[Federal Register Volume 75, Number 207 (Wednesday, October 27, 2010)]
[Proposed Rules]
[Pages 66050-66054]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-27106]
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DEPARTMENT OF HOMELAND SECURITY
U.S. Customs and Border Protection
19 CFR Part 111
[Docket No. USCBP-2010-0038]
RIN 1651-AA80
Permissible Sharing of Client Records by Customs Brokers
AGENCIES: Customs and Border Protection, Department of Homeland
Security.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document proposes to amend Customs and Border Protection
(CBP) regulations in title 19 of the Code of Federal Regulations (CFR)
pertaining to the obligations of customs brokers to keep clients'
information confidential. The proposed amendment would allow brokers,
upon the client's consent in a written authorization, to share client
information with affiliated entities related to the broker so that
these entities may offer non-customs business services to the broker's
clients. The proposed amendment would also allow customs brokers to use
a third-party to perform photocopying, scanning, and delivery of client
records for the broker. These proposed changes are intended to update
the regulation to reflect modern business practices, while protecting
the confidentiality of client (importer) information. In addition, the
proposed changes would align the regulations with CBP's previously
published rulings concerning brokers' confidentiality of client
information.
DATES: Comments must be received on or before December 27, 2010.
ADDRESSES: You may submit comments, identified by docket number, by one
of the following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments via docket number
USCBP-2010-0038.
Mail: Trade and Commercial Regulations Branch, U.S.
Customs and Border Protection, 799 9th Street, NW. (Mint Annex),
Washington, DC 20229-1179.
Instructions: All submissions received must include the agency name
and docket number for this rulemaking. All
[[Page 66051]]
comments received will be posted without change to http://www.regulations.gov, including any personal information provided. For
detailed instructions on submitting comments and additional information
on the rulemaking process, see the ``Public Participation'' heading of
the SUPPLEMENTARY INFORMATION section of this document.
Docket: For access to the docket to read background documents or
comments received, go to http://www.regulations.gov. Submitted comments
may also be inspected on regular business days between the hours of 9
a.m. and 4:30 p.m. at the Trade and Commercial Regulations Branch,
Regulations and Rulings, Office of International Trade, U.S. Customs
and Border Protection, 799 9th Street, NW. (5th Floor), Washington, DC.
Arrangements to inspect submitted comments should be made in advance by
calling Mr. Joseph Clark at (202) 325-0118.
FOR FURTHER INFORMATION CONTACT: For legal aspects, Carrie Owens,
Chief, Entry Process & Duty Refunds Branch, Regulations and Rulings,
Office of International Trade, (202) 325-0266. For operational aspects,
Anita Harris, Chief, Broker Compliance Branch, Trade Policy and
Programs, Office of International Trade, (202) 863-6069.
SUPPLEMENTARY INFORMATION:
Public Participation
Interested persons are invited to participate in this rulemaking by
submitting written data, views, or arguments on any aspect of the
proposed rule. Customs and Border Protection (CBP) also invites
comments that relate to the economic, environmental, or federalism
effects that might result from this proposal. If appropriate to a
specific comment, the commenter should reference the specific portion
of the proposed rule, explain the reason for any recommended change,
and include data, information, or authority that support such
recommended change.
Background
The statutory provision governing customs brokers is found in
section 641, Tariff Act of 1930, as amended (19 U.S.C. 1641).
Specifically, section 641(f) authorizes CBP to promulgate ``rules and
regulations relating to the customs business of customs brokers as the
Secretary * * * considers necessary to protect importers and the
revenue of the United States * * * including rules and regulations
governing * * * the keeping of * * * records by customs brokers * * *
'' See 19 U.S.C. 1641(f). The implementing regulations issued under the
authority of Sec. 641 are set forth in part 111 of title 19 of the
Code of Federal Regulations (19 CFR part 111).
In order to meet its obligations to protect the revenue and enforce
the customs laws, it is essential that CBP receive full and complete
information from importers with respect to their customs transactions.
These transactions contain confidential business information, the
unauthorized disclosure of which could cause competitive harm to the
importer or other companies. Brokers occupy a unique role as conduits
with respect to import transactions. As entities that are licensed and
regulated by the U.S. government, brokers act as intermediaries between
importers and CBP to assure that complete and accurate information is
provided. Thus, a special relationship exists between the broker, its
client (the importer), and CBP. The duties and responsibilities of
customs brokers in transacting customs business on behalf of their
clients, and, in particular, the confidential treatment that brokers
must accord their records of such transactions, are governed by the
regulations in 19 CFR part 111 issued under the authority of 19 U.S.C.
1641(f).
It is well settled that customs brokers have a fiduciary duty to
protect client information. As such, brokers are subject to certain
recordkeeping requirements set forth in part 111 of 19 CFR. In that
regard, part 111 requires, among other things, that a broker maintain
records of transactions (19 CFR 111.21), retain records (19 CFR
111.23), and make records available for official CBP inspection (19 CFR
111.25). Additionally, in carrying out its duties and responsibilities,
a broker is required to exercise responsible supervision and control
over the transaction of customs business (19 CFR 111.28(a)) (see also
19 U.S.C. 1641(b)(4)), and exercise due diligence in handling customs
business matters (19 CFR 111.29(a)). Further, a broker is precluded
from entering into an agreement with an unlicensed person to transact
customs business if the fees generated from the transaction would inure
to the benefit of the unlicensed person (19 CFR 111.36(b)).
Another significant requirement set forth in part 111 is that
brokers maintain the confidentiality of client records. See 19 CFR
111.24. Section 111.24 of CBP regulations (19 CFR 111.24) covers a
broad range of records as defined in Sec. 163.1(a) (19 CFR 163.1(a)),
and protects client records and the information contained in those
records. Specifically, Sec. 111.24 currently provides that with the
exception of certain accredited officers or agents of the United States
and the surety involved in a particular transaction, brokers may not
disclose client information to third persons except when ordered to by
a court. The purpose of the regulation is to prevent a broker from
disclosing information it receives from a client to a third-party
without the consent of the broker's client. It is noted that when a
broker is issued its license by CBP, it agrees to abide by the rules
governing brokers, including rules pertaining to the confidentiality of
client records. To overcome this confidentiality requirement, a broker
need merely request, and receive, a written release from the client
authorizing disclosure of that client's information. Absent such a
release, a broker who engages in information sharing is subject to
disciplinary action for violating the confidentiality requirements of
19 CFR 111.24.
The issue of whether brokers may share client information with
third-party business entities has previously been considered by CBP in
the form of published rulings. CBP's longstanding position on this
matter is that absent written client consent, a broker may not share
client information. Specifically, in Headquarters ruling letters (HQ)
116025 (September 29, 2003) and HQ 116190 (June 14, 2004), CBP was
asked whether a broker within a family of companies (such as related
affiliates, subsidiaries, and parent companies) may share certain
client background or aggregate revenue information with related
affiliates who were not licensed brokers, but who were separately-
incorporated and owned by the same parent company. CBP has consistently
held that separately-incorporated companies constitute separate legal
entities under the law, notwithstanding common ownership (see HQ 223804
(June 29, 1992); HQ 114166 (February 2, 1998); HQ 115248 (August 28,
2001)). Therefore, CBP found that absent a written release from the
client authorizing disclosure of client information, section 111.24
precludes a broker from sharing client information with separately-
incorporated affiliates of the same parent company. In CBP's view,
client background and aggregate revenue information is collected and
compiled from, and connected with, records pertaining to the business
of clients serviced by the broker. As such, that information falls
within the protection of Sec. 111.24. CBP's position is that brokers
can secure waivers of confidentiality from their clients in order not
to violate the confidentiality requirements of section 111.24.
[[Page 66052]]
Similarly, in HQ 114404 (March 16, 1999), CBP held that a licensed
broker must ensure that it will not disclose its clients' records to a
parent company, unless disclosure is authorized by the client.
In HQ 114758 (November 7, 2000), the question presented was whether
a licensed broker may transfer its ancillary financial functions to a
related or affiliated company that is not a licensed broker. In that
instance, CBP reiterated its position that disclosure to an
unauthorized party of any information emanating from a transaction with
a client of the broker would constitute a violation, and would subject
the violating broker to possible penalty or other disciplinary action.
CBP found that outsourcing ancillary financial and administrative
services would run afoul of the broker confidentiality provisions,
since the records sought to be outsourced would contain financial data
or information derived from clients' files pertaining to customs
business.
In that ruling, however, CBP acknowledged that there may be
situations in which a broker may legitimately transfer some of its
business operations to another company. For instance, in HQ 114411
(November 22, 1999), CBP had allowed a broker to outsource its human
resources department to an employee leasing company on the condition
that the leasing company would have no access to, or involvement in,
the actual customs business work of the broker, and that the records of
the clients of the broker would be kept confidential from the leasing
company. Relying on HQ 114411, CBP held in HQ 114758 that a broker may
outsource ancillary financial and administrative functions provided
that the same safeguards are in place. Specifically, the broker would
be allowed to outsource financial or administrative functions, provided
the new service provider had no access to, or involvement in, the
actual customs business work of the broker client. This meant that the
new service provider could not perform any functions that would be
dependent on information or data derived from client files. The broker
could only outsource the aforementioned functions provided that the
records of the broker's clients, and the information contained in those
records would not be disclosed to the new service provider.
Finally, in determining whether a broker is meeting the
requirements to keep clients' records confidential, CBP considers how
the broker is exercising responsible supervision and control over the
customs business it conducts pursuant to 19 U.S.C. 1641(b)(4). See HQ
225006 (February 15, 1994).
CBP continues to believe that protection of the client's business
information remains a paramount concern. At the same time, however, CBP
recognizes that the development of more modern and efficient business
practices, brought about by the changing structure and environment of
the business community, has rendered the blanket prohibition of the
current regulation somewhat antiquated. In particular, CBP understands
that in an effort to streamline business practices, a broker may need
to use a third-party service provider to perform the tasks of
photocopying, scanning, and delivering client documents to support the
business functions of the brokerage services. CBP further acknowledges
that a broker may have a legitimate financial interest in providing its
clients additional non-customs business services which are offered by
affiliated entities related to the broker.
To that end, CBP believes policy reasons favor amending Sec.
111.24 to update the regulation to reflect modern business practices,
while protecting the confidentiality of client (importer) information.
Therefore, consistent with the holdings in CBP's previously published
rulings, this document proposes to amend the CBP regulations to align
them with its rulings.
Explanation of Proposed Amendments
Permissible Sharing With Client Consent/Written Authorization
With respect to a broker's interest in providing additional non-
customs business services to its clients, CBP proposes to permit a
broker to share client information with affiliated entities related to
the broker so that the related affiliate may offer non-customs business
services to the broker's client only on the condition that the client
provides its express consent in a written authorization. The written
authorization must specify the information the client authorizes the
broker to share outside of the brokerage with affiliated entities
related to the broker or with a party bound by contract to the broker.
Requiring such consent would balance CBP's interest in the broker's
maintaining confidentiality of importers' records with the business
interest of the broker to offer additional non-customs business
services to its clients.
Other Third-Party Services
Photocopying and Scanning. CBP proposes to amend 19 CFR 111.24 to
permit a broker to use a third-party service provider for the limited
routine non-customs functions of photocopying and scanning for the
broker without violating Sec. 111.24, because these two functions are
ancillary to the conduct of ``customs business.'' It is noted, however,
that even in providing the administrative tasks of photocopying and
scanning, business information pertaining to the broker's client would
be revealed in the process. Therefore, in order to achieve a balance
between the broker's need for a streamlined business process, and the
requirement to maintain the confidentiality of client information,
safeguards must be in place to ensure that the requirements arising
from 19 U.S.C. 1641 and 19 CFR 111.24 are not compromised.
In that regard, the proposed amendment requires that the broker,
consistent with its obligations under Sec. 111.29(a), exercise due
diligence in the selection of the third-party service provider. The
broker must ensure that the requirements in Sec. 111.36(b) pertaining
to a broker's relations with unlicensed persons are complied with.
Moreover, in accordance with Sec. 111.28(a), a broker is required to
exercise responsible supervision and control over its brokerage
business. Thus, the broker must ensure that the party to whom records
will be provided for photocopying or scanning will safeguard the
information it obtains in the course of providing the subject services.
Accordingly, the proposed amendment requires that the broker enter into
a non-disclosure agreement with the third-party service provider that
requires the third-party to keep the contents and information contained
in any records pertaining to the broker's client confidential.
The written consent and the non-disclosure agreement as
contemplated in the proposed amendment will be subject to the
recordkeeping requirements prescribed for brokers as set forth in
Sec. Sec. 111.21(a), 111.23, and 111.25.
The proposed amendment in this document is designed to codify CBP's
previously published rulings and to update the regulation so that it is
streamlined with modern and efficient business practices, while
protecting the confidentiality of client (importer) information.
Messenger Delivery Services. Because messenger/delivery services
are also ancillary to the conduct of ``customs business,'' CBP proposes
to further amend 19 CFR 111.24 to provide that a broker may use a
third-party messenger service for transporting and/or delivering client
documents on the broker's behalf, if the broker safeguards
[[Page 66053]]
the clients' records by sealing the documents so that the messenger
cannot view, alter, or amend them.
Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires
Federal agencies to examine the impact a rule would have on small
entities. A small entity may be a small business (defined as any
independently owned and operated business not dominant in its field
that qualifies as a small business per the Small Business Act); a small
not-for-profit organization; or a small governmental jurisdiction
(locality with fewer than 50,000 people).
This rule proposes to allow a broker, upon the client's consent in
a written authorization, to share client (importer) information with
affiliated entities related to the broker in order to offer non-customs
business services to its clients. If brokers choose to share client
(importer) information with an affiliated entity related to the broker,
the changes to the regulation would potentially benefit the broker's
client (importer) through the availability and access to additional
non-customs business services. This rule also proposes to allow a
broker to outsource its photocopying and scanning tasks to a third-
party service provider, and to use a third-party messenger service
provider for transport and delivery of client records. To the extent
that brokers would use third-parties for copying, scanning and
messenger services, the changes to the regulation would confer a
benefit to the broker by allowing it to streamline its business.
The entities affected by this proposed amendment are brokers,
importers, and third-party service providers and would likely consist
of a broad range of large, medium, and small businesses; thus, the
number of entities subject to this proposed rule would be considered
``substantial.'' The effects of this amendment, however, would not rise
to the level of being considered a ``significant'' economic impact.
Accordingly, CBP believes that the proposed amendment, if adopted,
would not have a significant economic impact on a substantial number of
small entities within the meaning of the Regulatory Flexibility Act.
However, we welcome comments on that assumption. The most helpful
comments are those that can give us specific information or examples of
a direct impact on small entities. If we do not receive comments that
demonstrate that the rule causes small entities to incur significant
direct costs, CBP may, during the process of drafting the final rule,
certify that this action does not have a significant economic impact on
a substantial number of small entities.
Executive Order 12866
The proposed amendment in this document does not meet the criteria
for a ``significant regulatory action'' as specified in Executive Order
12866 because it will not result in expenditures totaling $100 million
or more in any one year. The Office of Management and Budget (OMB) has
not reviewed this regulation under that order. To the extent that
licensed customs brokers are able to use lower cost third-party service
providers to perform limited administrative tasks, this rule, if
finalized, should confer benefits to brokers. Please see the Regulatory
Flexibility Act section of this preamble for additional information
regarding the potential economic impact of this proposed rule.
The Paperwork Reduction Act
The information collected under the provisions of this proposed
rule has been submitted for approval by the Office of Management and
Budget (OMB) under OMB control number 1651-0034. Under the Paperwork
Reduction Act, an agency may not conduct or sponsor, and a person is
not required to respond to, a collection of information unless it
displays a valid control number assigned by OMB. The burden estimates
for recordkeeping for the non-disclosure agreement as well as the
client consent/written authorization are presented below:
Non-Disclosure Agreement
Estimated Number of Recordkeepers: 11,986.
Estimated Number of Responses per Recordkeeper: 1.
Estimated Number of Total Annual Responses: 11,986.
Estimated Time per Response: 1 hour.
Estimated Total Annual Burden Hours: 11,986.
Client Consent/Written Authorization
Estimated Number of Recordkeepers: 711,000.
Estimated Number of Responses per Recordkeeper: 1.
Estimated Number of Total Annual Responses: 711,000.
Estimated Time per Response: 1 hour.
Estimated Total Annual Burden Hours: 711,000.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be directed to the Office
of Management and Budget, Attention: Desk Officer for the Department of
Homeland Security, Office of Information and Regulatory Affairs,
Washington, DC 20503. A copy should also be sent to the Trade and
Commercial Regulations Branch, Regulations and Rulings, Office of
International Trade, U.S. Customs and Border Protection, 799 9th
Street, NW. (5th Floor), Washington, DC 20229-1179.
Comments are invited on:
(a) Whether the recordkeeping is necessary for the proper
performance of the functions of the agency, including whether the
information will have practical utility;
(b) The accuracy of the agency's estimate of the burden of the
recordkeeping;
(c) Ways to enhance the quality, utility, and clarity of the
recordkeeping;
(d) Ways to minimize the burden of the recordkeeping on
respondents, including through the use of automated recordkeeping
techniques or other forms of information technology; and
(e) Estimates of capital or startup costs and costs of operations,
maintenance, and purchases of services to provide recordkeeping.
Unfunded Mandates Reform Act of 1995
This notice of proposed rulemaking will not impose an unfunded
mandate under the Unfunded Mandates Reform Act of 1995. It will not
result in costs of $100 million or more, in the aggregate, to any of
the following: State, local, or Native American Tribal governments, or
the private sector.
Executive Order 13132
In accordance with the principles and criteria contained in
Executive Order 13132 (Federalism), this notice of proposed rulemaking
will have no substantial effect on the States, the current Federal-
State relationship, or on the current distribution of power and
responsibilities among local officials.
Signing Authority
This document is being issued in accordance with 19 CFR 0.2(a),
which provides that the authority of the Secretary of the Treasury with
respect to CBP regulations that are not related to customs revenue
functions was transferred to the Secretary of Homeland Security
pursuant to section 403(1) of the Homeland Security Act of 2002 and
that such regulations are signed by the Secretary of Homeland Security
(or her delegate).
List of Subjects in 19 CFR Part 111
Customs brokers, Duties and responsibilities, Records confidential.
[[Page 66054]]
Proposed Amendments to the CBP Regulations
For the reasons stated above, it is proposed to amend part 111 of
title 19 of the CFR (19 CFR part 111) as set forth below.
PART 111--CUSTOMS BROKERS
1. The general authority citation for part 111 continues to read as
follows:
Authority: 19 U.S.C. 66, 1202 (General Note 3(i), Harmonized
Tariff Schedule of the United States (HTSUS)), 1624, 1641.
* * * * *
2. Section 111.24 is revised to read as follows:
Sec. 111.24 Records confidential.
(a) Client Records. The records referred to in this part and
pertaining to the business of the clients serviced by the broker are
considered confidential. Except as provided in paragraphs (b) and (c)
of this section, the broker must not disclose the contents or any
information connected with client records to any persons other than
those clients, their surety on a particular entry, and the Field
Director, Office of International Trade, Regulatory Audit, the CBP port
director, the Immigration and Customs Enforcement agent, or other duly
accredited officers or agents of the United States, except on subpoena
by a court of competent jurisdiction.
(b) Disclosure to Affiliated Entity Related to Broker. Upon the
client's consent in a written authorization to share client information
outside the brokerage, a broker may disclose only to an affiliated
entity related to the broker, information specified in the written
authorization pertaining to the customs business of that client so that
the affiliated entity may offer non-customs business services to the
broker's client.
(c) Other Third-Party Service Providers--(1) Photocopying and
Scanning Services. A broker may provide its clients' records to a
third-party service provider for photocopying and/or scanning without
violating the prohibitions set forth in the provisions of this part
pertaining to confidentiality, provided that:
(i) The broker exercises due diligence in accordance with Sec.
111.29(a) of this part in the selection of the third-party service
provider for photocopying and/or scanning by ensuring that its
association with the third-party does not violate the provisions in
Sec. 111.36(b) of this part; and
(ii) The broker enters into a non-disclosure agreement with the
third-party service provider for photocopying and/or scanning that
requires the third-party to keep the information contained in any
records pertaining to the broker's client confidential.
(2) Messenger Services. A broker may provide its clients' records
to a third-party messenger service provider for transport and delivery
without violating the prohibitions set forth in the provisions of this
part pertaining to confidentiality, provided that the clients' records
are sealed in such a manner so that the third-party messenger service
provider may not view, alter, or amend the documents to be delivered.
Dated: October 21, 2010.
David V. Aguilar,
Acting Commissioner, U.S. Customs and Border Protection.
[FR Doc. 2010-27106 Filed 10-26-10; 8:45 am]
BILLING CODE 9111-14-P