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Question 210

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?

First National Bank must confirm it if it previously agreed to do so.

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.

First National Bank may do nothing but return the letter of credit to the issuing bank and report to the IRS.

First National Bank must confirm the letter of credit but should also report it to the Department of Commerce.

Correct Answer: 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. This is because U.S. regulations forbid American entities from participating in or supporting international boycotts that are not sanctioned by the U.S. government. By confirming the letter of credit with boycott provisions, First National Bank would indirectly support the boycott. Therefore, the appropriate action is to inform ABC and report the request to the relevant authorities to ensure compliance with U.S. laws.

Discussion

Cam22Option: B

The correct answer is 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. This response aligns with U.S. regulations concerning participation in or cooperation with international boycotts not sanctioned by the U.S. government. The bank has an obligation to comply with U.S. laws, which include reporting requirements for any requests they receive that are part of a foreign boycott not recognized by the U.S. This ensures that the bank does not participate in or support the boycott indirectly by confirming the letter of credit with such conditions.