1
Clarke – Broker Role Panel 4-7-14
I’ll be presenting some risks and risk solutions for customs brokers
associated with bonds.
Bond Risks
 Over the years, many brokers have used their own bond to clear
entries on behalf of their importer clients.
 There has been a shift away from this practice in recent years
however we do see some brokers using their own bond. While
we understand it cannot be avoided in certain circumstances,
there are risks that you just don’t want to take.
 We recently had a situation where a broker had a $50,000
continuous bond and used it to make entries of Chinese bedroom
furniture on behalf of an importer.
 The broker and surety received ADD bills in the amount of
$750,000.
 The entries were within one term of the $50,000, therefore the
surety is only liable for $50,000.
 Since the broker is the responsible party, acting as importer of
record, they owe the full amount of the bills as there are no
protestable issues.
 It doesn’t matter if you are a small, medium or large broker,
liquidated damages and supplemental duty bills owed can have an
adverse effect on your business.
 Who here could pay $750,000 in bills?
 Remember, if you act as importer of record, you are taking the
responsibility and should never do so under any circumstance.
2
Clarke – Broker Role Panel 4-7-14
 When we review bond renewals we take a look at open entries,
liquidations and claim history.
 Oftentimes, we find that bonds may be produced by a broker that
doesn’t make any entries for the importer.
 They are simply obtaining a bond for the importer but do not have
the entry business. You are probably wondering why this is
hazardous.
 When we review a broker, we look at losses on the bonds that
broker has produced.
 So, if you obtained the bond for an importer that has losses due
to entries made by another broker, it affects your loss ratio with
the surety.
 Take a look at your bonds to ensure that you have all of the entry
business also.
 While it may not be possible to have all of the business due to
locations where the importer is making entry, make sure you
know the importer, what they are importing and if there are any
high risk issues associated with their imports.
Risks - Big Picture Issues
 In recent years, all parties have been held to a higher standard.
 CBP has had to answer to Congress and others due to uncollected
revenue.
 About 10 years ago, they had to centralize continuous bond filing
to gain more uniformity.
 Now CBP is centralizing STBs.
 Sureties have to report to their reinsurers on losses, most of
which occur due to ADD.
3
Clarke – Broker Role Panel 4-7-14
 The issue of the U.S. retrospective ADD/CVD system results in
extraordinary high risk and high bills amounts.
 Due to the nature of the system, everyone tries to protect
themselves from loss.
 So, the affect has been that everything has tightened up and it’s
clear that the opportunity to make mistakes is being eliminated
through automation.
 Brokers, sureties and CBP have to work together to protect
themselves because the loss is too great for all of us.
 Think about it, CBP has to report to congress constantly to explain
why they are writing off uncollected revenue.
 Importers are responsible for extremely high bills many years
after an entry is made.
 Sureties hold the risk with ADD being the highest loss ratio.
 Brokers are stuck in the middle of it all.
 So, who wins? Well, Lenny does! That’s right the only winners
are the attorneys!
Case Study - Issue
 This case entailed two issues brought by GAIC.
 All sureties must file a CSPOA with CBP for their agents with
authority to sign bonds on their behalf.
 GAIC disputed the legitimacy of the agent who signed the STBs
arguing that the bonds were invalid because the value of the
bonds exceeded the agent’s POA limit.
 GAIC also claimed that CBP improperly accepted those bonds
because the POA filed showed a cap of $1 million per bond
authority and these bonds exceeded the cap.
4
Clarke – Broker Role Panel 4-7-14
 The courts rejected these defenses, holding that GAIC granted
“apparent authority”.
 Apparent authority refers to a situation where a reasonable
person would understand that an agent had authority to act. This
means a principal is bound by the agent’s actions, even though
the agent had no express or implied authority.
 Further, GAIC did not act to deny liability when the bonds were
reported. They only argued this when they received notice of
claim.
 The other issue GAIC had was that they did not receive notice of
suspension of liquidation because the surety on the continuous
bond received it.
 In today’s environment, only the surety on the continuous bond
receives initial data. The STB surety is not notified.
 Washington Intl was the surety on the continuous bond.
 Whenever there are entries covered on a continuous bond and a
STB, the STB surety is liable first and if there is an insufficiency,
the continuous bond surety is called upon.
Case Study – Solution
 The solution to this situation is eBond.
 The surety on the bond has knowledge of the transaction and
accepts liability systematically.
 Further, in ACE eBond, all parties on a transaction will receive
entry notification.
eBond=Reduced Risk
5
Clarke – Broker Role Panel 4-7-14
 All of us will see a reduction in underwriting violations with no
more ‘after the fact’ underwriting
 When there are underwriting violations, there is an E&O exposure
for brokers. eBond reduces, and actually eliminates, that
exposure.
 As mentioned earlier today and with the case study, sureties
cannot deny liability for execution errors
Revenue Modernization
 At the trade symposium, there was a break out session regarding
Revenue Modernization.
 We were advised that CBP spends more time collecting than they
actually collect based on the antiquated system.
 $45 million in revenue collection is collected in cash or check still.
 All refunds are paper checks and there are 200,000 refunds
annually
 Refunds can take up to 1-1/2 years to process.
 Today, surety receive paper claims from CBP for debit vouchers
and ACH defaults. These claims take between 60-120 to be issued
by CBP.
 That is a risk for all parties. A continuous bond can become
insufficient very quickly, the exposure to risk is always greater for
a surety when it takes so long to be notified. Brokers have risk
because if an importer is not paying duty, they may not pay their
brokerage fees.
 In a modern system, brokers will not have to outlay the duty
payment and have to collect from their importer clients. It will
help a brokers cash flow.
6
Clarke – Broker Role Panel 4-7-14
ASI Solutions
 Many brokers act as consultant and help importers with
compliance audits.
 You surety can provide you with detailed entry reports to help
you assess your import clients. We can also provide information
on supplemental duty bills and liquidated damage claims.
 Your surety can also assist when you issue a bond or at renewal as
we keep claims and loss history.
 If you have a new importer client, but your bond market has a loss
history with that importer you will be alerted and may not want
to take on a client that has previous losses.
 We also perform financial reviews for larger bonds. This is a
benefit for brokers as we can alert you to a high risk account that
may be have financial difficulties.
 We also have contracts with credit rating bureaus and can assist
you when you are extending payment credit to your customer.
To conclude, open communication with your surety market is key.
Better communication will result in mutual success for all parties.