Anti-Boycott Regulations Flashcards
What is a letter of credit?
A letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount.
The bank acts on behalf of the buyer by ensuring that the supplier will not be paid until the bank receives a confirmation that the goods have been shipped.
L/C are often used in international transactions to ensure that payment will be received. Due to the nature of international dealings including factors such as distance, differing laws in each country and difficulty in knowing each party personally, the use of L/C has become a very important aspect of international trade.
What is a boycott?
An act of voluntarily abstaining from using, buying or dealing with a person, organization or country as an expression of protest, usually for social or political reasons.
Can a person in the US refuse to do business with a boycotted country?
No, this is the anti-boycott regulation. ;)
What is the criminal penalty for knowingly violating the Export Administration Act?
Fine of 5x the value of the exports or $50,000, whichever is greater, and/or up to 5 years in prison.
What is the individual/nonindividual criminal penalties for willful violation of the Export Administration Act?
NONindividuals: Fine of 5x the value of the exports or $1 million, whichever is greater.
Individuals: $250,000 fine and/or up to 5 years in prison.
What are the civil penalties for violating the Export Administration Act?
$10,000 per violation
$100,000 for national security violations
First National Bank opened a letter of credit in favor of ABC Co., a U.S. company, for ABC’s sale of goods to Country X, a foreign country that participates in a boycott. The letter of credit contains no boycott provisions, but First National Bank knows that ABC Co. has agreed to supply a certification to Country X that ABC has not dealt with any blacklisted firms as a condition of receiving the letter of credit in its favor. What should First National Bank do?
a. Implement the letter of credit because there is no boycott language on its face
b. Require ABC to indemnify the bank against any potential loss for participation in a boycott
c. Not implement the letter of credit
d. Have the letter of credit confirmed by a bank in Country X
c. Not implement the letter of credit
The bank knows of an implicit condition with which ABC cannot legally comply, so it should not implement the letter of credit.
First National Bank, a U.S. bank, is contacted by Manufacturing Company, Inc., a U.S. company, to finance its transaction with Country Z, a boycotting country. Payment will be made through a letter of credit in favor of Manufacturing Company at its U.S. address. First National Bank knows that the letter of credit will contain restrictive boycott conditions that would prevent the bank from implementing it. First National Bank suggests to Manufacturing Company, Inc., that it set up a shell corporation in Country Y, a nonboycotting country, and have the shell corporation be the beneficiary of the letter of credit. Does First National Bank have any problem with this transaction?
a. No. The transaction is now not subject to Department of Commerce regulations because the beneficiary is not a U.S. company.
b. Yes. The transaction is set up to evade the regulation and First National Bank is liable.
c. No. The transaction is set up to evade the regulation, but First National Bank is not liable because Manufacturing Company, Inc., actually effected the transaction.
d. No. First National should have Manufacturing Company, Inc., sign a statement accepting full responsibility for the establishment of the shell corporation.
b. Yes. The transaction is set up to evade the regulation and First National Bank is liable.
ABC Co. signs a contract to export goods to Country G, a boycotting country. Payment will be made by a letter of credit confirmed by First National Bank. The letter of credit requires the goods to be shipped on a ship eligible to enter the port of Country G in conformity with its laws and regulations and that the insurer of the goods has an agent in Country G. Country G’s laws prohibit blacklisted ships from calling at its ports and blacklisted insurance companies from qualifying agents in Country G. First National Bank confirms the letter of credit. Did the bank’s action constitute an agreement to participate in or cooperate with an international boycott, and is it subject to IRS reporting requirements?
a. Yes. The action is an agreement to cooperate with or participate in a boycott and, yes, it is subject to the reporting requirements.
b. Yes. The action is an agreement to participate in a boycott but no, it is not subject to the reporting requirements.
c. No. Because the bank is not responsible for knowing the laws of Country G, it is not in participation with or in cooperation with a boycott.
d. No. The confirmation of a letter of credit is not sufficient to be in participation or cooperation with a boycott.
a. Yes. The action is an agreement to cooperate with or participate in a boycott and, yes, it is subject to the reporting requirements.
Country A (a foreign country that is boycotting Country B, another foreign country) has ordered goods from ABC, a U.S. corporation. Country A has opened a letter of credit with Overseas, Inc., a foreign bank. The letter of credit specifies that ABC must certify that it does not do business with Country B. Overseas, Inc., sends a telegram to First National Bank, a U.S. bank, stating the major terms and conditions of the letter of credit and asking First National Bank to confirm the letter of credit. The telegram does not state the boycott provisions. Overseas mails the letter of credit to First National Bank and asks First National Bank to confirm it. What may First National Bank do?
a. First National Bank must confirm it if it previously agreed to do so.
b. First National Bank may advise ABC of the letter of credit and administer its disposal, but may not confirm it and must report it to the Department of Commerce and the IRS.
c. First National Bank may do nothing but return the letter of credit to the issuing bank and report to the IRS.
d. First National Bank must confirm the letter of credit but should also report it to the Department of Commerce.
b. First National Bank may advise ABC of the letter of credit and administer its disposal, but may not confirm it and must report it to the Department of Commerce and the IRS.
The bank may perform nothing but administerial actions with regard to the letter of credit—it may not confirm it. The bank should report the transaction to the Department of Commerce and the IRS.
First National Bank advises Country A, a boycotting country, on various U.S. investments. Country A instructs First National Bank not to recommend for investment any shares of certain blacklisted companies. First National Bank follows this instruction. Has First National Bank participated or cooperated in an international boycott under the IRS regulations by this action?
a. Yes. The companies are the subject of a boycott.
b. No. The bank may agree not to recommend certain companies.
c. Yes, if the companies are part of a boycott.
d. No, but the bank must report this action to the IRS.
b. No. The bank may agree not to recommend certain companies.
Issuing Bank, a foreign bank, maintains an account with First National Bank, a U.S. bank. Issuing Bank issues a letter of credit in favor of ABC, Inc., a U.S. corporation. The letter of credit contains a boycott provision. The letter of credit provides that any negotiating bank may obtain reimbursement from Issuing Bank’s account at First National Bank by certifying that the conditions of the letter of credit have been met. Issuing Bank does not send First National Bank a copy of the letter of credit. May First National Bank reimburse negotiating banks for the letter of credit when it contains a boycott provision?
a. Yes. First National Bank did not know of it, so it may reimburse a negotiating bank.
b. No. First National Bank is under a duty to determine the underlying conditions of any letter of credit it pays.
c. No. First National Bank should request a copy of the letter of credit at the time of its payment and then refuse to pay once it is aware of the provision.
d. Yes, provided ABC Company is not a participant in the boycott.
a. Yes. First National Bank did not know of it, so it may reimburse a negotiating bank.
ABC Co. signed a contract to export goods to Country M, a boycotting country. Payment will be made by a letter of credit confirmed by First National Bank. The letter of credit requires ABC Co. to certify that none of its directors are nationals of any country boycotted by Country M before ABC can be paid. First National Bank confirms the letter of credit to ABC after determining that all of the documents are in order. Did First National Bank participate in a boycott, and must the bank report the action to the IRS?
a. No. The bank’s action was only ministerial.
b. Yes. The action was participation in a boycott and the bank must report the action to the IRS.
c. No. Only ABC Co. is required to report to the IRS.
d. Yes, but no reporting requirements were triggered.
b. Yes. The action was participation in a boycott and the bank must report the action to the IRS.
