and 
requiring that a broker document and report to CBP when the broker 
separates from or cancels a client as a result of the broker's 
determination that the client is intentionally attempting to use the 
services of the broker to defraud or otherwise commit any criminal act 
against the U.S. Government. Finally, this rule allows CBP to make 
numerous non-substantive changes and conforming edits in an effort to 
modernize the regulations governing customs brokers and to clarify 
existing language in the regulations to better reflect what is already 
occurring.
---------------------------------------------------------------------------

    \27\ Additionally, within ten (10) business days, a broker must 
provide an updated list of any additional known compromised importer 
identification numbers. To the extent that additional information is 
discovered, a broker must provide that information within 72 hours 
of discovery.
---------------------------------------------------------------------------

3.1 Broker License Fee
    CBP currently charges $200 fees per individual or business entity 
for the broker license application. These fees are used to offset the 
costs associated with servicing the brokers. Based on a fee study, 
entitled ``Customs Broker License Application Fee Study,'' CBP has 
determined that these fees are no longer sufficient to cover its 
costs.\28\
---------------------------------------------------------------------------

    \28\ The fee study is included in the docket of this rulemaking 
(docket number USCBP-2020-0009).
---------------------------------------------------------------------------

    The study found that fees of $463 and $815 are necessary to recover 
the costs associated with reviewing the customs broker license 
application for individuals and business entities, respectively. These 
fees, however, are significantly higher than the current fees of $200 
for both individuals and business entities and, if implemented, these 
fee rates could become an economic disincentive to those pursuing a 
career as a customs broker. Therefore, in an effort to minimize the 
financial burden to prospective customs brokers while also recovering a 
larger portion of the costs associated with reviewing and vetting the 
license application, CBP has decided to limit the license application 
fee to $300 for individuals and $500 for business entities; the 
remainder of the costs would continue to be covered by appropriated 
funds. In response to the NPRM, one commenter expressed concern that 
raising application fees would reduce the number of qualified 
candidates applying for broker licenses. CBP has considered this factor 
in deciding to limit the amount by which the fee will increase in order 
to cover more of CBP's costs and account for inflation without adding 
too much to the cost burden for brokers. CBP considers this increase in 
the fee to be a reasonable compromise position between not raising the 
fee at all and raising it to a level necessary to recover the full 
costs.
    In response to the NPRM, one commenter noted that automation and 
improved technology should obviate the need for a fee increase. The fee 
increase is necessary, however, because CBP has not been covering costs 
for many years. Technology improvements and automation also require 
initial investments and ongoing maintenance costs for computer systems 
and databases, which were included in CBP's estimation of appropriate 
fees. Another commenter suggested that fees should be charged on port 
activity, not district. As discussed above in Section II, Discussion of 
Comments, CBP disagrees with the commenter's suggestion, as the fees as 
currently outlined are independent of broker size or location. Although 
these fee increases represent an increased expense for prospective 
customs brokers, these fee increases do not increase overall costs to 
society as these costs are already being paid by CBP's appropriated 
funds.
    When assessing costs of final rules, agencies must take care to not 
include transfer payments in their cost analysis. As described in OMB 
Circular A-4, transfer payments occur when ``. . . monetary payments 
from one group [are made] to another [group] that do not affect total 
resources available to society.'' Examples of transfer payments include 
payments for insurance and fees paid to a government agency for 
services that an agency already provides. CBP's processing of the 
customs broker license application is an established service that 
already requires a fee payment. As such, adjustments to the fee 
associated with providing each service is considered a transfer 
payment. Currently, any costs not covered by fees are paid via funds 
appropriated to and expended by CBP. The increased fees paid by brokers 
would replace appropriated funds. CBP recognizes that the fee changes 
may have a distributional impact on prospective customs brokers. In 
order to inform stakeholders of all potential effects of the final 
rule, CBP has analyzed the distributional effects of the rule in 
section ``3.12 Distributional Impacts.''
3.2 Permit Application Fee
    Currently, brokers are required to pay a $100 permit application 
fee in connection with each permit application by either an individual 
or corporation. The applicant has the option of concurrently receiving 
its first

[[Page 63301]]

district permit with its customs broker's license and therefore 
forgoing the $100 permit application fee for its first district permit. 
However, some brokers do not request an initial district permit at the 
time they get their license. When this is the case and the broker later 
applies for a district permit, or if brokers make a request to obtain a 
permit for additional districts, then they must submit the following 
information to CBP as set forth in Sec.  111.19(b):
    (1) The applicant's broker license number and date of issuance;
    (2) The address where the applicant's office will be located within 
the district and the telephone number of that office;
    (3) A copy of a document which reserves the applicant's business 
name with the State or local government;
    (4) The name of the individual broker who will exercise responsible 
supervision and control over the customs business transacted in the 
district;
    (5) A list of all other districts for which the applicant has a 
permit to transact customs business;
    (6) The place where the applicant's brokerage records will be 
retained and the name of the applicant's designated recordkeeping 
contact; and
    (7) A list of all persons who the applicant knows will be employed 
in the district, together with the specific employee information for 
each of those prospective employees.
    As a result of this rule, the options above pertaining to district 
permits will no longer exist and all permitted brokers will have to get 
a single national permit to conduct customs business. That means that 
brokers will pay the $100 permit application fee and receive a single 
national permit; brokers who, absent this rule, paid to hold multiple 
district permits will save the $100 district permit fee for each 
additional permit. This is considered a cost savings, and not the 
elimination of a transfer payment, because the $100 district permit fee 
reflects the economic activity undertaken by CBP to issue those 
permits. The elimination of the fee represents a savings both to the 
individual brokers as well as to society as a whole as the underlying 
work to process the additional district permits is eliminated.
    As shown in Table 3 above, absent this rule, there would be 2,147 
total new broker licenses (75 corporate + 2,072 individual) issued over 
the period of analysis from 2022 through 2026. Of these 2,147 licenses, 
75 would be issued to corporations which would result in 105 corporate 
district permits (as mentioned above, each customs broker permit holder 
currently has 1.4 district permits on average). Additionally, as 
mentioned above, 100 percent of corporations exercise the option of 
concurrently receiving their first district permit with their customs 
broker's license, therefore saving the $100 permit application fee for 
their first district permit. This means that, absent this rule, 
corporations would get 75 permits for free and would then have to pay 
for the remaining 30 permits for a cost of $3,000 ($100 permit 
application fee * 30 corporate permits). As a result of this rule, 
these 75 corporate brokers will each have to get a single national 
permit and pay the $100 permit application fee for each national permit 
for a total cost of $7,500 (75 national permits * $100 permit 
application fee). This results in an additional cost to these corporate 
brokers of $4,500 ($7,500 - $3,000) over the period of the analysis 
from 2022 through 2026. Please see Table 4 below for a breakdown of 
these costs.

                                   Table 4--Costs for Corporate Permit Holders
                                               [2022 U.S. dollars]
----------------------------------------------------------------------------------------------------------------
                                   New corporate                   Costs absent   Costs with the    Cost of the
              Year                   licenses         Permits        the rule          rule            rule
----------------------------------------------------------------------------------------------------------------
2022............................              15              21            $600          $1,500            $900
2023............................              15              21             600           1,500             900
2024............................              15              21             600           1,500             900
2025............................              15              21             600           1,500             900
2026............................              15              21             600           1,500            $900
                                 -------------------------------------------------------------------------------
    Total.......................              75             105           3,000           7,500           4,500
----------------------------------------------------------------------------------------------------------------
Note: Values may not sum to total due to rounding.

    As shown above in Table 3, if this rule were not in effect there 
would be 2,072 new individual broker licenses resulting in 396 new 
individual permits over the period of analysis. According to CBP's 
Broker Management Branch, individual brokers do not get their first 
district permit issued concurrently with their customs broker's 
licenses nearly as often as corporations. Approximately two percent of 
individual customs broker license holders, or 42 of the estimated 2,072 
new brokers, get their first district permit issued concurrently with 
their broker's license, saving the $100 permit application fee charged 
for the first district permit. Using the average of 1.4 district 
permits per customs broker permit holder, we estimate that these 42 
individual customs brokers would get 59 district permits over the 
period of the analysis if this rule did not go into effect. Since, 
under the baseline, the brokers would get 42 out of the 59 permits for 
free, brokers would have to pay for the remaining 17 permits for a cost 
of $1,700 ($100 permit application fee * 17 permits). Under this rule, 
these 42 individual brokers would each need a single national permit 
for a total of 42 permits resulting in a total cost of $4,200 ($100 
national permit application fee * 42 national permits). As a result of 
this rule, two percent of individual brokers will bear an additional 
total cost of $2,500 ($4,200 - $1,700) over the period of analysis. 
Please see Table 5 below for a breakdown of these costs.

[[Page 63302]]



                           Table 5--Costs for Two Percent of Individual Permit Holders
                                               [2022 U.S. dollars]
----------------------------------------------------------------------------------------------------------------
                                    Individual
                                   licenses for      Number of     Costs for 2%    Costs for 2%    Rule's costs
              Year                 2% of permit   permits issued   without rule      with rule        for 2%
                                      holders
----------------------------------------------------------------------------------------------------------------
2022............................               9              13            $400            $900            $500
2023............................               9              13             400             900             500
2024............................               8              11             300             800             500
2025............................               8              11             300             800             500
2026............................               8              11             300             800             500
                                 -------------------------------------------------------------------------------
    Total.......................              42              59           1,700           4,200           2,500
----------------------------------------------------------------------------------------------------------------
Note: Values may not sum to total due to rounding.

    The remaining 98 percent of individual customs broker license 
holders do not get their first district permit concurrently with their 
broker's license, if they get any permits at all. Of the 15,226 active 
licensed brokers, approximately 15.5 percent hold at least one permit. 
Because only 15.5 percent of license holders hold a permit, and two 
percent of those are corporate license holders and only two percent are 
individuals who get a permit concurrently with their license, the 
remaining 11.5 percent are individual licensed brokers who apply for 
and receive a permit after their license is issued. Accordingly, under 
the current permit system, using an average of 1.4 permits per broker, 
238 individual customs broker permit holders pay $33,600 for 336 
permits because they pay the $100 fee for every permit.\29\ With the 
national permit system, these brokers would pay $23,800 for 238 
national permits, resulting in a savings of $9,800. Please see Table 6 
below for an itemization of these costs.
---------------------------------------------------------------------------

    \29\ About 15.5 percent of all brokers, corporate and 
individual, hold a permit. Of those, 2 percent are corporate brokers 
and 2 percent are individual brokers who get their permit 
concurrently with their license. Therefore, about 11.5 percent of 
brokers are individuals who will get a permit at some point in their 
careers after receiving a license. Based on the projections 
described above, CBP estimates that 2,072 indiviudal licenses will 
be issued from 2022-2026. Approximately 11.5 percent of those 
individuals results in 238.

                         Table 6--Savings for 11.5 Percent of Individual Permit Holders
                                               [2022 U.S. dollars]
----------------------------------------------------------------------------------------------------------------
                                     Number of
                                   licenses for      Number of       Costs for       Costs for    Rule's savings
              Year                   11.5% of     permits issued   11.5% without    11.5% with       for 11.5%
                                  permit holders                       rule            rule
----------------------------------------------------------------------------------------------------------------
2022............................              51              72          $7,200          $5,100          $2,100
2023............................              49              69           6,900           4,900           2,000
2024............................              48              68           6,800           4,800           2,000
2025............................              46              65           6,500           4,600           1,900
2026............................              44              62           6,200           4,400           1,800
                                 -------------------------------------------------------------------------------
    Total.......................             238             336          33,600          23,800           9,800
----------------------------------------------------------------------------------------------------------------
Note: Values may not sum to total due to rounding.

    Any brokers who apply for more than one permit will experience a 
time savings as a result of this rule because they will only need to 
apply for a single permit. According to CBP's Broker Management Branch, 
currently, brokers spend approximately three hours to collect and 
submit the appropriate documentation to CBP.\30\ The rule's elimination 
of these applications will result in time savings for the brokers as 
well as for CBP. The estimated number of permits requested separately 
from individual licenses for the entire period of the analysis is taken 
from Tables 5 and 6. Table 5 implies there are 17 permits for which two 
percent of individual customs brokers currently pay $100 ($1,700 permit 
costs without rule/$100 per permit). Table 6 shows that 11.5 percent of 
individual customs brokers currently pay $100 for 336 permits. Summing 
these two figures, we find that all individual customs brokers will pay 
$100 for 353 permits. Table 7 shows the removal of the application for 
these permits will result in a monetized time savings worth $36,864. 
This benefit is based on CBP's estimated fully loaded hourly time value 
for customs brokers of $34.81.\31\
---------------------------------------------------------------------------

    \30\ Source: CBP's Broker Management Branch on May 16, 2019.
    \31\ CBP calculated this loaded wage rate by first multiplying 
the Bureau of Labor Statistics' (BLS) 2021 median hourly wage rate 
for Cargo and Freight Agents ($22.55), occupation code 43-5011, 
which CBP assumes best represents the wage for brokers, by the ratio 
of BLS' average 2021 total compensation to wages and salaries for 
Office and Administrative Support occupations (1.4819), the assumed 
occupational group for brokers, to account for non-salary employee 
benefits. Sources: U.S. Bureau of Labor Statistics. Occupational 
Employment Statistics, ``May 2021 National Occupational Employment 
and Wage Estimates United States.'' Updated March 31, 2022. 
Available at https://www.bls.gov/oes/2021/may/oes_nat.htm#43-0000. 
Accessed May 25, 2022; U.S. Bureau of Labor Statistics. Employer 
Costs for Employee Compensation. ``ECEC Civilian Workers--2004 to 
Present.'' March 2022. Available at https://www.bls.gov/web/ecec.supp.toc.htm. Accessed May 25, 2022. CBP assumes an annual 
growth rate of 4.15% based on the prior year's change in the 
implicit price deflator, published by the Bureau of Economic 
Analysis.

[[Page 63303]]



                            Table 7--Application Time Savings for Individual Brokers
                                               [2022 U.S. dollars]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of      Hourly time
                                                                  permits issued    burden for    Rule's savings
                              Year                                 separate from      permit      for individual
                                                                      license       application       brokers
----------------------------------------------------------------------------------------------------------------
2022............................................................              76               3          $7,937
2023............................................................              73               3           7,623
2024............................................................              71               3           7,415
2025............................................................              68               3           7,101
2026............................................................              65               3           6,788
                                                                 -----------------------------------------------
    Total.......................................................             353               3          36,864
----------------------------------------------------------------------------------------------------------------
Note: Values may not sum to total due to rounding.

    Corporate brokers would also see time savings resulting from fewer 
permit applications prepared and submitted. Table 4 shows that 
corporate brokers currently apply for, receive, and pay $100 for 30 
permits after their licenses have been issued. Table 8 shows the 
removal of the application for these permits will result in a monetized 
time savings worth $3,133, based on CBP's estimated fully loaded hourly 
time value for customs brokers of $34.81.

                             Table 8--Application Time Savings for Corporate Brokers
                                               [2022 U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
                                                                     Number of      Hourly time
                                                                  permits issued    burden for    Rule's savings
                              Year                                 separate from      permit       for corporate
                                                                      license       application       brokers
----------------------------------------------------------------------------------------------------------------
2022............................................................               6               3            $627
2023............................................................               6               3             627
2024............................................................               6               3             627
2025............................................................               6               3             627
2026............................................................               6               3             627
                                                                 -----------------------------------------------
    Total.......................................................              30               3           3,133
----------------------------------------------------------------------------------------------------------------
Note: Values may not sum to total due to rounding.

    Relatedly, CBP would see benefits due to the elimination of the 
district permit application review process. CBP estimates that it takes 
two hours of CBP processing, including time to review and approve an 
application and create and deliver the permit to the applicant.\32\ 
Given the wage rate, CBP estimates that processing costs approximately 
$164 per permit. The applicant pays a $100 fee, which compensates CBP 
for a portion of the economic activity undertaken to process the 
application. CBP currently funds the remaining portion from 
appropriated funds. Therefore, with the rule in place, CBP will 
experience a cost savings of approximately $64 per permit no longer 
applied for, as the remaining $100 is saved by the broker applicant and 
accounted for in Tables 5 and 6 above. Going forward, CBP believes that 
a $100 fee recovers a reasonable portion of its costs for the national 
permit application. Table 9 shows CBP's total estimated benefits of 
$24,573 over the period of analysis. This is based on a CBP fully 
loaded wage rate of $82.08 for CBP staff reviewing applications.\33\
---------------------------------------------------------------------------

    \32\ Source: CBP's Broker Management Branch on May 16, 2019.
    \33\ CBP bases this wage on the FY 2022 salary and benefits of 
the national average of CBP Trade and Revenue positions, which is 
equal to a GS-12, Step 10. Source: Email correspondence with CBP's 
Office of Finance on June 27, 2022.

                                          Table 9--Time Savings for CBP
                                               [2022 U.S. Dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                    Hourly time
                                                                     Number of      burden for
                              Year                                permits issued      permit      Rule's savings
                                                                   separate from    application       for CBP
                                                                      license         review
----------------------------------------------------------------------------------------------------------------
2022............................................................              82               2          $5,261
2023............................................................              79               2           5,069
2024............................................................              77               2           4,940
2025............................................................              74               2           4,748
2026............................................................              71               2           4,555
                                                                 -----------------------------------------------
    Total.......................................................             383               2          24,573
----------------------------------------------------------------------------------------------------------------


[[Page 63304]]

    Lastly, the district permit waiver described in current Sec.  
111.19(d)(2) would be eliminated with the rule. Currently, requests for 
a waiver of the requirement for an individual broker in the district 
must be submitted to the port director and include a description of 
responsible supervision and control procedures and information on the 
volume and type of customs business conducted. The port director 
reviews the request and makes a recommendation to headquarters. 
Headquarters reviews and issues the decision.\34\ According to the CBP 
Broker Management Branch, this process takes two hours for brokers, 
including application processing and mailing paper documents to CBP. It 
takes an hour and a half for CBP to review the waiver analysis, prepare 
the recommendation memorandum, and for headquarters to make the final 
decision.\35\ As shown in Tables 11 and 12 there is a total benefit of 
$3,579 ($1,293 + $2,286), as this entire process is eliminated under 
the national permit framework. Waiver estimates for calendar years 2022 
to 2026 are based on compound annual growth rate from calendar years 
2017-2021, found in Table 10 below.
---------------------------------------------------------------------------

    \34\ See 19 CFR 111.19(d)(2).
    \35\ Source: CBP's Broker Management Branch on May 16, 2019.

                   Table 10--Permit Waivers 2017-2021
------------------------------------------------------------------------
                                                              Broker
                          Year                               district
                                                          permit waivers
------------------------------------------------------------------------
2017....................................................              14
2018....................................................              13
2019....................................................               7
2020....................................................              10
2021....................................................               6
                                                         ---------------
    Total...............................................              50
------------------------------------------------------------------------


                               Table 11--Time Savings for Brokers Seeking Waivers
                                               [2022 U.S. dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                    Hourly time   Rule's savings
                                                                      Broker        burden for      for brokers
                              Year                                   district         waiver          seeking
                                                                  permit waivers    application       waivers
----------------------------------------------------------------------------------------------------------------
2022............................................................               5               2             353
2023............................................................               4               2             298
2024............................................................               4               2             251
2025............................................................               3               2             212
2026............................................................               3               2             179
                                                                 -----------------------------------------------
    Total.......................................................              19  ..............           1,293
----------------------------------------------------------------------------------------------------------------


                                Table 12--Time Savings for CBP Reviewing Waivers
                                               [2022 U.S. dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                    Hourly time
                                                                      Broker        burden for
                              Year                                   district         waiver      Rule's savings
                                                                  permit waivers    application       for CBP
                                                                                      review
----------------------------------------------------------------------------------------------------------------
2022............................................................               5             1.5            $624
2023............................................................               4             1.5             526
2024............................................................               4             1.5             444
2025............................................................               3             1.5             375
2026............................................................               3             1.5             317
                                                                 -----------------------------------------------
    Total.......................................................              19             1.5           2,286
----------------------------------------------------------------------------------------------------------------

    Table 13 provides a summary of the costs and savings resulting from 
the removal of the district permit application and $100 fee over the 
period of analysis.

                                                  Table 13--Summary of Costs and Savings to All Parties
                                                                   [2022 U.S. dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Costs/savings for         Costs/savings for corporations          Savings for CBP
                                                                      individuals       ----------------------------------------------------------------
                                                  Savings for --------------------------                 Waivers
                                                     11.5%                                Costs for   applications      Time      Review of     Review
                                                                Costs for       Time     corporation       time       savings      permits      waivers
                                                                  the 2%      savings                    savings
--------------------------------------------------------------------------------------------------------------------------------------------------------
2022............................................       $2,100         $500       $7,937         $900          $353         $627       $5,261        $624
2023............................................        2,000          500        7,623          900           298          627        5,069         526
2024............................................        2,000          500        7,415          900           251          627        4,940         444
2025............................................        1,900          500        7,101          900           212          627        4,748         375
2026............................................        1,800          500        6,788          900           179          627        4,555         317
                                                 -------------------------------------------------------------------------------------------------------
    Total.......................................        9,800        2,500       36,864        4,500         1,293        3,133       24,573       2,286
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 63305]]

3.3 Record of Transactions
    Each broker must keep current, in a correct and itemized manner, 
records of accounts reflecting all of his or her financial transactions 
as a broker. The broker must keep and maintain on file copies of all 
correspondence and other records relating to customs business. With 
this rule, each broker must provide notification to the processing 
Center of any known breach of electronic or physical records relating 
to customs business. Notification to CBP must be provided within 72 
hours of the discovery of the breach with a list of all known 
compromised importer identification numbers. CBP received several 
comments on the potential difficulty of reporting a breach and 
compromised importer numbers within this time frame. As explained above 
in Section II, Discussion of Comments, in response, CBP has revised the 
requirement such that brokers must report the breach within 72 hours, 
and, within ten (10) business days, must provide an updated list of any 
additional known compromised importer identification numbers. To the 
extent that additional information is discovered, a broker must provide 
that information within 72 hours of discovery. Brokers already compile 
this information through their normal course of business, and they can 
report the information to CBP in any format they choose. CBP assumes 
data breaches are rare but includes this requirement as a preventive 
measure. CBP assumes this provision has virtually no cost to the 
brokers due to the infrequency of data breaches. CBP will use this 
information in its targeting of imports for inspection, which will help 
make imports safer.
3.4 Records Availability
    Currently, during the period of retention (five years after the 
date of entry), the broker must maintain its records in such a manner 
that they can be readily examined by CBP when necessary. Records 
required to be maintained under this provision must be made available 
upon reasonable notice for inspection, copying, reproduction or other 
official use by representatives of the Department of Homeland Security. 
Additionally, customs brokers currently have the option to store 
records offsite. Under the rule, upon request by CBP to examine 
records, the designated recordkeeping contact must make all records 
available to CBP within thirty (30) calendar days, or any longer 
timeframe as specified by CBP, at the location specified by CBP. This 
change in the regulations is necessary to ensure brokers continue to 
give CBP the requested information and to specifically state for 
clarity that brokers need to keep records in the customs territory of 
the United States. As this is an existing requirement newly stated for 
the sake of clarity, this will result in no additional burden for 
customs brokers.
    CBP received comments regarding the requirement to maintain records 
within the customs territory of the United States. As further discussed 
above in Section II, Discussion of Comments, CBP has clarified that 
while primary records must be stored within the customs territory of 
the United States, duplicates or backups may be stored outside it.
3.5 Termination of Client Relationship
    The rule requires that a broker document and report to CBP when it 
separates from a client relationship as a result of the broker's 
determination that the client is intentionally attempting to use the 
broker's services to defraud or otherwise commit any criminal act 
against the U.S. Government. This is an entirely new provision, so CBP 
does not have data on how often clients may use a broker's services to 
defraud or otherwise commit criminal acts against the U.S. Government. 
However, based on stakeholder feedback during the development of the 
NPRM, CBP subject matter experts do not expect this to happen often. 
CBP's Broker Management Branch estimates this to occur approximately 
five times per year and each resulting report will take brokers 
approximately four hours to draft. CBP requested public comment on this 
assumption and did not receive any comments. CBP did receive some 
comments regarding this provision and the responsibility of the broker, 
which are discussed in greater detail in the comment responses above.
    CBP expects that, in most cases, the necessary information will be 
submitted by customs brokers employing in-house or external attorneys 
to draft the report. CBP received one comment in response to the 
attorney wage rate used in the NPRM stating that while attorney 
compensations may be accurately reported by the Bureau of Labor 
Statistics, actual costs of employing an attorney are significantly 
higher than estimated by CBP. CBP agrees and has updated the cost 
estimates to reflect a higher wage. The loaded wage rate for an 
attorney is $94.15, which accounts for regional differences as well as 
differences in experience and specialty.\36\ CBP assumes this wage 
reflects the average wage of an in-house attorney. Using data and 
estimates compiled by the American Intellectual Property Law 
Association (AIPLA), CBP estimates the hourly wage for an external 
attorney to be $466.38.\37\ CBP assumes that, generally, large 
companies employing licensed customs brokers will also employ in-house 
attorneys, while small companies employ attorneys outside the business. 
Approximately 6 percent of brokerages are considered large (see the 
Regulatory Flexibility Act section, below), while 94 percent are 
considered small. A weighted average wage, therefore, is $443.85 per 
hour. Five reports represent an additional burden to the broker and 
will result in a total annual cost of $8,877 or a total cost of $44,385 
over the five-year period of analysis.
---------------------------------------------------------------------------

    \36\ CBP calculated this loaded wage rate by first multiplying 
the Bureau of Labor Statistics' (BLS) 2021 median hourly wage rate 
for Lawyers, occupation code 23-1011 ($61.54), which CBP assumes 
best represents the wage for attorneys, by the ratio of BLS' average 
2021 total compensation to wages and salaries for Professional and 
related occupations (1.4689), the assumed occupational group for 
brokers, to account for non-salary employee benefits. Sources: U.S. 
Bureau of Labor Statistics. Occupational Employment Statistics, 
``May 2021 National Occupational Employment and Wage Estimates 
United States.'' Updated March 31, 2022. Available at https://www.bls.gov/oes/2021/may/oes_nat.htm#23-0000. Accessed May 25, 2022; 
U.S. Bureau of Labor Statistics. Employer Costs for Employee 
Compensation. ``ECEC Civilian Workers--2004 to Present.'' March 
2022. Available at https://www.bls.gov/web/ecec.supp.toc.htm. 
Accessed May 25, 2022. CBP assumes an annual growth rate of 4.15% 
based on the prior year's change in the implicit price deflator, 
published by the Bureau of Economic Analysis.
    \37\ AIPLA's study surveyed intellectual property (IP) lawyers 
that were used in the 2017 Report of the Economic Survey. The median 
hourly billing rate for these lawyers was $400 in 2016 dollars, 
which is the most recent data available, and ($447.78) after 
adjustment to 2021 dollars. CBP assumes an annual growth rate of 
4.15% based on the prior year's change in the implicit price 
deflator, published by the Bureau of Economic Analysis. Source: 
American Intellectual Property Law Association. 2017 Report of the 
Economic Survey. ``Billable Hours, Billing Rate, Dollars Billed 
(Q29, Q30, Q27).'' June 2017.
---------------------------------------------------------------------------

3.6 Customs Power of Attorney
    A customs broker is required to have a customs power of attorney 
prior to transacting any customs business on behalf of the importer of 
record.\38\ Currently, an agent of the importer of record, who could be 
a freight forwarder that is properly designated by the importer of 
record, may issue a power of attorney on behalf of the importer of 
record to a customs broker. In such instances, the customs broker may 
never have any contact with the importer of record, only its agent (the 
forwarder). With this rule, the broker must secure a customs power of 
attorney directly from the importer of record or drawback

[[Page 63306]]

claimant and not via the freight forwarder or any other third-party 
agent. This gives the broker direct access to the importer of record 
when entering into the power of attorney, which increases transparency 
in the verification process. Since brokers are currently required to 
execute a customs power of attorney, and importers already provide a 
power of attorney, this provision would not result in any additional 
burden to brokers. The new provision only requires direct contact 
between the broker and the importer of record. CBP received several 
comments on this provision, which are discussed in greater detail in 
the Discussion of Comments section above. In reviewing the concerns 
raised in these comments, CBP has decided to retain its proposed new 
policy requiring contact directly between the importer of record and 
the broker.
---------------------------------------------------------------------------

    \38\ See 19 CFR 141.46
---------------------------------------------------------------------------

    According to CBP's Broker Management Branch, it takes approximately 
1.75 hours, on average, for the broker to obtain a customs power of 
attorney from the freight forwarder, a time estimate CBP believes will 
also apply to securing a power of attorney from the importer of record 
or drawback claimant. CBP received two comments disputing this 
estimation in response to the NPRM, both noting that it may take 
substantially longer to acquire a power of attorney under the rule, 
though neither commenter provided an estimated time burden. However, 
this estimation is an average across all clients and over time. While 
it may initially take slightly longer to secure a power of attorney 
directly from certain clients, for others it will be faster than 
dealing with the freight forwarder. Additionally, as brokers regularly 
work directly with importers of record and drawback claimants, the 
process will likely move faster. Furthermore, CBP based this average on 
subject matter expertise and information from discussions between the 
Broker Management Branch and representatives of trade associations and 
individual brokers. CBP therefore believes the average time to procure 
a power of attorney will not change once the intermediary is removed 
and the broker must obtain the customs power of attorney directly from 
the importer of record or drawback claimant instead of allowing a 
freight forwarder or other third party to do so on their behalf.
3.7 Professionalism
    A number of the changes contained in this rule are meant to 
increase professionalism and clarify what brokers should already be 
doing. CBP recognized this need given the volume of routinely fielded 
questions about these topics. The next several sections describe the 
current process, and what is changing as a result of this rule, for new 
requirements related to Customs Business, Records Confidentiality, 
Responsible Supervision and Control, and Advice to Client.
3.7.1 Customs Business
    Currently, customs business must be conducted within the customs 
territory of the United States as it is defined in 19 CFR 101.1. 
Furthermore, each brokerage or company employing brokers must designate 
a licensed broker or knowledgeable employee to be available to CBP to 
respond to issues related to the transacting of customs business. CBP 
received several comments regarding this requirement. As discussed 
above in Section II, Discussion of Comments, CBP is not requiring 24-
hour on-call coverage by brokers. Instead, CBP requires that a broker 
provide a knowledgeable point of contact covering all ports where the 
broker does business, which could encompass ports with business hours 
extending beyond a regular business day. Each broker must maintain 
accurate and current point of contact information for that employee 
with CBP and may update that information in a CBP-authorized EDI 
system, instead of submitting on paper. Under this rule, the 
requirements related to contact information are not changing; the 
regulations now recognize that use of the EDI satisfies the requirement 
and mandates that brokers use an EDI, unless one is unavailable. CBP 
fields questions on this provision from the public, so adding this 
additional language to the regulation will clarify the provision for 
the public. There are no costs to this provision because it does not 
change the requirement. The public will benefit as the public now has 
more clarity regarding the requirement without needing to contact CBP.
3.7.2 Records Confidentiality
    Currently, records pertaining to the clients of the broker are to 
be considered confidential and the broker must not disclose their 
contents, or any information connected with the records to any other 
persons except the relevant surety, other than specifically described 
Government representatives with regard to a particular entry or due to 
a subpoena. This is not changing under the rule. However, this 
description is clarified to state that these records may not be 
disclosed to any persons other than the ones mentioned above and to the 
representatives of the Department of Homeland Security except by court 
order, subpoena (as mentioned above), or when authorized in writing by 
the client. This has been the practice but has been the subject of 
confusion. Finally, the revised language clarifies that the 
confidentiality provision does not apply to information that is in the 
public domain, which has been a point of confusion for some brokers. 
CBP received several comments on this provision, discussed in greater 
detail in the comment responses above, but is not revising the 
requirements for this final rule or the analysis of costs and benefits.
3.7.3 Responsible Supervision and Control
    Brokers often have employees working for them who are not licensed 
brokers. These employees help with information collection and 
submission of entry documentation to CBP. Each broker is responsible 
for exercising responsible supervision and control over the transaction 
of the customs business done under his or her broker license. This 
requirement currently exists and is not changing as a result of this 
rule. However, this rule moves the list of factors CBP considers when 
determining whether a customs broker is exercising responsible 
supervision and control from the definition of ``responsible 
supervision and control'' in Sec.  111.1 to Sec.  111.28. This list is 
of a substantive nature and is more appropriately located in the 
section on responsible supervision and control as opposed to the 
definitions section. CBP has always maintained that the current factors 
are not exhaustive, and in the rule, CBP is simply clarifying existing 
requirements that brokers, for the most part, are already complying 
with in practice.\39\ This is not a change of practice as these factors 
for responsible supervision already exist and are just being moved and 
formally stated in the regulations to clarify what already should be 
occurring.
---------------------------------------------------------------------------

    \39\ Brokers looking for more information beyond what is stated 
in CBP regulations can consult the CBP website at https://www.cbp.gov/trade/programs-administration/customs-brokers. The 
website is updated more frequently than the regulations themselves. 
CBP provides guides on how to become a broker, broker exam 
information, validating the power of attorney, broker compliance, 
employing convicted felons, fees, national permits, and triennial 
reports, as well as webinars and informed compliance publications.
---------------------------------------------------------------------------

    In this final rule, CBP has also made some clarifying changes. In 
Sec.  111.28(a), CBP combined factors (12) and (13) into one new factor 
(12), which deals with the broker-CBP relationship, and combined 
factors (14) and (15) into one new factor (13), relating to the broker-
officer/member relationship. In

[[Page 63307]]

addition, CBP added a reference to ``member(s)'' in the new factor (13) 
to account for partnerships, in addition to associations and 
corporations as a type of broker entity. The factors themselves are not 
new; only their position in the list has been changed.
    CBP received many comments regarding the responsible supervision 
and control factors and their use in evaluating broker performance. 
These comments are discussed in greater detail above in Section II, 
Discussion of Comments. CBP did not revise the analysis of costs and 
benefits based on these comments.
    Additionally, CBP is clarifying some of the requirements on the 
reporting of employee information by brokers, for consistency. This 
rule removes the requirement for the broker to report each employee's 
last home address, email address, the name and address of each former 
employer, and, if the employee had been employed by the broker for less 
than three years, the dates of employment for the three-year period 
preceding current employment with the broker. This rule retains the 
requirement that brokers report other information, including employee 
names, social security numbers, dates and places of birth, dates of 
hire, and current home addresses. An updated list must be submitted to 
the processing Center and updated in ACE if any of the information 
required changes, including notation of new or terminated employees. 
This update must be submitted within thirty (30) calendar days of the 
change. However, brokers already have an up-to-date list of their 
employees' contact information. This new requirement amounts to a 
routine submission each month in ACE with data that the brokers already 
routinely keep. They are likely to do this at the same time as making 
their other filings or routine reports so submitting one more existing 
document is not an additional measurable burden on customs brokers.
3.7.4 Advice to Client
    Currently, if a broker knows that a client has not complied with 
the law or has made an error in, or omission from, any document, 
affidavit, or other record which the law requires the client to 
execute, the broker must advise the client promptly of that 
noncompliance, error, or omission. This rule also requires the broker 
to advise the client on the proper corrective actions and retain a 
record of the broker's communication with the client for potential 
review by CBP on a routine visit to the broker. Brokers will not have 
to report errors, omissions or noncompliance discovered by the broker 
each time one is discovered, and the client is counseled. However, if 
CBP identifies the error, omission or noncompliance and brings it to 
the broker's attention, the broker should provide the documentation of 
the communication with the client. These additions clarify the level of 
professionalism that is expected in the broker/importer relationship. 
Most brokers are already in compliance with this requirement, so this 
provision will not add a significant burden to customs brokers. CBP 
received a few comments on this provision, which are further discussed 
above in Section II, Discussion of Comments. However, CBP maintains the 
requirement that brokers provide and document advice given to clients 
on corrective actions and has not revised the analysis of costs and 
benefits as a result. The discussion of comments above clarifies how a 
broker can achieve proper documentation.
3.8 CBP's New Payment Platform, the eCBP Portal
    In this final rule, CBP is also announcing the deployment of the 
eCBP portal, a new payment and submission system. The eCBP portal is 
part of an ongoing effort by CBP to eliminate manual processes, reduce 
cash and check collections at ports of entry, standardize processes, 
integrate data with cargo systems, reduce wait times at ports of entry, 
provide more online payment options, and provide better and more 
accessible data. As described above in The Benefits of CBP's New 
Payment and Submission System, the eCBP Portal, for Licensed Customs 
Brokers under Section IV, the eCBP portal streamlines and validates 
data, which in turn reduces errors and provides data to support 
security-related decision making by CBP personnel. Additionally, the 
eCBP portal allows for fewer cash transactions, lowering the risk of 
cash losses, and allows CBP to shift resources from revenue collection 
to law enforcement and trade facilitation.
    As further discussed above, CBP tested the eCBP portal for use in 
filing the triennial status report between December of 2017 and May 
2018. The new portal was then deployed for the following filing period 
of the triennial report beginning in December of 2020 and will be used 
for the next filing in December 2023 into early 2024. The portal was 
also deployed to accept license exam application fees in August of 
2019. As a part of regular announcements, CBP announced the new payment 
system through CSMS messages, a message on CBP's website, tweets, and 
in webinars for the broker community. Finally, CBP added the automatic 
suspension and revocation processing of licenses for unsubmitted 
triennial status reports as a portal functionality in February 2021, 
though a CBP employee still reviews all license records with 
unsubmitted reports prior to suspension or revocation.
    CBP saw significant savings resulting from reduced processing and 
personnel hours, discussed further below, with the deployment of the 
eCBP portal. The portal also required some initial investment in 
programming and technical development. However, those costs are part of 
a long-term project within CBP called Revenue Modernization, which 
touches on several different areas of CBP's payment processing systems. 
The Revenue Modernization team is not able to easily identify an exact 
allocation of its development costs for the eCBP-specific initiatives 
at this time. The development costs are intertwined with back-end 
development shared with another Revenue Modification project's 
solution, as well as development that serves as a front-end platform 
for numerous other fee collection efforts. The eCBP portal will 
eventually encompass a variety of different fees, so full development 
costs are not limited to broker-related projects. The program plans to 
allocate the costs once it is closer to the solutions being complete. 
CBP estimates that, as of FY 2021, development costs have amounted to 
less than $3 million for the broker fees deployed in the eCBP portal to 
date.
    The eCBP portal currently allows brokers and broker exam applicants 
to submit paperwork and fees for the broker exam and the triennial 
status report electronically. According to CBP data, between 80 and 90 
percent of the brokers required to submit applications and fees did so 
via the portal following the introduction of both functionalities, 
resulting in significant time savings for applicants, brokers, and CBP 
personnel. To access the portal, users must first create a login.gov 
account, which takes about three-five minutes. However, an account must 
only be created once.
    In 2019, the first year that broker exam applicants were able to 
use the portal, 1,327 applicants successfully paid their fees for the 
fall exam via the eCBP portal, saving an average of 43 minutes relative 
to a paper form.\40\ CBP

[[Page 63308]]

offers the exam twice per year; once in April and again in October. 
Applicants were again able to use the portal for two exams each in 2020 
and 2021.\41\ An average of 1,291.4 applicants used the portal for each 
exam. See Table 14. CBP estimates an average time burden of 60 minutes 
for a paper form, which includes the time needed to print, fill-in, and 
submit the form and pay either in-person at the port or by mail.\42\
---------------------------------------------------------------------------

    \40\ CBP estimates a time burden of approximately 60 minutes for 
a paper submission, while an electronic submission takes an average 
of 17 minutes. Without access to live timings from the public, CBP's 
Revenue Modernization team relied on a testing team to set up two 
common scenarios for applicants making their customs broker license 
examination (CBLE) registration. The basic elements of the 
registration process include establishing a login.gov ID for first 
time users, login in, filling in the form and making payment.
    \41\ The spring exam in 2020 was cancelled due to the COVID-19 
pandemic. The exam was offered twice in October to make up for the 
cancellation.
    \42\ See https://www.reginfo.gov/public/do/PRAViewICR?ref_nbr=202010-1651-013 for more information on the time 
burden to submit a paper form. Before electronic submission options 
were available, filers needed to obtain and fill in a paper form, 
and mail the form and their payment to the appropriate port. 
Alternatively, filers could submit in person at the port, sometimes 
compelling them to wait in line to submit the form and payment and 
receive their receipt. Beginning in 2015, filers could use a 
fillable PDF form on pay.gov to submit their form along with their 
payment. Using pay.gov required typing in all the information, 
providing an electronic signature, and submitting the form and 
payment. The one-hour time burden is an average accounting for both 
paper submission by mail or in person, or electronic submission.
---------------------------------------------------------------------------

    In 2021, brokers were able to use the portal to file their 
triennial status reports and related fees. Approximately 91 percent of 
brokers, or 13,772 filers, did so, with 1,406 brokers preferring to 
file a paper report. The electronic filers saved an average of 19 
minutes relative to paper filers.\43\
---------------------------------------------------------------------------

    \43\ CBP estimates a 30-minute time burden for the filing of a 
paper triennial report and fee payment. After testing using the same 
methodology as described above, the Revenue Modernization team 
estimates an electronic filing to take an average of 11 minutes. 
Before the eCBP portal was available, brokers filed their triennial 
reports in paper form by mailing them along with payment to the 
port, or by submitting the report and payment in person. For the 
2015 and 2018 reporting cycles, brokers could use a fillable PDF on 
pay.gov to submit their triennial reports. In 2015, 15 percent of 
brokers did so. In 2018, 85 percent used pay.gov. The 30-minute time 
burden is an average accounting for those brokers filing in person 
or by mail on paper.
---------------------------------------------------------------------------

    With information and payments submitted electronically in 2019, CBP 
subject matter experts estimate that CBP saved approximately 280 hours 
of exam fee processing time, in addition to about 430 hours of time 
processing withdrawals and mailing out results, for a total savings of 
710 hours in 2019, implying a time savings of 32 minutes per 
applicant.\44\ CBP also saved approximately 1,836 hours of processing 
of triennial status reports and fees in 2021.\45\
---------------------------------------------------------------------------

    \44\ Time savings compiled and provided by CBP's Broker 
Management Branch and CBP's Revenue Modernization team based on a 
comparison of the time spent on paper submissions vs electronic 
submissions. Much of the time savings resulted from reduced 
administrative burden, like filling envelopes, payment data entry, 
and cross-checking paper forms with electronic databases.
    \45\ As discussed below, CBP saved 1,500 hours of processing 
time over 11,254 brokers in the 2018 reporting cycle, implying a 
savings on 8 minutes per payment. In 2021, CBP processed 13,772 
payments. A savings of 8 minutes over 13,772 payments results in 
1,836 hours in 2021.

                      Table 14--CBP Time Savings From Exam Applicants Using the eCBP Portal
----------------------------------------------------------------------------------------------------------------
                                                                                               CBP minutes saved/
                          Year                               Applicants      CBP hours saved       applicant
----------------------------------------------------------------------------------------------------------------
2019...................................................              1,327                710                 32
2020 (1)...............................................              1,372                734                 32
2020 (2)...............................................              1,421                760                 32
2021 (1)...............................................              1,312                702                 32
2021 (2)...............................................              1,025                548                 32
                                                        --------------------------------------------------------
    Total..............................................              6,457              3,455  .................
----------------------------------------------------------------------------------------------------------------

    Applicants, brokers, and CBP will save time with the eCBP portal 
over the period of analysis from 2022-2026. CBP will offer the broker 
exam twice per year, meaning approximately 1,292 applicants will use 
the portal at each exam, for a total of 2,583 applicants per year.\46\ 
As Table 15 shows, those broker exam applicants will save about 
$284,728 over the course of five years, accounting for time spent 
creating a login.gov account as well as time saved in using the portal 
relative to a paper submission.\47\ CBP assumes the number of 
applicants will stay largely the same over the period of analysis, and 
that the wage rate for brokers most closely approximates the wage 
earned by applicants.\48\ Over the period of analysis, there will only 
be one triennial reporting year (2024). In that year, brokers using the 
eCBP portal can expect to save approximately $160,909, as shown in 
Table 16. CBP assumes that about 91 percent of newly licensed 
applicants will elect to file their triennial status reports via the 
portal, in line with the 91 percent of already licensed brokers who 
chose to do so in 2021. Therefore, accounting for the new licenses 
issued each year, as described above in Table 3, about 14,597 brokers 
will use the portal to submit their report fees. Those brokers will 
have already created a login.gov account, either to submit the exam 
application fees, participate in the testing or original deployment of 
the portal, or in the course of their customs business.
---------------------------------------------------------------------------

    \46\ The eCBP portal is a relatively new tool and is only now 
becoming required in certain instances. Because we do not have very 
many years worth of data, an average is a more accurate estimate of 
the number of future applicants.
    \47\ For the purposes of calculating a time burden, CBP assumes 
that all exam applicants will need to create a login.gov account. 
Although some applicants will take the test multiple times, CBP does 
not have data on the frequency.
    \48\ Many applicants for the broker exam already work in the 
brokerage industry. However, because CBP does not have specific wage 
data for non-licensed brokerage employees, nor can we estimate the 
average wage for those working outside the brokerage industry, we 
have approximated using the broker wage rate.
---------------------------------------------------------------------------

    Savings for CBP over the period of analysis amount to $716,066, 
incorporating savings from the processing of payments, paper forms, 
exam withdrawals, results, and suspensions. CBP will also require less 
data entry, resulting in fewer mistakes, reduced time fixing errors, 
and more time on tasks other than administration. The automation of 
payments also allows for greater efficiency and speed in payment 
processing, and reduced cash losses. CBP did incur some unquantified IT 
and development costs. As stated above, these costs are part of a 
larger modernization effort by CBP and cannot be separated out by 
program. Table 17 summarizes these savings.

[[Page 63309]]



                                   Table 15--Time Savings for Exam Applicants
                                        [Undiscounted 2022 U.S. dollars]
----------------------------------------------------------------------------------------------------------------
                                                   Time savings      Login.gov
                                                        per           account                        Total net
              Year                  Applicants      submission       creation        Wage rate        savings
                                                     (minutes)       (minutes)
----------------------------------------------------------------------------------------------------------------
2022............................            2583              43               5           34.81         $56,946
2023............................            2583              43               5           34.81          56,946
2024............................            2583              43               5           34.81          56,946
2025............................            2583              43               5           34.81          56,946
2026............................            2583              43               5           34.81          56,946
                                 -------------------------------------------------------------------------------
    Total.......................          12,914  ..............  ..............  ..............         284,728
----------------------------------------------------------------------------------------------------------------


                                       Table 16--Time Savings for Brokers
                                        [Undiscounted 2022 U.S. dollars]
----------------------------------------------------------------------------------------------------------------
                                                                   Time savings
                                                                        per
                      Year                         Broker filers    submission       Wage rate     Total savings
                                                                     (minutes)
----------------------------------------------------------------------------------------------------------------
2022............................................  ..............  ..............  ..............               0
2023............................................  ..............  ..............  ..............               0
2024............................................          14,597              19          $34.81        $160,909
2025............................................  ..............  ..............  ..............               0
2026............................................  ..............  ..............  ..............               0
                                                 ---------------------------------------------------------------
    Total.......................................          14,597  ..............  ..............         160,909
----------------------------------------------------------------------------------------------------------------


                                         Table 17--Cost Savings for CBP
                                        [Undiscounted 2022 U.S. dollars]
----------------------------------------------------------------------------------------------------------------
                                                                    Total time
                      Year                         Applications       savings        Wage rate     Total savings
                                                                      (hours)
----------------------------------------------------------------------------------------------------------------
2022............................................           2,583           1,378           82.08        $113,073
2023............................................           2,583           1,378           82.08         113,073
2024............................................          17,180           3,214           82.08         263,772
2025............................................           2,583           1,378           82.08         113,073
2026............................................           2,583           1,378           82.08         113,073
                                                 ---------------------------------------------------------------
    Total.......................................          27,512           8,724  ..............         716,066
----------------------------------------------------------------------------------------------------------------

    In the course of the eCBP portal test, both CBP and brokers/
applicants experienced significant time savings. CBP's time savings 
throughout the test resulted primarily from greater efficiency in 
electronic processing of payments, an increase in the number of on-time 
payments, reduction in time spent on administrative tasks in processing 
withdrawals and results, and the introduction of automatic suspension. 
CBP personnel saved 1,500 hours across the 2017/2018 reporting cycle--
savings from which are reported in 2018 in Table 18. CBP saved 710 
hours across a single exam in 2019, as well as 1,494 hours across two 
exams in 2020, as shown in Table 14 above. CBP also saved 1,836 hours 
across the 2020/2021 reporting cycle, reported in 2021 in Table 18, and 
1,250.4 hours across two exams.\49\ CBP also incurred some non-
quantified IT and development costs, as described earlier.
---------------------------------------------------------------------------

    \49\ The triennial status report is due on the 28th of February, 
every three years. To allow adequate time for brokers submitting the 
reports, CBP begins accepting reports and payments at the end of the 
year prior to the due date. For ease of presentation, and because 
the majority of submissions occur in January and February, CBP 
presents these costs in a single year.
---------------------------------------------------------------------------

    Brokers and applicants also saved time if they chose to 
participate. In the 2017/2018 reporting cycle, 11,254 participating 
brokers saved 19 minutes per submission. Those savings are reported in 
2018 in Table 18 below. In 2019, 1,327 exam applicants saved 43 minutes 
each, while in 2020, 2,793 exam applicants saved the same. In 2021, 
2,337 exam applicants saved 43 minutes each. In the 2020/2021 reporting 
cycle, 13,772 brokers saved 19 minutes each, the savings from which are 
reported in 2021 in Table 18.
    Brokers did experience a time cost in creating their Login.gov 
account. About 80 percent of brokers filing that year, or 11,254 
people, chose to use the portal in the 2017/2018 reporting cycle, and 
in doing so, spent about three-five minutes creating a Login.gov 
account, the costs of which are reported in 2018 in Table 18 below. For 
the 2020/2021 reporting cycle, 13,772 brokers, or about 90 percent used 
the electronic option, costs for which are reported in 2021 in Table 
18. This represents 2,518 more brokers than in the previous reporting 
cycle. Those 2,518 brokers also faced the three-five-minute cost of 
creating a Login.gov account. In 2019, 2020, and 2021, exam applicants 
also spent three-five minutes creating an account. As stated above, 
there were 1,327 applicants in 2019, 2,793 applicants

[[Page 63310]]

across two exams in 2020, and 2,337 applicants across two exams in 
2021. Although the costs and benefits of the test deployment of the 
eCBP portal are not recoverable, they are reported here for 
transparency and excluded from the total costs and benefits of the 
rule. See Table 18 for a description of these costs and benefits.

                                                  Table 18--Costs and Benefits of the eCBP Portal Test
                                                            [Undiscounted 2022 U.S. dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Broker/
                 Year                          Activity                 CBP costs           CBP savings      applicant       Login.gov     Total savings
                                                                                                              savings          costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
2018.................................  Triennial Report........  IT Costs...............        $123,120        $124,055         $32,646        $214,529
2019.................................  License Exam............  IT Costs...............          58,277          33,105           3,849          87,532
2020.................................  2 License Exams.........  IT Costs...............         122,658          69,677           8,102         184,233
2021.................................  Triennial Report; 2       IT Costs...............         253,331        $210,113          14,084         449,360
                                        License Exams.
                                                                ----------------------------------------------------------------------------------------
    Total............................  ........................  .......................         557,386         436,950          58,681         935,654
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Totals may not sum due to rounding.

3.9 Total Costs
    The total monetized costs for customs brokers include a $100 fee 
that two percent of individual customs brokers who receive their first 
district permit concurrently with their broker's license will need to 
pay for their permit and the costs resulting from the new requirement 
that a broker document and report to CBP when it separates from a 
client relationship as a result of attempted fraud or criminal acts. 
The costs also include the 5 minute time costs broker license exam 
applicants will experience in creating their Login.gov accounts. Table 
18 shows the total annual cost of the rule. Over the five-year period 
of analysis, this rule will cost brokers about $88,850.

                Table 19--Total Annual Costs for Brokers
                           [2022 U.S. dollars]
------------------------------------------------------------------------
                                                                 Total
                            Year                                 costs
------------------------------------------------------------------------
2022........................................................     $17,770
2023........................................................      17,770
2024........................................................      17,770
2025........................................................      17,770
2026........................................................      17,770
                                                             -----------
  Total.....................................................      88,850
------------------------------------------------------------------------
Note: Values may not sum to total due to rounding.

    Table 20 shows the present value and annualized costs of the rule 
over the period of analysis at a three and seven percent discount rate. 
Total costs range from $72,860 to $81,381, depending on the discount 
rate used. Annualized costs are $17,770.

           Table 20--Total Present Value and Annualized Costs
                           [2022 U.S. dollars]
------------------------------------------------------------------------
      Total present value costs                Annualized costs
------------------------------------------------------------------------
        3%                 7%                3%                7%
------------------------------------------------------------------------
        $81,381            $72,860            $17,770           $17,770
------------------------------------------------------------------------

3.10 Total Benefits
    The total annual monetized savings for customs brokers are the 
result of monetary savings from switching from a district permitting 
system to a national permitting system. Namely, there is a time savings 
and fee savings of $100 per permit application for individual customs 
brokers who do not concurrently receive their first district permit 
with their broker license. There is also a time savings to CBP due to 
the removal of the district permit waiver application reviews. Brokers, 
potential brokers applying to take the broker exam, and CBP also 
experience time savings resulting from use of the eCBP portal. As shown 
in Table 21, total undiscounted savings over the period of analysis are 
$1,277,116.
    In addition to these quantified benefits, there are unquantified 
benefits resulting from this rule's updates. These benefits include 
increased professionalism of the broker industry, greater clarity for 
brokers in understanding the rules and regulations by which they must 
abide, greater data security, and better reporting of potential fraud 
to CBP. The eCBP portal also increases the efficiency of payment 
processing, reduces errors, and allows a shift of resources from 
paperwork and administration to other CBP priorities.

     Table 21--Total Annual Undiscounted Savings for Brokers and CBP
                           [2022 U.S. dollars]
------------------------------------------------------------------------
                          Year                            Total benefits
------------------------------------------------------------------------
2022....................................................        $194,412
2023....................................................         193,655
2024....................................................         504,797
2025....................................................         192,475
2026....................................................         191,777
                                                         ---------------
  Total.................................................       1,277,116
------------------------------------------------------------------------
Note: Values may not sum to total due to rounding.

    Table 22 shows the present value and annualized savings of the rule 
over the period of analysis at a three and seven percent discount rate. 
Total savings range from $1,046,477 to $1,169,689, depending on the 
discount rate used. Annualized savings total approximately $255,000.

[[Page 63311]]



          Table 22--Total Present Value and Annualized Benefits
                           [2022 U.S. dollars]
------------------------------------------------------------------------
    Total present value benefits              Annualized Benefits
------------------------------------------------------------------------
        3%                 7%                3%                7%
------------------------------------------------------------------------
     $1,169,689         $1,046,477           $255,407          $255,226
------------------------------------------------------------------------

3.11 Net Benefits
    Table 23 summarizes the monetized costs and benefits of this rule 
to individual and business entity customs brokers. As shown, the total 
monetized present value net benefits of this rule over a five-year 
period of analysis ranges from $973,616 to 1,088,308 and the annualized 
net benefit is approximately $237,500.

                           Table 23--Present Value and Annualized Net Benefit of Rule
                                               [2022 U.S. dollars]
----------------------------------------------------------------------------------------------------------------
                                                         3% Discount rate                7% discount rate
                                                 ---------------------------------------------------------------
                                                   Present value    Annualized     Present value    Annualized
----------------------------------------------------------------------------------------------------------------
Total Cost......................................         $81,381         $17,770         $72,860         $17,770
Total Benefit...................................       1,169,689         255,407       1,046,477         255,226
Total Net Benefit...............................       1,088,308         237,637         973,616         237,456
----------------------------------------------------------------------------------------------------------------

3.12 Distributional Impact
    Under the rule, the customs broker license application will change 
from $200 for both individuals and business entities to $300 for 
individuals and $500 for business entities. Consequently, CBP's fee 
would increase by $100 for individuals and $300 for business entities. 
As discussed in section 2, CBP estimates that over the next five years, 
2,072 individuals and 75 business entities will be issued a new customs 
broker license (See Table 3). Using these estimates and the fee 
increases, CBP estimates that the rule will result in increased 
transfer payments from brokers to the government of approximately 
$229,700 over the next five years (2,072 individual applications * $100 
fee increase = $207,200; 75 business entity applications * $300 fee 
increase = $22,500; $207,200 + $22,500 = $229,700).
    Although the fee changes will increase costs for individuals and 
business entities, CBP has determined that these increases are 
necessary in order to recover some of the costs to provide the services 
necessary to facilitate the customs broker license application process.

B. Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.), as amended 
by the Small Business Regulatory Enforcement and Fairness Act of 1996, 
requires agencies to assess the impact of regulations 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 concern per the Small Business Act); 
a small organization (defined as any not-for-profit enterprise which is 
independently owned and operated and is not dominant in its field); or 
a small governmental jurisdiction (defined as a locality with fewer 
than 50,000 people).
    In an effort to modernize the regulations governing customs 
brokers, CBP is finalizing regulatory changes that include: eliminating 
district permits so each customs broker only needs one national permit, 
which reduces the time submitting permit applications and the fees 
owed; mandating that each broker provide notification to CBP of any 
known breach of its records within 72 hours of discovery; \50\ 
requiring brokers to make all records available to CBP, upon request 
within thirty (30) calendar days at the location specified by CBP; 
mandating that customs brokers now obtain a customs power of attorney 
directly from the importer of record or drawback claimant, not a 
freight forwarder or other third party, to transact customs business 
for that importer or drawback claimant; and requiring that a broker 
must document and report to CBP when it separates from or terminates 
representation of a client as a result of the broker's determination 
that the client is intentionally attempting to use the services of a 
broker to defraud or otherwise commit any criminal act against the U.S. 
Government. Furthermore, CBP is also making various non-substantive 
changes and conforming edits to clarify the existing language in the 
regulations to better reflect what is already occurring.
---------------------------------------------------------------------------

    \50\ Additionally, within ten (10) business days, a broker must 
provide an updated list of any additional known compromised importer 
identification numbers. To the extent that additional information is 
discovered, a broker must provide that information within 72 hours 
of discovery.
---------------------------------------------------------------------------

    The rule would apply to all customs brokers, regardless of size. 
Accordingly, the rule would affect a substantial number of small 
entities, as a small business within the Freight Transportation 
Arrangement industry (NAICS code 448510), the industry in which brokers 
are employed, is defined as one whose annual receipts are less than 
$17.5 million.\51\ The rule would result in an average annualized cost 
per customs broker of $0.08 ($36 annualized costs/429 average brokers 
per year), excluding savings resulting from the use of the eCBP 
portal.\52\ The time savings resulting from the eCBP portal's 
introduction accrue to both broker license exam applicants who may or 
may not be in the Freight Transportation Arrangement industry as well 
as to all

[[Page 63312]]

existing, active licensed brokers. Those two groups will only 
experience the net cost savings provided by the eCBP portal.
---------------------------------------------------------------------------

    \51\ Small business size standards are defined in 13 CFR 121.
    \52\ A large part of the savings in this rule accrue to CBP. 
Therefore, to calculate the impact on small businesses, CBP 
considered only the costs and savings of the rule for customs 
brokers. This includes the savings for 11.5% of brokers reported in 
Table 6, application time savings for individuals reported in Table 
7, application time savings reported for coprorations in Table 8, 
waiver request time savings as reported in Table 11, costs for 
corporate brokers reported in Table 4, costs for the 2 percent of 
brokers reported in Table 5, and the costs of an attorney as 
described above. Over the period of analysis, the net costs total 
$296, or about $36 annualized at a discount rate of three percent.
---------------------------------------------------------------------------

    Additionally, as discussed above, the customs broker license 
application fee increase for the 2,147 new customs brokers over the 
period of analysis would result in a distributional impact of $229,700, 
with 2,072 individual applicants paying an additional $100 and 75 
corporate applicants paying an additional $300 over a 5-year period. 
Including distributional impacts, the rule costs individual brokers 
$100 or costs corporate brokers $300 per year, or less than one percent 
of annual revenue for brokers of any size. Please see Table 23 for a 
breakdown of brokerages by size. Because the distributional impact and 
saving are relatively small on a per broker basis, this rule will not 
have a significant economic impact on customs brokers. Accordingly, CBP 
certifies that this rule does not have a significant economic impact on 
a substantial number of small entities.

                                   Table 24--Annual Revenue by Firm Size \53\
----------------------------------------------------------------------------------------------------------------
                                                                        Receipts per
Enterprise size (number of employees)     Number of       Receipts        firm (in          Small  business?
                                            firms         ($1,000s)       millions)
----------------------------------------------------------------------------------------------------------------
01: Total............................          15,104      64,643,370        $243,761  .........................
02: <100.............................           1,856          95,206          51,296  Yes.
03: 100-499..........................           4,655       1,247,577         268,008  Yes.
04: 500-999..........................           2,459       1,769,394         719,558  Yes.
05: 1,000-2,499......................           2,706       4,244,215       1,568,446  Yes.
06: 2,500-4,999......................           1,327       4,572,835       3,445,995  Yes.
07: 5,000-7,499......................             589       3,454,385       5,864,830  Yes.
08: 7,500-9,999......................             317       2,627,240       8,287,823  Yes.
09: 10,000-14,999....................             281       3,180,898      11,319,922  Yes.
10: 15,000-19,999....................             176       2,698,956      15,334,977  Yes.
11: 20,000-24,999....................             105       2,068,177      19,696,924  No.
12: 25,000-29,999....................              67       1,582,086      23,613,224  No.
13: 30,000-34,999....................              49       1,313,422      26,804,531  No.
14: 35,000-39,999....................              45       1,282,808      28,506,844  No.
15: 40,000-49,999....................              49       1,536,283      31,352,714  No.
16: 50,000-74,999....................              85       3,198,608      37,630,682  No.
17: 75,000-99,999....................              54       2,825,197      52,318,463  No.
18: 100,000+.........................             284      26,946,083      94,880,574  No.
----------------------------------------------------------------------------------------------------------------

C. Paperwork Reduction Act
---------------------------------------------------------------------------

    \53\ U.S. Census Bureau, 2017 SUSB Annual Data Tables by 
Establishment Industry, ``The Number of Firms and Establishments, 
Employment, Annual Payroll, and Receipts by Industry and Enterprise 
Receipts Size: 2017, NAICS 4885 Freight Transportation Arrangement. 
https://www.census.gov/data/tables/2017/econ/susb/2017-susb-annual.html. Accessed June 7, 2021.
---------------------------------------------------------------------------

    In accordance with the Paperwork Reduction Act of 1995 (Pub. L. 
104-13, 44 U.S.C. 3507), an agency may not conduct, and a person is not 
required to respond to, a collection of information unless the 
collection of information displays a valid control number assigned by 
OMB. The collections of information contained in these regulations are 
provided for by OMB control number 1651-0034 (CBP Regulations 
Pertaining to Customs Brokers) and by OMB control number 1651-0076 
(Recordkeeping Requirements).
    The final rule formalizes the use of the eCBP portal as an option 
for applicants and brokers to submit the Application for Broker License 
Exam and payment and the Triennial Status Report and payment. The eCBP 
portal reduces the time burden to submit these forms and fees. CBP 
would submit to OMB for review the following adjustments to the 
previously approved Information Collection under OMB control number 
1651-0034 to account for this rule's changes.
CBP Regulations Pertaining to Customs Brokers
Application for Broker License Exam

    Estimated Number of Respondents: 2,583.
    Estimated Number of Responses per Respondent: 1.
    Estimated Number of Total Annual Responses: 2,583.
    Estimated Time per Response: 17 minutes (0.283 hours).

Triennial Status Report

    Estimated Number of Respondents: 4,866 (14,597 every 3-years).
    Estimated Number of Responses per Respondent: 1.
    Estimated Number of Total Annual Responses: 4,866.
    Estimated Time per Response: 11 minutes (0.183 hours).
    Estimated Total Annual Burden Hours: 1,621.47 hours.

VII. Signing Authority

    This document is being issued in accordance with 19 CFR 0.1(b)(1), 
which provides that the Secretary of the Treasury delegated to the 
Secretary of Homeland Security the authority to prescribe and approve 
regulations relating to customs revenue functions on behalf of the 
Secretary of the Treasury for when the subject matter is not listed as 
provided by Treasury Department Order No. 100-16. Accordingly, this 
final rule amending such regulations may be signed by the Secretary of 
Homeland Security (or his or her delegate). Additionally, while the 
general topic of this rulemaking covers customs revenue functions 
delegated to the Secretary of Homeland Security by the Secretary of the 
Treasury, this document also includes certain fees over which the 
Secretary of the Treasury retains authority, as provided for in 19 CFR 
0.1(a)(1) and paragraph 1(a)(i) of Treasury Department Order 100-16. 
Accordingly, this final rule is also being signed by the Secretary of 
the Treasury (or his or her delegate).

List of Subjects

19 CFR Part 24

    Accounting, Claims, Customs duties and inspection, Harbors, 
Reporting and recordkeeping requirements, Taxes.

19 CFR Part 111

    Administrative practice and procedure, Brokers, Customs duties and 
inspection, Penalties, Reporting and recordkeeping requirements.

[[Page 63313]]

Regulatory Amendments to the CBP Regulations

    For the reasons given above, parts 24 and 111 of title 19 of the 
Code of Federal Regulations (19 CFR parts 24 and 111) are amended as 
set forth below:

PART 24--CUSTOMS FINANCIAL AND ACCOUNTING PROCEDURE

0
1. The general authority citation for part 24 continues to read as 
follows:

    Authority:  5 U.S.C. 301; 19 U.S.C. 58a-58c, 66, 1202 (General 
Note 3(i), Harmonized Tariff Schedule of the United States), 1505, 
1520, 1624; 26 U.S.C. 4461, 4462; 31 U.S.C. 3717, 9701; Pub. L. 107-
296, 116 Stat. 2135 (6 U.S.C. 1 et seq.).
* * * * *


Sec.  24.1  [Amended]

0
2. In Sec.  24.1, paragraph (a)(3)(i) is amended by removing the 
phrases ``who does not have a permit for the district (see the 
definition of ``district'' at Sec.  111.1 of this chapter) where the 
entry is filed,'' and ``which is unconditioned geographically'' from 
the third sentence.

PART 111--CUSTOMS BROKERS

0
3. The authority citation for part 111 is revised to read as follows:

    Authority:  19 U.S.C. 66, 1202 (General Note 3(i), Harmonized 
Tariff Schedule of the United States), 1624; 1641.
    Section 111.2 also issued under 19 U.S.C. 1484, 1498;
    Section 111.96 also issued under 19 U.S.C. 58c, 31 U.S.C. 9701.


0
4. In Sec.  111.1:
0
a. Add a definition for ``Appropriate Executive Director, Office of 
Trade'' in alphabetical order;
0
b. Remove the definition of ``Assistant Commissioner'';
0
c. Add a definition for ``Broker's office of record'' in alphabetical 
order;
0
d. Remove the definition of ``District'';
0
e. Add a definition for ``Executive Assistant Commissioner'' in 
alphabetical order;
0
f. Amend the definition of ``Permit'' by removing the word ``any'' and 
adding in its place the word ``a'';
0
g. Add a definition for ``Processing Center'' in alphabetical order;
0
h. Remove the definition of ``Region''; and
0
i. Revise the definition of ``Responsible supervision and control''.
    The additions and revisions read as follows:


Sec.  111.1  Definitions.

* * * * *
    Appropriate Executive Director, Office of Trade. ``Appropriate 
Executive Director, Office of Trade'' means the Executive Director 
responsible for broker management.
* * * * *
    Broker's office of record. ``Broker's office of record'' means the 
office designated by a customs broker as the broker's primary location 
that oversees the administration of the provisions of this part 
regarding all activities conducted under a national permit.
* * * * *
    Executive Assistant Commissioner. ``Executive Assistant 
Commissioner'' means the Executive Assistant Commissioner of the Office 
of Trade at the Headquarters of U.S. Customs and Border Protection.
* * * * *
    Processing Center. ``Processing Center'' means the broker 
management operations of a Center of Excellence and Expertise (Center) 
that process applications for a broker's license under Sec.  111.12(a), 
applications for a national permit under Sec.  111.19(b) for an 
individual, partnership, association, or corporation, as well as 
submissions required in this part for an already-licensed broker.
* * * * *
    Responsible supervision and control. ``Responsible supervision and 
control'' means that degree of supervision and control necessary to 
ensure the proper transaction of the customs business of a broker, 
including actions necessary to ensure that an employee of a broker 
provides substantially the same quality of service in handling customs 
transactions that the broker is required to provide. See Sec.  111.28 
for a list of factors which CBP may consider when evaluating 
responsible supervision and control.
* * * * *

0
5. In Sec.  111.2:
0
a. Amend the section heading by removing the word ``district'';
0
b. Amend paragraph (a)(2)(ii)(A)(1) by removing ``the port director'' 
and ``Customs'' and adding in their place the term ``CBP'';
0
c. Amend paragraph (a)(2)(ii)(A)(2) by removing the words ``port 
director'' and adding the words ``processing Center'' in their place 
and by removing the last sentence.
0
d. Amend paragraph (a)(2)(ii)(B) by removing the words ``port 
director'' wherever they appear and adding in their place the words 
``processing Center''; and
0
e. Revise paragraph (b).
    The revision reads as follows:


Sec.  111.2  License and permit required.

* * * * *
    (b) National permit. A national permit issued to a broker under 
Sec.  111.19 will constitute sufficient permit authority for the broker 
to conduct customs business within the customs territory of the United 
States as defined in Sec.  101.1 of this chapter.


0
6. Add Sec.  111.3 to read as follows:


Sec.  111.3  Customs business.

    (a) Location. Customs business must be conducted within the customs 
territory of the United States as defined in Sec.  101.1 of this 
chapter.
    (b) Point of contact. A licensed customs broker, or partnership, 
association, or corporation, conducting customs business under a 
national permit must designate a knowledgeable point of contact to be 
available to CBP during and outside of normal operating hours to 
respond to customs business issues. The licensed customs broker, or 
partnership, association, or corporation, must maintain accurate and 
current point of contact information in a CBP-authorized electronic 
data interchange (EDI) system. If a CBP-authorized EDI system is not 
available, then the information must be provided in writing to the 
processing Center.


0
7. Revise Sec.  111.12 to read as follows:


Sec.  111.12  Application for license.

    (a) Submission of application and fee. An application for a 
broker's license must be timely submitted to the processing Center 
after the applicant attains a passing grade on the examination. The 
application must be executed on CBP Form 3124. The application must be 
accompanied by the application fee prescribed in Sec.  111.96(a) and 
one copy of the appropriate attachment required by the application form 
(Articles of Agreement or an affidavit signed by all partners, Articles 
of Agreement of the association, or the Articles of Incorporation). If 
the applicant proposes to operate under a trade or fictitious name in 
one or more States, evidence of the applicant's authority to use the 
name in each of those States must accompany the application. The 
application, application fee and any additional documentation as 
required above may be submitted to a CBP-authorized electronic data 
interchange (EDI) system. If a CBP-authorized EDI system is not 
available, then the information must be submitted in writing to the 
processing Center. An application for an individual license must be 
submitted within the 3-year period after the applicant took and passed 
the examination referred to in Sec. Sec.  111.11(a)(4) and 111.13. The

[[Page 63314]]

processing Center may require an individual applicant to provide a copy 
of the notification that the applicant passed the examination (see 
Sec.  111.13(e)) and will require the applicant to submit fingerprints 
at the time of the interview. The processing Center may reject an 
application as improperly filed if the application is incomplete or, if 
on its face, the application demonstrates that one or more of the basic 
requirements set forth in Sec.  111.11 has not been met at the time of 
filing; in either case the application and fee will be returned to the 
filer without further action.
    (b) Withdrawal of application. An applicant for a broker's license 
may withdraw the application at any time prior to issuance of the 
license by providing written notice of the withdrawal to the processing 
Center or through a CBP-authorized EDI system, if available. However, 
withdrawal of the application does not entitle the applicant to a 
refund of the application fee set forth in Sec.  111.96(a).


0
8. In Sec.  111.13:
0
a. Amend paragraph (b) by removing ``$390'' and revising the last 
sentence;
0
b. Amend paragraph (c) by:
0
i. Removing the words ``an office in another district (see Sec.  
111.19(d)) and the permit for that additional district would be revoked 
by operation of law under the provisions of 19 U.S.C. 1641(c)(3) and 
Sec.  111.45(b)'' and adding in their place the words ``the transaction 
of customs business''; and
0
ii. Removing ``$390'' in the last sentence;
0
c. Amend paragraph (d) by removing ``$390'';
0
d. Amend paragraph (e) in the first sentence by adding the words ``or 
electronic'' after the word ``written''; and
0
e. Revise paragraph (f).
    The revisions read as follows:


Sec.  111.13  Examination for individual license.

* * * * *
    (b) * * * CBP will give notice of the time and place for the 
examination, including whether alternatives to on-site testing will be 
available, which is at CBP's sole discretion.
* * * * *
    (f) Appeal of failing grade on examination. If an examinee fails to 
attain a passing grade on the examination taken under this section, the 
examinee may challenge that result by filing a written or electronic 
appeal with the Office of Trade at the Headquarters of U.S. Customs and 
Border Protection, Attn: Broker Management Branch, within 60 calendar 
days after the date of the written or electronic notice provided for in 
paragraph (e) of this section. CBP will provide to the examinee written 
or electronic notice of the decision on the appeal. If the CBP decision 
on the appeal affirms the result of the examination, the examinee may 
request review of the decision on the appeal by submitting a written or 
electronic request to the appropriate Executive Director, Office of 
Trade, U.S. Customs and Border Protection, within 60 calendar days 
after the date of the notice on that decision.


0
9. Revise Sec.  111.14 to read as follows:


Sec.  111.14  Background investigation of the license applicant.

    (a) Scope of background investigation. A background investigation 
under this section will ascertain facts relevant to the question of 
whether the applicant is qualified and will cover, but need not be 
limited to:
    (1) The accuracy of the statements made in the application and 
interview;
    (2) The business integrity and financial responsibility of the 
applicant; and
    (3) When the applicant is an individual (including a member of a 
partnership or an officer of an association or corporation), the 
character and reputation of the applicant, including any association 
with any individuals or groups that may present a risk to the security 
or to the revenue collection of the United States.
    (b) Referral to Headquarters. The processing Center will forward 
the application and supporting documentation to the appropriate 
Executive Director, Office of Trade. The processing Center will also 
submit the recommendation for action on the application.
    (c) Additional inquiry. The appropriate Executive Director, Office 
of Trade, may require further inquiry if additional facts are deemed 
necessary to evaluate the application. The appropriate Executive 
Director, Office of Trade, may also require the applicant (or in the 
case of a partnership, association, or corporation, one or more of its 
members or officers) to appear in person or by another approved method 
before the appropriate Executive Director, Office of Trade, or his or 
her representatives, for the purpose of undergoing further written or 
oral inquiry.


0
10. Revise Sec.  111.15 to read as follows:


Sec.  111.15  Issuance of license.

    If the appropriate Executive Director, Office of Trade, finds that 
the applicant is qualified and has paid all applicable fees prescribed 
in Sec.  111.96(a), the Executive Assistant Commissioner will issue a 
license. A license for an individual who is a member of a partnership, 
or an officer of an association or corporation will be issued in the 
name of the individual licensee and not in his or her capacity as a 
member or officer of the organization with which he or she is 
connected. The license will be forwarded to the processing Center, 
which will deliver it to the licensee.


0
11. Revise Sec.  111.16 to read as follows:


Sec.  111.16  Denial of a license.

    (a) Notice of denial. If the appropriate Executive Director, Office 
of Trade, determines that the application for a license should be 
denied for any reason, notice of denial will be given by him or her to 
the applicant and to the processing Center. The notice of denial will 
state the reasons why the license was not issued.
    (b) Grounds for denial. The grounds sufficient to justify denial of 
an application for a license include, but need not be limited to:
    (1) Any cause which would justify suspension or revocation of the 
license of a broker under the provisions of Sec.  111.53;
    (2) The failure to meet any requirement set forth in Sec.  111.11;
    (3) A failure to establish the business integrity and financial 
responsibility of the applicant;
    (4) A failure to establish the good character and reputation of the 
applicant;
    (5) Any willful misstatement or omission of pertinent facts in the 
application or interview for the license;
    (6) Any conduct which would be deemed unfair or detrimental in 
commercial transactions by accepted standards;
    (7) A reputation imputing to the applicant criminal, dishonest, or 
unethical conduct, or a record of that conduct; or
    (8) Any other relevant information uncovered over the course of the 
background investigation.


0
12. Revise Sec.  111.17 to read as follows:


Sec.  111.17  Review of the denial of a license.

    (a) By the appropriate Executive Director, Office of Trade. Upon 
the denial of an application for a license, the applicant may file with 
the appropriate Executive Director, Office of Trade, in writing, 
additional information or arguments in support of the application and 
may request to appear in person, by telephone, or by

[[Page 63315]]

other acceptable means of communication. This filing and request must 
be received by the appropriate Executive Director, Office of Trade 
within sixty (60) calendar days of the denial.
    (b) By the Executive Assistant Commissioner. Upon the decision of 
the appropriate Executive Director, Office of Trade, affirming the 
denial of an application for a license, the applicant may file with the 
Executive Assistant Commissioner, in writing, a request for any 
additional review that the Executive Assistant Commissioner, deems 
appropriate. This request must be received by the Executive Assistant 
Commissioner within sixty (60) calendar days of the affirmation by the 
appropriate Executive Director, Office of Trade, of the denial of the 
application for a license.
    (c) By the Court of International Trade. Upon a decision of the 
Executive Assistant Commissioner affirming the denial of an application 
for a license, the applicant may appeal the decision to the Court of 
International Trade, provided that the appeal action is commenced 
within sixty (60) calendar days after the decision date by the 
Executive Assistant Commissioner.


Sec.  111.18  [Amended]

0
13. Amend Sec.  111.18 by adding the phrase ``and addressing how 
deficiencies have been remedied'' after the term ``Sec.  111.12''.


0
14. In Sec.  111.19:
0
a. Revise the section heading;
0
b. Revise paragraphs (a) and (b);
0
c. Remove paragraph (d);
0
d. Redesignate paragraph (e) as paragraph (d) and revise it;
0
e. Revise paragraph (f); and
0
f. Redesignate paragraph (g) as paragraph (e) and revise it.
    The revisions read as follows:


Sec.  111.19  National permit.

    (a) General. A national permit is required for the purpose of 
transacting customs business throughout the customs territory of the 
United States as defined in Sec.  101.1 of this chapter.
    (b) Application for a national permit. An applicant who obtains a 
passing grade on the examination for an individual broker's license may 
apply for a national permit. The applicant will exercise responsible 
supervision and control (as described in Sec.  111.28) over the 
activities conducted under that national permit. The national permit 
application may be submitted concurrently with or after the submission 
of an application for a broker's license. An applicant applying for a 
national permit on behalf of a partnership, association, or corporation 
must be a licensed broker employed by the partnership, association, or 
corporation. An application for a national permit under this paragraph 
must be submitted in the form of a letter to the processing Center or 
to a CBP-authorized electronic data interchange (EDI) system. The 
application must set forth or attach the following:
    (1) The applicant's broker license number and date of issuance if 
available;
    (2) If the applicant is applying for a national permit on behalf of 
a partnership, association, or corporation: the name of the 
partnership, association, or corporation and the title held by the 
applicant within the partnership, association, or corporation;
    (3) If the applicant is applying for a national permit on behalf of 
a partnership, association, or corporation: a copy of the documentation 
issued by a State, or local government that establishes the legal 
status and reserves the business name of the partnership, association, 
or corporation;
    (4) The address, telephone number, and email address of the office 
designated by the applicant as the office of record as defined in Sec.  
111.1. The office will be noted in the national permit when issued;
    (5) The name, telephone number, and email address of the point of 
contact described in Sec.  111.3(b) to be available to CBP to respond 
to issues related to the transaction of customs business;
    (6) If the applicant is applying for a national permit on behalf of 
a partnership, association, or corporation: the name, broker license 
number, office address, telephone number, and email address of each 
individual broker employed by the partnership, association, or 
corporation;
    (7) A list of all employees together with the specific employee 
information prescribed in Sec.  111.28 for each employee;
    (8) A supervision plan describing how responsible supervision and 
control will be exercised over the customs business conducted under the 
national permit, including compliance with Sec.  111.28;
    (9) The location where records will be retained (see Sec.  111.23);
    (10) The name, telephone number, and email address of the 
knowledgeable employee responsible for broker-wide records maintenance 
and financial recordkeeping requirements (see Sec.  111.21(d)); and
    (11) A receipt or other evidence showing that the fees specified in 
Sec.  111.96(b) and (c) have been paid in accordance with paragraph (b) 
of this section.
* * * * *
    (d) Action on application; list of permitted brokers. The 
processing Center that receives the application will review the 
application to determine whether the applicant meets the requirements 
of paragraphs (a) and (b) of this section. If the processing Center is 
of the opinion that the national permit should not be issued, the 
processing Center will submit written reasons for that opinion to the 
appropriate Executive Director, Office of Trade, CBP Headquarters, for 
appropriate instructions on whether to grant or deny the national 
permit. The appropriate Executive Director, Office of Trade, CBP 
Headquarters, will notify the applicant if his or her application is 
denied. CBP will issue a national permit to an applicant who meets the 
requirements of paragraphs (a) and (b) of this section. CBP will 
maintain and make available to the public an alphabetical list of 
permitted brokers.
    (e) Review of the denial of a national permit--(1) By the Executive 
Assistant Commissioner. Upon the denial of an application for a 
national permit under this section, the applicant may file with the 
Executive Assistant Commissioner, in writing, additional information or 
arguments in support of the application and may request to appear in 
person, by telephone, or by other acceptable means of communication. 
This filing and request must be received by the Executive Assistant 
Commissioner within sixty (60) calendar days of the denial.
    (2) By the Court of International Trade. Upon a decision of the 
Executive Assistant Commissioner affirming the denial of an application 
for a national permit under this section, the applicant may appeal the 
decision to the Court of International Trade, provided that the appeal 
action is commenced within sixty (60) calendar days after the decision 
date by the Executive Assistant Commissioner.
    (f) Responsible supervision and control. The individual broker who 
qualifies for the national permit will exercise responsible supervision 
and control (as described in Sec.  111.28) over the activities 
conducted under that national permit.


0
15. In Sec.  111.21:
0
a. Redesignate paragraphs (b) and (c) as paragraphs (c) and (d);
0
b. Add a new paragraph (b); and
0
c. Revise newly redesignated paragraph (d).
    The addition and revision read as follows:

[[Page 63316]]

Sec.  111.21  Record of transactions.

* * * * *
    (b) Each broker must provide notification to the CBP Office of 
Information Technology Security Operations Center (CBP SOC) of any 
known breach of electronic or physical records relating to the broker's 
customs business. Notification must be electronically provided 
([email protected]) within 72 hours of the discovery of the breach, 
including any known compromised importer identification numbers (see 19 
CFR 24.5). Within ten (10) business days of the notification, a broker 
must electronically provide an updated list of any additional known 
compromised importer identification numbers. To the extent that 
additional information is subsequently discovered, the broker must 
electronically provide that information within 72 hours of discovery. 
Brokers may also call CBP SOC at a telephone number posted on CBP.gov 
with questions as to the reporting of the breach, if any guidance is 
needed.
* * * * *
    (d) Each broker must designate a knowledgeable employee as the 
party responsible for brokerage-wide recordkeeping requirements. Each 
broker must maintain accurate and current point of contact information 
in a CBP-authorized electronic data interchange (EDI) system. If a CBP-
authorized EDI system is not available, then the information must be 
provided in writing to the processing Center.


0
16. In Sec.  111.23, revise paragraph (a) to read as follows:


Sec.  111.23  Retention of records.

    (a) Place of retention. A licensed customs broker must maintain 
originals of the records referred to in this part, including any 
records stored in electronic formats, within the customs territory of 
the United States and in accordance with the provisions of this part 
and part 163 of this chapter.
* * * * *


0
17. Revise Sec.  111.24 to read as follows:


Sec.  111.24  Records confidential.

    The records referred to in this part and pertaining to the business 
of the clients serviced by the broker are to be considered 
confidential, and the broker must not disclose their contents or any 
information connected with the records to any persons other than those 
clients, their surety on a particular entry, and representatives of the 
Department of Homeland Security (DHS), or other duly accredited 
officers or agents of the United States, except on subpoena or court 
order by a court of competent jurisdiction, or when authorized in 
writing by the client. This confidentiality provision does not apply to 
information that properly is available from a source open to the 
public.


0
18. Revise Sec.  111.25 to read as follows:


Sec.  111.25  Records must be available.

    (a) General. During the period of retention, the broker must 
maintain the records referred to in this part in such a manner that 
they may readily be examined. Records required to be maintained under 
the provisions of this part must be made available upon reasonable 
notice for inspection, copying, reproduction or other official use by 
representatives of the Department of Homeland Security (DHS) within the 
prescribed period of retention or within any longer period of time 
during which they remain in the possession of the broker.
    (b) Examination request. Upon request by DHS to examine records, 
the designated recordkeeping contact (see Sec.  111.21(d)), must make 
all records available to DHS within thirty (30) calendar days, or such 
longer time as specified by DHS, at the location specified by DHS.
    (c) Recordkeeping requirements. Records subject to the requirements 
of part 163 of this chapter must be made available to DHS in accordance 
with the provisions of that part.


Sec.  111.27  [Amended]

0
19. Amend Sec.  111.27 by removing the phrase ``the port director and 
other proper officials of the Treasury Department'' and adding in its 
place the phrase ``DHS, or other duly accredited officers or agents of 
the United States,''.


0
20. In Sec.  111.28:
0
a. Revise the section heading;
0
b. Revise paragraphs (a) and (b);
0
c. Redesignate paragraphs (c) and (d) as paragraphs (d) and (e);
0
d. Add a new paragraph (c);
0
e. Amend newly redesignated paragraph (d) by:
0
i. Removing the words ``Assistant Commissioner'' and adding in their 
place the words ``appropriate Executive Director, Office of Trade,''; 
and
0
ii. Removing the phrase ``director of each port through which a permit 
has been granted to the partnership, association, or corporation'' and 
adding in its place the words ``processing Center''; and
0
f. Revise newly redesignated paragraph (e).
    The addition and revisions read as follows:


Sec.  111.28  Responsible supervision and control.

    (a) General. Every individual broker operating as a sole 
proprietor, every licensed member of a partnership that is a broker, 
and every licensed officer of an association or corporation that is a 
broker must exercise responsible supervision and control (see Sec.  
111.1) over the transaction of the customs business of the sole 
proprietorship, partnership, association, or corporation. A sole 
proprietorship, partnership, association, or corporation must employ a 
sufficient number of licensed brokers relative to the job complexity, 
similarity of subordinate tasks, physical proximity of subordinates, 
abilities and skills of employees, and abilities and skills of the 
managers. While the determination of what is necessary to perform and 
maintain responsible supervision and control will vary depending upon 
the circumstances in each instance, factors which CBP may consider in 
its discretion and to the extent any are relevant include, but are not 
limited to, the following:
    (1) The training provided to broker employees;
    (2) The issuance of instructions and guidelines to broker 
employees;
    (3) The volume and type of business conducted by the broker;
    (4) The reject rate for the various customs transactions relative 
to overall volume;
    (5) The level of access broker employees have to current editions 
of CBP regulations, the Harmonized Tariff Schedule of the United 
States, and CBP issuances;
    (6) The availability of a sufficient number of individually 
licensed brokers for necessary consultation with employees of the 
broker;
    (7) The frequency of supervisory visits of an individually licensed 
broker to another office of the broker that does not have an 
individually licensed broker;
    (8) The frequency of audits and reviews by an individually licensed 
broker of the customs transactions handled by employees of the broker;
    (9) The extent to which the individually licensed broker who 
qualifies the permit is involved in the operation of the brokerage and 
communications between CBP and the brokerage;
    (10) Any circumstances which indicate that an individually licensed 
broker has a real interest in the operations of a brokerage;
    (11) The timeliness of processing entries and payment of duty, tax, 
or other debt or obligation owing to the Government for which the 
broker is

[[Page 63317]]

responsible, or for which the broker has received payment from a 
client;
    (12) Communications between CBP and the broker, and the broker's 
responsiveness and action to communications, direction, and notices 
from CBP;
    (13) Communications between the broker and its officer(s) or 
member(s), and the broker's responsiveness and action to communications 
and direction from its officer(s) or member(s).
    (b) Employee information--(1) Current employees. Each national 
permit holder must submit to the processing Center a list of the names 
of persons currently employed by the broker. The list of employees must 
be submitted prior to issuance of a national permit under Sec.  111.19 
and before the broker begins to transact customs business. For each 
employee, the broker must provide the name, social security number, 
date and place of birth, date of hire, and current home address. After 
the initial submission, an updated list must be submitted to a CBP-
authorized electronic data interchange (EDI) system if any of the 
information required by this paragraph changes. If a CBP-authorized EDI 
system is not available, then the information must be provided in 
writing to the processing Center. The update must be submitted within 
thirty (30) calendar days of the change.
    (2) New employees. Within thirty (30) calendar days of the start of 
employment of a new employee(s), the broker must submit a list of new 
employee(s) with the information required under paragraph (b)(1) of 
this section to a CBP-authorized EDI system. The broker may submit a 
list of the new employee(s) or an updated list of all employees, 
specifically noting the new employee(s). If a CBP-authorized EDI system 
is not available, then the information must be provided in writing to 
the processing Center.
    (3) Terminated employees. Within thirty (30) calendar days after 
the termination of employment of an employee, the broker must submit a 
list of terminated employee(s) to a CBP-authorized EDI system. The 
broker may submit a list of the terminated employee(s) or an updated 
list of all employees, specifically noting the terminated employee(s). 
If a CBP-authorized EDI system is not available, then the information 
must be provided in writing to the processing Center.
    (c) Broker's responsibility. Notwithstanding a broker's 
responsibility for providing the information required in paragraph (b) 
of this section, in the absence of culpability by the broker, CBP will 
not hold the broker responsible for the accuracy of any information 
that is provided to the broker by the employee.
* * * * *
    (e) Change in ownership. If the ownership of a broker changes and 
ownership shares in the broker are not publicly traded, the broker must 
immediately provide written notice of that fact to the appropriate 
Executive Director, Office of Trade, and must send a copy of the 
written notice to the processing Center. When a change in ownership 
results in the addition of a new principal to the organization, and 
whether or not ownership shares in the broker are publicly traded, CBP 
reserves the right to conduct a background investigation on the new 
principal. The processing Center will notify the broker if CBP objects 
to the new principal, and the broker will be given a reasonable period 
of time to remedy the situation. If the background investigation 
uncovers information which would have been the basis for a denial of an 
application for a broker's license and the principal's interest in the 
broker is not terminated to the satisfaction of the processing Center, 
suspension or revocation proceedings may be initiated under subpart D 
of this part. For purposes of this paragraph, a ``principal'' means any 
person having at least a five (5) percent capital, beneficiary or other 
direct or indirect interest in the business of a broker.


0
21. In Sec.  111.30:
0
a. Paragraphs (a) and (b) are revised;
0
b. The first sentence of paragraph (c) is revised;
0
c. Paragraph (d) is revised; and
0
d. The first sentence of paragraph (e) introductory text is revised.
    The revisions read as follows:


Sec.  111.30  Notification of change in address, organization, name, or 
location of business records; status report; termination of brokerage 
business.

    (a) Change of address. A broker is responsible for providing CBP 
with the broker's current addresses, which include the broker's office 
of record address as defined in Sec.  111.1, an email address, and, if 
the broker is not actively engaged in transacting business as a broker, 
the broker's non-business address. If a broker does not receive mail at 
the broker's office of record or non-business address, the broker must 
also provide CBP with a valid address at which he or she receives mail. 
When address information (the broker's office of record address, 
mailing address, email address) changes, or the broker is no longer 
actively engaged in transacting business as a broker, he or she must 
update his or her address information within ten (10) calendar days 
through a CBP-authorized electronic data interchange (EDI) system. If a 
CBP-authorized EDI system is not available, then address updates must 
be provided in writing within ten (10) calendar days to the processing 
Center.
    (b) Change in organization. A partnership, association, or 
corporation broker must update within ten (10) calendar days in writing 
to the processing Center any of the following:
    (1) The date on which a licensed member or officer ceases to be the 
qualifying member or officer for purposes of Sec.  111.11(b) or (c)(2), 
and the name of the licensed member or officer who will succeed as the 
license qualifier;
    (2) The date on which a licensed employee ceases to be the national 
permit qualifier for purposes of Sec.  111.19(a), and the name of the 
licensed employee who will succeed as the national permit qualifier; 
and
    (3) Any change in the Articles of Agreement, Charter, Articles of 
Association, or Articles of Incorporation relating to the transaction 
of customs business, or any other change in the legal nature of the 
organization (for example, conversion of a general partnership to a 
limited partnership, merger with another organization, divestiture of a 
part of the organization, or entry into bankruptcy protection).
    (c) * * * A broker who changes his or her name, or who proposes to 
operate under a trade or fictitious name in one or more States and is 
authorized by State law to do so, must submit to the appropriate 
Executive Director, Office of Trade, at the Headquarters of U.S. 
Customs and Border Protection, evidence of his or her authority to use 
that name. * * *
    (d) Triennial status report--(1) General. Each broker must file a 
triennial status report with CBP on February 1 of each third year after 
1985. The report must be filed through a CBP-authorized EDI system and 
will not be considered received by CBP until payment of the triennial 
status report fee prescribed in Sec.  111.96(d) is received. If a CBP-
authorized EDI system is not available, the triennial status report 
must be filed with the processing Center. A report received during the 
month of February will be considered filed timely. No form or 
particular format is required.
    (2) Individual--(i) Each individual broker must state in the report 
required under paragraph (d)(1) of this section whether he or she is 
actively engaged in transacting business as a broker. If he or she is 
so actively engaged, the broker must also:

[[Page 63318]]

    (A) State the name under which, and the address at which, the 
broker's business is conducted if he or she is a sole proprietor, and 
an email address;
    (B) State the name and address of his or her employer if he or she 
is employed by another broker, unless his or her employer is a 
partnership, association or corporation broker for which he or she is a 
qualifying member or officer for purposes of Sec.  111.11(b) or (c)(2); 
and
    (C) State whether or not he or she still meets the applicable 
requirements of Sec.  111.11 and Sec.  111.19 and has not engaged in 
any conduct that could constitute grounds for suspension or revocation 
under Sec.  111.53.
    (ii) An individual broker not actively engaged in transacting 
business as a broker must provide CBP with the broker's current mailing 
address and email address, and state whether or not he or she still 
meets the applicable requirements of Sec. Sec.  111.11 and 111.19 and 
has not engaged in any conduct that could constitute grounds for 
suspension or revocation under Sec.  111.53.
    (3) Partnership, association, or corporation--(i) Each partnership, 
association, or corporation broker must state in the report required 
under paragraph (d)(1) of this section the name under which its 
business as a broker is being transacted, the broker's office of record 
(see Sec.  111.1), the name, address and email address of each licensed 
member of the partnership or licensed officer of the association or 
corporation, including the license qualifier under Sec.  111.11(b) or 
(c)(2) and the name of the licensed employee who is the national permit 
qualifier under Sec.  111.19(a), and whether the partnership, 
association, or corporation is actively engaged in transacting business 
as a broker. The report must be signed by a licensed member or officer.
    (ii) A partnership, association, or corporation broker must state 
whether or not the partnership, association, or corporation broker 
still meets the applicable requirements of Sec. Sec.  111.11 and 111.19 
and has not engaged in any conduct that could constitute grounds for 
suspension or revocation under Sec.  111.53.
    (4) Failure to file timely. If a broker fails to file the report 
required under paragraph (d)(1) of this section by March 1 of the 
reporting year, the broker's license is suspended by operation of law 
on that date. By March 31 of the reporting year, CBP will transmit 
written notice of the suspension to the broker by certified mail, 
return receipt requested, at the address reflected in CBP records. If 
the broker files the required report and pays the required fee within 
60 calendar days of the date of the notice of suspension, the license 
will be reinstated. If the broker does not file the required report and 
pay the required fee within that 60-day period, the broker's license is 
revoked by operation of law without prejudice to the filing of an 
application for a new license. Notice of the revocation will be 
published in the Federal Register.
    (e) * * * Upon permanent termination of brokerage business, written 
notification of the name, address, email address and telephone number 
of the party having legal custody of the brokerage business records 
must be provided to the processing Center. * * *
* * * * *


0
22. Section 111.32 is revised to read as follows:


Sec.  111.32  False information.

    A broker must not file or procure or assist in the filing of any 
claim, or of any document, affidavit, or other papers, known by such 
broker to be false. In addition, a broker must not give, or solicit or 
procure the giving of, any information or testimony that the broker 
knew or should have known was false or misleading in any matter pending 
before the Department of Homeland Security or to any representative of 
the Department of Homeland Security. A broker also must document and 
report to CBP when the broker separates from or cancels representation 
of a client as a result of determining the client is intentionally 
attempting to use the broker to defraud the U.S. Government or commit 
any criminal act against the U.S. Government. The report to CBP must 
include the client name, date of separation or cancellation, and reason 
for the separation or cancellation.


0
23. In Sec.  111.36, revise paragraph (c)(3) to read as follows:


Sec.  111.36  Relations with unlicensed persons.

* * * * *
    (c) * * *
    (3) The broker must execute a customs power of attorney directly 
with the importer of record or drawback claimant, and not via a freight 
forwarder or other third party, to transact customs business for that 
importer of record or drawback claimant. No part of the agreement of 
compensation between the broker and the forwarder, nor any action taken 
pursuant to the agreement, can forbid or prevent direct communication 
between the importer of record, drawback claimant, or other party in 
interest and the broker; and
* * * * *


0
24. In Sec.  111.39:
0
a. Paragraph (a) is revised;
0
b. Paragraphs (b) and (c) are redesignated as paragraphs (c) and (d);
0
c. A new paragraph (b) is added; and
0
d. Newly redesignated paragraph (c) is amended by:
0
i. Removing the word ``paper'' and adding in its place the word 
``record''; and
0
ii. Adding a sentence to the end of the paragraph.
    The additions and revisions read as follows:


Sec.  111.39  Advice to client.

    (a) Withheld or false information. A broker must not withhold 
information from a client relative to any customs business it conducts 
on behalf of a client who is entitled to the information. The broker 
must not knowingly impart to a client false information relative to any 
customs business.
    (b) Due diligence. A broker must exercise due diligence to 
ascertain the correctness of any information which the broker imparts 
to a client, including advice to the client on the proper payment of 
any duty, tax, or other debt or obligation owing to the U.S. 
Government.
    (c) * * * The broker must advise the client on the proper 
corrective actions required and retain a record of the broker's 
communication with the client in accordance with Sec. Sec.  111.21 and 
111.23.
* * * * *


Sec.  111.42  [Amended]

0
25. In Sec.  111.42:
0
a. Paragraph (a)(1) is amended by removing the word ``Customs'' and 
adding in its place the word ``customs''; and
0
b. Paragraph (a)(3) is amended by adding the word ``Executive'' before 
the word ``Assistant'' and adding the phrase ``, or his or her 
designee,'' after the words ``Assistant Commissioner''.

0
26. In Sec.  111.45:
0
a. Paragraphs (a), (b), and (c) are revised; and
0
b. In paragraph (d), remove the cross-reference ``or (b)'' in the 
second sentence.
    The revisions read as follows:


Sec.  111.45  Revocation by operation of law.

    (a) License and permit. If a broker that is a partnership, 
association, or corporation fails to have, during any continuous period 
of 120 days, at least one member of the partnership or at

[[Page 63319]]

least one officer of the association or corporation who holds a valid 
individual broker's license, that failure will, in addition to any 
other sanction that may be imposed under this part, result in the 
revocation by operation of law of the license and the national permit 
issued to the partnership, association, or corporation. If a broker 
that is a partnership, association, or corporation fails to employ, 
during any continuous period of 180 days, a licensed customs broker who 
is the national permit qualifier for the broker, that failure will, in 
addition to any other sanction that may be imposed under this part, 
result in the revocation by operation of law of the national permit 
issued to the partnership, association, or corporation. CBP will notify 
the broker in writing of an impending revocation by operation of law 
under this section thirty (30) calendar days before the revocation is 
due to occur, if the broker has provided advance notice to CBP of the 
underlying events that could cause a revocation by operation of law 
under this section. If the license or permit of a partnership, 
association, or corporation is revoked by operation of law, CBP will 
notify the organization of the revocation.
    (b) Annual broker permit fee. If a broker fails to pay the annual 
permit user fee pursuant to Sec.  111.96(c), the permit is revoked by 
operation of law. The processing Center will notify the broker in 
writing of the failure to pay and the revocation of the permit.
    (c) Publication. Notice of any revocation under this section will 
be published in the Federal Register.
* * * * *

0
27. In Sec.  111.51:
0
a. Paragraph (a) is revised;
0
b. Paragraph (b) is amended by:
0
i. Removing the words ``Assistant Commissioner'' and adding in their 
place the words ``appropriate Executive Director, Office of Trade,''; 
and
0
ii. Removing the word ``Secretary'' and adding in its place the words 
``Executive Assistant Commissioner''.
    The revision reads as follows:


Sec.  111.51  Cancellation of license or permit.

    (a) Without prejudice. The appropriate Executive Director, Office 
of Trade, may cancel a broker's license or permit ``without prejudice'' 
upon written application by the broker if the appropriate Executive 
Director, Office of Trade, determines that the application for 
cancellation was not made in order to avoid proceedings for the 
suspension or revocation of the license or permit. If the appropriate 
Executive Director, Office of Trade, determines that the application 
for cancellation was made in order to avoid those proceedings, he or 
she may cancel the license or permit ``without prejudice'' only with 
authorization from the Executive Assistant Commissioner.
* * * * *


Sec.  111.52  [Amended]

0
28. Amend Sec.  111.52 by removing the words ``Assistant Commissioner'' 
and adding in their place the words ``appropriate Executive Director, 
Office of Trade,''.

0
29. In Sec.  111.53:
0
a. Remove the word ``Customs'' wherever it appears and add in its place 
the term ``CBP'';
0
b. Amend paragraph (e) by removing the words ``Assistant Commissioner'' 
and adding in their place the words ``appropriate Executive Director, 
Office of Trade,'';
0
c. Amend paragraph (f) by removing the word ``or'' following the 
semicolon;
0
d. Redesignate paragraph (g) as paragraph (h); and
0
e. Add a new paragraph (g).
    The addition reads as follows:


Sec.  111.53  Grounds for suspension or revocation of license or 
permit.

* * * * *
    (g) The broker has been convicted of committing or conspiring to 
commit an act of terrorism as described in section 2332b of title 18, 
United States Code; or
* * * * *

0
30. Revise Sec.  111.55 to read as follows:


Sec.  111.55  Investigation of complaints.

    Every complaint or charge against a broker which may be the basis 
for disciplinary action may be forwarded for investigation to the 
appropriate investigative authority within the Department of Homeland 
Security. The investigative authority will submit a final report on the 
investigation of complaints to the processing Center and send a copy of 
the report to the appropriate Executive Director, Office of Trade.

0
31. Revise Sec.  111.56 to read as follows:


Sec.  111.56  Review of report on the investigation of complaints.

    The processing Center will review the report on the investigation 
of complaints, or if there is no report on the investigation of 
complaints, other documentary evidence, to determine if there is 
sufficient basis to recommend that charges be preferred against the 
broker. The processing Center will then submit the recommendation with 
supporting reasons to the appropriate Executive Director, Office of 
Trade, for final determination together with a proposed statement of 
charges when recommending that charges be preferred.

0
32. Revise Sec.  111.57 to read as follows:


Sec.  111.57  Determination by appropriate Executive Director, Office 
of Trade.

    The appropriate Executive Director, Office of Trade, will make a 
determination on whether or not charges should be preferred, and will 
notify the processing Center of the decision.


Sec.  111.59  [Amended]

0
33. In Sec.  111.59, paragraph (a) and paragrapb (b) introductory text 
are amended by removing the words ``port director'' and adding in their 
place the words ``processing Center''.


Sec.  111.60  [Amended]

0
34. In Sec.  111.60, remove the words ``port director'' in the last 
sentence and add in their place the words ``processing Center''.

0
35. Revise Sec.  111.61 to read as follows:


Sec.  111.61  Decision on preliminary proceedings.

    The processing Center will prepare a summary of any oral 
presentations made by the broker or the broker's attorney and forward 
it to the appropriate Executive Director, Office of Trade, together 
with a copy of each paper filed by the broker. The processing Center 
will also give to the appropriate Executive Director, Office of Trade, 
a recommendation on action to be taken as a result of the preliminary 
proceedings. If the appropriate Executive Director, Office of Trade, 
determines that the broker has satisfactorily responded to the proposed 
charges and that further proceedings are not warranted, he or she will 
so inform the processing Center, who will notify the broker. If no 
response is filed by the broker or if the appropriate Executive 
Director, Office of Trade, determines that the broker has not 
satisfactorily responded to all of the proposed charges, he or she will 
advise the processing Center of that fact and instruct the processing 
Center to prepare, sign, and serve a notice of charges and the 
statement of charges. If one or more of the charges in the proposed 
statement of charges was satisfactorily answered by the broker in the 
preliminary proceedings, the appropriate Executive Director, Office of 
Trade, will instruct the processing Center to omit those charges from 
the statement of charges.

0
36. In Sec.  111.62:
0
a. Revise paragraph (d); and

[[Page 63320]]

0
b. Amend paragraph (e) by:
0
i. Removing the phrase ``, in duplicate''; and
0
ii. Removing the words ``port director'' and adding in their place the 
words ``processing Center''.
    The revision reads as follows:


Sec.  111.62  Contents of notice of charges.

* * * * *
    (d) The broker will be notified of the time and place of a hearing 
on the charges; and
* * * * *

0
37. In Sec.  111.63:
0
a. Remove the words ``port director'' wherever they appear and add in 
their place the words ``processing Center''; and
0
b. Revise paragraphs (a)(2) and (c).
    The revisions read as follows:


Sec.  111.63  Service of notice and statement of charges.

* * * * *
    (a) * * *
    (2) By certified mail, return receipt requested, addressed to the 
broker's office of record (or other address as provided pursuant to 
Sec.  111.30).
* * * * *
    (c) Certified mail; evidence of service. When service under this 
section is by certified mail to the broker's office of record (or other 
address as provided pursuant to Sec.  111.30), the receipt of the 
return card signed or marked will be satisfactory evidence of service.


Sec.  111.64  [Amended]

0
38. In Sec.  111.64, paragraph (a) is amended by removing the words 
``port director'' and adding in their place the words ``processing 
Center''.


Sec.  111.66  [Amended]

0
39. Section 111.66 is amended by removing the words ``Secretary of 
Homeland Security, or his designee,'' and adding in their place the 
words ``Executive Assistant Commissioner''.


Sec.  111.67  [Amended]

0
40. In Sec.  111.67:
0
a. Paragraph (d) is amended by removing the words ``port director'' 
wherever they appear and adding in their place the words ``processing 
Center''; and
0
b. Paragraph (e) is removed.


Sec.  111.69  [Amended]

0
41. Section 111.69 is amended by removing the words ``Secretary of 
Homeland Security, or his designee'' and adding in their place the 
words ``Executive Assistant Commissioner''.


Sec.  111.70  [Amended]

0
42. Section 111.70 is amended by removing the words ``Secretary of 
Homeland Security, or his designee'' and adding in their place the 
words ``Executive Assistant Commissioner''.


Sec.  111.71  [Amended]

0
43. Section 111.71 is amended by removing the words ``Secretary of 
Homeland Security, or his designee'' and adding in their place the 
words ``Executive Assistant Commissioner''.

0
44. Revise Sec.  111.72 to read as follows:


Sec.  111.72  Dismissal subject to new proceedings.

    If the Executive Assistant Commissioner finds that the evidence 
produced at the hearing indicates that a proper disposition of the case 
cannot be made on the basis of the charges preferred, he or she may 
instruct the processing Center to serve appropriate charges as a basis 
for new proceedings to be conducted in accordance with the procedures 
set forth in this subpart.

0
45. Revise Sec.  111.74 to read as follows:


Sec.  111.74  Decision and notice of suspension or revocation or 
monetary penalty.

    If the Executive Assistant Commissioner finds that one or more of 
the charges in the statement of charges is not sufficiently proved, the 
suspension, revocation, or monetary penalty action may be based on any 
remaining charges if the facts alleged in the charges are established 
by the evidence. If the Executive Assistant Commissioner in the 
exercise of discretion and based solely on the record, issues an order 
suspending a broker's license or permit for a specified period of time 
or revoking a broker's license or permit or, except in a case described 
in Sec.  111.53(b)(3), assessing a monetary penalty in lieu of 
suspension or revocation, the appropriate Executive Director, Office of 
Trade, will promptly provide written notification of the order to the 
broker and, unless an appeal from the order of the Executive Assistant 
Commissioner is filed by the broker (see Sec.  111.75), the appropriate 
Executive Director, Office of Trade, will publish a notice of the 
suspension or revocation, or the assessment of a monetary penalty, in 
the Federal Register. If no appeal from the order of the Executive 
Assistant Commissioner is filed, an order of suspension or revocation 
or assessment of a monetary penalty will become effective sixty (60) 
calendar days after issuance of written notification of the order 
unless the Executive Assistant Commissioner finds that a more immediate 
effective date is in the national or public interest. If a monetary 
penalty is assessed and no appeal from the order of the Executive 
Assistant Commissioner is filed, payment of the penalty must be 
tendered within sixty (60) calendar days after the effective date of 
the order, and, if payment is not tendered within that sixty (60)-day 
period, the license or permit of the broker will immediately be 
suspended until payment is made.


Sec.  111.75  [Amended]

0
46. In Sec.  111.75:
0
a. In the section heading, remove the word ``Secretary's'' and add in 
its place the words ``Executive Assistant Commissioner's'';
0
b. Remove the words ``Secretary of Homeland Security, or his designee'' 
and add in their place the words ``Executive Assistant Commissioner''; 
and
0
c. Remove the word ``Secretary's'' and add in its place the words 
``Executive Assistant Commissioner's''.

0
47. In Sec.  111.76:
0
a. In paragraph (a), remove the word ``written'' and the words ``in 
duplicate'' in the first sentence and remove the words ``Assistant 
Commissioner'' and add in their place the words ``appropriate Executive 
Director, Office of Trade,''; and
0
b. Revise paragraph (b).
    The revision reads as follows:


Sec.  111.76  Reopening the case.

* * * * *
    (b) Procedure. The appropriate Executive Director, Office of Trade, 
will forward the application, together with a recommendation for action 
thereon, to the Executive Assistant Commissioner. The Executive 
Assistant Commissioner may grant or deny the application to reopen the 
case and may order the taking of additional testimony before the 
appropriate Executive Director, Office of Trade. The appropriate 
Executive Director, Office of Trade, will notify the applicant of the 
decision by the Executive Assistant Commissioner. If the Executive 
Assistant Commissioner grants the application and orders a hearing, the 
appropriate Executive Director, Office of Trade, will set a time and 
place for the hearing and give due written notice of the hearing to the 
applicant. The procedures governing the new hearing and recommended 
decision of the hearing officer will be the same as those governing the 
original proceeding. The original order of the Executive Assistant 
Commissioner will remain in effect pending conclusion of the new 
proceedings and issuance of a new order under Sec.  111.77.

0
48. Revise Sec.  111.77 to read as follows:

[[Page 63321]]

Sec.  111.77  Notice of vacated or modified order.

    If, pursuant to Sec.  111.76 or for any other reason, the Executive 
Assistant Commissioner issues an order vacating or modifying an earlier 
order under Sec.  111.74 suspending or revoking a broker's license or 
permit, or assessing a monetary penalty, the appropriate Executive 
Director, Office of Trade, will notify the broker in writing and will 
publish a notice of the new order in the Federal Register.


Sec.  111.78  [Amended]

0
49. Section 111.78 is amended by removing the words ``port director'' 
and adding in their place the words ``processing Center''.


Sec.  111.79  [Amended]

0
50. Section 111.79 is amended by removing the words ``Assistant 
Commissioner'' and adding in their place the words ``appropriate 
Executive Director, Office of Trade,'' wherever they appear.

0
51. Revise Sec.  111.81 to read as follows:


Sec.  111.81  Settlement and compromise.

    The Executive Assistant Commissioner may settle and compromise any 
disciplinary proceeding which has been instituted under this subpart 
according to the terms and conditions agreed to by the parties 
including, but not limited to, the assessment of a monetary penalty in 
lieu of any proposed suspension or revocation of a broker's license or 
permit.


Sec.  111.91  [Amended]

0
52. In Sec.  111.91:
0
a. The introductory text is amended by removing the word ``Customs'' 
and adding in its place the term ``CBP''; and
0
b. Paragraph (a) is amended by removing the phrase ``Sec. Sec.  
111.53(a) through (f)'' and adding in its place the phrase ``Sec.  
111.53(a) through (g)''.


Sec.  111.92  [Amended]

0
53. In Sec.  111.92, amend paragraph (a) by removing the word 
``Customs'' and adding in its place the term ``CBP''.


Sec.  111.94  [Amended]

0
54. Section 111.94 is amended by removing the word ``Customs'' wherever 
it appears and adding in its place the term ``CBP''.

0
55. In Sec.  111.96, revise paragraphs (a), (b), and (d) to read as 
follows:


Sec.  111.96  Fees.

    (a) License fee; examination fee; fingerprint fee. Each applicant 
for a broker's license pursuant to Sec.  111.12 must pay a fee of $300 
for an individual license application and $500 for a partnership, 
association, or corporation license application to defray the costs to 
CBP in processing the application. Each individual who intends to take 
the examination provided for in Sec.  111.13 must pay a $390 
examination fee before taking the examination. An individual who 
submits an application for a license must also pay a fingerprint 
processing fee; the processing Center will inform the applicant of the 
current Federal Bureau of Investigation fee for conducting fingerprint 
checks, which must be paid to CBP before further processing of the 
application will occur.
    (b) Permit application fee. An application fee of $100 must be paid 
in connection with a national permit issued under Sec.  111.19 to 
defray the processing costs, including costs associated with an 
application for reinstatement of a permit that was revoked by operation 
of law or otherwise.
* * * * *
    (d) Triennial status report fee. A fee of $100 is required to 
defray the costs of administering the triennial status reporting 
requirement prescribed in Sec.  111.30(d)(1).
* * * * *

Helen Mary B. McGovern,
Assistant Secretary for Trade and Economic Security, Department of 
Homeland Security.

Thomas C. West, Jr.,
Deputy Assistant Secretary of the Treasury for Tax Policy.
[FR Doc. 2022-22445 Filed 10-17-22; 8:45 am]
BILLING CODE 9111-14-P