Foreign Country Boycotts and Letter of Credit
Question
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?
Answers
Explanations
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A. B. C. D.B
This scenario involves a letter of credit transaction between a foreign country, Country A, and a U.S. corporation, ABC, with the involvement of two banks: Overseas, Inc. and First National Bank. The letter of credit specifies that ABC must certify that it does not do business with Country B, which is currently boycotted by Country A. The telegram sent by Overseas, Inc. to First National Bank does not state the boycott provisions.
In this scenario, First National Bank has several options:
A. First National Bank must confirm it if it previously agreed to do so. If First National Bank had previously agreed to confirm the letter of credit, it must do so as long as the terms and conditions are in order. However, the bank should also consider the potential risks involved in the transaction, particularly with regard to the boycott provisions.
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. If First National Bank decides not to confirm the letter of credit, it may still advise ABC of the existence of the letter of credit and facilitate its disposal. However, the bank must also report the transaction to the Department of Commerce and the IRS due to the potential violation of U.S. boycott regulations.
C. First National Bank may do nothing but return the letter of credit to the issuing bank and report to the IRS. If First National Bank chooses not to confirm the letter of credit and decides not to advise ABC or facilitate its disposal, it may simply return the letter of credit to the issuing bank. The bank should also report the transaction to the IRS as required by U.S. boycott regulations.
D. First National Bank must confirm the letter of credit but should also report it to the Department of Commerce. If First National Bank decides to confirm the letter of credit, it must also report the transaction to the Department of Commerce to ensure compliance with U.S. boycott regulations.
In summary, the options available to First National Bank in this scenario depend on the bank's previous agreement to confirm the letter of credit and its assessment of the potential risks and compliance issues involved in the transaction. The bank must also consider its obligations under U.S. boycott regulations and may need to report the transaction to the relevant authorities.
