ACE & Sureties – What Changes to Expect in ACE for the Sureties and How They Will Affect Brokers

1. ACE & Sureties – What Changes to Expect in ACE for the Sureties and How They Will Affect Brokers Presenter: David F. Jordan, CHB, CPCU, CCS Vice President, Surety Compliance & Liaison

2. What is eBond? • Discussion with CBP (then the U.S. Customs Service) began in the mid-1980s • Simple concept – essentially centering on STBs • CBP wanted entry process to be paperless to the greatest extent possible • No serious impediment to a validated electronic message becoming the actual bond contract • Not merely an electronic record of a paper bond, but an electronic record being the actual bond contract with no paper whatsoever required

3. What is eBond? continued • Continuous bonds also envisioned as being electronic • Not as part of the ABI entry process per se, but still relatively simple to achieve • Most data elements corresponding to elements already existing in ACS

4. What is eBond? continued • For various reasons, early adoption of eBond was delayed • Eventually the advent of ACE overshadowed virtually all other data processing ideas/initiatives • Now scheduled as a feature of ESAR, release A2

5. How Will eBond Work? • Will retain current CBP 301 “Activity Code” approach • Possible that some new Activity Codes will be added • Basic relationships remain unchanged • Customs brokers continue to be clients of/serviced by sureties/surety agents • Importers continue to be clients of/controlled by customs brokers

6. How Will eBond Work? continued • Surety or surety agent will establish a “Bond Authorization File” (“BAF”) for each customs broker client • BAF takes the place of current underwriting arrangements/agreements between customs brokers and sureties/surety agents • Establish basic underwriting limits for various types of bonds • Underwriting restrictions outside of eBond could also exist but would not be a part of CBP edits/bond & entry approval process • Establish authority to issue riders, terminate bonds, etc.

7. eBond: BAF Concept

8. How Will eBond Work? continued • Provides for special approval of over-limit bonds • Serves as an additional tier in BAF • Surety/surety agent transmits to CBP a specific approval record • Transmissions received from the customs broker will proceed through process in same manner as bonds within normal BAF parameters.

9. How Will eBond Work? continued Specific Approval Parameters (Entered into ACE by surety/surety agent) • Filer Code • Importer ID • STB or continuous • Activity Code • Category (Activity Code 1 STB only) • 1B, 1R, 1T, or 1D • Specified entry number (if known) • Maximum bond amount • Date range

10. How Will eBond Work? continued • CBP edits for compliance with bond amount guidelines, etc. • Transmissions that clear both BAF & CBP edits establish a bond within ACE • Confirmation transmitted to filer & surety

11. How Will eBond Work? continued

12. When Will eBond Become a Reality? • eBond is an element of ESAR Release A2 • Originally expected during 2007 • As of June 2007, CBP has announced that A2 functionality will become available on a staged basis beginning some time in 2009 • Latest estimates • Valarie Neuhart comments at GAC…

13. When Will eBond Become a Reality? continued • STB functionality expected to be a part of entry process, with relatively minor modifications to CATAIR • Even so, latest projected date one year after first A2 stage • Continuous bond/rider functionality separate from STB process • Draft CATAIR pages first appeared in March 2007 • Very preliminary • Contained many errors/inconsistencies • Testing/phase-in scheme to be announced by CBP

14. eBond Advantages to Bond Process Participants • CBP • Real time verification of • Proper bond amounts • Adequate corporate surety power of attorney limits • Virtual elimination of claims disputes with sureties regarding existence/form of bond coverage • Significant reduction in paper processing/ storage/retrieval

15. eBond Advantages • Customs brokers • Virtually 100% paperless processing • Anticipated lone exception – large bonds with co-sureties • STBs created/processed as a part of 3461 filing • No separate data entry • Process virtually invisible on bonds not subject to specific approval by surety/surety agent • Helps avoid staff violations which could create serious broker liability

16. eBond Advantages continued • Customs brokers (continued) • No surety reporting required • CBP transmits reporting information to surety when transaction/bond filing is completed in their system • No changes to surety underwriting rules anticipated

17. eBond Advantages continued • Importers and other principals • Automated environment should eventually allow CBP to reduce continuous bond approval from 10 working days • CB process could conceivably become immediate in the vast majority of cases

18. eBond Advantages continued • Sureties/surety agents • Full and prompt reporting of all bonds executed • Elimination of disparities between bonds and electronic records of them • More prompt/accurate claims evaluation • Better compliance with reinsurer requirements • Dramatic paper reduction

19. Surety ACE Portal Accounts • What are they? • New categories of “ACE Secure Data Portal Accounts” became available in ESAR A1 on September 9, 2007 • “Service Provider” including “Surety Agent” and “Surety” among the new account types • These accounts are analogous to Importer or Broker portal accounts in that they create a mechanism for Sureties or Surety Agents to view certain types of data within ACE, post information/changes, and extract reports.

20. Surety ACE Portal Accounts continued • Information/capabilities available in Surety portal accounts • Maintain address and other Surety contact information • Maintain Corporate Surety Powers of Attorney (CBP 5297, not to be confused with Powers of Attorney granted by importers and maintained by customs brokers)

21. Surety ACE Portal Accounts continued • Information/capabilities available in Surety portal accounts(continued) • Access continuous bond information, and generate reports of various kinds. • While sureties will be able to view continuous bond and rider information via the portal, they will not be able to enter such data via ACE or an ACE portal. • Surety Agents will have similar capabilities, as granted by the sureties they represent.

22. ACE & Sureties Q&A at end of Part Two