Letter of Credit and U.S. Anti-Boycotting Laws
What exactly is this law?
The Bureau of Industry and Security (BIS) and the International Revenue Service (IRS) each administer and enforce regulations that prohibit or penalize cooperation with any foreign country’s economic boycott that is not supported by the United States such as the Arab Boycott of Israel.
The Arab League has maintained an official boycott of Israel companies and Israeli-made goods since the founding of Israel in 1948. The boycott is administered by the Damascus-based Central Boycott Office. The Arab League members include Algeria, Bahrain, Comoros, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon, Libya, Mauritania, Morocco, Oman, the Palestinian Authority, Qatar, Saudi Arabia, Somalia, Sudan, Syria, Tunisia, the United Arab Emirates, and Yemen.
What does this regulation apply to?
The anti-boycott regulations apply to “U.S. exports and imports, financing, shipping and certain other transactions that may take place offshore.” However, despite the efforts of the BIS and IRS, many Arab League countries continue to support the boycott’s enforcement with the Arab League Boycott.
Should I be concerned if my Letter of Credit includes this boycott request?
When dealing with letters of credit, banks are third party enforcers of the boycott. If they detect boycott-related language in letter of credit and/or the supporting documents, they will report the offender to the Office of Foreign Assets and Control (www.treasury.gov/ofac) and withhold the letter of credit payment. It’s important for exporters, importers and their bankers to adhere to the directives enforced by the U.S. Government laws to avoid high fines and penalties.
Most U.S. companies are vaguely aware of the anti-boycott requirements. All transaction documents such as contracts and letters of credit should be reviewed. Exporters should learn to identify prohibited requests and understand the difference one word can make in how a request is phrased.
The following are examples which, if accepted, would violate anti-boycott laws:
• References to “Israel” or “Israeli” when the transaction does not otherwise involve any apparent connection to Israel.
• References to a vessel or aircraft being eligible to enter the ports or airports of a boycotting country.
• References to “negative” certificates of product origin (e.g., goods are ‘not of Israeli origin’).
• Requiring a signed statement from the shipping company or its agent stating the name, flag and nationality of the carrying vessel and confirming that it is permitted to enter Arab ports.
• Transshipment clauses preventing vessels or aircrafts to transship in an Israeli port or airport.
Receiving a boycott request in the course of a proposed transaction does not necessarily require companies to walk away from the business. Rather, they are to negotiate amendments and changes to problematic boycott language as to ensure that such language is not prohibited or penalized by U.S. anti-boycott laws.
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