United 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.

Perhaps 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.

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.]

The Texas subsidiary of German logistics and transportation provider Rohde & Liesenfeld agreed to pay $108,000 to settle charges by the Burea of Industry and Security (“BIS”) that Rohde & Liesenfeld had committed 36 violations of BIS’s antiboycott regulations. Those regulations are a response to the Arab League boycott of Israel and forbid U.S. persons from providing information concerning its or another person’s business relationships with or in a boycotted country.

According to the charging documents, Rohde & Liesenfeld supplied to Al Furat Petroleum, on 36 occasions, invoices from Tropwind Trading Ltd. containing the phrase

We certify that the goods enumerated in this Invoice are not of Israeli origin and do not contain any Israeli materials.

The problem here is that the invoice was supplying a negative certificate of origin, even though section 760.3(c) of the Export Administration Regulations (the “EAR”) makes clear that a U.S. person, in connection with an export to a boycotting country, may only supply a positive certificate of origin stating where the product originates. A negative certificate of origin certifying where the product does not come from is prohibited.

The problem here is that there is another requirement for a violation of the anti-boycott regulations which does not appear to have been met. Section 760.1(e) of the EAR requires that the information be furnished “with intent to comply with, further, or support an unsanctioned foreign boycott.” Here, although it seems clear that Tropwind made the negative certification with such intent, Tropwind is not a U.S. person and isn’t subject to the regulations.

The case for intent against Rohde & Liesenfeld is a bit shakier. A logistics provider does not necessarily inspect all the shipping documents, and if Rohde & Liesenfeld was unaware of this negative certification in the invoice, it’s delivery of the invoice with the shipping documents wouldn’t constitute intent. There is nothing to suggest whether the clause at issues was conspicuous and on the face of the document or buried among the 6 point terms and conditions printed on the back of the invoice If BIS is seeking to impose liability on freight forwarders, logistics providers, and the like, it should provide some notice to the export community in the settlement documents of the basis for its finding that the freight forwarder or logistics provider had an intent to comply with the boycott.