What is a Customs Broker?
In the U.S., customs brokers are individuals or organizations licensed by CBP to help importers and exporters comply with federal trade procedures and requirements. They educate businesses on the classification and valuation of goods, admissibility requirements, and applicable duty rates, taxes, and fees for imported merchandise.2 Customs brokers then prepare and file the appropriate documentation, arrange payment of duties, and if applicable, help traders obtain a customs bond, which CBP requires for commercial goods valued over $2,500 or for goods that must meet the requirements of other government agencies, such as firearms.3,4 Licensed customs brokers are the only agents authorized by CBP to help importers conduct their customs business, but CBP does not require importers use a customs broker to clear goods across the U.S. border.5,6,7
However, considering it is the importer’s responsibility to comply with entry requirements and pay applicable duties and fees, many importers opt to use a customs broker for convenience and to avoid penalties.8 While no published data reflects the number of importers who use customs brokers, recent reports from the Bureau of Economic Analysis show that, as imports in the U.S. have risen, the freight forwarding and agencies industry — of which customs brokers are a part — grew by 4.4 percent year-over-year and is currently valued at $136 billion. 9,10
How SMEs Benefit from Customs Brokers
A 2016 report from the International Trade Administration underscores SME involvement in U.S. imports: of the 197,000 U.S. companies that imported goods in 2015, 97 percent were SMEs.11 But a 2016 World Trade Report highlights “customs procedures” and “US regulations” as two major obstacles SMEs face when participating in world trade – impediments that are considerably less significant for large firms.12
Common errors that result in delays or penalties include choosing the wrong tariff codes, mistakes regarding Rules of Origin, providing an inaccurate declared value, and incorrectly labeling the country of origin.13 Customs brokers, however, can alleviate the complications with CBP regulations and mitigate the risk of penalties that can prove costly to SMEs, thereby lowering those barriers to entry. According to CBP, penalties for those errors can reach $50,000 or more but vary widely depending on the violation and various other factors.14 In addition, it may be worth noting that there are fees to use customs brokers that are typically either fixed rates or proportionately determined based on the value of a shipment.15
Are There Risks in Using a Customs Broker?
CBP requires a fairly rigorous licensure process for any individual or brokerage looking to represent an importer or exporter in their customs business. Customs brokers must pass an 80-question exam and apply directly to a CBP port director, where they undergo a background check and a three-tiered review process.16 To maintain licensure, brokers must submit a report to CBP once every three years notifying them that they are still in operation and remain compliant with CBP’s requirements. Individuals who conduct customs business for another without maintaining proper licensure and compliance with CBP guidelines face penalties up to $30,000.17
Despite CBP precautions, customs brokers are occasionally accused and convicted of bad business practices. In 2010, for example, federal courts convicted a Long Island-based customs broker of defrauding a Danish medical devices provider of more than $1 million by submitting inaccurate customs documents that claimed they owed fees on duty-free goods.18 A San Diego broker received 37 months in prison for his part in a multi-million dollar fraud scheme in 2013.19 And a similar case from 2016 resulted in CBP suing an Illinois-based broker for over $3 million due to misclassified merchandise.20 Businesses can mitigate the risk of fraudulent activity by working with a vendor found through the CBP website or the National Customs Brokers & Forwarders Association of America (NCBFAA) marketplace.21,22