Archive for the ‘Anti-Boycott’ Category


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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Aug

28

What A Difference A Word Makes


Posted by Clif Burns at 6:34 pm on August 28, 2012
Category: Anti-BoycottBIS

Polk Audio HQ
ABOVE: Polk Audio HQ

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. Polk Audio could have saved itself the $8,000 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.

Polk was charged with two violations. The first involved Polk itself certifying, as agent for the carrier, that a vessel was allowed to enter the “ports of Arab States/Oman.” The second involved receiving, and not reporting, a letter of credit that demanded a certification from the “owners, agents or master” that the vessel was allowed to enter the “ports of Arab States/Oman.” Once again, an exporter got in trouble for not knowing that the agent couldn’t supply the information and that a request for an agent 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.

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May

17

One Word Costs a Company $19,800


Posted by Clif Burns 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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Oct

14

Think Positive


Posted by Clif Burns at 7:31 pm on October 14, 2009
Category: Anti-Boycott

Boycotting the BoycottPerhaps in order to remind everyone that it still exists, the the Bureau of Industry and Security’s Office of Anti-Boycott Compliance (“OAC”) issued a warning letter to CENTRIA, a manufacturer of building enclosure systems based in Moon Township, Pennsylvania. According to the letter, CENTRIA supplied to its freight forwarder a commercial invoice with the following language:

THE GOODS SHIPPED ARE NOT OF ISRAELI ORIGIN NOR DO THEY CONTAIN ANY ISRAELI MATERIALS. THEY ARE NOT DESIGNATED TO VISIT ANY ISRAELI PORTS NOR ARE THEY EXPORTED FROM ISRAEL. THEY ARE OF USA ORIGIN.

The OAC said it was closing the matter with just a warning letter because CENTRIA had voluntarily disclosed the violation.

As usual, the OAC provided little commentary as to why this language was problematic and merely asserted simply that “Section 760.2(d) of the Regulations prohibits providing such information.” OAC’s bare bones explanation is certainly not the result of OAC being too busy to spend the time explaining its reasoning. Perhaps it’s an admission that the Anti-Boycott regulations, with their 101 pages of densely packed legalese and eleventy trillion or so hypothetical examples of what’s naughty and what’s nice, are simply too complex to explain and summarize in any meaningful sense in less than, well, a hundred or so pages.

The problem here is that the absence of such an explanation, even a brief one, might give the wrong impression to exporters. The letter could be read as saying that the regulations prohibit supplying the information that the goods are made in the U.S.A. The warning letter might have at least provided an explanation of the difference between a negative certificate of origin (mostly naughty) and a positive certificate of origin (mostly nice). A positive certificate of origin is generally acceptable unless the person supplying that certificate knows that it is being used to enforce a boycott as, for example, when the request for the positive certificate comes from an anti-boycott compliance office of an Arab League country.

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Oct

28

BIS Fries Rice


Posted by Clif Burns 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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