From the Federal Register: August 11, 2003

The Customs Mod Act of 1993 required that importers exercise reasonable care in their customs activities.  Subsequent to the Mod Act, many corporations with subsidiaries created in-house compliance departments to assure that reasonable care was being practiced.

The distinctions between "reasonable care" and "customs business" were not always clear but they were crucial because the performance of "customs business" requires a licensed customs broker -- a legal necessity if the parent company was performing customs business on behalf of one of its subsidiaries.  The question: does a corporation have the authority to perform customs business on behalf of one of its subsidiaries?  The answer: no.  But like so many straight forward answers, this one rendered the difference between "reasonable care" and "customs business" legally ambiguous.

In order to clear this matter up, U.S. Customs in October of 2002 proposed an amendment "that would expand the permissible use of in-house experts by corporations and their affiliates to include activity that intended to meet the corporation's "reasonable care" obligations..."  Hence the added definition of "corporate compliance activity" to Part 111 of the Code of Federal Regulations 19.

Under Part 111, corporate compliance activity "means activity performed by a business entity to ensure that documents for a related business entity or entities are prepared and filed with Customs using "reasonable care", but such activity does not extend to the actual preparation or filing of the documents or their electronic equivalents.  In other words, the amendment would allow a compliance department at a corporation to provide a subsidiary company advise on customs issues, but "that compliance department may not prepare the actual entry document" for its subsidiary.

A look at some of the comments and U.S. Customs responses to them in the Federal Register Notice might help clarify the definition of "corporate compliance activity."  One commentator asks why "in-house customs brokers cannot provide advice, or prepare and file documents, on behalf of related companies?"

Customs deems that the use of an in-house customs broker to give advise to one of the company’s subsidiaries "may present no problem."  However, "if a corporation wishes to transact customs business (for example, prepare and file documents) for others, it must obtain a corporate license of its own."

The presence of a licensed customs broker doesn’t mean the corporation is licensed to transact customs business. "An insurance company hires an attorney to work in its policy underwriting department: the employment of the attorney does not entitle the insurance company to practice law."

Another commentator thought the proposed amendment does "not make clear whether related parties can assist each other in responding to Customs Form 28 Requests for Information or Customs Form 29 Notices of Action, or in preparing or filing Post Entry Amendments, Supplementary Information Letters, documents relating to compliance audits or assessments, or certificates of origin."

U.S. Customs points out that "preparing and filing documents" does not apply "just to the entry and entry summary, but to all other documents for which preparation and filing constitutes 'customs business'."  U.S. Customs also points out that the "proposed definition of "corporate compliance activity" does not allow for the "actual preparation or filing of the documents or their electronic equivalents.  Actual refers to the documents which will be filed with Customs."  Any work done for the preparation or gathering background material for a customs issue would be allowed under the definition of "corporate compliance activity."

These comments and Customs responses illustrate that the key idea in the definition of corporate compliance activity is found in the word "actual."  The word "actual" is intended to emphasize that the documents in question are those that will be filed with Customs.  Who actually prepares and files the customs documents?  If a corporation is actually filing and preparing the customs documents on behalf of a subsidiary, then that corporation must be a licensed customs broker.