Choosing an Intermediary? Buyer Beware

Q: Can importers be held responsible for unauthorized fraudulent acts committed by a customs broker working on their behalf?

A: The U.S. Court of International Trade faced this question during a recent case where a textiles manufacturer hired a freight forwarder to act as its importer of record and to file entries on its behalf.

Having received power of attorney from the manufacturer, the forwarder filed entries for a shipment with Customs and Border Patrol (CBP) in his company’s own name. In doing so, the forwarder falsely described the cargo in order to circumvent quota restrictions, and declared lower values to reduce the textile firm’s duty charges.

The manufacturer never instructed the forwarder to make these unlawful statements. Nevertheless, the authorities prosecuted the manufacturer because of the forwarder’s acts.

In finding the manufacturer directly responsible for the fraudulent declarations, the court ruled that whether the manufacturer authorized the unlawful conduct or not was irrelevant. As a matter of public policy, liability for unpaid duties extends even to innocent parties who are “traditionally liable” for such payments, the court noted.

Its reasoning? Allowing importers to shelter themselves from the illegal actions of their agents or brokers could create an incentive for illegal behavior.

“Allowing such protection for importers would discourage care on their part in selecting agents, and would thus provide more opportunity for dishonest middlemen,” the decision stated.

In addition, the court found that merely allowing a customs broker to file entries with CBP in its own name, rather than in the name of the owner of the goods, does not clear the owner of liability.

The lesson for importers is clear: exercise caution when naming another person to act on your behalf. Selecting brokers or freight forwarders requires thoughtful consideration. Their reputation and credentials are among the most significant factors to examine.

Others include:

  • Visit intermediaries at their office to become acquainted with the staff and the systems they use to conduct transactions.
  • Because of the risks associated with cargo transactions, a written agreement between shippers and intermediaries is essential. The agreement should outline the services the intermediary will provide, and detail the safeguards in place to protect your interests.
  • Intermediaries should have adequate professional liability—or “errors and omissions”—insurance. The policy should cover any losses shippers incur as a result of a fraud committed during the processing of their entries. This coverage typically triggers when an employee of the agent commits a fraud without the agent’s knowledge or complicity.
  • Your intermediary should also be protected against fines, penalties, or other duties that are imposed by an authority as a result of an import law or regulation breach. This protects your interests against any additional costs incurred because of the breach.
  • Your contract should specifically require the broker or forwarder to insure against fraudulent acts committed by its employees, as well as fines and penalties imposed by an authority. Your intermediary’s certificate of insurance should specifically cite this cover.

In the absence of a well-structured insurance program, shippers face the potentially difficult task of having to claim directly against their intermediary to recover losses.

Finally, your efforts should not come to an end merely because you have selected an intermediary. Stay in touch with your partner to ensure that it is performing services in line with your requirements.

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