Multiple Brokers Suspended From Type 86 After Compliance Failures

Because CBP did not say how many companies were suspended from filing de minimis entries on behalf of their clients, rumors were running wild both on the number -- six, nine, or more -- and about who was affected.

Seko Logistics confirmed through a spokesperson it was under at least a three-month suspension that began May 27. In a client note obtained by journalists in China and the U.S., it wrote: "Despite our extraordinary compliance rate, we were given less than seven days before the suspension went into effect and no opportunity to address any potential deficiencies." Seko claimed in that note it had a 99.999% compliance rate, and the spokesperson declined to say how it calculated that rate.

On its web page, Seko wrote: "Our acquisition of Air-City, Inc. in 2019 brings vital Section 321 Low Value Shipment and Type 86 import expertise in-house, and provides a key differentiator for SEKO -- by giving us the ability to manage the Customs Clearance aspect of bringing in bulk parcels. In fact, SEKO is the only forwarder that is able to process Type 86 via air freight as well as ocean freight."

CBP didn't say what the problems were in shipments entered by these firms -- undervaluation, misclassification, contraband, or all of the above. However, in its emailed news release, it said that fentanyl and other synthetic drugs are being shipped in the de minimis environment, and last year, the executive at CBP responsible for the Entry Type 86 data pilot said that CBP officials had recently visited nearly a dozen brokers who had filed more than one Type 86 entry for packages that CBP discovered contained fentanyl (see 2309110059). Brandon Lord, executive director of the trade policy and programs directorate, said then: "Our attitude is: Type 86 still requires reasonable care. We’re counting on you to know what’s in that box and who’s sending it. The vast majority of entry type 86 transactions, the broker is filing and acting as the importer of record. Nothing wrong with that, but it certainly exposes you to a greater risk of liability."

A January CBP notice announcing changes to its Type 86 pilot added language that said CBP “may suspend or remove a filer from further participation in the ACE Entry Type 86 Test based on a determination that that filer’s participation in the test poses an unacceptable compliance risk" (see 2401120070).

Susan Kohn Ross, a customs attorney with MSK in Los Angeles, said that while her firm has not had any clients affected by the suspensions, she has been hearing that the volume of detentions at LA's air cargo facility had ramped up significantly in the last two to three weeks, and that she believes the reporting that 1,000 tons of goods were stopped by CBP is accurate. She said textiles are a good amount of those detentions, but they were not solely due to the Uyghur Forced Labor Prevention Act. She said there were also undervalued goods claiming to be under the $800 threshold to enter duty-free.

"It's been problematic from the beginning," she said of the hike in the de minimis threshold. "It was just too tempting for people."

Ross said the suspensions, even though they're only from the Type 86 program, not all importing, have gotten the attention of customs brokers. "It's a good first step," she said.

Cindy Allen, owner of a trade compliance and risk assessment consultancy called Trade Force Multiplier, said she thought the suspensions were less of a wake-up call than CBP's assertion that brokers are the importer of record when they file Type 86. She said she thinks that companies that were not already handling these kinds of entries at volume probably didn't enter the segment as a result.

"I think it’s very unfair that Customs is holding the broker, who doesn't see the package, can’t verify the information -- they’re holding them responsible [for fentanyl] in the Type 86 environment, but they’re not holding them responsible on the southern border," she said, though she acknowledged that some of the filers are also the carriers, and they should have more visibility into what they're transporting.

"Customs brokers have become a little bit of a scapegoat because they can’t reach back to the responsible parties," she said.

Ross said she was a little surprised that a large, well-known company like Seko would be among those punished, "because you would think they would be smarter. This is pretty high-profile stuff," she said, referring to de minimis enforcement. She said there's political heat on de minimis, and CBP has made it obvious they wanted to have stronger enforcement in the small package space.

She wondered how Seko would improve its internal controls, and if the business they lose in de minimis shipments during the suspension would come back to them.

Allen said that, while it's not reasonable for CBP to expect brokers to know when they're sending contraband, brokers should have known that if they had a pattern of vague descriptions from their clients, or suspicious valuations, that CBP was cracking down on that.

Allen said high volume exporters choose to hire brokers for Type 86 entries because sending the goods through the mail would be more expensive and slower to clear. She said brokers have seen that all the growth is in small packages, and have felt they have to go after their business if they want to have a future. According to CBP, more than 450 firms file Type 86 entries.

But, she said, what has worked for brokers working with major retailers -- trusting that they will give accurate information, because those importers have a stake in their goods clearing without issues -- does not translate to e-commerce.

"Brokers came to de minimis with the same expectations," she said, but a lot of the de minimis players don't care if a package here or there doesn't make it through, because the dollar exposure is so small. They don't know what level of detail is needed for a broker to accurately discern the Harmonized Tariff Schedule code, and they don't care. Allen said, "That’s kind of a new concept for customs brokers."