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New Modernized Broker Regulations

On December 19, 2022, the final rules under 19 CFR part III came into effect. The two rules are titled Modernization of the Customs Broker Regulations (87 FR 63267) and Elimination of Customs Broker District Permit Fee (87 FR 63262). The new rules have changed the dynamics and interactions between brokers, importers, and regulatory bodies, and brokers now have additional responsibilities under the new framework.

An Overview of the Broker Environment

The Updated 19 CFR part III rules build from and connect previous developments made by US Customs and Border Protection (CBP) for how CBP interacts with brokers. These previous building blocks include the “informed compliance” and “shared responsibility” aspects of the Customs Modernization Act (Mod Act), the creation of the Centers of Excellence and Expertise (CEEs), and the implementation of the Automated Commercial Environment (ACE) system. Both the ACE system and the CEEs operate on a national level rather than a district level, and all brokers and importers must now operate on the national level too.

Under the district system and before the enactment of the two final rules, importer and broker regulatory compliance was considered port-specific depending on the port district where business was taking place. Districts may have differed in their specific regulatory requirements, and the port directors of each locale were responsible for determining compliance. Under this scenario, CBP had limited oversight of importer accounts across different districts due to the decentralized nature of the district system.

Combining the two final rules, the ACE system and the CEEs, importers and brokers must now report their business nationally, transitioning from port-specific compliance to account-specific compliance. This means that instead of CBP focusing on an importer’s compliance in a single port district, CBP can now monitor an importer’s account nationwide, and brokers have more responsibilities in policing and reporting importer compliance.

Some of the fundamental changes for brokers resulting from the two final rules include the removal of district broker permits, the transition to the national permit system, restrictions on third-party interactions, additional communication record-keeping requirements, and requirements for brokers to play a more significant role in policing and reporting importer compliance violations.

ACE, CEEs, Informed Compliance, and Shared Responsibility

The ACE system, which is used for obtaining the release and clearance of goods, replaced the older cargo processing system referred to as the Automated Commercial System (ACS). With the ACE system, CBP can track, control, and process all import and export goods nationally with visibility across different ports and districts in the country.

Additionally, CBP established the Centers of Excellence and Expertise to improve the uniformity and standardization of customs practices across different ports in the country. Each center specializes in the regulatory compliance of a specific industry on a national level. Previously, regulatory compliance was determined at the port district level by the port’s directors. In the district system, it was the importer’s responsibility to stay informed regarding the specific compliance regulations in their district.

The concept of informed compliance in the Mod Act follows the idea that the best way to maximize compliance with CBP laws and regulations is for CBP to clearly and comprehensively inform the trade community of all its legal obligations. Additionally, the concept of shared responsibility in the MOD Act relates to the trade community’s and CBP’s shared responsibility for carrying out the outlined regulatory requirements. Now that CBP has clearly and comprehensively informed the trade community about the two final rules under 19 CFR part III through various webinars, fact sheets, and other educational resources, the onus is now on the trade community to maintain regulatory compliance.

For context, the Mod Act states that “under Section 484 of the Tariff Act, as amended (19 USC 1484), the importer of record is responsible for using reasonable care to enter, classify and determine the value of imported merchandise and to provide any other information necessary…” However, the recent final rule changes now mean that brokers have a much larger responsibility towards both importers and CBP for maintaining compliance. As a result, brokers must review their policies and procedures to ensure that they comply with the rule changes and meet their new responsibilities appropriately.

The Core Changes that Brokers Need to Be Aware of

Transitioning from District Permits to National Permits

CBP has now eliminated districts along with district permits, and all brokers with district permits will have been transitioned to national permits before the effective date of the final rules. With the national permit, brokers can conduct customs business at any port within the national customs territory. One side effect of the national permit transition is that a brokerage will not require as many licensed brokers, as there is no longer a need to employ at least one broker per district in which the brokerage operates.

Changes to the Responsible Supervision and Control Framework

The final rules modified the requirements for how brokers exercise responsible supervision and control. 19 CFR 111.28 outlines specific factors which CBP will use to determine if a broker has met the appropriate standard of care through their business, increasing brokerage responsibilities for minimizing human error.

To summarize, anyone applying for a broker permit must submit a written supervision plan, while operating brokers must improve their standard operating procedures (SOPs) to ensure that they effectively integrate the 13 factors listed in 19 CFR 111.28 into their SOP. Many factors focus on employee training, ensuring licensed brokers are readily available to employees, and ensuring that employees have access to the latest legal and regulatory resources.

Brokerages must now also consider the number of licensed brokers they hire, as there must be 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.”

Executing Customs Power of Attorney

CBP wants to prevent brokers from utilizing third-party brokers or freight forwarders. Removing third parties from the broker-importer relationship is intended to promote direct communication between the broker and importer. Therefore, brokers must now execute customs power of attorney directly with the importer.

Maintaining Communication Records and Policing Customs Compliance

Under the new rules and building from the requirement to execute customs power of attorney directly with customers, brokers are now required to take a much more proactive stance in policing customs compliance and reporting violations. In cases of non-compliance, errors, or omissions, brokers must inform clients of the relevant corrective actions and maintain records of their communications with their clients to support regular reporting and future reviews and investigations made by CBP.

Brokers are also obliged to report to CBP when they terminate a client relationship due to the client’s negligence or the client intentionally trying to commit a crime or defraud CBP, such as through ADD evasion. If a broker suspects that a client is committing fraud, it is essential to consult with legal counsel and report to CBP as soon as possible.

An additional security measure has also been added. If a broker experiences a security breach that compromises their records, they must advise CBP of the breach within 72 hours of detection with a list of Importer of Record (IOR) numbers that were affected. They must then provide a follow-up to CBP 10 days later, including any additional information they have learned since.

Designating a Knowledgeable Point of Contact (POC)

Brokerages must now designate a team member as the knowledgeable point of contact for CBP. The designated POC must be available to CBP both within and outside of operating hours, spanning the operating hours of all US time zones should CBP need to contact an importer.

How J. M. Rodgers Stayed Ahead of the Latest Rule Changes

For our team at J. M. Rodgers (JMR), there are a few reasons why the 19 CFR part III rule changes did not impede our ability to provide clients with leading brokerage services. The way that the Mod Act was conjoined with the CEEs and the ACE system forces brokers to provide and maintain a higher level of service in their customs business, with additional responsibilities.

Because J. M. Rodgers is a compliance-driven brokerage, we have been operating for many years with the necessary processes and standard operating procedures that many other brokerages must now integrate into their businesses to comply with the final rule changes. As part of our efforts to sharpen skills for providing “responsible supervision,” our team made significant advancements by achieving the ISO 9001:2015 Quality Management System certification in August 2019. We continued to build on our goal of providing clients with superior service with six of our senior staff members achieving the 6-Sigma Green Belt certification for advanced problem-solving. All of our employees have achieved the 6-Sigma White Belt certification and are required to achieve this certification on an annual basis. And because of the importance of protecting company and client data in the current cybersecurity threat environment, we invested heavily in strengthening our position by achieving the ISO 27001:2013 Cybersecurity certification in June 2022.

Our forward thinking and planning puts us ahead of the curve with respect to regulatory changes, allowing our team to leverage our experience and thrive in the new environment.

JMR Has Held a National Permit for Over 15 Years

While many brokerages throughout the US customs territory must realign their business processes to fit into the new national permit system, JMR has been operating with a national permit for over 15 years. Our experience at the national level means the JMR team did not previously need to issue agent powers of attorney to conduct business across different districts.

As a result, we have always worked and communicated directly with our clients without using third parties, regardless of our client’s location or the specific port of entry.

JMR’s Responsible Supervision and Control Framework Practices

JMR has always utilized proactive business processes for reducing human error by supporting our licensed brokers and team members with a range of tools, such as “parts dictionaries” on the front end and mandatory data audits on the back end. Our standard process is to request parts dictionaries from our clients to reduce the chances of any mistakes during data entry. We then conduct internal audits before authorizing any Automated Clearinghouse (ACH) payments to prevent errors from slipping through our system.

As a result, we can guarantee a high level of confidence that all our brokerage practices can effectively assist our clients in maintaining compliance while withstanding the scrutiny of the CBP’s CEEs and ACE system.

In Summary

The final rule changes of 19 CFR part III have created a changing environment for customs brokers throughout the US customs territory.

By transitioning brokers from district permits to national permits and removing the district system entirely, CBP has effectively connected the CEEs, the ACE system, and the Mod Act into what can be referred to as a customs “trifecta.” The effect of merging these three pieces on a national level is to draw customs brokers into compliance reporting and policing roles, where CBP can also hold brokers responsible for importer non-compliance and negligent behavior if reporting and policing are not carried out effectively.

Previously, under the “informed compliance” and “shared responsibility” concepts contained in the Mod Act, brokers, importers, and CBP shared many responsibilities for maintaining regulatory compliance, and importers were responsible for keeping themselves informed regarding customs regulations in their district. With the enactment of the two final rules, much of the regulatory responsibility has been handed over to brokers, who now experience a higher risk of punishment from regulators should they not meet those new responsibilities regarding monitoring importer compliance, maintaining communication records, and reporting to CBP.

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Lauren Welby, CFE Foods
We transitioned over to JM Rodgers last year. This was the smoothest transition with a brokerage to be expected. Our expectations were met and exceeded. ...
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CFE Foods
We transitioned over to JM Rodgers last year. This was the smoothest transition with a brokerage to be expected. Our expectations were met and exceeded. They work with us not just as a customer, but as a partner keeping our concerns just as important as their own. We have been extremely happy with the choice we have made and look forward to the continued relationship we build with JM Rodgers.
Lauren Welby, CFE Foods
Lauren Welby, Import Operations Manager
CFE Foods
Josh Nkomo, Steelite
I wanted to follow up and inform you that [your team] continues to shine and is doing a splendid job for your organization. [They are] ...
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Steelite International
I wanted to follow up and inform you that [your team] continues to shine and is doing a splendid job for your organization. [They are] a pleasure to work with, always attentive to detail, and very responsive to our inquiries. It is very rare to have people of that caliber in any situation and JM Rodgers is certainly lucky to have [them] on your team. To us, [they are] the face of JM Rodgers and helps the organization put on a great show.
Josh Nkomo, Steelite
Josh Nkomo, Logistics Manager
Steelite International
Greg Carter, LCB
J.M. Rodgers was a valuable partner that contributed to our success. They were always available to share insights and identify excellent opportunities to increase ...
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Global Trade Compliance, Albermarle
J.M. Rodgers was a valuable partner that contributed to our success. They were always available to share insights and identify excellent opportunities to increase refunds.
Greg Carter, LCB
Greg Carter, LCB
Global Trade Compliance, Albermarle
Kim Guimond
J.M. Rodgers has an expert level of knowledge around regulatory & trade compliance. They put together a package wrapped around my exact brokerage needs!
Chief Administrative Officer, Modern Mill
J.M. Rodgers has an expert level of knowledge around regulatory & trade compliance. They put together a package wrapped around my exact brokerage needs!
Kim Guimond
Kim Guimond
Chief Administrative Officer, Modern Mill
Urban Carter
I love the J.M. Rodgers Co. approach to Customs Brokerage services. They are easy to work with, have fantastic staff, and offer nothing but ...
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Logistics Director, BCI Brands
I love the J.M. Rodgers Co. approach to Customs Brokerage services. They are easy to work with, have fantastic staff, and offer nothing but results!
Urban Carter
Urban Carter
Logistics Director, BCI Brands

J.M. Rodgers Co. Inc.

J.M. Rodgers Co. Inc specializes in customs brokerage, duty drawback, freight forwarding and freight management with a focus on high-tech and high-touch solutions. J.M. Rodgers Co., Inc is a 3rd generation, family owned corporation that has redefined the role of a service provider for companies that demand more than “formula” service that others provide.