Congress Considering Customs Business Fairness Act

U.S. Reps. Peter King (R-NY), Sanford Bishop (D-GA) and Hank Johnson (D-GA) are leading the charge on a technical change in the bankruptcy laws to provide relief for customs brokers who have paid duties to Customs and Border Protection (CBP) on behalf of importers who subsequently file for bankruptcy. H.R. 4657, the “Customs Business Fairness Act of 2017,” was introduced in December last year, and it seeks to eliminate an unfair financial burden borne by customs brokers.

According to a letter circulated by the lead sponsor, Rep. King, to his House colleagues:

Licensed customs brokers play an important role in the duty payment process at U.S. ports, serving as a pass-through entity for the collection and payment of duties to Customs and Border Protection (CBP). As part of their services, customs brokers collect duties from importers and pay CBP on the importer’s behalf. In performing this role customs brokers are often stuck with an unfair burden when an importer they work with declares bankruptcy.

When an importer declares bankruptcy, the customs broker they worked with is required to pay a bankruptcy trustee any funds received from the importer (in this case, debtor) during the 90-day "claw back" period prior to the bankruptcy filing. This includes funds paid by the importer for duties owed to CBP that the customs broker had already transmitted to CBP. This can amount to a substantial financial liability for the customs broker -- often well into the six-figure range.

This "claw back" period is a feature of the Bankruptcy Code to prevent preferential treatment to any one creditor. If the duty payments had been paid directly to CBP by the importer, such payments would not be subject to the "claw back" because duties paid directly to the federal government enjoy a priority status in the Bankruptcy Code.

This bill proposes a solution to this problem by making a technical change to the Bankruptcy Code that would allow customs brokers to be "subrogated" to the priority rights of CBP for duties paid by the customs broker on behalf of an importer that subsequently files bankruptcy. This would recognize that the customs broker has simply provided those funds to CBP on behalf of the importer and not hold the broker liable for these funds.

TIA will continue to monitor the status of this legislation and advocate where necessary as it impacts TIA members who are customs brokers. If you have any questions, please contact TIA Advocacy at advocacy@tianet.org or (703) 299-5700.