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The 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.]
Some interesting news today on the sanctions front, so it’s time for another Export Law Blog grab bag:
The Office of Foreign Assets Control (“OFAC”) today 
Country-based sanctions start to get leaky in the age of the Internet. How does a software download service know whether or not it’s providing a service to an individual in a sanctioned country?
