Understanding for licenced customs brokers of the risks faced and mitigation steps to take.

As the international trade regulatory landscape continues to change and the commercial environment becomes increasingly competitive, the balancing act for forwarders and customs brokers between providing services to your clients and complying with your obligations to Customs becomes more complicated. However, at the end of the day, your duties to Customs as a licence holder are paramount.

Customs and border compliance issues are necessarily complex, and are essentially set and enforced at national (and to some extent regional) level. While this article is written to some extent from an Australian perspective, the lessons are applicable globally.

Customs brokers are clearly assuming responsibility for acting correctly as between cargo interests and Customs. As a result, there is the potential to provide advice to your customer or carry out actions that result in the cargo interest suffering financial loss, for which you are alleged to have been negligent. Closely related to the liability exposure to your customer is the potential for Customs to levy fines or penalties- through Infringement Notices.

Inevitably, in relation to the exposure in either direction, the Customs Broker is likely to incur expert and legal costs when a claim is raised - either to defend court proceedings or to review a Customs decision.

TT Club would, however, identify an aspect of the current business culture: fraud.

Identity fraud

Identity fraud is perhaps a less obvious area of risk. In some cases authorities find that brokers have committed an offence where checks on the identity of clients have not been performed and that simple verification of the identity would have alerted the broker to the fraud.

Consistent with previous advice, it is recommended that you deal with clients directly (rather than through an intermediary) and always perform your own background checks, both in regard to the entity itself as well as the statements being made to Customs.

In recent instances, rice wine was being imported into Australia from Korea, declared as apple cider vinegar. Customs' interest was piqued and a 'Query Memorandum' to inspect the goods was issued. This directly resulted in extra costs for handling the container and for storage costs under bond. Following the inspection, duty was charged at the rate for rice wine - not cider - which the freight forwarder pre-paid on behalf of the importer. It proved impossible to reclaim the duty and additional costs because it transpired that the consignee company did not exist and even had the same contact details as for the shipper - who also disappeared.

These have been cases of people fabricating an identity in an attempt to import goods without paying the full amount of duty. When the companies were not successful, they simply disappeared.

Identity theft

Customs brokers also need to be aware of the risk of identity theft. While the variety of scams is broad, TT Club has identified three areas that require particular attention for Customs Brokers:

• where an unscrupulous entity uses the identifying details of a legitimate entity on a Cargo Report or Import Declaration – known by Customs as ‘piggybacking’ – generally with the aim of importing consignments containing illicit substances or smuggled goods.
• the nature of access to the ‘Integrated Cargo System’ and digital certificates means that individual login details need to be carefully guarded to avoid misuse and illegal activity.
• fraudulent diversion of payments – mandate fraud (See also TT Talk 3 Nov 2015) – is all too common. It is primarily the responsibility of the party making a payment to ensure that the bank details are correct.

Customs Brokers should be aware that their licence might be at risk in a situation where the Authorities consider that the broker has intentionally or recklessly facilitated a fraud. Such situations can also lead to fines being imposed on the Customs Broker as an individual, as well as actions against the forwarding business as a company.

Take action

Mitigation of these risks is possible. In the first instance, it is important to review your own internal processes and systems. Recognise that the risk exposures are business critical and implement robust technology systems and standard operating procedures accordingly, particularly considering access rights and controls (including peer review).

Secondly, ensure that well drafted standard trading conditions are properly incorporated into your interactions with all clients. Many national trade associations provide ideal models, as does TT Club for its Members. You should seek legal advice to ensure that contracts are appropriate for your specific business.

A third obvious mitigation is to purchase adequate and appropriate insurance. You should discuss this with your broker to ensure that your specific needs are properly covered.

We hope that you have found the above interesting. If you would like further information, or have any comments, please email us, or take this opportunity to forward to any colleagues who you may feel would be interested.

We look forward to hearing from you.

Peregrine Storrs-Fox

Risk Management Director, TT Club