BIS Fries Rice

Posted by at 3:43 pm on October 28, 2008
Category: Anti-Boycott

White RiceThe Office of Antiboycott Compliance of the Bureau of Industry and Security (“BIS”) released a settlement agreement that it recently entered into with American Rice, Inc., pursuant to which American Rice agreed to pay $30,000 to settle charges that American Rice failed to report 15 instances of requests that the company engage in a prohibited boycott of a foreign country. In particular, BIS alleged that on 15 separate occasions, American Rice failed to report that in connection with exports of rice to the United Arab Emirates it had been requested in a letter of credit issued by a UAE bank to supply a “certificate issued by owner/master or agent stating that the ship is allowed by the Arab authorities to call at Arabian ports.”

The failure to report this request does appear to violate the anti-boycott rules, but only as a result of an excessively narrow and technical reading of the rules. Of course, the interpretation of the lengthy and detailed anti-boycott rules requires the patience of Talmudic scholar or a medieval casuist and is a task that has been known to reduce grown men and women to tears. But let’s make a stab at it.

The charges here were for failure to report, so it is important to remember that a failure to report can be a violation of the rules even in instances where the exporter could legally supply the information. 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.

However, 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.

So why doesn’t this exclusion from the reporting requirement apply? It would appear that it doesn’t apply because the request could have been satisfied by a certificate from an “agent” and not just by a certificate from “the owner, master, charterer, or any employee” of the vessel. That certainly seems to be a narrow and technical distinction on which to premise a $30,000 fine, but that is what appears to have happened here.

And there are additional nitpicks which would prevent the exemption from applying. The request refers to Arab authorities and Arabian ports although BIS has apparently said that “Arab” doesn’t refer to a “group of countries” within the meaning of the exception. Additionally, the language requesting the certificate didn’t track the exemption inasmuch as it did not add the qualification that the vessel wasn’t restricted “pursuant to the laws, rules, or regulations of” the countries involved.

In short, exporters can only safely rely on the reporting exceptions in section 760.5(a)(5) if the language tracks the wording of the exception virtually word for word.

[Thanks to Doug Jacobson for confirming that, in his view, the addition of the word “agent” to the boycott information request led to the exporter’s downfall here.]


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Copyright © 2008 Clif Burns. All Rights Reserved.
(No republication, syndication or use permitted without my consent.)


This pin dance has been around for a quite a spell. Once upon a time, long, long ago, OAC came near to recognizing that ship’s agents perform special functions in maritime law that are broader and more closely connected to the vessel than agents as defined by common law, as in the Restatement. But the old fear of the slippery slope argument ultimately won the day.

Comment by Mike Deal on October 28th, 2008 @ 5:12 pm

Narrow, indeed! On the surface, the request does not appear to be exclusionary – excluding a particular country – but rather inclusionary, like a certificate of origin saying that the goods were from a particular country of origin.

On the other hand, it is close enough to warrant further investigation, perhaps calling in legal counsel.

Comment by Jim Dickeson on October 28th, 2008 @ 11:43 pm

Jim, I don’t have a problem with saying that the language that the vessel can enter all Arabian ports is clearly related to participation in the Arab League boycott against Israel. What troubles me is that the reference to an “agent” in the certificate request created the problem, particularly where the request was for a certificate from the “owner/master or agent”

Worse yet, under agency law a representation from an agent of the owner is a legally-binding representation of the owner and is in all other legal respects completely equivalent to a representation from the owner . . . except, apparently, in Anti-Boycott-Land.

The lesson here is that documents should track 760.5(a)(5) virtually word-for-word; and if they don’t, they should be reported.

Comment by Clif Burns on October 29th, 2008 @ 7:30 am

OAC makes the distinction on the notion that the agent is being asked to provide information about “another person’s” relationship. In an era when most vessels are separately incorporated, in effect subsidiaries of the owners, ocean carriers who are the beneficial owners of vessels must be careful or they may get caught up in the same net.

Comment by Mike Deal on October 29th, 2008 @ 7:53 am

That’s why I’m so glad to be European!

According to European Standards, the clause would have been okay because it is not containing a direct boykott clause.

So American Rice, why don’t you become European Rice
;-)) !!

IMHO the judgement is not just narrow, it’s dumb and violating American interests.

The applicant needs to know that the ship is able to unload in the UAE port and the parties involved in the credit need protection from such costly nonsense.

Of course we cannot allow an Anti-Israeli-boykott by confirming that the ship doesn’t call at Israeli ports. But the used clause seems to be fair – even if the Arab-Liga-boykott itself might not be so.

All the best


Comment by Frammi on October 30th, 2008 @ 5:35 pm

The rules are simple.

Asking another person to particpate in boycott is prohibited. Asking for a certificate from an “agent” could provoke such agent to issue the certificate. It is a reportable request.

The request can be reported as per EAR, and the document issued only by the “owner” (as also suggested by the request) and compliance with law, contract and bank L/C’s can be established.

Happy Exporting

Comment by Mike Liberto on October 31st, 2008 @ 12:38 pm