Request for a ruling as to whether a broker can execute a single blanket power of attorney to transfer multiple clients to a replacement broker.

HQ H281990 January 23, 2017  BRO 4-02 OT:RR:CTF:ER H281990 KF Alan R. Klestadt NCBFAA, Inc. 1200 18TH Street, NWSuite 901 Washington, DC 20036 Re: Request for a ruling as to whether a broker can execute a single blanket power of attorney to transfer multiple clients to a replacement broker. Dear Mr. Klestadt: This is in response to your letter, dated December 7, 2016, for a ruling on the execution of a single blanket power of attorney (“POA”) to transfer clients from a brokerage entity terminating its operations to a replacement brokerage entity. FACTS: The National Customs Brokers and Freight Forwarders Association of America, Inc. (“NCBFAA”) is an association that advocates on behalf of customs brokers. NCBFAA states that customs brokerage entities concluding a corporate transaction such as a merger or sale must transfer clients from the entity ceasing to legally exist, to the new entity acting as its replacement. A transfer of clients is accomplished through the execution of a POA, whereby the new entity is designated as the new agent authorized to act on behalf of the original broker’s former clients. NCBFAA asserts that executing a new POA for each of the original broker’s (hereinafter Broker A) numerous clients would result in “an extremely time consuming and inefficient” transfer of clients to the new broker (hereinafter Broker B), requiring potentially hundreds of new POAs. NCBFAA argues that in circumstances where the original POA executed between Broker A and its clients authorizes Broker A to issue POAs to other brokers, Broker A should be able to execute a single blanket power of attorney authorizing Broker B to act on behalf of all of Broker A’s clients. NCBFAA requests a ruling finding the execution of a single blanket power of attorney permissible to transfer clients in corporate transactions where Broker A holds a POA authorizing it to issue new POAs on behalf of its principals. ISSUES: Whether a brokerage entity may issue a single blanket POA to a replacement brokerage entity. LAW AND ANALYSIS: A customs brokerage entity licensed pursuant to 19 U.S.C. § 1641(b)(3) must obtain a POA from a client, termed the principal, authorizing the entity to transact customs business on the principal’s behalf. See 19 C.F.R. § 141.46. A POA is “a written statement legally authorizing a person to act for another. The person granting the authority is known as the principal or grantor, while the person being authorized to act is the agent or grantee.” See United States Customs and Border Protection (“CBP”), Broker Management Handbook, 101, January 2002, CBP.gov. A POA may be executed to authorize a broker to transact all or part of the principal’s customs business. See 19 C.F.R. § 141.31(a). Upon the execution of a POA, the broker is empowered to act as the agent of its client to the extent authorized by the terms of the POA. CBP has determined that a POA can specifically authorize a broker to execute new POAs authorizing other brokers to act as agents of the principal. See Customs Service Decision (C.S.D.) 79-111. The resulting agent-principal relationship between the newly appointed broker and client is legally distinct from the client’s relationship with the original broker. See HQ 225375 (October 31, 1994) (“[Broker B], once appointed, would act solely on account of the importer and ha[s] no agency relationship to Broker A”). In the context of a corporate transaction between customs brokerage entities seeking to transfer clients from Broker A to replacement Broker B, we found that Broker A may execute a POA authorizing Broker B to act as the new agent of Broker A’s clients if duly authorized. Id. At the time Broker A issues a POA to Broker B, Broker A is bound to responsibly supervise and control its customs business on behalf of its clients pursuant to 19 C.F.R. § 111.28(a). In HQ 223453 (January 21, 1992), CBP explained that 19 C.F.R. § 111.28 operates within a broader regulatory scheme intended to implement the following policy objectives: “ensure the competence of brokers, protect the importing public, and facilitate the administration of the importation and entry of merchandise.” CBP accordingly found that a POA “should be limited to one principal and one broker/agent; that is, a single legal entity licensed and authorized to perform customs business for a single legal principal per one power of attorney” to ensure proper and separate supervision of customs business by separate brokers. Id. CBP noted that limiting POAs to a single broker and client serves to effect the underlying policies of broker regulations by “avoiding confusion and liability problems,” as well as enabling CBP to closely regulate broker activity. Id. The facts of HQ 223453 are distinct from the corporate transactions identified by NCBFAA in its request. HQ 223453 addressed the legality of granting two brokers joint authorization to act as agents of a single principal within a single POA. Id. However, CBP’s determination that a POA should be limited to a single broker (per a single principal per a single POA) in order to effect the underlying policies of broker regulations applies with equal force to the transactions identified by NCBFAA. Akin to the joint operations suggested in HQ 223453, corporate transactions between Broker A and Broker B implicate the brokers’ 19 C.F.R. § 111.28(a) responsibilities and 19 C.F.R. § 141.31(a) limitation on their authority to conduct customs business for a principal only to the extent permitted by the terms of the POA executed with a client. Most significantly, the policies underlying broker regulations listed in HQ 223453 underpin “[t]he pervasive regulation of [all] broker activity” and therefore include corporate transactions between customs brokerage entities. Id. The requirement of executing one POA for a single broker and principal is excused in the corporate transaction context only if “the power of attorney granted to the predecessor broker specifically provides that it is transferable to Customs broker which is the predecessor broker’s legal successor in interest.” See Position Statement on Execution of New Powers of Attorney Due to Merger, etc., 57 Federal Register 3083, January 27, 1992 (“Position Statement”). If the POA executed between Broker A and its clients includes a legal successorship provision, a transfer of clients to replacement Broker B is accomplished by operation of law without the need to execute new or additional POAs. Id. Absent a legal successorship provision, Broker A must execute a single POA designating Broker B as the replacement agent of each client being transferred. See HQ 223453 (January 21, 1992). In recognition of the time and resource intensive process required to transfer clients absent a legal successorship provision with Broker A’s POAs with its clients, brokers are granted thirty (30) days from the date of their merger or similar transaction to execute new powers of attorney. Position Statement. If more time is necessary to complete the transfer of clients, at any point within the thirty (30) day period a broker may file a request for additional time with CBP. Id. HOLDING: Based on the above, we find that in a corporate transaction transferring clients from Broker A to Broker B, if Broker A’s POAs with its clients lack a legal successorship provision but contain specific authorization to issue new POAs, Broker A must execute a separate POA on behalf of Broker B for each client being transferred. Please note that 19 C.F.R. § 177.9(b)(1) provides that “[e]ach ruling letter is issued on the assumption that all of the information furnished in connection with the ruling request and incorporated in the ruing letter, either directly, by reference, or by implication, is accurate and complete in every material respect.” If any fact in the transaction varies from the facts stipulated to herein, this decision shall not be binding on CBP, as provided for in 19 C.F.R. § 177.9(b). Sincerely, Monika R. Brenner, Acting Chief Entry Process and Duty Refunds Branch