Posting Security for Transacting Bonded Operations

Memorandum D1-7-1

Ottawa, October 7, 2008

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In Brief

1. This memorandum is revised as a result of the Paper Burden Reduction Initiative; the revisions are aimed at eliminating obsolete and duplicated requirements, streamlining certain commercial processes and modifying complex policies and forms.

2. In accordance with the above Continuation Certificates, Government of Canada Transfer form (Y76) and letter of credit are no longer required.

3. The section on "Canada Customs Multi Purpose Bond" has been removed due to a change in name of the Customs Bond.

4. In order to clarify, precise signature requirements for the principal have been incorporated in the D120 Customs Bond.

This memorandum outlines and explains general policies and procedures relating to the posting of security for participating in Canada Border Services Agency (CBSA) bonded transactions.

A request to participate in a bondable transaction shall be made in writing. Where applicable, the appropriate Agency application form shall be used.


Guidelines and General Information

1. The memoranda listed below outlines specific policies and procedures for posting security for bonded operations. Before making an application to transact a bonded operation, the applicable memoranda should be consulted to clarify application requirements, levels of security, bond format, and specific completion instructions.

  • D1-2-1 – Special Services
  • D1-8-1 – Licensing of Customs Brokers
  • D3-1-1 – Regulations Respecting the Importation, Transportation, and Exportation of Goods
  • D3-1-3 – Importation of Intoxicating Liquors
  • D3-1-6 – Customs Post Audit System
  • D3-2-1 – International Air Traffic
  • D3-2-2 – Air Cargo – Import Movements
  • D3-2-3 – Air Cargo – In-Transit Movements
  • D3-3-1 – Forwarded and Consolidated Cargo – Import Movements
  • D3-4-2 – Highway Cargo – Import Movements
  • D3-4-5 – Highway Cargo – In-Transit Movements
  • D3-5-1 – Vessels in International Service
  • D3-5-2 – Marine Cargo – Import Movements
  • D4-1-4 – Customs Sufferance Warehouses
  • D4-1-6 – Disposal of Abandoned and Forfeited Goods
  • D4-3-3 – Duty Free Shop – Licensee Responsibilities
  • D8-1-1 – Temporary Importation (Tariff Item No. 9993.00.00) Regulations
  • D8-1-2 – International Events and Conventions Services Program (IECSP)
  • D8-1-4 – Form E 29B, Temporary Admission Permit
  • D17-1-0 – Accounting for Imported Goods and Payment of Duties Regulations
  • D17-1-1 – Documentation Requirements for Commercial Shipments
  • D17-1-2 – Reporting and Accounting for Low Value Commercial Goods (Under CAN$1,600)
  • D17-1-4 – Release of Commercial Goods
  • D17-1-5 – Importing Commercial Goods
  • D17-1-8 – Release Prior to Payment of Duties Privilege
  • D17-1-10 – Coding of Customs Accounting Documents
  • D17-1-11 – Private Printing Policy and Procedures
  • D17-1-21 – Maintenance of Records and Books in Canada by Importers
  • D17-2-1 – Coding of Adjustment Request Forms
  • D17-2-2 – Processing of Adjustment Request Forms
  • D17-4-0 – Courier/Low Value Shipment Program – Low Value Commercial Goods
  • D17-4-1 – Persons Authorized to Account for Casual Goods

Participation in Bonded Transactions

2. Any registered company, whether an individual, partnership or corporation is eligible to post security with the CBSA to participate in bonded revenue transactions.

3. Security may be presented locally at each CBSA office where business is to be conducted. When business is to be conducted at more than one CBSA office, the client may wish to post security with CBSA Headquarters.

Acceptance of Security Deposits

4. Security can be posted in one of, or a combination of, the following forms:

  • (a) cash
  • (b) a certified cheque or money order
  • (c) a transferable bond issued by the Government of Canada, or
  • (d) a bond issued by either of the following:
    • (i) a company that is approved by the Treasury Board as an entity whose bonds may be accepted by the Government of Canada. Please refer to Treasury Board website, Appendix L.
    • (ii) a member of the Canadian Payments Association (CPA) as referred to in section 4 of the Canadian Payments Association Act. Please refer to the Canadian Payments Association website.
    • (iii) a corporation that accepts deposits insured by the Canada Deposits Insurance Corporation or the Régie de l'assurance-dépôts du Québec to the maximum permitted by the statutes under which those institutions were established.
    • (iv) a credit union as defined in subsection 137(6)(b) of the Income Tax Act (CPA membership must be through a central co-operative).
    • (v) a corporation that accepts deposits from the public, if repayment of the deposits is guaranteed by Her Majesty in right of a province.

5. Letters of credit will not be accepted as security deposits for bonded revenue transactions.

6. It is the responsibility of the individual, partnership or corporation posting security to notify the CBSA of any changes to their address or contact information. Failure to provide notification of address changes may result in suspension of the bonded privileges if the CBSA is unable to contact the principal.

7. If the company changes its legal name, a rider or endorsement is to be obtained from the surety or financial institution and sent, along with the copy of the relevant legal articles of name change/amalgamation, to the CBSA office where the bond is held.

8. The CBSA office holding the security is to acknowledge receipt to the principal and the surety or financial institution.

Cash, Certified Cheques and Money Orders

9. The CBSA accepts security deposits in the form of cash, certified cheques or money orders drawn on chartered banks, credit unions, caisses populaires, trust companies and other financial institutions, providing they are members of the Canadian Payments Association.

10. Security in the form of cash, certified cheque or money order will be returned to the applicant when the privileges associated with transacting a bonded operation are no longer required and the conditions for which the security was taken have been met.

Government of Canada Bonds

11. Security deposits in the form of Government of Canada bonds shall be accepted in non-certificate form only (Safekeeping Agreement). Government of Canada bonds already on deposit in certificate form shall remain effective until the bonding arrangement terminates or the bond matures – whichever comes first. Government of Canada Savings Bonds are not acceptable as they are not transferable.

12. A properly completed Safekeeping Agreement and form BSF391, Transfer of Registered Bonds shall be submitted to the CBSA. A specimen of the BSF391 form can be found as Appendix A of this memorandum.

13. The Safekeeping Agreement shall bear signatures of two officers of the chartered bank or investment/securities dealer involved and the signature of a CBSA employee delegated with the appropriate signing authority. A specimen of the form can be found as Appendix B of this memorandum.

14. The market value of Government of Canada bonds posted as security is to be sufficient to cover the security privilege. Market value information (bid and ask quotations) may be found in the financial section of most major daily newspapers.

15. Name changes to the terms of an existing security in the form of non-certificate Government of Canada bonds, are to be made in writing to the CBSA program unit where the security is being held. Requests for a change of name should be submitted with a certified true copy of either a Certificate of Continuance or Supplementary Letters Patent issued by the provincial or federal authority that approved the change in name. Changes in information relating to the non-certificate Government of Canada bonds will require that the Safekeeping Agreement be amended or replaced.

16. Government of Canada Bonds held as security are returned to the bearer when all the conditions have been met and the need for posting security to transact a bonded operation ceases.

17. Government of Canada bonds are not acceptable as security deposit in lieu of the provisional duty levied under the Special Import Measures Act (SIMA). Surety bonds are the only acceptable form of bonds for SIMA purposes

Surety and Financial Institution Bonds

18. Surety and Financial Institution bonds are to be made on form D120 Customs Bond. A specimen of the form with completion instructions can be found in Appendix C of this memorandum. See section 4(d).

19. The various memoranda noted in paragraph 1 outline the conditions under which a surety or bank bond is acceptable security for CBSA purposes. These bonds must adhere to a prescribed format, as contained in the applicable memoranda, which clearly describe the purpose, amount, terms and provisions of the bond.

Signature and General Requirements

20. On the D120 Customs Bond, the CBSA requires the signatures of two company officials, along with their corporate seal, as a matter of financial control. Unless the company officials are the President and the Secretary (or Secretary-Treasurer), a certified copy of the by-laws authorizing other officers to sign on behalf of the company shall be required and verified. When the security depositor is a single proprietorship or partnership, the CBSA requires the signature(s) of the proprietor or of two partners on the surety bond.

21. If the corporation does not have a seal, the customs bond is to be witnessed by either a commissioner of oath, notary public or a lawyer.

22. The surety and financial institution bonds shall bear their corporate seals, if available, otherwise either a commissioner of oaths, notary public or lawyer shall witness the signature(s) of the authorized representative(s). The bond must be signed and sealed by the witness.

Riders, Endorsements or Amendments

23. The terms and conditions of a bond can be altered by the surety or financial institution with a rider, endorsement or amendment. This document is to indicate:

  • (a) the name of the surety or financial institution;
  • (b) the bond number;
  • (c) the principal;
  • (d) the bond amount; and
  • (e) the type of activity secured; and
  • (f) purpose (i.e. increase or decrease the amount secured, change of name, etc)
  • (g) the effective date of the rider.

The signature requirements for riders, endorsements and amendments are the same as the original bond.

Cancellation of Bonds

24. Any bond may be cancelled upon written notice provided by the surety or financial institution in compliance with the cancellation provisions enumerated in the bond. This notice indicating the name of the principal, the type of activity secured, the bond number and amount is to be addressed to the CBSA office where the bond is held.

25. Under the terms and conditions of the D120 Customs Bond, the security will be cancelled 30 days from the date of receipt of the notice by the applicable CBSA office. The cancelled bond will be retained on file by the CBSA for future reference and audit purposes, except if the bond is tendered under the anti-dumping regulations of the Special Import Measures Act (SIMA). In such cases, a photocopy of the bond is retained on file and the original is returned to the depositor.

26. For the D120 Customs Bond, there is a one-year liability period after the cancellation date of the bond during which claims can be made by the CBSA. Such claims may only be made for debts incurred prior to the cancellation date of the bond.

Reinstatement

27. To reinstate a bond, the surety or financial institution is to forward a reinstatement notice to the applicable CBSA office. The notice is to indicate the following:

"that, notwithstanding having cancelled bond No.………, on (date), it is the company's intention to again act as surety for (name of client) and reinstate the terms and conditions of the bond in the amount of $……… in its entirety. This reinstatement becomes effective as of ………."

28. The date on which the reinstatement becomes effective must be at least one day prior to cancellation date. The CBSA will send an acknowledgement to the surety or financial institution along with the principal confirming that the bond remains in force.

Claims Against Security

29. When the terms and conditions for which security is taken are not met, the CBSA will withhold a sufficient portion of the security to cover the amount owing. This course of action will be followed in the case of security tendered in the form of cash, certified cheque or Government of Canada bonds. In the case of surety and financial institutions bonds, after reasonable attempts have been made to collect from the principal, the CBSA will enforce the terms and conditions of the bond and make a demand to the surety or financial institution for payment of a debt that has been incurred by the principal. The CBSA will provide relevant documentation to substantiate the claim.

Additional Information

30. General questions may be addressed to the following:

  • BIS (phone numbers):
    • 1. Calls within Canada – toll-free
      • Service in English: 1-800-461-9999
      • Service in French: 1-800-959-2036
      • For those with hearing or speech impairements: 1-866-335-3237
    • 2. Calls outside of Canada – long distance charges apply
      • Service in English: 204-983-3500 or 506-636-5064
      • Service in French: 204-983-3700 or 506-636-5067
  • E-Mail Address: General questions and information: cbsa-asfc@canada.gc.ca

31. Specific questions relating to a particular bonded transaction or privilege should be directed to the CBSA office or Headquarters program unit responsible for the program.

Appendix A - Form BSF391, Transfer of Registered Bonds

Appendix A - Form BSF391, <i>Transfer of Registered Bonds</i>, page 1 of 1

Appendix B - Safekeeping Agreement Form

Non-certificate Government of Canada Bonds

Safekeeping Agreement

This agreement made the ………… day of ……………………, ………….
BETWEEN: HER MAJESTY THE QUEEN Ibetween OF CAher majesty the queen in right of canada blic Safety (the Minister)

AND: ……………………………………, having a branch at …………………………………… (the Financial Institution)

AND: ……………………………………, having a business address at …………………………………… (the Depositor), being the transferor of Government of Canada bonds pledged with the Canada Border Services Agency.

WHEREAS:

A. The Depositor has purchased one or more than one bond issued by the Government of Canada to fulfil its obligations to post security with the Minister in accordance with the Financial Administration Act, and either the Customs Act, the Excise Act, the Excise Tax Act or the Excise Act, 2001.

B. The Minister agrees to accept as security certain bonds issued by the Government of Canada.

C. The Financial Institution agrees to act as a safekeeper of the security in accordance with the terms of this Agreement, without a fee.

NOW THEREFORE THE PARTIES agree as follows:

1. Safekeeping

The Depositor hereby deposits the following security or, in the case of non-certificate security, other evidence of such security, which has been assigned and transferred or pledged to the Minister in accordance with Article 2, with the Financial Institution for safekeeping on behalf of the Minister and the Depositor:

GOVERNMENT OF CANADA BONDS
REGISTRATION (NAME): ……………………………………
BOND NUMBER(S) /SERIES: ……………………………………
PURPOSE OF SECURITY: ……………………………………
FACE (PAR) VALUE: $……………………………………
BOND ISSUED/BOUGHT at: ……………………………………
YIELD: SEMI-ANNUAL: ……………………………………%
ANNUAL: ……………………………………%
MATURITY/DUE DATE: ……………………………………
MATURITY VALUE: $……………………………………
SUM OF PLEDGE WHEN GRANTED: $……………………………………

Additional security may be deposited, or, in the case of non-certificate security, other evidence of such security furnished, and this Agreement shall be deemed to be amended from time to time so as to reflect such additional security.

2. Assignment and Transfer/Pledge

The Depositor shall assign and transfer, in the name of the Receiver General for Canada, all right, title and interest in the security described in Article 1. In the Province of Quebec, the Depositor shall remit the bond as a pledge to the Minister.

3. Title

The Depositor hereby represents and warrants to the Minister and the Financial Institution that the security and any additional security deposited hereunder is not and shall not be subject to any hypothecs, guarantees, mortgages, liens, charges, sureties, security interests or encumbrances.

4. Interest Payments

If interest is earned and/or paid on the security while the security is in safekeeping, the Financial Institution shall arrange for the interest payments to be remitted directly to the Depositor.

5. Withholding Interest Payments

Pursuant to Article 8 and notwithstanding Article 4, the Minister has the right to direct the Financial Institution to withhold remittance to the Depositor of interest payments if, in the opinion of the Minister, the Depositor contravenes obligations under this Agreement or its statutory obligations under the Customs Act, the Excise Act, the Excise Tax Act or the Excise Act, 2001 for which the security has been posted. In no circumstances shall the Financial Institution inquire, nor is it obliged to inquire, as to whether the Minister may give notice pursuant hereto. The Financial Institution shall, upon withholding remittance to the Depositor of an interest payment, within fourteen days of the payment of interest, mail to the Minister a cheque payable to the Receiver General for Canada, for a sum equal to the amount of the interest payment.

6. Reinvestment

If, while the security is in safekeeping, the security matures, the Financial Institution shall, upon consulting with the Depositor, redeem the security and reinvest the proceeds in the same type of security, at the then applicable rate, in the name of the Receiver General for Canada and continue to hold such security in safekeeping. Where a pledge has been used, the Depositor shall commit to enter into a new contract thereby remitting as a pledge, in the name of the Receiver General, all rights, title and interest in the new security acquired according to the terms stated in paragraph 1 of the present article.

7. Delivery of Security

The Financial Institution shall hold the security, or, in the case of non-certificate security, other evidence of such security, on behalf of the Minister and the Depositor in an account in the name of the Receiver General for Canada until the Minister, by written notice to the Account Executive of Record with a copy to the Branch Manager of the Financial Institution and the Depositor, either:

  • (a) directs the Financial Institution to sell or redeem the security on behalf of the Minister and deliver the proceeds to the Minister by cheque made payable to the Receiver General for Canada, or remit the security to the Minister; or
  • (b) directs the Financial Institution to deliver the security to the Depositor or its successors or assigns, in which case the Minister shall execute such documents as are reasonably necessary to deliver the security to the Depositor, or its successors or assigns.

8. Breach of this Agreement or the Customs Act, Excise Act or the Excise Tax Act

The Minister has the right to direct the Financial Institution to sell, redeem or remit the security pursuant to Article 7(a) if, in the opinion of the Minister, the Depositor contravenes obligations under this Agreement or its statutory obligations under the Customs Act, the Excise Act, the Excise Tax Act or the Excise Act, 2001 for which the security has been posted. In no circumstances shall the Financial Institution inquire, nor is it obliged to inquire, as to whether the Minister may give notice pursuant to Article 7(a).

9. Duty of Care

In selling or redeeming the security for the Minister, the Financial Institution shall take reasonable care to obtain the true market value of the security at the time the Minister directs that the security is to be sold or redeemed.

10. Proceeds of Sale

Within fourteen days of receipt of the notice pursuant to Article 7(a), the Financial Institution shall mail to the Minister either a cheque, payable to the Receiver General for Canada, for a sum equal to the gross proceeds of the sale or redemption of the security or the security.

11. No Lien

The Financial Institution shall not have any lien or security upon the bond or upon any proceeds from the sale or redemption thereof.

12. No Set-off

The Financial Institution shall have no right to set-off or compensate any amount owed to the Financial Institution by the Minister or the Depositor against the security or against any proceeds from the sale or redemption thereof.

13. Duties of Financial Institution

The Financial Institution shall have no duties or responsibilities to the Minister or the Depositor whatsoever except as expressly provided in this Agreement and shall not have any liability or responsibility arising under any other agreement to which the Financial Institution is not a party. The Financial Institution shall have no liability to the Minister or the Depositor for the performance of the security or for the diminution in value of the security. The Financial Institution shall not be responsible for monitoring the value of the security or for ensuring its market value is maintained at or conforming to any value.

14. Reliance on notice given by the Minister

The Financial Institution is entitled to deal with the Minister as owner of the security and any additional security for all purposes hereunder, and may rely upon any notice given by the Minister or its representative in accordance with this Agreement and the Financial Institution shall not be liable or responsible to the Minister, the Depositor or any other person for any action taken or omission in reliance upon such notice.

15. Third Party Proceedings Against Security

If the security deposited hereunder shall be attached, garnished, seized or levied upon under any court order or statutory order or similar order or direction, or if the withdrawal, delivery, trading or transfer of the security shall be prohibited or enjoined by any statutory order or order of any court or authorized body, then as soon as reasonably practicable after receipt of the applicable writ, order, judgement, decree, statutory order or other similar process (herein called the "Writ") and in any event prior to complying with such Writ, the Financial Institution shall notify and provide the Minister and the Depositor with a copy of such Writ, and shall consult with the Minister on how such Writ should be handled. If, prior to consulting with the Minister, the Financial Institution is, in the opinion of its legal counsel, legally compelled to obey and comply with any such Writ or else stand liable for contempt of court or other fine or penalty, the Financial Institution shall not be liable to either the Minister or the Depositor by reason of such compliance. In the event the Financial Institution is served with a claim involving the security, the Financial Institution shall promptly notify and provide the Minister and the Depositor with a copy of such claim.

16. Indemnity

The Depositor or its successors or assigns shall indemnify and save harmless the Minister and the Financial Institution from and against all claims, demands, damages, losses, costs and expenses made against or incurred, suffered or sustained by the Minister or the Financial Institution and based upon or arising out of any action taken in accordance with this Agreement. This indemnity shall survive the termination of this Agreement.

17. Statements

The Financial Institution shall send to the Minister, with a copy to the Depositor, a statement, at least annually, indicating the current value of the security.

18. Representative of the Minister

Wherever in this Agreement the Minister is authorized or empowered to do, perform or consent to any act, matter or thing, such act, matter or thing may be done, performed or consented to on behalf of the Minister by the Regional Director, Operations in the Canada Border Services Agency region where the Depositor normally does business with the Canada Border Services Agency, or, if appropriate, by the Director, Operational Services Division, Programs and Operational Services Directorate, or by the Director, Tariff Policy Division, Trade Programs Directorate, or such other person named in a written notice mailed to the Financial Institution and the Depositor.

19. Termination

This Agreement may be terminated by the Financial Institution upon no less than 90 days prior written notice thereof to the Minister and the Depositor and the security shall be delivered to the Depositor at the Depositor's address.

20. New Safekeeping Agreement

If this Agreement is terminated in accordance with Article 19, the Depositor shall, before the expiry of the notice provided by the Financial Institution, enter into a new Safekeeping Agreement with a new financial institution.

21. Notices to the Minister

Any notice, statement, cheque or other document to be provided to the Minister under this Agreement shall be sent to the Regional Director, Operations in the Canada Border Services Agency region where the Depositor normally does business with the Canada Border Services Agency, or if appropriate, to either the:

Director, Operational Services Division
Programs and Operational Services Directorate
Operations Branch
Canada Border Services Agency
191 Laurier Avenue West, 12th Floor
Sir Richard Scott Building
Ottawa, Ontario K1A 0L8

Director, Tariff Policy Division
Trade Programs Directorate
Admissibility Branch
Canada Border Services Agency
150 Isabella Street, 4th Floor
Ottawa, Ontario K1A 0L8

or to such other person named in a written notice mailed to the Financial Institution and the Depositor. In the Excise program, such act, matter or thing may be done, performed or consented to on behalf of the Minister by the Director, Excise Duty and Taxes or such other person named in a written notice mailed to the Financial Institution and the Depositor.

22. Notices to the Financial Institution

Any notice, statement, cheque or other document to be provided to the Financial Institution under this Agreement shall be sent to the Financial Institution at the address appearing on the first page of this Agreement to the attention of the Account Executive of Record.

23. Amendment of Client Account Agreement

The Financial Institution's Client Account Agreement is hereby amended wherever necessary to the extent it is inconsistent with this Agreement, so as to permit the safekeeping of the security by the Financial Institution pursuant hereto.

24. Governing Law

This Agreement shall be governed by and construed in accordance with the laws of the Provinces and Territories of Canada and the laws of Canada applicable therein.

IN WITNESS WHEREOF the parties have executed this Agreement as of the date first above-mentioned.

ON BEHALF OF HER MAJESTY THE QUEEN IN RIGHT OF CANADA as represented by the Minister of Public Safety

Sign: ………………………………………
Name: ………………………………………
Title: ………………………………………
Date: ………………………………………
Telephone Number: ………………………………………

NAME, ADDRESS AND SEAL OF THE FINANCIAL INSTITUTION
………………………………………
………………………………………
………………………………………

Sign: ……………………………………… Sign: ………………………………………
Name: ……………………………………… Name: ………………………………………
Title: ……………………………………… Title: ………………………………………
Date: ……………………………………… Date: ………………………………………
Telephone Number: ……………………………………… Telephone Number: ………………………………………

NAME AND ADDRESS OF THE SECURITY DEPOSITOR
………………………………………
………………………………………
………………………………………

Sign: ……………………………………… Sign: ………………………………………
Name: ……………………………………… Name: ………………………………………
Title: ……………………………………… Title: ………………………………………
Date: ……………………………………… Date: ………………………………………
Telephone Number: ……………………………………… Telephone Number: ………………………………………

Appendix C

Form D120, Customs Bond

Instructions for the Completion of Form D120

  • Indicate the bond number, if applicable.
  • In field 1, state the specific bonded activity that will be secured. Consult the applicable regulation or customs D-Memorandum for the specific wording and for other information that may be required.
  • Identify the relevant authority by writing in the appropriate legislation.
  • Write the amount of security in words.
  • Write the amount of security in figures.
  • In field 3, consult the applicable D-Memorandum for completion instructions, as the period of validity of a bond varies depending on the program and purpose for which it is issued.
  • In field 4, state the CBSA office where the activities are to be conducted. For Headquarters security, state "All CBSA offices in Canada".
  • In field 7, along with the principal's business number, state the principal's name and address.
  • Affix the signatures of two duly authorized officers of the principal indicating their names and titles and impressing with the corporate seal.
  • State the surety's name and address.
  • Affix the signature of authorized individuals of the surety company, indicating their names and titles and impressing with the corporate seal.
  • In field 8, affix the signature of witnesses, if required.
  • In field 9, state the date the bond was signed and sealed.

References

Issuing office:
Brokers Licensing and Account Security Programs
Licensing, Export, and Accounting Division
Admissibility Branch
Headquarters file:
7640-0
Legislative references:
Customs Act, Section 8, 166 (1) and (2)
Other references:
Memoranda listed in paragraph 1 of this memorandum.
Superseded memorandum D:
D1-7-1 dated March 28, 2002
Date modified: