Commentary: Rules and relationships

New York-Based Broker Challenging Regulations to Allow Referral Business Opportunities    A Western New York-based U.S. Customs broker is in the midst of a challenge to a ruling from U.S. Customs and Border Protection (CBP) that may change the way brokers can market their services.
   “At Welke Customs Brokers USA, we believe in the power of the relationship,” said Damon Piatek, president & CEO. “Not just with our clients, but within the trade community, with businesses in our region, and with our government officials. But when you work in international trade, there are rules to follow when it comes to relationships, and we recently came up against one that has thrown a roadblock into how we do business.”
   Having worked closely with various chambers of commerce and business organizations in a number of communities, Welke USA has done well at building business through those types of networks. Many of these groups offer what are called “member-to-member” programs, which is generally a win-win-win relationship for the seller, the buyer and the organization: the seller gets marketing and access, the buyer gets a deal, and the organization gets some sort of referral fee. Often, these programs are related to products and services such as discount office supplies, low-cost energy or new phone service.
   “We’ve always seen a member-to-member program as a viable marketing piece for driving new business, and over the past few years have had preliminary conversations with a number of organizations on what such a program might look like,” said Piatek.
   However, there was a hurdle, and that was Welke’s understanding of a U.S. Customs and Border Protection (CBP) regulation that seemingly disallows Customs brokers from offering a referral fee for new business, unless the referrer is a licensed freight forwarder. Not wanting to jump to conclusions, however, in May, 2016, Piatek sent a letter to U.S. Customs requesting their opinion on the matter.

We don’t think that the federal government should be handcuffing private businesses as to how they can market and grow their customer base.

   In December, Welke received a response from CBP’s Entry Process and Duty Refunds Branch confirming that, yes, it was a violation of the regulations to enter into this kind of commission-based relationship with a third party that is not a licensed freight forwarder. The pushback revolved around an unlicensed independent agent’s representation of the “Customs business,” the potential to skirt the broker-client relationship and definitions of “commission” versus “referral fee” or “marketing fee.”
   The ruling was published by the National Customs and Brokers & Forwarders Association of America newsletter and, frustrated, Welke accepted the ruling. “It was difficult to not feel as though our hands were tied from being able to utilize a fairly common marketing tool: referral business,” said Piatek.
   In January, however, Welke received some legal advice that all might not be as it seems. Since where referral business originates has little impact or influence on the actual practice of clearing import entries, and a referral marketing program is in no way meant to supersede a licensed broker’s  relationship with his client, it appeared that there ought to be some flexibility in the regulations. As a result, Welke is now responding to CBP and challenging their interpretation of the rules.
   “We don’t think that the federal government should be handcuffing private businesses as to how they can market and grow their customer base,” said Piatek. “We take great pride in our meticulous and educational approach to U.S. Customs compliance on behalf of our clients, and we hope that, in the end, a favorable ruling will give us, as well as our colleagues and competitors, better inroads to educate and inform more companies on U.S. Customs rules and regulations, best practices and compliance.”  

Craig W. Turner is president of Momentum Public Affairs, serving clients in Western New York and Southern Ontario