If your institution offers letters of credit as a service to your customers and if any of your customers potentially have international business operations, you should be aware of the U.S. Anti-boycott laws and regulations that may apply to this line of business. The Anti-boycott regulations administered by the IRS and U.S. Commerce Department prohibit U.S. Persons from participating in economic boycotts of countries that are friendly to the U.S. (primarily the Arab block of countries’ boycott of Israel).
The regulations affect all U.S. Persons, including financial institutions and all interstate or foreign commerce of the U.S., which includes the sale, transfer, or purchase of goods, services to or from the U.S. For financial institutions, this largely impacts letters of credit. In general, U.S. Persons are prohibited from:
- Refusing to do business with a boycotted or blacklisted entity
- Discriminating against or agreeing to discriminate against any U.S. Person on the basis of race, religion, sex, or national origin
- Furnishing information about business relationships with a boycotted country or a blacklisted entity
There is a reporting requirement if a U.S. Person receives a boycott request (even if no action is taken on the request). A report must be filed with the Commerce Department.
The Treasury Department is required to publish a list of boycotting countries in the Federal Register quarterly. The list has remained unchanged for many years until this month when the United Arab Emirates was removed from the list of countries requiring cooperation with an international boycott. The current List of Countries Requiring Cooperation with an International Boycott, as of April 8, 2021, are:
Some examples of prohibited letter of credit clauses from the
Commerce Department’s website (Office of Anti-boycott Compliance):
Letter of Credit clause: “We hereby certify that the beneficiaries, manufacturers, exporters, and transferees of this credit are neither blacklisted nor have any connection with Israel and that the terms and conditions of this credit in no way contravenes the law pertaining to the boycott of Israel and the decisions issued by the Israel Boycott Office.”
Letter of Credit clause: “Original commercial invoice signed and certified by the beneficiary that the goods supplied are not manufactured by either a company or one of its subsidiary branches who are blacklisted by the Arab boycott of Israel or in which Israeli capital is invested.”
- If your institution offers international letters of credit or has international operations, communicate the updated information and update any relevant policies and procedures that may be affected by the change in the list of boycotting countries.
- Ensure that letters of credit are properly and carefully reviewed for clauses that could be prohibited under the Anti-boycott regulations
Copyright © 2021 Compliance Action. Originally appeared in Compliance Action Vol. 25, No. 12, 4/28/2021