Issue 346, May 8, 2002
Since the Mod Act in 1994 and, more recently, in the Focused Assessment context, Customs has encouraged the importing public to improve its internal expertise to assure that reasonable care is undertaken. Many companies have done so by centralizing their importing functions to assure consistency and to create effective "internal controls" among its various affiliates and subsidiaries. However, a series of recent Customs rulings specifically prohibits much of this activity, sending companies scrambling on how to address these issues.

In a series of rulings, Customs has held that separately incorporated entities could not share Customs functions or utilize the other's personnel because these functions constituted "Customs business" that can only be performed by a licensed company (i.e., a customs broker) on behalf of other companies. Thus, the experienced importing staff in a parent company cannot provide Customs services on behalf of its subsidiaries and vice-versa. Customs also ruled that a licensed person who is an employee of one company cannot assist another separately incorporated related entity in performing these Customs activities. While limited post-entry activity is permissible, Customs held that a sister company cannot use an unlicensed separately incorporated entity or a licensed employee of that entity to:

Prepare documents submitted with an entry (i.e., certifications, etc.);
Verify tariff numbers prior to entry (i.e., pre-classifying merchandise);
Verify duty amounts prior to entry;
Make payments to Customs of duties, taxes and charges that come due as a result of the filing of entries and
Interface with customs brokers to the extent of it actively participating in decisions and activities relating to the preparation or filing of Customs documents for imported merchandise.

As a result, larger companies with integrated logistics need to reexamine how they are performing their Customs functions.

Technically, these violations could result in penalties of up to $10,000 per incident. While some Customs officials have unofficially suggested that penalties would not be imposed, this position is likely to change if Customs continues to uncover similar problems.

Companies utilizing centralized Customs functions should reexamine their structure to assure they do not run afoul of these licensing requirements. As a result of Customs' rulings, companies may potentially have to duplicate expertise in each separately incorporated company to assure compliance. Other alternatives are possible. On alternative, for example, seemingly endorsed by Customs, is the possibility that the Customs personnel could become bona fide employees of each subsidiary.

Our contributing writer, David M. Murphy, is a licensed Customs broker and a Partner at the Customs and international trade law firm of Grunfeld, Desiderio, Lebowitz, Silverman & Klestadt LLP, and can be reached via email or at (212) 557-4000.

Please note that due to the complex nature of the subject matter, DHL Danzas Air & Ocean cannot be responsible for actions taken by the reader in reliance on the information contained herein without prior consultation with DHL Danzas Air & Ocean.