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HQ 114758

November 7, 2000

BRO-1-RR:IT:EC 114758 GG


Mr. Lawrence W. Hanson
Grunfeld, Desiderio, Lebowitz & Silverman LLP 1100 Louisiana, Suite 1275
Houston, TX 77002

RE: Ruling Request on Transfer of Administrative Functions from Broker to Related Company; Customs Business; Confidentiality of Records.

Dear Mr. Hanson:

This is in response to your ruling request, dated July 16, 1999, made on behalf of your clients, Eagle USA Airfreight, Inc. (“Eagle USA”) and its subsidiary, Eagle Import Brokers (“EIB”). We apologize for the delay.


EIB is a licensed corporate customs broker. It is a wholly owned subsidiary of Eagle USA. Its parent is undergoing tax restructuring, which will result in the transfer of Eagle USA’s current operations to a limited partnership. Both of the two partners in the limited partnership are companies that are 100% owned by Eagle USA. EIB will be an affiliated company of the limited partnership, because EIB is a wholly owned subsidiary of Eagle USA and the limited partnership is ultimately owned by Eagle USA.

As part of the proposed restructuring, EIB will continue to conduct all customs business, with employees of the broker working under the direct supervision and control of licensed employees and officers of EIB. Eagle USA will initially provide ancillary financial and administrative services such as bookkeeping, accounting, invoicing, banking and collection services to EIB, ultimately transferring these duties to the limited partnership upon its creation.


Whether a licensed broker may transfer its ancillary financial functions, such as bookkeeping, accounting, invoicing, banking and collection services, to a related or affiliated company that is not a licensed broker.


Pursuant to section 641(f) of the Tariff Act of 1930, as amended (19 U.S.C. §1641(f)), the Secretary of the Treasury may prescribe such 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 books, accounts, and records by customs brokers, and documents and correspondence, and the furnishing by customs brokers of any other information relating to their customs business to any duly accredited officer or employee of the Customs Service.” In accordance with this statutory grant of authority, Customs has promulgated the following regulations:

19 CFR §111.21

Each broker must keep current in a correct, orderly, and itemized manner records of account reflecting all his financial transactions as a broker. He must keep and maintain on file copies of all his correspondence and other records relating to his customs business. Each broker must comply with the provisions of this part and part 163 of this chapter when maintaining records that reflect on his transactions as a broker. Each broker must designate a knowledgeable company employee to be the contact for Customs for brokerwide customs business and financial recordkeeping requirements.

19 CFR §111.24

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 the Field Director, Regulatory Audit Division, the special agent in charge, the port director, or other duly accredited officers or agents of the United States, except on subpoena by a court of competent jurisdiction.

The regulations cited above clearly contemplate that a broker will not disclose “records of account reflecting all his financial transactions as a broker”, or “correspondence and other records relating to his customs business”, to persons other than those listed in 19 CFR §111.24. To comply with this regulation, EIB cannot disclose any such records to Eagle USA or to the limited partnership.

The precise records accorded confidentiality by §111.24 are not specified in the regulations. However, it is clear that the records must pertain “to the business of the clients serviced by the broker”. Thus, 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. In this regard, it is unclear how EIB could outsource the “ancillary financial and administrative services”, particularly those involving invoicing and collection, without running afoul of the confidentiality provisions.

Customs acknowledges that there may be situations in which a broker may legitimately transfer some of its business operations to another company. For example, in Headquarters Ruling Letter 114411, dated November 22, 1999, Customs allowed a broker to outsource its human resources department to an employee leasing company. A condition of this arrangement, however, was that the leasing company have no access to, or involvement in, the actual customs business work of the broker, and further, that the records of the clients of the broker be kept confidential from the leasing company. It follows that a broker may outsource other financial or administrative functions provided the same safeguards are in place. As a practical matter, this means that the new service provider cannot perform any functions that are dependent on information or financial data derived from client files. For this reason, a selected service provider would be precluded from invoicing or taking collection action against clients of brokers, because the amounts in question relate back to customs business transactions performed by the broker for the clients.


A broker may outsource financial or administrative functions, provided the new service provider has no access to, or involvement in, the actual customs business work of the broker client, and provided that the records
of the clients of the broker, and the information contained in those records, are not disclosed to the new service provider.


Larry L. Burton

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