Home / Past exams / October 2024 / Question 3
October 2024, question 3
Broker Compliance · Broker licensing and duties
While preparing the entry documents for a shipment on behalf of its client Angel Industries (Angel), Shady CHB (Shady) sees that the insurance value for the shipment is significantly lower than the commercial invoice value. In response to Shady's inquiry concerning the differences, Angel explains that there are two commercial invoices for the shipment. The first commercial invoice is the real invoice from the shipper which shows the lower amount that is used for insurance purposes. The second commercial invoice is created by Angel at a higher amount and is used as the invoice for calculating Customs value and upon which it pays the duties, taxes, and fees. Angel explains that it uses the two invoice system in its accounting records to reduce its reportable profit for income tax purposes. Shady's attorney advises Shady to terminate its relationship with Angel because the “double invoice scheme” is fraudulent. Of the choices below, what is Shady's best next step?
- Shady documents the double invoice scheme and immediately terminates its relationship with Angel and reports to CBP the client's name, date of termination, and the reason for the termination.
- Shady will file the entry using the lower, correct value and will advise Angel that they will only file entry in the future using the actual invoice from the shipper.
- Shady will file the entry at the value requested by Angel and will keep Angel as a client because the potential fraud does not involve CBP.
- Shady will file the entry as requested by Angel because it is not fraud to pay more in duties, taxes, and fees than actually owed.
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CBP's answer: A. A: Shady documents the double invoice scheme and immediately terminates its relationship with Angel and reports to CBP the client's name, date of termination, and the reason for the termination.
A broker must not file a document known to be false, and must document and report to CBP when it separates from a client because the client is intentionally trying to use the broker to defraud the government. The report gives the client name, date of separation and reason. A double invoice used to report value is false information, so Shady documents it, ends the relationship and reports to CBP (A).
A broker also must document and report to CBP when the broker separates from or cancels representation of a client as a result of determining the client is intentionally attempting to use the broker to defraud the U.S. Government 19 CFR 111.32
The report to CBP must include the client name, date of separation or cancellation, and reason for the separation or cancellation. 19 CFR 111.32
Search for: report to CBP when the broker separates from a client
CBP's key cites: 19 CFR 111.32; 19 CFR 111.53
Question and key from CBP's October 2024 exam and answer key. The walk-through is ours; quotes are from the pinned editions in the reference viewer (HTSUS 2026 Basic, 19 CFR 2025 edition).