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CRCM Exam - Question 216

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?

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Correct Answer: A

The action of confirming the letter of credit by First National Bank constitutes an agreement to cooperate with or participate in a boycott because the terms of the letter of credit align with the regulations of Country G, which enforces the boycott. By confirming such a letter of credit, the bank is effectively engaging in behavior that supports the boycott, albeit indirectly. As per U.S. regulations, any entity, including financial institutions, that engages in actions that could be construed as participating in or cooperating with international boycotts not sanctioned by the U.S. government is required to report such actions to the IRS. Hence, the bank's action triggers the reporting requirements.

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Cam22Option: A
Mar 17, 2024

Yes. The action is an agreement to cooperate with or participate in a boycott and, yes, it is subject to the reporting requirements. By confirming a letter of credit that includes conditions aligning with the boycotting country's laws and regulations—which effectively enforce the boycott—First National Bank is participating in the boycott. U.S. regulations require entities, including financial institutions, to report certain actions that could be seen as cooperating with or participating in international boycotts not sanctioned by the U.S. government. The bank's confirmation of such a letter of credit triggers these reporting obligations to the IRS.