Dec

5

It’s Déjà Vu All Over Again


Posted by Clif Burns at 5:00 pm on December 5, 2013
Category: Anti-Boycott

TMX Shipping [Source: Google Maps]
ABOVE: TMX Shipping Office


Here’s the thing: you can save yourself money if you read this blog. You can certainly avoid paying money to the Office of Antiboycott Compliance (“OAC”) at the Bureau of Industry and Security (“BIS”) if you read this blog. TMX Shipping could have saved itself the $36,800 penalty, announced here, that it paid OAC if it had read this blog.

The OAC is a vestigial appendage over at BIS which arguably had no further right to exist after the expiration and non-renewal of the Export Administration Act. It is doubtful that the President can rely on any emergency to justify resurrecting OAC from the dead by an executive order under IEEPA as each president has done since the EAA expired. Accordingly, OAC keeps a low profile and never fines anyone enough to make it financially worthwhile for an exporter to pop into court and challenge its statutory authority. And, it seems that OAC fines exporters for one simple, but obscure, violation over and over and over. We have reported on this many times, including here and here.

The grave sin at issue involves certifications that ships are entitled to enter certain ports. Some Arab League countries don’t permit ships to enter their ports if the ship has previously entered a port in Israel. The thing is there are exceptions from the non-compliance and reporting requirements precisely for such certifications. 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.

And 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.

The catch here is that only an owner, master or charterer of the vessel may supply that information. An agent of the owner, master or charterer may not supply that information and a request that an agent supply that information (even if it is ultimately supplied by the owner, master, or charterer) must be reported.

TMX Shipping was charged with two violations. The first involved TMX itself certifying, as a freight forwarder, on four occassions that a vessel was allowed to enter the ports of Kuwait, the ports of Bahrain, all Arab Ports, and the “port of destination.” The second involved receiving, and not reporting, eleven letters of credit that demanded a certification from the “captain, owner or agent” (or similar language) that the vessel was allowed to enter various ports of boycotting countries. Once again, the company got in trouble for not knowing that a freight forwarder couldn’t supply the information and that a request for an agent of the ship owner to supply the information was reportable.

This is just about all that OAC nails people for anymore, so repeat after me: “Agents can’t certify that ships are allowed to enter Arab Ports.” Now say that to everyone in your company. If everybody gets this message, the folks at OAC will have nothing left to do but play Words With Friends and update their Facebook pages.

And just to make my point that this vessel certification anti-boycott issue is one that occurs over and over again, you may have the feeling that you read this post already. And you have: this is an exact copy of a post that appeared on August 28, 2012 with the exception of the paragraph above in italics where the facts surrounding the identical Polk Audio violation described in the 2012 post have been changed to the facts surrounding the TMX Shipping violation recently reported by OAC. I’ve said it before and I’ll say it again (and again). “Agents and freight forwarders cannot certify that ships are allowed to enter boycotting Arab ports; only the owner, charterer or master can.” Here’s an idea: at this year’s holiday party, don’t give anyone a drink unless they first memorize and repeat that sentence to the bartender, okay?

UPDATE: My colleague Stan Marcuss astutely pointed out that while BIS provides that under its rules the “owner, charterer or master” of a vessel may certify that a vessel is eligible to enter into the port of a boycotting country, such a certification might in fact violate IRS rules under Section 999 of the Internal Revenue Code. (See Guideline M-10 of the IRS’s guidelines relating to international boycotts.)  In those cases, companies making the certification permitted by BIS might be deprived of certain tax benefits under IRS rules.  So remember this: just because one agency says you may do something does not mean another agency might not punish you for doing it.

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3 Comments:


Why is it so hard to understand that it is unlawful for lawfully appointed agents (whose basic duties include the preparation and execution of logistics paperwork for exporters and importers) to furnish perfectly accurate port eligibility certifications for a dozen or so boycotting countries, a few of which the antiboycott regulations mention sporadically, but none of which appear on any sort of comprehensive list anywhere in Part 760 of the EAR?

Sheesh, people. It’s not rocket science.*

*That’s ITAR-controlled.

Comment by Pat on December 6th, 2013 @ 1:34 pm

Brother Burns: While I quite agree that the language of IEEPA, 50 USC 1701 and 1702(a), doesn’t support a continuation of the Antiboycott Regulations, there are two even bigger holes: The Free Trade in Ideas Act, codified at 50 USC 1702(b)(3), which excepts from controls under IEEPA exports “of any information or informational materials,” unless controlled under Sections 5 and 6 of the now expired Export Administration Act. The antiboycott regulations were authorized by Section 8 of the EAA. Therefore, there is no statutory authority for continuation of the antiboycott regulations. The Administrative Procedures Act at 5 USC 558(b), as well as some still good Supreme Court cases from the New Deal era, provides that an agency can issue no substantive rule except under specific statutory authority.

The other big hole is the First Amendment. The antiboycott prohibitions on furnishing of information are clearly content-based prior restraints on expression which are subject to strict scrutiny, which almost always fail to survive review. The commercial speech exception relied upon in Baldridge case in the 8th Circuit 35 years ago has long ago been narrowed by successive Supreme Court decisions. Without a specific statutory basis, it is doubtful that the antiboycott regulations would have survived the review even under the commercial exception relied upon in Baldridge.

If Congress can’t get its act together to pass a new EAA, with findings related to the boycott, OAC by law ought to fold up shop.

I’ll miss you folks.

Comment by Hillbilly on December 6th, 2013 @ 3:06 pm

As always, I find the commentary here equal parts illuminating and irreverent. And while I take your points about the continued viability of what is now Part 760, I have a soft spot in my heart for OAC as I began my legal career there under Bill Skidmore and the late, great Dexter Price. Those were the glory days of Baxter and L’Oreal, when we could wheedle six and seven figure penalties out of hapless banks, forwarders, and oilfield service companies for things like “passive” refusal to do business. Now they seem limited exclusively to the vessel eligibility “gotcha” game…. Good times. John

Comment by John Pisa-Relli on December 13th, 2013 @ 4:02 am