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Question 213

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?

    Correct Answer: B

    First National Bank would have a problem with this transaction because it is attempting to evade U.S. Department of Commerce regulations. By suggesting the creation of a shell corporation in a nonboycotting country to act as the beneficiary of the letter of credit, First National Bank is complicit in circumventing the regulations regarding the boycott. U.S. entities, including banks, are prohibited from facilitating transactions that are designed to evade laws related to boycotts not sanctioned by the U.S. government, and this can result in liability for the bank.

Discussion
Cam22Option: B

The correct answer is B. Yes. The transaction is set up to evade the regulation and First National Bank is liable. This answer reflects the principle that U.S. entities, including financial institutions, cannot participate in or facilitate transactions that are designed to evade laws and regulations regarding international boycotts not sanctioned by the U.S. government. By suggesting the creation of a shell corporation to bypass boycott restrictions, First National Bank would be complicit in an attempt to circumvent those regulations, making it liable for violating them.