One Word Costs a Company $19,800

Posted by at 8:36 pm on May 17, 2010
Category: Anti-Boycott

Arab PortUnited Source One, Inc., a Maryland-based food logistics company specializing in food shipments to restaurants in the Middle East, agreed in March to pay a $19,800 penalty to the Bureau of Industry and Security (“BIS”) for violating BIS’s anti-boycott regulations. The company was charged with failing to report five boycott-related requests, all more or less similar to this request to provide:

[a] [c]ertificate issued by the owners, agents or master of the vessel carrying the goods stating that the vessel carrying the goods is allowed to enter the Arab port as per laws and regulations of such states.

Seasoned readers of this blog who read this post back in 2008 will immediately recognize the problem — the word “agent.” As we noted in that post, under Supplement 1 to the antiboycott rules:

the owner, charterer, or master of a vessel may certify that the vessel is “eligible” or “otherwise eligible” to enter into the ports of a boycotting country in conformity with its laws and regulations.

This would prevent a certification from an agent, but since United Source One isn’t accused with complying with the boycott, it is clear that the certificate must have come, if actually supplied, from the owner, charterer or master of the vessel.

But even if United Source One didn’t provide prohibited boycott information, these is still the question as to whether the request was reportable. Under section 760.5(a)(5)(viii) of the antiboycott rules, an exporter need not report:

A request to supply a certificate by the owner, master, charterer, or any employee thereof, that a vessel, aircraft, truck or any other mode of transportation is eligible, otherwise eligible, permitted, or allowed to enter, or not restricted from entering, a particular port, country, or group of countries pursuant to the laws, rules, or regulations of that port, country, or group of countries.

Since the request went beyond a certificate by the owner, master, charterer, or any employee and permitted a certification from the agent. The operative logic here (and I use the word “logic” very loosely here) is that if the agent makes the certification this is not a certification that the agent is complying with the laws of the country involved but is instead a certification that the agent isn’t doing business with anyone subject to the boycott.

Don’t try to spend too much time trying to make sense of this distinction unless you want to risk having your brain explode.


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Copyright © 2010 Clif Burns. All Rights Reserved.
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Although BIS may allow a non-agent vessel certificate, it is doubtful that the IRS permits it. See IRS guidance M-10. The possible penalties under the IRS statute can far exceed BIS penalties. This is one of several instances in which BIS and IRS boycott administration is in conflict. BIS has better outreach, but readers ignore the IRS rules at their companies’ potential peril.

Comment by YM Hilst on May 18th, 2010 @ 11:29 am

The operative [il]logic is that an agent’s certification is not a self-certification, and the exception is only for self-certification. I’ve always thought this rule was nonsense. Long ago, I tried to convince OAC that in maritime law, the ship’s agent has a much closer identity to the vessel than in the normal relation of agent to principal in common law and should be included within the exception. Obviously, they didn’t buy.

It will be interesting to see how the anti-boycott regs fare under Eric Hirschhorn: Long ago, Eric wrote an article that argued, correctly, that the information furnishing provisions of the antiboycott regulations could not be supported by IEEPA after expiration of the EAA because the Berman Amendment excluded all information furnishing restrictions not authorized by either Sections 5 or 6 of the EAA, whereas the boycott information furnishing prohibitions were authorized by Section 8. Since that article, the provisions of the Berman Amendment were actually expanded and reenforced by the Free Trade in Ideas Act of 1994, so it is clearer than ever that OAC’s information furnishing prohibitions are contrary to law.

Even in the absence of the statute, it is unlikely that the pure information furnishing prohibitions, not connected to an actual illegal agreement to boycott Israel or blacklisted persons, would withstand First Amendment scrutiny. The Baldridge case in the 8th Circuit was decided before the now rather long line of SCOTUS cases (e.g., Rubin v. 44 Liquors) narrowing the supposed commercial exception to the First Amendment. If the government can’t prohibit crush videos, I suspect that prohibiting the expression of “accurate and not misleading” business information, most of which can be readily ascertained through open media such as the internet, would not survive the current Court.

Comment by Hillbilly on May 18th, 2010 @ 1:33 pm

If I am not mistaken there is established precedence that allows for reciept of this type of request without making a report since the agent can very well be a bonefide agent of the owner or master, however must appropriately affix the signature and state so.

On the other hand, if the party is routinely receiving this type of request, forwarding it to an unauthorize agent who signs it not having the bonefide status and returns it to the requester for processing, it would likely cause the mentioned “one-word” expense.

Some of the facts probably get lost in the transation from “here is my check, but I admit to no wrongdoing”.

Comment by Mike Liberto on May 19th, 2010 @ 5:33 pm