Did First National Bank Participate in a Boycott? Must the Bank Report the Action to the IRS?
Question
ABC Co. signed a contract to export goods to Country M, a boycotting country. Payment will be made by a letter of credit confirmed by First National Bank. The letter of credit requires ABC Co. to certify that none of its directors are nationals of any country boycotted by Country M before ABC can be paid. First National
Bank confirms the letter of credit to ABC after determining that all of the documents are in order. Did First National Bank participate in a boycott, and must the bank report the action to the IRS?
Answers
Explanations
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A. B. C. D.B
The answer to this question is D. Yes, but no reporting requirements were triggered.
The scenario presented in this question involves a letter of credit issued by First National Bank, which has confirmed the credit after ensuring that all the required documents are in order. The letter of credit includes a clause requiring ABC Co. to certify that none of its directors are nationals of any country boycotted by Country M before payment can be made.
In this situation, First National Bank has not participated in the boycott because the bank has not taken any action that furthers or supports the boycott. The bank's role is merely to act as a confirming bank for the letter of credit, which is a standard financial instrument used in international trade. The bank's action in this scenario is only ministerial because it is merely verifying that the documents are in order before confirming the credit.
Moreover, the reporting requirements under the Export Administration Regulations (EAR) are triggered only if a U.S. person takes an action that further or supports a boycott. In this case, ABC Co. is the U.S. person required to certify that none of its directors are nationals of any boycotted country before payment can be made. Thus, ABC Co. is the entity responsible for reporting to the IRS if the certification is made.
In conclusion, First National Bank has not participated in the boycott, and there is no reporting requirement triggered for the bank under the EAR. However, ABC Co. is required to certify that none of its directors are nationals of any boycotted country and may be subject to reporting requirements under the EAR.
