Home › Discussion › Broker Compliance › Quiz 1, Question 3
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I’m looking at this question and possibly seeing two answers as true/correct – E and A. Is there a reason why one is incorrect, so that I can pay attention for it on the exam?
A – 19 CFR 111.36(b) – A broker must not [i.e., may never] enter into any agreement with an unlicensed person to transact customs business for others in such manner that the fees or other benefits resulting from the services rendered for others inure [i.e., take effect] to the benefit of the unlicensed person.
E – 19 CFR 111.36(c) – A broker may compensate a freight forwarder for referring [i.e., services rendered in obtaining] brokerage business, subject to…conditions.
3. Question 1 point
With regard to relations between a licensed broker and an unlicensed person, which of the following statements is true?A. A broker may never enter into an agreement with an unlicensed person to transact Customs business for others, if the fees resulting from such services rendered for others benefit the unlicensed person.
B. If the unlicensed person employing the broker is not the actual importer, the broker may not transmit the bill for services rendered to the actual importer, unless the merchandise was purchased for delivery on an all-free basis.
C. A broker is not restricted from entering into an agreement with any unlicensed person to transact Customs business for others that benefits the unlicensed person, as long as the broker retains more than 50 percent of the proceeds.
D. A broker may not enter into an agreement with a freight forwarder with the intention of compensating the freight forwarder for services rendered to others.
E. A broker may compensate a freight forwarder for services rendered in obtaining brokerage business, provided certain stipulations are met.Correct choice is: E
Explanation: 58. CFR 111.36ยง 111.36 Relations with unlicensed persons.
(b) Service to others not to benefit unlicensed person. Except as otherwise provided in paragraph (c) of this section, a broker must not enter into any agreement with an unlicensed person to transact customs business for others in such manner that the fees or other benefits resulting from the services rendered for others inure to the benefit of the unlicensed person.(c) Relations with a freight forwarder. A broker may compensate a freight forwarder for referring brokerage business, subject to the following conditions:
(1) The importer or other party in interest is notified in advance by the forwarder or broker of the name of the broker selected by the forwarder for the handling of his Customs transactions;
(2) The broker transmits directly to the importer or other party in interest:
(i) A true copy of his brokerage charges if the fees and charges are to be collected by or through the forwarder, unless this requirement is waived in writing by the importer or other party in interest; or
(ii) A statement of his brokerage charges and an itemized list of any charges to be collected for the account of the freight forwarder if the fees and charges are to be collected by or through the broker;
…What these provisions mean is that in general, a broker must not enter into any agreement with an unlicensed person to transact customs business for others in such manner that the fees or other benefits resulting from the services rendered for others inure to the benefit of the unlicensed person. However, there is an exception to this rule that a broker may compensate a freight forwarder for referring brokerage business, subject to certain conditions.
Therefore, answer choice E is correct, as it correctly states the exception to the rule.
Answer choice A is incorrect because it states that a broker may never enter into an agreement with an unlicensed person to transact Customs business for others, if the fees resulting from such services rendered for others benefit the unlicensed person. The statement that a broker may “never” enter into an agreement where an unlicensed person receives benefits from the services rendered is not correct as there is an exception in the rules for agreements with freight forwarders who may refer business to the broker and receive a benefit for such referrals. -
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