Country A (a foreign country that is boycotting Country B, another foreign country) has ordered goods from ABC, a U.S. corporation. Country A has opened a letter of credit with Overseas, Inc., a foreign bank. The letter of credit specifies that ABC must certify that it does not do business with Country B. Overseas, Inc., sends a telegram to First National Bank, a U.S. bank, stating the major terms and conditions of the letter of credit and asking First National Bank to confirm the letter of credit. The telegram does not state the boycott provisions. Overseas mails the letter of credit to First National Bank and asks First National Bank to confirm it.
What may First National Bank do?
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A. B. C. D.B
The scenario presented involves a letter of credit transaction where Country A has ordered goods from ABC, a U.S. corporation, and has opened a letter of credit with Overseas, Inc., a foreign bank. The letter of credit includes a boycott provision requiring ABC to certify that it does not do business with Country B, which is the subject of a boycott by Country A.
Overseas, Inc. sends a telegram to First National Bank, a U.S. bank, informing it of the major terms and conditions of the letter of credit and requesting confirmation of the letter of credit. However, the telegram does not mention the boycott provision.
In this situation, First National Bank has a number of options. Let's consider each of the answers provided and their implications:
A. First National Bank must confirm it if it previously agreed to do so. This answer suggests that if First National Bank previously agreed to confirm the letter of credit, it must do so. However, it does not provide guidance on how to handle the boycott provision or any reporting requirements.
B. First National Bank may advise ABC of the letter of credit and administer its disposal, but may not confirm it and must report it to the Department of Commerce and the IRS. This answer suggests that First National Bank may not confirm the letter of credit due to the boycott provision. Instead, it may advise ABC of the letter of credit and administer its disposal, but must report the transaction to the Department of Commerce and the IRS. This is because the boycott provision violates U.S. antiboycott laws, which prohibit U.S. persons from participating in foreign boycotts that the U.S. government does not support. Reporting the transaction to the Department of Commerce and the IRS is required by law.
C. First National Bank may do nothing but return the letter of credit to the issuing bank and report to the IRS. This answer suggests that First National Bank may simply return the letter of credit to the issuing bank without taking any further action. However, this does not address the boycott provision or any reporting requirements. As noted in answer B, reporting the transaction to the Department of Commerce and the IRS is required by law.
D. First National Bank must confirm the letter of credit but should also report it to the Department of Commerce. This answer suggests that First National Bank must confirm the letter of credit, even though it includes a boycott provision. However, it also advises reporting the transaction to the Department of Commerce, which is consistent with U.S. antiboycott laws.
In summary, the correct answer is likely B, as it acknowledges the antiboycott laws and reporting requirements while providing a course of action for administering the letter of credit. Answer D is also possible, but it does not acknowledge the antiboycott laws and may not fully address the situation. Answers A and C do not adequately address the situation or the legal requirements.